The Electricity Regulatory Index is a composite index that measures the level of development of electricity sector regulatory frameworks in African countries against international standards and best practice. It is composed of the following three pillars:
The Regulatory Governance Index (RGI)
assesses the extent to which the laws, procedures, standards and policies governing the electricity sector provide for a transparent, predictable and credible regulatory framework that meets international standards. The RGI thus assesses the institutional and legal design of the regulatory framework, within which regulatory decisions are made. It is composed of eight indicators.
The Regulatory Substance Index (RSI)
evaluates how well electricity sector regulators are carrying out their mandate and implementing the practices and processes that affect regulatory outcomes. The RSI assesses the content of the regulations and actual decisions implemented by regulators. It is made up of seven indicators. The RGI and the RSI together assess the effectiveness of the regulatory environment to support electricity sector performance, promote efficiency and fulfill national objectives.
The Electricity Regulatory Index for Governance and Substance (ERIgs)
is calculated by averaging the aggregate scores on the RGI and RSI. The RGI and the RSI together assess the effectiveness of a regulatory environment to support electricity sector reforms, promote efficiency and fulfill national objectives. The ERIgs provides important insight into national regulatory development, without recourse to the effects of the regulatory actions and decisions on the sector.
The Regulatory Outcome Index (ROI)
measures, from the perspectives of distribution utility companies and/or consumers, the degree to which the regulator has a positive or negative impact on the sector. The ROI assesses how regulatory actions and decisions can achieve the expected results for the sector. The ROI is calculated from an aggregation of survey responses from the electricity distribution utilities and power consumers. The ROI for utility comprises three sub-indicators. Figure below highlights the main thematic questions and considerations around which the RGI, RSI and ROI are constructed.
Construction of the ERI
The ERI scores were calculated based on responses to comprehensive surveys distributed to electricity sector regulatory institutions, and utilities in 45 African countries with confirmed regulatory authorities. Out of the 45 countries surveyed, responses were received from 44 regulatory agencies, two from Ghana, bringing the number of countries from where valid responses were received to 43. Responses were also received from 45 regulated utilities from 40 countries. The data set from utilities from three4 countries that participated in 2020, but which had not submitted responses by the close of the survey was used for ERI 2021. The resulting data and analysis are therefore based on a sample of 43 countries, for which the complete sets of data were available.
The indicators for Regulatory Governance and Regulatory Substance were used to construct the ERI for Governance and Substance (ERIGS) using primary data obtained from questionnaires sent to regulators. This preliminary calculation also provides important insights into national regulatory development, without considering the effects of regulatory action on the sector.
A regulatory outcome assessment was also carried out to ascertain the effect of each regulator’s decisions and actions on the performance of the power utilities that it regulates and ultimately on the sector. The Regulatory Outcome Index (ROI) captures the results of this analysis. The ROI was based on primary information obtained from completed questionnaires submitted by power utilities. The results from ERIGS and ROI were combined to determine the ERI.
The ERI for Governance and Substance (ERIgs) was calculated by aggregating the results of RGI and RSI as follows: ERIGS = (α x RGI) + (β x RSI)
Where: ERIgs = Electricity Regulatory Index (Governance and Substance) α = Weight for RGI = 1/2 β = Weight for RSI = 1/2 RGI = Regulatory Governance Index RSI = Regulatory Substance Index
The ERI was calculated by aggregating the results of ERIgs and ROI using the geometric mean of the two values as follows: ERI = (ERIgs x ROI)1/2
Where: ROI = Regulatory Outcome Index
Based on the responses to the questionnaires, each indicator in the sub-indices is assigned a score between 0.000 and 1.000. A score of 1.000 indicates that the regulator and/or the national regulatory framework conform(s) to international best practice with regard to the relevant indicator. A score of 0.000 signifies a lack of alignment with international best practice. The RGI, RSI and ROI sub-indices are calculated based on a simple average of their underlying indicators. Given this, cumulative scores of the RGI, RSI and ROI, as well as the overall ERI score, which also range from 0.000 to 1.000, with the same implications given above. The figure below illustrates the classification of scores for ERI.
Changes in Methodology in 2021
The ERI methodology has evolved and strengthened over the years. Questions were elaborated and a few new additional questions were included in the ERI 2021 survey. Although the number of total indicators in the ERI remained 18 in ERI 2020 and ERI 2021 the following are the main changes between ERI 2020 and ERI 2021:
- Revision of the regulatory survey questionnaire to simplify questions to facilitate understanding of the respondents
- Expansion of the utility survey questionnaire to include similar questions from the regulatory authority questionnaire that enable comparison and confirmation of the level of development of the regulatory framework from the perspectives of both regulatory authorities and distribution utilities.
The ERI for Africa is not an assessment of the level of development of the electricity sector of a country. As defined earlier, the ERI utilizes evidence of the existence of policy and regulatory frameworks to measure the level of development of a country’s regulatory environment. Even though robust regulatory regimes catalyze sector development, these frameworks will not necessarily translate into sector developments without consistent enforcement and compliance by stakeholders among other various exogenous factors. While the existence of the requisite regulatory frameworks does not directly translate into strong sector development, similarly, a highly developed and vibrant electricity sector in a country does not necessarily indicate the existence of a robust regulatory regime. The performance of the sector depends on numerous factors in addition to the regulatory regime.
The purpose of the survey was to solicit information based on regulations, codes and protocols that have been approved by the relevant authorities and application of those regulations. Therefore, the responses to the same or similar questions were expected to be the same. However, changes in the composition of questions could lead to different interpretation by different respondents from year to year and, thus, introduce human errors, which in most cases would depend on the knowledge and experience of the respondent. The process of soliciting proof/evidence from individual respondents has led to achieving more clarity and consistency in the data provided.
The evolution of the ERI methodology, elaboration and streamlining of the questionnaire also results in the addition of a few new additional questions. Consequently, the weights of some scores within the sub-indices have changed to reflect their relevance in utility regulation and administration.
Expansion in the number of participating countries from year to year leads to swings and movements of countries as the number of countries change and countries with stronger or weaker regulatory frameworks are added to the sample. The ERI formula is based on a composite of the regulatory governance index, regulatory substance index and the regulatory outcome index (see the formula above).