Expert Q&A: Mark Oven Discusses Energy Projects Implementation in Developing Countries
Mark Oven’s life’s work has been dedicated to improving energy in developing countries. He has been at the forefront of energy project implementation since 1986. Mr. Oven has provided oversight and quality control on more than 20 major projects for various government agencies and development organizations, including the U.S. Agency for International Development, Inter-American Development Bank, and Millennium Challenge Corporation. His energy sector reform project work has included supporting industrial and commercial clients in Asia, Africa, the Americas, and Eastern Europe.
Mr. Oven’s experience includes managing field-based projects with complex logistical and administrative aspects and multi-cultural teams, and managing the development of project deliverables essential for successful contract performance. In addition to his program management and technical advisory skills, he has designed clean energy courses and workshops that have trained thousands of energy engineers around the world. Mr. Oven holds a Master of Science degree in Mechanical and Aerospace Engineering from Cornell University and a Bachelor of Science degree in Mechanical Engineering from Santa Clara University.
What are some of the energy challenges facing developing countries?
Developing countries are challenged to provide enough electricity to meet the demand from people, businesses, industries, and government—while also providing power at an affordable price. Developing countries have high population growth, and many have high economic growth, but supplying sufficient energy to maintain this growth can be difficult and expensive. These countries need significant investments in generation, transmission, and distribution to maintain, repair, upgrade, and expand their electricity infrastructure just to support the continuing growth in demand. Government utilities do not have the capacity to make all the needed investments, and the private sector is risk averse with respect to investments in countries where they perceive a lack of transparency.
Lack of investment means that developing countries often have old, poorly maintained equipment, resulting in high generation costs. As a result, most of them subsidize the excessive cost of electricity to make it affordable for consumers. This generally causes the electricity companies to operate at a monetary loss. They must eventually be bailed out by the government, draining funds that could have been better used for productive investments.
This is a bit of a vicious circle: Money is not available, investments are not made, costs go up, and further investments are required. Through our work at Tetra Tech, we are helping provide solutions to remedy these problems and create more accessible and more efficient energy sectors in countries around the world.
How does Tetra Tech address the many facets of improving a country’s energy sector—legal, regulatory, policy, governance, operational, financial, and economic?
These facets are important, and they all jointly contribute to the efficient operation of the sector. Typically, our approach is to begin with an assessment led by experts with years of utility or energy sector experience. This initial information gathering and the analysis of that information helps us to quickly identify potential areas that need attention. We then can develop a plan to address the issues.
Our assessment approach focuses first on the most critical component: sector governance. What legal and regulatory framework underpins the electricity sector’s operation? What are the rules of operation? Is there an independent regulatory entity and can it enforce those rules? Is it an entity in name only? What are its staff capabilities?
Moreover, we look at specific questions regarding utility operations: Who does the planning? Is it the Ministry of Energy? Is it the utility? Who sets the tariffs? Do the tariffs reflect the actual costs of the electricity provided?
At Tetra Tech, we have many tools that we can bring to bear to guide our assessments. One example is financial modeling, which helps us quantitatively analyze issues around tariffs. When looking at electric utilities, we examine key performance indicators, which allows us to evaluate and benchmark a utility against desired performance or against other utilities. Also, we often lay out a roadmap to trace the evolution of a state-owned electric sector to one that operates in a competitive electricity market, including private-sector players. The roadmap is an important way to consult with local stakeholders and help them understand how the sector can evolve, and build support for our recommendations on sector reform.
What is one approach that has been successful in leveraging private sector investment for energy sector improvement?
Private investment is key to helping meet the financing needs of developing country utilities. The development of clear and transparent rules—and the experience of enforcing them—are fundamental. At Tetra Tech, we provide advisory services on transactions, specifically for promoting private investments in various parts of the power sector. We always recommend competitive procurements of power generated by private companies.
One example of how we have supported private sector investment and procurement is our successful, long-term renewable energy auction work. These auctions have been of significant interest to private sector investors in solar and wind energy and have resulted in important levels of private investment and attractively low prices for generated energy.
In Mexico, for example, Tetra Tech guided an inter-institutional working group to support the development and implementation of the country’s first long-term energy auction in late 2015. This auction awarded more than 2,000 megawatts (MW) of projects, with private investment of $2.6 billion and an average price of 4.8 cents per kilowatt hour (kWh). The second auction in 2016 had even better results: almost 3,000 MW of projects with $4 billion of private investment and an average price of 3.4 cents per kWh. Mexico’s third auction in 2017 saw an even lower average price of 2.1 cents per kWh. Tetra Tech has provided input to Mexico’s fourth long-term renewable energy auction, which is slated to begin in April 2018. We also have compiled lessons learned and shared them with the Mexican authorities for input to future auctions.
The excellent results were due to the existence of a clear legal and regulatory framework, and an inter-institutional working group that ensured each agency was on board with the auctions’ development. Our experience with auctions in Mexico, and previously in Guatemala and El Salvador, has resulted in solicitations for Tetra Tech's input in developing renewable energy auctions in countries as diverse as Colombia, Kazakhstan, and Pakistan.
How does energy affect other areas of development, and how is Tetra Tech well-poised to respond?
Energy eventually affects all areas of development, most notably education, agricultural productivity, small businesses, and economic growth. Given Tetra Tech’s wide range of development expertise and experience in these areas, we are well positioned to address and integrate energy issues throughout our development programs.
One example is our support to the U.S. Agency for International Development’s Powering Agriculture initiative. Through this project, we focus on the incubation and acceleration of entrepreneurial start-up companies in the agriculture-energy nexus. Among these projects are solar photovoltaic-powered water pumping and smart irrigation systems to simultaneously reduce pumping costs, optimize crop yields, and save water. Another effort is focused on developing solar- or biomass-powered milk cooling systems. These systems reduce spoilage and allow more time for milk to be delivered to efficient, centralized processing facilities, helping improve incomes for small dairy farmers throughout the developing world.
How can Tetra Tech promote the enabling environments for energy sector reform?
Tetra Tech has extensive experience in energy sector reform, but the necessary reforms must be completed by the government of the country in question. We offer the expertise and experience to assess the specific context, create the roadmap, and help the government and utilities implement it.
Our energy sector experts provide clear advice and leadership in energy sector operation. Their experience and local language capabilities provide the necessary credibility with local stakeholders to implement reforms. We often embed our advisors in the utility to provide on-the-job training and immediate feedback. We also partner with energy lawyers, who draft reform laws and regulations for the government’s consideration.
Tetra Tech also draws on a wealth of experience in designing and implementing new market structures. Our experts advise on structuring the sector and the wholesale electricity market, including third-party access to the grid, to allow the participation of private generators and the competitive acquisition of future energy supply.
Finally, we cannot expect the sector to reform overnight. It is a political process, requiring government commitment. It requires stakeholders to understand and buy in to the reform process. It also requires a champion who is locally respected. This, again, is why an initial assessment and roadmap are important. They provide a common document around which the discussion of issues can formally take place and reach resolution.