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| | *ARE. 2014. Hybrid Mini-Grids for Rural Electrification - Lessons Learned [https://ruralelec.org/sites/default/files/hybrid_mini-grids_for_rural_electrification_2014.pdf https://][https://ruralelec.org/sites/default/files/hybrid_mini-grids_for_rural_electrification_2014.pdf ruralelec.org/sites/default/files/hybrid_mini-grids_for_rural_electrification_2014.pdf] | | *ARE. 2014. Hybrid Mini-Grids for Rural Electrification - Lessons Learned [https://ruralelec.org/sites/default/files/hybrid_mini-grids_for_rural_electrification_2014.pdf https://][https://ruralelec.org/sites/default/files/hybrid_mini-grids_for_rural_electrification_2014.pdf ruralelec.org/sites/default/files/hybrid_mini-grids_for_rural_electrification_2014.pdf] |
| | *<div>ESMAP (2005), Meeting the Challenge of Rural Electrification in Developing Nations: The Experience of Successful Programs [https://static.globalinnovationexchange.org/s3fs-public/asset/document/Meeting0the0Ch10Discussion0Version0.pdf?q3Tol9Bdn4yH4J43t3P9t3hq5lh6ZipT https://][https://static.globalinnovationexchange.org/s3fs-public/asset/document/Meeting0the0Ch10Discussion0Version0.pdf?q3Tol9Bdn4yH4J43t3P9t3hq5lh6ZipT static.globalinnovationexchange.org/s3fs-public/asset/document/Meeting0the0Ch10Discussion0Version0.pdf?q3Tol9Bdn4yH4J43t3P9t3hq5lh6ZipT]</div> | | *<div>ESMAP (2005), Meeting the Challenge of Rural Electrification in Developing Nations: The Experience of Successful Programs [https://static.globalinnovationexchange.org/s3fs-public/asset/document/Meeting0the0Ch10Discussion0Version0.pdf?q3Tol9Bdn4yH4J43t3P9t3hq5lh6ZipT https://][https://static.globalinnovationexchange.org/s3fs-public/asset/document/Meeting0the0Ch10Discussion0Version0.pdf?q3Tol9Bdn4yH4J43t3P9t3hq5lh6ZipT static.globalinnovationexchange.org/s3fs-public/asset/document/Meeting0the0Ch10Discussion0Version0.pdf?q3Tol9Bdn4yH4J43t3P9t3hq5lh6ZipT]</div> |
| − | *<div><span style="font-size: 16pt; font-family: "Calibri Light";">EUEI </span><span style="font-size: 16pt; font-family: "Calibri Light";">PDF (2014), Mini-grid Policy Toolkit: Policy and Business Frameworks for Successful Mini-grid Roll-outs </span><br/></div> | + | *<div><span>EUEI </span><span>PDF (2014), Mini-grid Policy Toolkit: Policy and Business Frameworks for Successful Mini-grid Roll-outs [http://www.euei-pdf.org/sites/default/files/field_publication_file/RECP_MiniGrid_Policy_Toolkit_1pageview_(pdf,_17.6MB,_EN_0.pdf http://www.euei-pdf.org/sites/default/files/field_publication_file/RECP_MiniGrid_Policy_Toolkit_1pageview_(pdf,_17.6MB,_EN_0.pdf] </span><br/></div> |
| − | *IRENA (2016), Innovation Outlook: Renewable Mini-grids, International Renewable Energy Agency, Abu Dhabi [http://www.irena.org/DocumentDownloads/Publications/IRENA_Innovation_Outlook_Minigrids_2016.pdf http://][http://www.irena.org/DocumentDownloads/Publications/IRENA_Innovation_Outlook_Minigrids_2016.pdf www.irena.org/DocumentDownloads/Publications/IRENA_Innovation_Outlook_Minigrids_2016.pdf] | + | *<div><span></span>IRENA (2016), Innovation Outlook: Renewable Mini-grids, International Renewable Energy Agency, Abu Dhabi [http://www.irena.org/DocumentDownloads/Publications/IRENA_Innovation_Outlook_Minigrids_2016.pdf http://][http://www.irena.org/DocumentDownloads/Publications/IRENA_Innovation_Outlook_Minigrids_2016.pdf www.irena.org/DocumentDownloads/Publications/IRENA_Innovation_Outlook_Minigrids_2016.pdf]</div> |
| | *IRENA (2016), Policies and regulations to support renewable energy mini-grid [http://www.irena.org/DocumentDownloads/Publications/IRENA_Policies_Regulations_minigrids_2016.pdf http://][http://www.irena.org/DocumentDownloads/Publications/IRENA_Policies_Regulations_minigrids_2016.pdf www.irena.org/DocumentDownloads/Publications/IRENA_Policies_Regulations_minigrids_2016.pdf]<br/> | | *IRENA (2016), Policies and regulations to support renewable energy mini-grid [http://www.irena.org/DocumentDownloads/Publications/IRENA_Policies_Regulations_minigrids_2016.pdf http://][http://www.irena.org/DocumentDownloads/Publications/IRENA_Policies_Regulations_minigrids_2016.pdf www.irena.org/DocumentDownloads/Publications/IRENA_Policies_Regulations_minigrids_2016.pdf]<br/> |
| | *World Bank. 2014. From the Bottom Up. How Small Power Producers and Mini-Grids Can Deliver Electrification and Renewable Energy in Africa. [https://openknowledge.worldbank.org/handle/10986/16571 https://][https://openknowledge.worldbank.org/handle/10986/16571 openknowledge.worldbank.org/handle/10986/16571] | | *World Bank. 2014. From the Bottom Up. How Small Power Producers and Mini-Grids Can Deliver Electrification and Renewable Energy in Africa. [https://openknowledge.worldbank.org/handle/10986/16571 https://][https://openknowledge.worldbank.org/handle/10986/16571 openknowledge.worldbank.org/handle/10986/16571] |
Grid-connected mini-grids and distribution systems share characteristics with both Grid Extension and Isolated Mini-grids – They are linked to the grid system and are able to import electricity from and export electricity to it, so technically they have more in common with Grid Extension. However, in that they are owned and managed independently they are more similar to Isolated Mini-grids. These differences call for different policy and regulatory approaches, so a separate Technology category has been established.
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Delivery Model
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The national grid system may be publically or privately owned or combine both in a public-private partnership. Common public-private models for grid systems include:
- Publically owned generation and transmission, and privately owned distribution;
- Independent Power Producers (IPP) connected to a publically owned transmission/distribution system).
(Where individual distribution areas are separately owned, eg by municipalities or regional bodies, these may be regarded as grid-connected distribution systems and are discussed under that category).
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Legual Basis
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Grid systems almost always act as monopoly concessions (because of the need to balance demand and supply across the system in real-time, and the substantial investment required to establish and maintain the infrastructure). As a result, the right to transmit and sell electricity is often reserved to the national grid utility or company (at least within the area reached by the grid system).
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Price/Tariff Regulation
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In line with the nature of the national grid as a single coherent system, uniform tariffs are almost invariably charged across the system (though often with different tariffs for different classes of user and levels of usage, or in some cases time-of-use pricing). Electricity prices are a highly political issue in almost every country, and therefore there is almost always some oversight of these tariffs. Without explicit regulation there is a risk of political pressure leading to tariffs which fail to cover costs, and hence system deterioration.
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Finance
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Almost all national grid systems (including those in developed countries) are constructed using public funding, drawing on government funds sometimes supplemented by concessionary loans and grants from international agencies. Where the grid system is (wholly or partially) privately owned (often as the result of a privatisation process), private investment in infrastructure may be leveraged by subsidies (egfor connection charges). User charges are the other main source of grid system funding, and uniform tariffs mean that some element of cross-subsidy is inherent in grid-based electricity provision, with users who are more expensive to supply being subsidized by those who can be supplied more cheaply.
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Non-Financial Interventions
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National energy planning is key to establishing the economically optimum extent of the grid. Institutional restructuring, regulatory reform and policy and target setting may all be beneficial in creating the institutional and policy basis for grid extension. Capacity building or technical assistance may be needed where the key actors involved in grid extension lack capacity. Technology development/adoption and adoption of appropriate technical standards can enable grid extension at lower cost (as shown in the NAE Case Study:Tunisia where adoption of standards allowing MALT (Mise A La Terre) distribution lowered costs), while demand promotion may be needed to increase revenues and make it economically sustainable.
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Delivery Model
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Grid-connected mini-grids are often privately owned, but may be publically owned or combine both in a public-private partnership. Common models include:
- mini-grids owned by a private developer connected to the main grid;
- A private enterprise installing generation to meet its own power demand building a local distribution system and supply to other local users and the grid;
- A municipality or other local public entity operating a grid connected distribution system;
- A private company, or public-private partnership taking on operation of a section of the grid distribution system as part of a privatisation process.
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Legual Basis
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Larger grid-connected mini-grids will generally require monopoly concessions (because of the substantial investment required to establish and maintain the infrastructure). Even for smaller grid-connected mini-grids, some form of licensing will almost invariably be appropriate to assure investors that they have the right to sell electricity (both to users and the grid), to ensure that technical standards for grid connection are met, and as the means of regulating prices for export and import of electricity from the grid and sale of electricity to users (see price/tariff regulation).
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Price/Tariff Regulation
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Grid connected mini-grids rely on the sale of electricity to the grid, and import of electricity from the grid and its sale to users, as well as sale of own-generated electricity to users. Clarity on how each of these tariffs is set and regulated will be key to securing investment:
- Setting a standard price for purchase of electricity from the grid, or defining what category of user grid-connected mini-grids fall under, and having a transparent process for adjusting these prices (rather than leaving them to be negotiated between individual developers and the grid company) will give investors confidence;
- A standard price for sale of electricity to the grid (a feed-in tariff), based for instance on the grid company’s avoided cost (as in Tanzania) or an expected average cost from a particular form of generation, will similarly reduce mini-grid development costs and risks;
- Regulation of user tariffs for grid-connected mini-grids will be particularly sensitive given that the mini-grid operator may be drawing on the grid system to supply its users. Applying a uniform tariff (particularly a grid-parity) tariff is likely to offer some grid-connected mini-grids super-profits while making others uneconomic, but an approach based on a margin above the price for purchasing electricity from the grid may be appropriate (particularly where the system acts primarily as a means for distributing electricity from the grid and has little own-generation capacity). In general a cost-recovery approach, taking account of system-specific costs and any subsidies is likely to work best, and clarity and transparency of the process will be key for investors.
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Finance
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The primary financing for grid-connected mini-grids will generally align with the delivery model, with publically-owned mini-grids using public finance and privately owned mini-grids drawing on private finance. However, where incomes are lower or system costs higher, some form of public-private partnership is likely to be needed with public funding (eg through grants and subsidies) making electricity from grid-connected mini-grids affordable to users and the mini-grid systems economically sustainable.
User charges are the other main source of funding with connection charges and ongoing tariffs are used to contribute to investment, cover ongoing operating costs and support repayment and return on investment. As with any system supplying multiple users there is likely to be some element of cross-subsidy between users connected to any individual mini-grid system. Cross-subsidy between grid-connected mini-grids or between the main grid and grid-connected systems may be appropriate, particularly if a uniform tariff is applied.
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Non-Financial Interventions
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National energy planning and sharing of market information are key to establishing the planned extent and timescales for grid extension and hence the scope for grid-connected mini-grids. Institutional restructuring, regulatory reform and policy and target-setting may all be required to create the framework for grid-connected mini-grids to be developed and establishment of technical standards is vital for enabling grid-connected mini-grids. Capacity building or technical assistance may be beneficial where potential developers or those (such as municipalities or user cooperatives) expected to take on responsibility distribution system operation lack capabilities. User awareness raising and demand promotion are often essential to increase revenues and make mini-grids economically sustainable.
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Delivery Model
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Isolated mini-grids are often privately owned, but may be publically owned or combine both in a public-private partnership. Common models include:
- An isolated mini-grid owned by a private developer, a user-cooperative or community organisation;
- Mini-grids owned and operated by the national grid company in off-grid areas;
- A mini-grid operated by a municipality or other local public entity to supply an off-grid community;
- Isolated mini-grids developed under a Public-Private Partnership, for instance on a Build-Own-Operate-Transfer basis.
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Legual Basis
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Mini-grids require substantial, long-term, capital investment and hence a regulatory framework which will give developers, and particularly private financiers, confidence that there will be a market for electricity from the mini-grid for a long enough period to repay and provide an adequate return on their investment. Larger systems may require concessions (which protect against competition over a designated area and time period) to give investors the confidence in revenue forecasts to commit the long-term capital investment needed. For smaller mini-grids, with lower and shorter-term capital investment, a licensing regime (which grants a non-exclusive right to sell electricity) may be more appropriate, with greater flexibility and a generally less demanding process balancing lack of protection from competition for the investor, while still providing the means to protect users through price/tariff regulation and setting technical and safety standards. Mini-grids below a certain size (eg <100kW in Tanzania), are often unregulated, as the administrative burden (and costs) of regulation are seen as disproportionate to the protection it would provide to investors and users, and the right to operate instead being granted through a general derogation from regulation.
Under any regulatory regime a key question for private mini-grid investors will be what happens when the main grid arrives? Grid extension into a mini-grid concession area within the concession period may be prohibited by the terms of the concession, or there may be explicit provision for compensation and transfer of assets to grid ownership. mini-grid licensees have less protection from grid extension than concessionaires, but even where there is no formal concession it is often beneficial to establish a compensation regime in the event of grid extension, to encourage private mini-grid investment in the interim.
Where mini-grids are delivered through a public model with purely public finance, the legal basis will generally be less critical as public financiers are less likely to be concerned about recovery of and return on investment through future revenues.
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Price/Tariff Regulation
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Isolated mini-grids rely on revenues from the sale of electricity to users to cover ongoing operating, maintenance and administrative costs and repayment and return on investment. Regulation of tariff levels is therefore a critical factor for private investors in mini-grids, with inadequate or inappropriate tariff regulation often cited as the key barrier to mini-grid investment.
A uniform-tariff regime, where all mini-grid operators must charge the same tariffs, has the attraction of apparent equity, but will generally encourage investment only in those areas where electricity can be supplied at a lower cost allowing the investor to retain a margin and discourage investment in harder to supply areas (unless public funding/subsidy, or cross-subsidies, are made available to overcome higher costs). Individually set tariffs, based on costs specific to individual mini-grid contexts, are more likely to encourage investments in more remote areas.
Whatever form of tariff regulation is used the critical requirement is that it is clear and transparent, to reduce project development costs and give private financiers confidence that revenues from mini-grids are not vulnerable to arbitrary regulatory decisions and political pressure.
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Finance
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Financing for isolated mini-grids will generally align with the delivery model, with publically-owned mini-grids using public finance and privately owned mini-grids drawing on private finance. However, where incomes are lower or system costs higher, some form of public-private partnership is likely to be needed with public funding (eg through grants and subsidies) making electricity from mini-grids affordable to users and the mini-grid systems economically sustainable.
User charges are the other main source of funding with connection charges and ongoing tariffs are used to contribute to investment, cover ongoing operating costs and support repayment and return on investment. As with any system supplying multiple users, there is likely to be some element of cross-subsidy between users connected to any individual mini-grid system. Cross-subsidy between isolated mini-grids or between the main grid and mini-grid systems may be appropriate, particularly if a uniform tariff is applied.
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Non-Financial Interventions
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National energy planning and sharing of market information are key to establishing the planned
extent and timescales for grid extension and hence the scope for isolated mini-grids. Regulatory reform and policy and target-setting are likely to be required to create the framework for isolated mini-grids to be developed. Capacity building or technical assistance may be beneficial where potential developers lack necessary skills and capabilities. User awareness raising and demand promotion are often essential to increase revenues and make mini-grids economically sustainable.
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Mini-grids are most appropriate for relatively densely populated areas with higher demand levels which are distant from the grid system, particularly where there is a good local source of energy for electricity generation. Because mini-grids rely on local, small-scale, generation, and their demand profiles often have pronounced peaks (because their users want electricity at the same times of day), their generating costs are usually higher than costs of electricity from larger power plants connected to the main grid, so in areas closer to the grid, where the cost of connecting to the grid is relatively low, grid extension will usually be more economic. In sparsely populated low-demand areas, standalone systems, despite their higher generating costs, may be more economic because they avoid the cost of a distribution system. mini-grids may also, even in areas for which grid extension would be more economic in the longer term, provide a means for achieving energy access more quickly.
Mini-grids may be designed to provide any level of electricity access, from “skinny-grid”, which just support lighting and, perhaps phone-charging (Tier 1) to a grid-equivalent service, meeting all household, commercial, industrial and community requirements (Tier 5). In many more remote communities where isolated mini-grids are the most appropriate solution, it is a Tier 2-3 level (to support medium power appliances such as fans, refrigerators, small water pumps and hand tools). In theory, the grid system which is able to call on multiple sources of generation should be more reliable than an isolated mini-grid, but in practice if the grid system itself is over-stretched with inadequate generation; or insufficiently robust or poorly maintained transmission and distribution systems, reliability and quality of supply may deteriorate so that while users have a physical connection they may not in fact have reliable access to electricity. Poor grid reliability is one of the reasons many users turn to mini-grids and standalone systems even in areas where grid connection is available.
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