Support Study for DFID. Low Carbon Mini Grids. “Identifying the gaps and building the evidence base on low carbon mini-grids”. Final Report.
This report represents the final report on the support study on “Identifying the gaps and building the evidence base on low carbon mini-grids”. The review forms part of a preliminary initiative of DFID to promote Green Mini-Grids (GMG) in Africa under the International Climate Fund (ICF) with the objective of providing guidance and recommendations for DFID intervention and programme implementation.
The report is structured in 8 chapters:
Chapter 1, International Review of Mini-Grids and Data Collection, provides an overview of the technologies, and of implementation schemes. The reality of the target countries is that while there are a number of diesel based mini-grids run either by private operators with low service and high cost, outside any regulated framework, and some run through various forms of Public Private Partnerships, there are extremely few Green Mini-Grids. Some Renewable Energy Power Generation operations are found to be for self-consumption or feeding into the grid, but very seldom for powering a Mini-Grid isolated from the interconnected network. Therefore there is, in reality, very little actual evidence to build on.
Chapter 2, Relevance of Mini-Grid Solutions, proposes an approach to help the planner identify whether in a given country/region, Mini-Grids – and further Green Mini-Grids are a viable option for access to electricity services. These mini-grid areas are those which will remain out reach of the interconnected grid for a few years to come, and yet where there is sufficient load density to ensure the economic viability of a mini-grid (as opposed to those areas where stand-alone individual/community systems are the most relevant). The objective here is to establish whether there is a sufficient volume benefitting a sizable population, which justifies the development of the whole, complex value chain – technology, skills, business models, etc.
Chapter 3, Cost Benefit Modelling, confirms once again the benefits of electrification from an economic perspective, which is that of the society as a whole and in a long term view. From the point of view of society, benefits of access to electricity widely exceed that of “greenness” per se in the country context of this study. It also remains that these Green Mini-Grids are capital intensive but viable in the long term, also looking into the fact that we are on a learning curve. Case studies will illustrate that we are sometimes borderline in terms of comparison to fossil fuels, but considering the dynamics of rising fossil fuel prices, cost of environmental degradation and the fact that renewables are becoming cheaper and more reliable, GMG should definitely be considered.
Chapter 4, Financial Schemes and Modelling, highlights that GMG investment returns generally do not match private sector expectations in terms of returns, pay back and risk. Government-led programmes are being – albeit modestly- observed, because this requires a significant outlay of capital upfront, and most countries would naturally prioritised grid extension which maximises the number of connections per € spent. Hence, there clearly is a need for financial engineering to bridge the gap between economic viability from the society’s perspective and profitability from the investor’s perspective.
Chapter 5, Best Practices for Implementation and Operational Management, actually offers some examples and good practices of implementation. “Best practices”, given the reality of the number of schemes actually implemented, is a total overstatement. The two key entry points of the analysis here is that Green Power Generation Activity for a mini-grid has to be distinguished from the Distribution activity – involving customer management. In some cases, one may have a single player. Field evidence shows that this is not the case as companies interested in the generation side, are more often than not is a separate entity from distributors with the local contacts. They want a (reliable) off taker, who can be a DISCO (distribution company), a distribution cooperative, or large anchor customers. Aside from that, the risks and returns of distribution in a mini-grid are very different from Small Green Power generation. One structure undertaking the two activities is observed in the case of much smaller micro grids, or low tech village level approach – which is a very relevant but different market segment.
Chapter 6 National Policies, Regulatory and Financial Frameworks shows that formulating without a vision, strategy, quantified plan and political commitment, GMG stand little chance of broad expansion beyond pilot projects. Once this foundation is established, the legal basis, authorisation, procedures, and transparency should be worked out, further offering the incentives required for GMG to take off (i.e. fiscal, financial, tax). Field reality shows us that this is starting in countries which are already well advanced in grid expansion for rural electrification. In countries where grid expansion still offers a significant potential, policy makers will look at mini-grids only as “pilots” to learn from in preparation for a future phase.
Chapter 7 on Smart Technologies and Innovative Energy Storage provides a quick perspective on the very promising technology developments, which is a strong argument in favour of making efforts to bridge the gap between economic and financial viability.
Chapter 8, GMG Development Programme is the final chapter of the report which suggests countries for priority intervention given DFID goals, and the types of interventions which would be most effective in scaling up the number of GMG from demonstrations to programmes.
Innovation Energie Développement (IED). Support Study for DFID. Low Carbon Mini Grids. &#8220;Identifying the gaps and building the evidence base on low carbon mini-grids&#8221;. Final Report. Innovation Energie Développement, Francheville, France (2013) 20 pp.