Sound regulations are essential to incentivise investors and to protect consumers. While most countries have already sufficient experiences for grid-connected electricity, there is still a relevant gap to have available fit-for-purpose regulations for decentralised clean energy solutions in the developing world. However, without business enabling frameworks the potential for progress is limited!
This is of particular importance as new options for electricity provision emerge and as inadequate or lack of regulatory reforms lead to the slow down of the deployment of clean decentralised energy access. To address this issue, ARE assisted the EUEI PDF to create a Mini-Grid Policy Toolkit, which is a handy book that addresses the available options for regulations that fit to local conditions and interests. Time has obviously moved on since its publication in 2014 and as the policy and regulatory landscape for mini-grids continues to remain highly dynamic, IRENA picked up on the topic again last year.
The Policies & Regulations for Private Sector Renewable Energy Mini-grids, published by IRENA and in close consultation with ARE, was launched in autumn 2016 targeting governments looking to introduce dedicated measures, gain experience and incorporate learning towards a more effective framework for mini-grid development. This is essential to successfully adapt to local conditions and address deployment barriers. The publication points to some general policy and regulatory conditions related to legal provisions, tariff regulation, main grid arrival and financing, to support private sector mini-grids. Interested stakeholders will also find ideas and views relevant to advance the environment for smaller energy access solutions in both publications.
With this in mind, ARE would like to highlight some key recommendations from the IRENA publication to improve the regulatory conditions for private sector mini-grids:
With more than 90% from the 120-strong Membership active in or coming from Africa, we are delighted to draw your attention to the guest editorial by Mr. Daniel Schroth, SEforAll - Africa Hub Coordinator of the African Development Bank who is taking remarkable steps to make the mini-grids/off-grid revolution in Africa a reality.
This summer, we are pleased to welcome nine new companies: ADA, The August Company, ESB International, ESPE Rinnovabili Srl, Hydrobox Cameroun, Renewables in Africa, Rural Spark Energy India, Stimulus and Wind Kinetic. These companies will now benefit from ARE services specifically designed for Africa, Asia and LAC. For those considering joining ARE, feel free to contact me. We look forward to collaborating together!
Last but not least, I’d like to refer you to the design and branding work of ARE Member Revelle Group. Today they are offering to put their design team at the disposal of 'ARE Members and followers’ to help promote their products and services with a particular focus on sustainable energy and energy access. Take up this special offer and get a further 10% off!
Daniel Schroth, SEforAll - Africa Hub Coordinator, African Development Bank
To address Africa’s energy challenges, the Bank launched the New Deal on Energy for Africa, which targets universal energy access in Africa by 2025, five years earlier than SDG 7. The New Deal recognises that this will not be possible through grid extensions alone and therefore includes a target of connecting 75 million through off-grid systems. Accordingly, the Bank has been increasing its focus both on the solar home systems sector – through the “Off-Grid Revolution” launched earlier this year – and the mini-grids sector.
One of the drivers of the AfDB’s mini-grid activities is the Green Mini-Grids Market Development Programmee (GMG MDP) implemented by the SEforALL Africa Hub and funded through the Bank’s Sustainable Energy Fund for Africa (SEFA), which has become a one-stop shop for products and services to stimulate the emerging mini-grids movement.
The MDP provides technical assistance to GMG developers via its Help Desk, currently more than 40 different developers in 20 countries covering all types of technologies. On the Help Desk, you can also find a myriad of reports, tutorials and other knowledge products relative to the full range of mini-grid questions, from site selection to operations and maintenance. You can also find the Programme’s own publications, including the series of country mini-grid opportunity assessments (covering to date Mozambique, Ethiopia, Burkina Faso, Cameroon and DRC) that explore where main grid, mini-grid and off-grid solutions are most appropriate; the GMG Africa Strategy endorsed by African Ministers earlier this year in Lomé, which outlines the five essential elements that comprise a favorable policy environment for GMGs, including clear regulations, simple licensing, cost-reflective tariffs and integrated energy sector planning; and an analysis of barriers to GMGs and a market study on available instruments in support of GMGs.
The latter studies found that most GMGs to date are financed through a combination of grants and subsidies and commercial equity, with the availability of debt extremely rare. Moreover, while a large number of facilities exist to support mini-grid developers most of these are grant programs. From a transaction cost perspective, it has historically been difficult for the Bank to support smaller-scale projects in the decentralized energy access area. As one of the ways to address this issue and aforementioned challenges, the AfDB approved last December a $100 million anchor investment (equity/debt) in the Facility for Energy Inclusion (FEI). FEI will have an “off-grid” window to provide short- and medium-term debt instruments to off-grid providers and an “on-grid” window to provide senior and mezzanine debt financing to mini-grids and small-scale IPPs.
The GMG MDP is set to expand both in scope and scale under its recently approved Phase 2. Among the new activities is an expansion of the Help Desk to also cover support to policy makers, which will allow us to work with Ministries in implementing the GMG Africa Strategy. We will also develop a system to allow for monitoring the state of the mini-grid market in Africa, work on capacity-building and explore approaches for a potential GMG Result Based Financing Facility
The AfDB today has an integrated vision of how to address Africa’s energy access challenge, which includes mini-grid solutions, and we are happily working alongside other partners such as business associations like ARE, GMG developers and Governments to achieve our shared goal.
The Florence School of Regulation (FSR) has been a European centre of excellence for energy policy and regulation since its inception in 2004. But this year with the launch of its global strategy, FSR has embarked on an around the world regulatory journey, where special trainings and policy dialogue events are being tailored to meet the needs of developing and emerging market nations. Through its EU-Global knowledge exchange platform, FSR aims to strengthen the energy regulatory framework with the countries in collaboration.
Regulatory obstacles are increasingly being highlighted as one of the main obstacles to attracting the necessary funding to provide access to sustainable energy for all in many developing and emerging market nations. Prof Ignacio Pérez-Arriaga highlights in his recently published policy paper on achieving universal access to energy that, “two indispensable elements are thoughtful, context specific regulatory guidelines that enable viable business models in each country, and credible institutions that have the autonomy to implement and enforce this regulation” (refer to publications section below).
Building stable and reliable regulatory frameworks is a complex process, which involves close interaction and coordination of a web of players in the energy governance sector (regulators, ministries, rural electrification agencies, private companies etc.) and must be tailor designed to simultaneously meet the needs of the people while optimising the energy and human resources available.
FSR, as part of its global initiatives, is launching its new online course ‘Regulation for Universal Access to Energy’, focusing exactly on these regulatory issues pertinent to developing countries. This course is designed for representatives from regulatory authorities, political decision makers and other stakeholders and will allow the participants to learn from case-studies in Africa, Asia and South America, join live panels and forum discussions with leading experts, engage in group-work and build a truly global network of colleagues facing similar problems.
This course will be the first to analyse the multi-dimensional approach to energy access, while emphasising the role of regulation. This entails understanding of (i) the interdependence of the tools available to address energy access including the technologies (traditional, clean & smart), finance, business models and regulatory instruments and (ii) the wider impact energy access has on health, education and on overall socio-economic development.
The FSR will build on its success in the EU, and make sure the same guidance and support is given to stakeholders throughout the world – Please join us.
Almost 14 million people live in Chad, the 5th largest country in Africa by surface and one of the poorest countries in the world. Presently, only a few percent of its inhabitants have access to electricity, mainly generated by biomass fuel (wood, animal manure) and fossil fuel (oil-based heavy fuel). To stimulate the country's social and economic development the Chad ministry of Oil and Energy joined forces with UNIDO (United Nations Industrial Development Organization) to find a viable long-term solution to improve Chad's energy situation.
In view of a modern sustainable development, they decided to build solar mini-grids including implementation of a renewable energy management model aiming to last at least 20 years. Many developing countries have the opportunity to bypass several evolutionary steps in electricity production and transmission and make a huge leap forward into the clean energy future, as they do not have existing energy solutions to retrofit.
TTA (Trama TecnoAmbiental), a global consulting and engineering company, specialised in distributed generation through renewable energies, was mandated to implement three mini-grids in three different villages as a pilot project.
Each rural mini-grid consists of 45 kWp REC PV panels, 3.6 kVA Studer inverter/chargers, 12 Studer MPPT solar charge controllers and 441 kWh OPZS battery storage from Hoppecke with a diesel generator as back-up to supply a reliable electricity service. The generated electricity is distributed through an underground low‑voltage distribution grid connecting single-phase loads at each customer's premises.
The solar mini-grids are operated with service-based tariff schemes where all users pay a fee based on their electricity allowance. Each user has an electricity dispenser installed which controls both energy and power. The fees have been set to cover the mini-grids' operation and maintenance costs until the end of the mini-grid life cycle. This clever service-based approach has demonstrated many benefits. For instance, the mini‑grids are working well within their design range. Furthermore, the batteries have shown to maintain a good state of charge, positively benefitting their life‑time and the use of the diesel genset has been minimised optimizing the operational costs.
The local communities were deeply involved in the construction of the mini-grids and, thereafter, local associations were created in every village to manage the local operation of the plants. Local empowerment has been a key factor in successfully implementing these mini-grids. As additional support, the remote monitoring tool from Studer allows supervision by the overall system operator.
Located in western Colombia, is the Municipality of Acandi, an area that is mainly jungle along the Caribbean Sea bordering Panama. This remote area is not tied to an electrical grid and residents only had access to electricity for just a few hours a day via diesel generators.
The Colombia Ministry of Mines and Energy issued a mandate to expand the availability of electricity to these remote areas by building five solar hybrid microgrids, with a total solar capacity of 191 KWp. This project is the first of its kind in the Choco region and provided 431 households access to clean, affordable and reliable energy for the next 20 years.
One of the greatest incentives for the installation of the five microgrids was to reduce the use of diesel fuel. Not only were the generators noisy and emitted pollutants, but the area can only be accessed by boat making the transport of fuel prohibitively high. In addition, when a generator broke down, the community would have to go without electricity until someone could fix it which could take some time in these remote locations.
But today, the solar microgrids provide electricity for most of day, so residents don’t have to plan their day around the time when electricity would have been available via the diesel generators. Children can now study at night, parents can cook in the evening without the having to use candles, and businesses can stay open after the sun goes down.
With batteries being one of the most expensive components of a microgrid, the economics of the projects required the installation of industrial high-quality deep-cycle batteries that are engineered to achieve a 20-year life, while at the same time having the lowest price per KWh per cycle. The deep-cycle batteries selected also featured a carbon formula which addressed the inconsistent charging the batteries would experience on a regular basis. This carbon additive enhanced overall battery life as well as improved charge acceptance and provided a faster recharge of the batteries.
In addition, the benefit of having reliable access to electricity contributes to expansion and improvement of the community’s commercial activities, as well as attract more tourists to the area. These factors improve the overall quality of life and allow the residents to have access to improved communications, education and jobs for many years to come.
Rural electrification by using mini-grids has been the objective of many development policies over the past years. Most mini-grid projects turned out as failures because of poor suitability to user needs, local conditions and expectations of investors and several other risks. It can be stated, that usually inadequate business models are the reason why most of the mini-grids do not work properly.
In addition, practical experience showed that hybrid mini-grids, powered by a renewable energy resource and a Diesel generator (“diesel genset”) for back-up or peak-load purposes are generally the most competitive technical solution. Usually photovoltaic is chosen for the renewable source due to the objective of availability. However, translating this great technical potential into a real business success story has turned out to be extremely challenging. The deployment of mini-grids involves complex financial and organisational questions which can be assigned to challenges in the fields of sales, technology and finance. A successful business model satisfies the demand of the customers with high quality and 24/7 availability is based on sound pricing models and relies on an adequate funding. Ideally the funding should be both from the private and public sector, and the technology should be reliably and easy to maintain.
The major stakeholders of a mini-grid are typically:
Due to these manifold financial and organisational challenges, it can be an insurmountable challenge for private and public investors to maintain proper risk awareness. Without an assessment of the different risks influencing the economic performance of a mini-grid, the uncertainty given by the complex structure of a mini-grid could lead to the point where lack of transparency discourages investments in decentralised electrification. Crucial questions that an investor will ask himself when assessing the risks of a potential investment in a mini-grid for decentralised electrification are:
A mini-grid specific risk assessment aims to reduce uncertainty and effectively contains aggregated answers to such crucial questions. The discussion paper from HNU proposes a methodology to evaluate a rating measuring the risk of a mini-grid located in the Sunderbans, State West Bengal, India (refer to publications section below).
ARE is working on intensifying its collaboration with universities such as HNU, internship programmes and rural electrification trainings. Donate to help ARE develop this work.
Two apparently conflicting perspectives exist in the development of mini-grids: the one of donors and governments who actively promote them as commercially viable solutions to electrification of rural areas, and the perspective of financiers and project analysts who find PV mini-grids to be non-viable commercial investments unless substantial financial support is provided.
The available literature over the last decade has shown that the commercial viability of mini-grids is strongly dependent on two factors: the share of electricity used for income-generating purposes, and the electricity price negotiated and/or fixed by the regulator. When these two factors are constrained, public financing should come into play.
Currently, most mini-grids promoted in sub-Saharan Africa fall into the bottom-left corner of the graph (see right). As a result, only highly subsidised plants (>80% of investment costs) are able to sell electricity at grid-comparable prices (<30 USc/kWh) and still promise acceptable internal rates of return for private investors (>15% over 10-15 years). For the poorest households, social equity and public health may justify such subsidies. Current subsidy schemes often assume a commercial attractiveness which is not present, thus setting subsidies too low and making false assumptions about the interest of commercial financiers.The available literature over the last decade has shown that the commercial viability of mini-grids is strongly dependent on two factors: the share of electricity used for income-generating purposes, and the electricity price negotiated and/or fixed by the regulator. When these two factors are constrained, public financing should come into play.
Returning to a commercial perspective, mini-grid projects where anchor and business customers are prioritised present several advantages, especially in the case of PV technology. Anchor customers allow a better matching of production and demand and a reduction of distribution grid costs.
Industrial and commercial rooftop PV installations are a special case of this, which also allow private investors to avoid many public financing and regulatory hurdles. These installations are attractive primarily to large off-grid commercial and industrial consumers. These usually dispose of large rooftops where PV panels can be installed without complex and expensive land lease agreements among different owners, their demand often matches with production, and there’s very limited need for distribution grid infrastructure. Further, additional electricity production can be sold at marginal cost to surrounding domestic customers, providing an affordable and efficient local solution to the electrification challenges that governments and donors are still grappling with on a national level.
The RECP Finance Catalyst links renewable energy projects to finance opportunities, targeting renewable energy projects in Sub-Saharan Africa. It provides advisory support on project development, -structuring and accessing finance through a team of dedicated experts.
In respect of the growing internationalisation of the off-grid sector and in the believe that profound technology and know-exchange between the developed and developing world is crucial to effectively contribute to SEforALL and its targets, ARE has joined the consortium as the communication partner of the project “Low Carbon Off-grid Communties” (LOGiC). The objective is to develop a standardised model for renewables-based decentral hybrid energy systems in ‘energy remote’ areas of Europe, such as islands. Three areas in North-West Europe will act as pilot locations: Texel (the Netherlands), Orkney Islands (United Kingdom), Meckenbach (Germany).
More info on the project can be found here and will be communicated in future newsletters as well.
Contact: Jens Jaeger (ARE Policy & Business Development Officer)
The event, which took place in Astana on 14-15 August 2017 was part of the Future Energy Forum attracted 150-200 participants, including UNITAR, IEA, GIZ, IOM, IDCOL as well as a number of private sector companies.
ARE Members, Homsol, Solaris Offgrid and Smart Hydro Power presented their projects and ARE Policy & Business Development Officer Jens Jaeger spoke on behalf of ARE on the benefits of energy access and renewable energy for rural populations and moderated a panel on ‘Impacts to Quality of Life by the first Kilowatts’. A reoccurring theme throughout the event was that a nexus approach, combining RE with other sectors can help to scale the off-grid market.
The Workshop on Off-Grid Rural Electrification organised by ARE in São Paulo on 22 August 2017 was a result of a global partnership with Intersolar. With a keynote speech on the outlook on renewable off-grid energy in Latin America by IDB, moderation from ARE Member Unai Arrieta (Project Manager at TTA) and high-level speakers from the public and private sector (agenda), the workshop attracted over 70 participants – most of which came from the private sector.
Given that Latin America has a smaller energy access deficit than other developing regions, there was a strong interest from the audience to learn more about the off-grid environment and to discuss ways on how to make the continent the first region to achieve universal access. ARE will be pleased to intensify its work by providing assistance in the requested areas such as government & regulation, technology & cost efficiency, user training & user involvement, financing & access to finance and last but not least business models of off-grid services.
The 5th edition of the Microgrid Global Innovation Forum will bring together energy professionals from around the world who are optimising the business model and performance of microgrids in remote, island, off-grid, and grid-connected scenarios. This is a unique opportunity to network with industry practitioners and innovators who are pushing the envelope of sustainable energy and leveraging this key technology for the future.
The event will focus on:
ARE is a supporting organisation of the Forum. ARE President Ernesto Macias will deliver a keynote speech addressing the potential of microgrids in the off-grid context. ARE Members will also share successful microgrid case studies models such as pay-as-go payment and productive uses of renewable energy (PURE) for anchor business models.
Special deal for ARE Members and followers using the code ARE20: 20% discount on registration fees!
ARE Member Phaesun is putting together an extensive three-day workshop programme which includes expert lectures given by international experts, Do-It Yourself Workshops, discussions and networking activities, the different applications of independent solar, wind and hydropower are carefully examined. Topics such as rural electrification, solar water supply, water desalination and applications in the industrial and leisure time sector are in the foreground.
ARE, together with its latest Member Stimulus, will offer two free-of-cost workshop trainings to expand participants’ knowledge of rural electrification market developments, including industry trends and RET/business model innovations, to encourage off-grid practitioners to be more customer-oriented, resulting in greater customer engagement and enhanced customer satisfaction – throughout the solar PV deployment process. Particular focus will be on South Asia and Pakistan.
Finally, as the jury of this year’s Phaesun Off-grid Experts Award, we are looking forward to meet the winners from the four different categories: Product, Project, Picture and Filmlet!
Special deal for ARE Members and followers using the code ARE: 10% discount on registration fees!
ARE with the kind support of the Africa-EU Renewable Energy Cooperation Programme (RECP) and ADA have the pleasure to invite you to the workshop “Talking business: Microfinance for decentralised renewables in Africa” on 9 October 2017 in Addis Ababa, Ethiopia.
The workshop targets renewable energy companies & project developers, microfinance players (including investors, MFIs, researchers, banks, networks, governments, insurers, etc.) as well as the public sector interested in decentralised renewables in Africa.
The programme will feature presentations & discussions from high-level speakers including OPIC, PAMIGA, Baobab+, M-PAYG, Generaciones Fotovoltaica de la Mancha (GFM) and SNV.
The workshop is organised in conjunction with the African Microfinance Week, taking place on 9-13 October in Addis Ababa, Ethiopia.
ARE Members and followers can use the code ARECODESAM2017 to get a 10% discount on the SAM entrance and stands!
[Opportunity] If you registered and are interested in presenting your services and products to microfinanciers, please apply for a free pitching slot with Ling Ng
Contact: David Lecoque (ARE Policy & Business Development Manager)
Kindly note that English-French translation for our workshop will be provided.
ARE will organise and implement a one-day Off-grid Workshop as part of Intersolar India in Mumbai on 7 December 2017. The aim of the event is to discuss market and policy conditions, business opportunities, cross-sector cooperation, standards as well as to showcase financial and technical instruments supporting rural electrification projects in India and South Asia. In parallel with the workshop, the private sector will have the opportunity to showcase their products/projects at the Intersolar exhibition.
Interested? The following opportunities to get engaged are currently available:
Contact: Jens Jaeger (ARE Policy & Business Development Officer - Asia)
Access to electricity is vital for socio-economic development. But power cannot be extended to everyone solely through national electricity grids. Off-grid renewable energy solutions are crucial to achieve universal access to electricity. Most of these will involve mini-grids – isolated, community-level power grids, which can eventually be absorbed into the main grid or may continue to operate autonomously.
To attract private investment in renewable mini-grids, policy makers need to select the right policies and create an effective regulatory framework. This report examines the key factors influencing investors in mini-grid projects, including licensing, tariff regulation, access to finance and specific project risks related to the eventual arrival of the main grid.
Different combinations of policies work with different power-generation technologies. The report also examines the specificities of mini-grids connected to solar, biomass, wind and small hydropower, or some combination of these with other energy sources. Appropriate policies will not only speed up electrification but also improve the quality of service and enhance the effectiveness of well-targeted public spending.
Universal access to electricity should be achievable by 2030, the deadline proposed by the UN in its Access for all initiative. However, progress so far has been too slow. The International Energy Agency estimates that by 2030 still more than half billion people, mostly in Sub-Saharan Africa and South Asia, will lack electricity access. Technology and sufficient funding exist, yet other key components of the solution are clearly missing. This paper argues that an essential lacking component is a regulatory and associated business model package that is well adapted to the specific characteristics of electrification in the least developed countries, and that can be supported by sound quantitative analysis of the costs and benefits of every considered option.
Rural electrification by using mini-grids has been the objective of many development policies over the past years. Most mini-grid projects turned out as failures because of poor suitability to user needs, local conditions and expectations of investors and several other risks. In order to shed light on the principles and processes involved in determining a mini-grid risk rating this paper develops and elaborates a risk rating model based on a standardised risk management procedure (SRMP).
Five key criteria were outlined and explained in detail using an empirical case study on a mini-grid located in India. Ultimately, this paper aims to have shown how a methodology to achieve a risk rating for a mini-grid could be structured. In this sense, a mini-grid rating is a decision supporting tool to enable sound investment decisions for debtholders and shareholders in a mini-grid and to contribute for de-risking renewable energy investments. The proposed standardised risk management procedure (SRMP) for mini grids should be considered as an educated, systematic attempt at measuring current and future development of a mini-grid’s capability to fulfill future payment obligations and profitability expectations.
Please note that views expressed in the Co-Editorial, the In Focus section and the Special Feature of the newsletter, are those of the contributors and do not necessarily reflect ARE’s opinion.
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