When are renewable energy mini-grids more cost-effective than other options?

Short Answer

Mini-grids are not always the most cost-effective choice for rural electrification. In some cases, national grid extension or solar home systems are better investments. To determine the best electrification approach, project developers need to consider the level of electricity services needed, projected load profile and costs.

Mini-grids are most likely to be cost-effective in mid-density communities that are far from the national grid, where the retail cost of electricity from the national grid is high, and in areas with reliable supplies of renewable energy resources. Mini-grids are most cost-effective for applications that require mid-level amounts of electricity.

Extending the national grid, by contrast, is more cost-effective in large or dense communities that are close to the national grid, where electricity costs are low and/or where large quantities of electricity are required.

Stand-alone solar home systems are best for dispersed homes that are far from the grid and require small amounts of electricity.

This graph illustrates the conditions under which grid extension, mini-grids and solar home systems are most cost-effective. The vertical axis (y-axis) is the retail cost of unsubsidized electricity. The horizontal axis shows five variables. From left to right, the variables change as follows: (1) size of community decreases from large to small; (2) density of population decreases from high to low; (3) distance to national grid increases from close to far; (4) complexity of terrain increases from easy to complex; and (5) economic strength decreases from strong to weak. The graph shows three upward sloping curves. The curve representing national grid electrification starts from the lowest point on the y-axis and rises quickly, reaching the highest point on the y-axis half way across the x-axis. The curve for mini-grids starts higher on the y-axis but rises less quickly. The solar home systems curve starts high on the y-axis and rises very slowly. When the five variables are below average (the left half of the graph), solar home systems are best when costs are high and grid extension is best when costs are low. Mini-grids become the economic choice when both cost and the five variables are lower than average. Solar home systems surpass mini-grids in the final fourth of the horizontal axis, where communities are very small and dispersed.
Mini-grid space is optimal for mid-density.
Source: EU Energy Initiative Partnership Dialogue Facility (2014). Minigrid Policy Toolkit.

In practice, the cost-effectiveness of a mini-grid depends on the characteristics of the site: electrical load, cost of fuel, accessibility of renewable resources, cost of extending the main grid, number of new connections required, cost of renewable energy equipment and discount rate. The following two key questions can help identify the best way to provide electricity access in a given location:

  1. What is the level of electricity service needed?
  2. What are the costs of providing that level of service using different means? This question is answered in consultation with utility representatives, electrification planners and mini-grid designers.

Further Explanation of Key Points

What is the Level of Electricity Service Needed?

To determine what level of energy service to provide, developers need to work with the community to conduct an energy needs assessment. There are significant variations in the level of electricity service that can be provided by mini-grids, other off-grid solutions (like solar home systems) and grid-supplied electricity (following grid extension). In simple terms, the cost of an option that provides basic household lighting and cell-phone charging is considerably less than one that provides enough electricity for refrigeration or running agricultural processing equipment.

Levels of service available from off-grid electricity technologies are roughly captured in the Multi-Tier Framework for Measuring Household Electricity Access, developed by the World Bank.

If, based on the Multi-Tier Framework, the required electricity service levels of most of the community are Tier 2 or above, the next step would be to conduct an assessment of a daily load profile for the community. If the needs are mostly Tier 1 and below, for example, pico-solar lanterns that charge cell phones are probably the best route. Project developers should also consider projected future load growth when determining the best approach.

How Can Daily Electricity Use be Projected?

A daily load profile is an estimate of how many kW of power customers will need throughout a typical day. When assessing the daily load profile, developers should identify likely significant, seasonal variations or weekend/weekday variations in power demand; deferrable loads, which can be shifted to times of relative abundance of power; and projected load growth over time.

Accurately predicting loads and designing the mini-grid to accommodate growth can prevent costly future upgrades. Mini-grid system engineers may be able to design the mini-grid to accommodate future expansion. For example, engineers can build extra space in the power plant and install unused circuit breakers to power future solar panels, batteries, charge controllers and converters.

HOUR 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24
Load (kW)

 

40

30

20

10

15.76 12.73 7.03 6.7 7.38 10.32 15.93 10.82 12.27 10.49 10.23 7.72 7.7 8.08 8.26 12.81 13.4 17.26 33.51 42.64 39.65 35.13 35.05 31.6
Daily Load Profile for Koh Po.
Source: Greacen, C., et al. (2007).Renewable Energy Options on Islands in the Andaman Sea:Hybrid solar/ wind/diesel systems. Southeast Asia Consult & Resource Company Limited.

In addition to a daily profile, designers need to know how reliable the electricity must be. If the electricity will power a hospital, for example, a power outage could result in a death or grave injury. In a small community where residents are accustomed to using candles, on the other hand, an outage might only cause inconvenience.

How frequently can power outages of various durations be tolerated? What is acceptable power quality (voltage and frequency variations)? Will loads be damaged by excessively high or low voltage and/or frequency? Different customers may have different answers to these questions, and a system can be designed to meet priority loads with high reliability and other loads with less reliability.

What Are the Costs of Providing that Level of Service Using Other Sources of Electricity?

Once the load profile (with seasonal/weekly variations and deferrable loads, if any), reliability and power quality have been determined, designers can start thinking about the costs of providing these services through mini-grids or other means.

Grid-extension prices are often available from the local utility. They generally comprise a “per kilometer” cost (for extending medium-voltage or low-voltage lines to the village) and a price per new connection to connect new customers. Sometimes they include a separate charge for a step-down transformer from medium to low voltage. Grid extension prices vary, depending on whether the service is three-phase (suitable for industrial loads like rice milling, ice factories and large-scale refrigeration) or single-phase (more suitable for household connections and small businesses). In addition to connection costs, customers will need to consider the price of electricity and the utility’s monthly meter charge, if any.

Hydropower or biomass gasifier mini-grids are generally sized and costed using spreadsheet-based tools created by the project developers themselves. In the case of mini-grids that have battery storage or include multiple sources of power (such as solar panels and a diesel generator), cost estimates are probably best accomplished by using system-modeling software such as Hybrid Optimization of Multiple Energy Resources (HOMER) (described in Levelized Cost of Electricity [LCOE]) combined with research on the equipment and installation cost of components. To give reliable estimates, this design-optimization process generally requires an experienced technician or engineer. If household-scale stand-alone systems can provide the level of service required, estimates of the costs of relevant systems are generally determined with a process similar to that used for mini-grids. A system is designed that meets the load requirements (both current and anticipated), and the cost is estimated by someone familiar with the cost of installed equipment. Companies that install solar home systems are now common in many developing countries, and they can provide estimates for installed costs of stand-alone systems that will meet a particular electricity demand load profile.

Information gathered about these options can help developers decide whether a mini-grid is the most cost-effective approach for providing a given level of energy service. It should be noted that the costs will not always be directly comparable. These options may have different upfront and operational costs and different lifetimes that need to be considered and weighed against one another. One approach is to calculate and compare an LCOE for each option.

Putting it Into Practice

Developing the daily load profile (see figure above) requires either:

  1. An assessment of actual electricity consumption over the course of multiple days throughout the year, generally using a datalogger, or
  2. Using survey techniques to estimate loads that people expect to use at anticipated tariff levels.

If the load already exists (option 1), then a datalogger with three current transducers of appropriate capacity, is often an affordable choice. If the survey (option 2) is chosen, the daily load profile spreadsheet in the Daily Load Profile Estimator can be used to generate a load profile using information gathered from household surveys. It should be noted that surveying involves a “chicken and egg” problem: Usage depends on tariffs, but commercially viable tariffs depend on the amount of electricity that can be sold. Moreover, survey respondents who have never had electricity service may find it difficult to accurately estimate how much electricity they will use. It may be useful to consider consumption patterns in similar communities that already have some form of electricity service offered at comparable tariffs.

With an estimated daily load profile in hand, next steps include gathering capital cost information for renewable energy and storage components, the data on available renewable energy resources and the capital and energy costs of utility power per kWh. HOMER software can use this data to determine the LCOE from mini-grids and compare them to the costs of grid extension.

As a cross-check and reference, it is useful to research costs and choices found on the internet or in periodicals such as Home Power Magazine.

Relevant Case Studies

Adaptive Solar PV Mini-Grids in Tanzania. Devergy, an energy services company in Tanzania, is providing rural villagers with access to electricity using PV-powered mini-grids with smart payment and monitoring technologies. This case study discusses the costs of a dispersed mesh solar mini-grid serving 1,266 households and businesses across 20 villages in rural Tanzania.

Hydropower in Tanzania’s Rural Highlands. The Mwenga Hydro Generation and Rural Electrification Project in Tanzania’s Iringa region provides electricity to more than 2,200 households in 17 villages, a local tea and coffee factory and the national grid. The Rift Valley Corporation installed the 4-MW facility in 2012 with funding from the Africa Caribbean Pacific-European Union Energy Facility and Rural Energy Agency.

Last updated: February 13, 2018

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