TY - JOUR
T1 - Evaluating the impact of productive uses of electricity on mini-grid bankability
AU - van Hove, Elena
AU - Johnson, Nathan G.
AU - Blechinger, Philipp
N1 - Funding Information:
Increased power consumption from SMEs can have a direct and positive effect on mini-grid revenue while potentially also lowering electricity tariffs. This is supported by a World Bank study that identified increasing amounts of PUE customers improve mini-grid load factor and reduce the LCOE, thereby benefiting all mini-grid customers (ESMAP, 2019). The techno-economic analysis identified a reduction in LCOE when load factor increased through greater numbers of PUE customers operating in the daytime (ESMAP, 2019). A case study in Rwanda corroborated this insight, finding a 58 % decrease in LCOE with a doubling of the load when keeping distribution network costs fixed but varying generation and storage asset costs (Zimmerle & Manning, 2017). Similarly, a case study in Tanzania found revenue increased up to 40 % when load factor improved (Gelchu et al., 2021). However, studies have also shown that LCOE can increase with the addition of loads if the increased demand warrants additional generation, storage, and distribution network upgrades (Booth et al., 2018). That potential circumstance mirrors findings in other literature indicating mini-grid profits do not always improve with increasing load (Mayer-Tasch et al., 2013). Some disagreement in findings between studies is expected given differences in methodological approaches that assume load directly scales the original mini-grid load profile (Zimmerle & Manning, 2017) and studies that use measured PUE demand data to create more accurate load projections that capture intraday and seasonal variations (Booth et al., 2018). Although informative, these studies did not assess mini-grid investor considerations such as payback period, IRR, investment risk, and similar. Those interests are only recently coming under study with findings showing that energy efficiency improvements and appliance financing for PUE are being increasingly implemented by developers to improve project outcomes (Yakunu et al., 2018). Investors may also look to fund solar-storage and hybrid mini-grid projects to meet green investment targets (Kenning, 2019) and such projects are benefited by a higher percentage of non-residential customers that increase midday demand and align with solar insolation (Mini-grids Partnership et al., 2019). By making a strong business case for PUEs, mini-grid operators and investors are more likely to invest in PUE interventions that benefit both SMEs and mini-grid projects. We therefore aim in this paper to take the specific perspective of mini-grid investors looking to utilize PUE interventions to improve mini-grid financial efficacy, and provide comparative quantitative analyses to fill this knowledge gap.
Publisher Copyright:
© 2022
PY - 2022/12
Y1 - 2022/12
N2 - Mini-grids are discussed as a cost-effective and sustainable solution to provide electricity to populations lacking access, of which the majority reside in sub-Saharan Africa. Projects struggle to be fiscally solvent, however, in part because electricity demand from rural households is low relative to installed mini-grid generation and distribution capacity, making it difficult to recoup investment costs. This paper explores how productive uses of electricity may increase electricity demand and evaluates impacts of increased electrical load to the technical and economic metrics of mini-grid projects. A full cashflow analysis is completed to evaluate business model efficacy for mini-grid developers and investors for a case study of a township in Sierra Leone. Productive uses of electricity are shown to have minimal improvement to the financial viability of residential mini-grid projects, and subsidies are required to reach financial metrics suitable to attract private investment. Of the productive uses investigated, year-round loads had the most positive impact to payback periods. Seasonal loads offer only small improvements to payback period and internal rate of return because they require extra generation assets to meet peak demand in the high season that are left idle or heavily under-loaded during the low season. Overall, the study finds the most effective way to improve financial outcomes through productive uses is to increase the mini-grid load factor with productive uses of electricity that operate year-round.
AB - Mini-grids are discussed as a cost-effective and sustainable solution to provide electricity to populations lacking access, of which the majority reside in sub-Saharan Africa. Projects struggle to be fiscally solvent, however, in part because electricity demand from rural households is low relative to installed mini-grid generation and distribution capacity, making it difficult to recoup investment costs. This paper explores how productive uses of electricity may increase electricity demand and evaluates impacts of increased electrical load to the technical and economic metrics of mini-grid projects. A full cashflow analysis is completed to evaluate business model efficacy for mini-grid developers and investors for a case study of a township in Sierra Leone. Productive uses of electricity are shown to have minimal improvement to the financial viability of residential mini-grid projects, and subsidies are required to reach financial metrics suitable to attract private investment. Of the productive uses investigated, year-round loads had the most positive impact to payback periods. Seasonal loads offer only small improvements to payback period and internal rate of return because they require extra generation assets to meet peak demand in the high season that are left idle or heavily under-loaded during the low season. Overall, the study finds the most effective way to improve financial outcomes through productive uses is to increase the mini-grid load factor with productive uses of electricity that operate year-round.
KW - Bankability
KW - Mini-grids
KW - Productive uses of electricity
KW - Rural electrification
KW - Sustainable development
UR - http://www.scopus.com/inward/record.url?scp=85140017506&partnerID=8YFLogxK
UR - http://www.scopus.com/inward/citedby.url?scp=85140017506&partnerID=8YFLogxK
U2 - 10.1016/j.esd.2022.10.001
DO - 10.1016/j.esd.2022.10.001
M3 - Article
AN - SCOPUS:85140017506
SN - 0973-0826
VL - 71
SP - 238
EP - 250
JO - Energy for Sustainable Development
JF - Energy for Sustainable Development
ER -