(Off-Grid) Rural Electrification with Renewable Energies in Developing Countries

Leonardo Webinar 1st December 2011

Dr Xavier LEMAIRE, Research AssociateSustainable Energy Regulation Network - REEEP

University College London – Energy Institute

Summary

1. Status of rural electrification in developing countries

2. Various RE technologies for rural electrification

3. Emerging forms of rural decentralised electrification

4. Main features of an off-grid framework

Part 1. Current status

1. Status of rural electrification in developing countries

2. RE technologies for rural electrification 3. Emerging forms of rural decentralised

electrification 4. Main features of an off-grid framework

High disparity of non-electrification rate (2008)

Source: UNDP/WHO, 2009

Large part of the world in the dark

“The amount of electricity consumed in one day in all sub-Saharan Africa, minus South Africa, is about equal to that consumed in New York City” (Fatih Birol, IEA's chief economist)

Number of people without electricity will remain high…

Source: IEA/OCDE,2009

Why rural electrification is lagging in some part of the world?

(1) Historical reasons Ex-colonies – colonizer not interested in rural electrification

(2) Demographic impact (3) Lack of financial resources (4) Lack of “political commitment”

Rural inhabitants far from decision-makers!

Bias in favour of limited extension of the grid Priority to urban areas Remote areas with low density: too costly/uncertain benefits

Vicious circle linked to financial situation of utilities

5. Lack of investment in network and rural areas

Poor maintenance

1. Poor quality of service/pricingLack of control

2. Unauthorised Connection

/ Low energy tariff

= Non efficient energy appliances

3. Lack of financial return for electric companiesIncrease of consumption = increase of financial gap

4. Priority power generation in urban areas

Consumption subsidised

Self-perpetuating logic

Utilities tend “naturally” to focus on electrification of areas with high density/high income where they can sale electricity produced with conventional energy sources

Utilities tend to ignore areas difficult to reach, where income can be very low and electricity has to be produced by decentralised systems

High operating costs / logistic difficulties Systems with RET out of their field of knowledge

(Poor) regulation/ (weak) institutions and policies for centralised system ignore small decentralised generation anyway

Rural inhabitants “in the dark” OR unregulated electrification of remote areas by small private investors

Privatisation/unbundling/transparency/tariff de-politicisation of the electricity sector? BUT economic barrier remains = rural electrification costly – private investors?

Rural electrification?

Necessity: of a rural electrification policy ! of a central institution to promote this policy & channel

funding of an (adapted) regulatory framework

No fatalism Some countries have made spectacular progress in few

decades Mexico, Thailand, Bangladesh, Tunisia, China, South

Africa,…

Part 2. RE technologies in rural areas

1. Status of rural electrification in developing countries

2. RE technologies for rural electrification 3. Emerging forms of rural decentralised

electrification & case studies 4. Main features of an off-grid framework

Hydro Power

The technically feasible potential of hydro-electricity developing part of the world: less than 7% in Africa exploited Around 22% in Asia exploited and 33% in Latin America exploited

(World Atlas of Hydropower and Dams, 2002).

Furthermore, funding for hydro-electricity goes mainly, if not exclusively, for large hydro-electricity.

Class Station Capacity Micro Hydro Up to 100 KW Mini Hydro From 100 KW to 2 MW Small Hydro From 2 MW to 25 MW

Small hydro power (SHP)

Micro Hydro (100 kW Manali District - Himachal Pradesh)

Wind power

Large generators (0.750 MW to 5 MW) Big players – emerging countries

India: 14,5 GW installed in March 2011 China: 40+ GW installed end 2010

“Small” players in emerging/developing world Turkey, Brazil, Mexico, Egypt, Morocco, South Africa,

Small generators (0.5 kW to 300 KW) Electricity with hybrid system (wind + hydro, wind + diesel) Or wind pump for water

30 MW wind farm in India

Small wind generator in developing countries

200kW in Sri Lanka Wind pump in Guatemala

Biogas generation

Produces gas Cooking/Heating

China, India, Nepal,… + Generator = Electricity 0.4 kW to 700 KW

Help to remove waste Reduce Green House Gas emissions

Biogas system

“Big” photovoltaic system 200 Wp

Pico-photovoltaic?

Source: Lighting Africa

Solar generation

The Watt Power output of a Solar module is the number of Watts Output when it is illuminated under standard conditions of 1000 Watts/meter2 intensity, 25°C ambient temperature and a spectrum that relates to sunlight that has passed through the atmosphere (AM or Air Mass 1.5). A 1 kWp system will produce 1 kW under ideal conditions

Typical Solar Home System in Europe – 1 kW peak to several kW peak for households

With 2kWp = 50% of electricity of an household in the UK (10+ K£)

In a developing country : 10 Watt peak to 150 Watt peak – light / TV Around 200 W peak – solar fridge Water pump one to several kW peak

PVGIS copyright European Commission 2001-2008 and HelioClim-1 copyright Mines ParisTech / Armines 2001-2008. Source:

http://www.soda-is.com/eng/map/

Huge decrease of PV cost

Particular interest of solar

Reduction of the cost / Wp of more than 80% since early 1980s of the solar panels from the manufacturers to 2004, stable for few years then since 2008 another 60%.

Current long-term growth rate of the photovoltaic market + 40%/year BUT photovoltaic panels only part of the cost (40/50%) against batteries (20%) and installation costs (40%)

Cost decreasing but still quite high initial investment (350-1000 US$ for a 50 Wp system) if it has to be borne by end-users.

Solar interesting in remote areas/scattered houses for low loads compared to: Candles, paraffin - quality of light with PV is superior Diesel generators - mechanical parts and cost of fuel Connection to the grid - high costs of substation

How rural areas could benefit from new technologies?

Paradox of solar energy: in rural areas of developing countries where it could be useful – solar remains expensive

Source: REN 21

Part 3. Emerging forms of decentralised electrification

1. Status of rural electrification in developing countries

2. RE technologies for rural electrification 3. Emerging forms of rural decentralised

electrification 4. Main features of an off-grid framework

Main barriers for rural electrification with RET?

Diffusion of a new but now mature technology Technology-driven not sufficient Needs a context

Institutions and people Financing scheme

Companies End-users

Training / Knowledge scheme Companies / Utilities / Decision-makers End-users Financial institutions

Sustainable market Market-driven Stable & adapted regulatory framework

Toward a new generation of RET projects?

1) First generation of projects funded by aidtransfer of technology passivity of receptors

Renewable systems were given Not maintained by local beneficiaries of aid

2) New generation of projectsEnergy just a technical problem? Social needs (not just kWh!) To provide a service (not just to sell & install a product)

Maintenance of systems even if the cost is low has to be borne by the end-users Clients selected according to their purchasing power Selection of local entrepreneurs

Market-driven (and not just donor or technology-driven) Far larger scale than previous projects

Economies of scale and density

How to design a rural electrification scheme…

New actors for public-private partnership, private entrepreneurs, NGOs, cooperatives,…

Overcome barriers of up-front costs Rural electrification subsidies Access to diversified sources of funding Innovative financial scheme

Reduce costs of installation & maintenance Local manufacturing Clear definition of who is responsible of systems and monitoring

Find good combination conventional & new technologies Integrated energy services and not just promotion of one technology

Long-term commitment of public authorities Stable regulatory framework

Source: World Bank/ESMAP, 2008.

Part 4. Main features of an off-grid framework

1. Status of rural electrification in developing countries

2. RE technologies for rural electrification 3. Emerging forms of rural decentralised

electrification 4. Main features of an off-grid framework

A robust institutional framework

Rural electrification agency / fund

Function of independent regulator

ESCOs ESCOs

FUNCTIONS Defines rules for competition: tariff for RE; (integrated planning); standards

Operational measures (energy surveys) and funding/bundling (loans, grants) notably CDM

Install, collect fees AND guarantee functioning of sustainable energy systems

Variety of approach possible for institutional design. But all functions needs to be covered and clear definition of who is responsible of what

Delegation / sub-contracting

ESCOs

Control standards and tariffs Control standards and

tariffs

x x x x xxx x x xx x x x x xx xxx xx x xxx x xx end-users

Same entity (or linked entities) responsible for installation AND maintenance of a system

Regulation by the national electricity regulator with a specialised department

OR Regulation by the government entity that provides installation subsidies

complaints

Clear repartition of roles

Functions/roles to be fulfilled <> creation of new departments not always needed.

Reduction of costs for end-users and funding agencies Off-grid regulation

Regulation can be sub-contracted to rural electrification agency (expertise)

Rural electrification plan and strategy Organisations capable of evaluating local needs Sub-contracted to NGOs/close supervision of rural electrification

agency Evaluation & feed-back

Need to monitor and evaluate the scheme ex-post Delegated/subcontracted to consultants End-users can nominate a delegate

Appropriate regulation for off-grid

Light-handed approach

Protection of consumer

Adapted standards

Importance of correct tariff setting

Light-handed regulation?

Regulation often adapted first and foremost to conventional utilities

Avoid over-regulation: Regulation of small utilities <> large utilities

Licensing procedures & control shall be adapted to small operators

Over-regulation = no regulation (illegality)

Protect small operators against encroachment /expansion of grid by large utilities or give them financial compensation

Case of Bolivia: Recognition of the impossibility of implementing conventional regulation*

Before 2000, all operators of isolated village mini-grids above 300kW installed generating capacity were required to acquire concessions

BUT Concessions could only be granted to entities that were shareholder companies /

2/3 of mini-grids operated by cooperatives The reporting requirement and technical standards were too costly to satisfy by small

cooperatives Better to have light regulation than to have multiple unlicensed operators (safety,…)

Partial intermediate solution Raise the threshold of regulation to 500 kW peak demand Allow cooperatives to maintain their legal status for an initial period of 7 years Discussion to lower reporting and technical requirements for all mini-grids with less than 2,000 users.

Proposed final regulation Systems above 1 MW

Regulated as before Systems between 300kW and 1 MW

Fewer reporting requirement and less stringent service standards Systems under 300 kW

No obligation for operators except to register themselves and provide a yearly update of basic information

* Working paper from ESMAP/World Bank, 2006.

Role of regulator – protection of consumer

Communication / public awareness Control of level of expectations of end-users

What RE can do and cannot do

Energy efficiency measures RE implies energy efficiency

Complaints of end-users In rural areas, end-users are isolated

Channel of information? Rural companies can abuse their power

Revoke license?

Role of regulators - standards

Standards have a cost High standards = high costs Compromise - what is really needed

Regulators can refer to already existing standards for materials in other countries: photovoltaic solar heater installations

Regulation of the market has a tremendous impact for limited cost Avoid sub-standards products or installation Guarantee consumer satisfaction

Important to monitor / regulate effectively the market Periodic control Staff specialised on rural electrification

Specialised department of the regulatory body Or can be left to the rural electrification agency Or subcontracted (regulation by contract)

Awareness and training are fundamental part Regulators, technicians, end-users Get local institutions involved (universities, NGOs,…)

Role of regulator: tariff setting

Kind of tariff Flat tariff for individual systems Metering systems when connected to collective central system

Offer: importance of cost recovery for sustainability of business Operating costs of utilities

Needs to be covered ! public subsidies for investment costs only ! Importance of creation of provision/batteries fund for solar

Part of capital costs? If tariff covers part of capital cost, utilities can expand to new customers If not, continuous public subsidies are needed for expansion

Subsidies = the ones given for grid-connection

Demand: tariff that can be afforded by end-users Survey of structure of incomes % of the inhabitants of an area to be reached

Procedure for annual revision High inflation rate in some countries Rate of exchange / US dollar (imported components) Capacity of payment of end-users

Central role of rural electrification agency

Integrated planning Energy surveys Socio-economic comparisons

(Regulation) Tariff Standards and codes of practices

Funding Interlocutor of international agencies Bundling small scale projects (Clean Development Mechanisms)

Monitoring and evaluation

Rural agencies Central interlocutor of local utilities (and end-users) Importance of permanent trained and dedicated staff Importance of financial resources – own budget Operating autonomy with rural electrification as primary objective

Appropriate planning & design system

Design local generation and distribution system Comparisons

Cost RE technology Cost hybrid system Cost connection to the grid

Least cost planning (not just energy supply) Energy efficiency and demand-side management

Lifetime of the project: 20/30 years Rising operating costs and risk linked to conventional energies

Increase of the demand Demography

Future extension of the grid? What is planned by the utility

Technology neutral: combination of various technologies Technology neutral with an “optimal” combination of:

Centralised systems – grid / Decentralised / mini-grid systems / Individual systems Market open to new entrants with new technologies Not just one source of energy, but a combination of

energies

* ElectricityWhen available: small hydro / wind / biomass / geothermalOtherwise solar photovoltaic Intensity of solar radiation (5-6 kWh/m2) Low density of population in some areas Flexibility of the investment+ diesel generation as a complement (for productive use) and not necessarily main source: High operational costs / difficulty of supply of fuel and repair mechanical parts in remote areas Rising costs of energy & risk

* Heat / cooking LPG, biomass, SWH, solar cooking,…

Individual needs / productive use – precise evaluation of energy needs fees and income generated locally, spatial location of energy needs

SHS ideal for basic needs: light, radio, TV, mobile phone Solar for use with low loads: solar pump, schools, health centres… Other energies / small grid for productive use

Combination of mini-grid & individual systems

Minimum costs

= mini grid for 78 HH and individual solar home systems for 22 HH

Source: WordPower, 2000

Long term comparison of total costs (case PV)

High operating costs

Diesel systems Solar Home Systems

High investment costs

Low operating costs

Low investment costs = genset

N+20 or even N+30 N+20 or even N+30

$

$

batteriesLong-term integrated comparisons

Life cycle costing

Implement institutions to solve the questions of high investment costs in rural areas and long-term maintenance

N+20

$

Reduction of up front costs of RET

1. Support mechanisms to reduce up-front costs / creation of rural funding agencies (subsidies, integrated planning)

Spread RET up front costs

2. Creation of organisations to spread the up-front costs andmaintain systems

- “Banks”: Micro-credit / revolving credit / loan

- Utilities: Fee for service / ESCOs,…

Rural energy service companies

Deliver an energy service Electricity (SHS or hybrid) Heat/cooking (LPG – Liquefied Petroleum Gas, biogas)

May diversify to other services / products Water? Solar water heaters But then increase complexity of management

Existing structure or new enterprises? Add activities to consolidate electrification business

Synergies: LPG, Solar water heaters,… Specialisation on core activities

Long-term financial sustainability Branch of a major company Independent enterprise

Elements of conclusion

New institutions / new way of thinking

Market-driven (and not just donor-driven)

Training is crucial (at every level)

Focusing on sustainability in the long term of delivery of energy services (and not just kWh) Appropriate level of financing of the operators Maintenance of the energy systems Long-term homogenous & stable regulatory framework

… with regulation adapted to new actors Adapted to small companies = introduce new actors Limit the power market of existing utilities Rural electrification depoliticised (independence and transparency)

… framed by a real energy strategy/policy Long-term commitment of the government Energy + industrial policy + local development

Nurse a market = create jobs locally and nationally + local expertise

References to go further

Electrification and Regulation: Principles and a Model Law DiscussionPaper No. 18 by Kilian Reiche, Bernard Tenenbaum, and Clemencia Torres de Mästle. World Bank, Energy and Mining Sector Board, July 2006. World Bankhttp://siteresources.worldbank.org/INTENERGY/Resources/EnergyPaper18.pdf

Comparative Study on Rural Electrification Policies in Emerging countries, Keys to Successful Policies, by Alexandra Niez, OECD, 2010.

Rural Electrification in the Developing World: A Summary of Lessons from Successful Programs, by Douglas Barnes and Gerard Foley, Esmap –World Bank, 2004.

Douglas B. (Ed.), 2007. The Challenge of Rural Electrification – Strategies for Developing Countries, Resources for the Future – ESMAP.

Contact

University College London -Energy Institute. Central House - 14 Upper Woburn Place London WC1H 0NN United Kingdom Xavier.Lemaire@reeep.org

REEEP - Sustainable Energy Regulation Network http://www.reeep.org/830/sern.htm