Enabling the decentralised renewable energy transition in emerging countries with clean energy

mini-grids

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Jens Jæger Policy & Business Development Manager (Asia)

Alliance for Rural Electrification

Innovation for Cool Earth Forum Tokyo

9-10 October 2019

The Alliance for Rural Electrification (ARE) is an international business association with the aim to promote a sustainable decentralised renewable energy industry for the 21st century, activating markets for affordable energy services, and creating local jobs and inclusive economies. ARE had more than 130 Members at the end of 2018.

More information: ruralelec.org/matchmaking-platform

About ARE

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ARE Members and Services

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ARE helps on sector coordination and development by: Service Line 1: Market Intelligence & Business Services Service Line 2: Policy & Advocacy Service Line 3: Individual Support

Status Quo: Energy Access in South-East Asia

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• 339 million people are without access in South and South-East Asia.

• To achieve energy access for all by 2030, 52 billion USD per year is needed

• Current investment of 30.2 billion USD per year is not enough.

Definition of a Mini-Grid

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“Mini-grids are electric power generation and distribution systems that provide electricity to customers in a remote settlement or bring power to hundreds of thousands of customers in a town or city.” (ESMAP, 2019) Mini-grids are flexible/modular and can supply electricity to concentrated settlements, including domestic, business and institutional customers, with power at or above grid quality level.

The Billion Dollar Opportunity for Clean Energy Mini-Grids

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• To achieve full electricity access South and South-East Asia by 2030: o 44 % of additional generation will have to come from mini-grids (MiA, 2017) o 2,200 mini-grids planned for installation in South and South-East Asia by 2030 (ESMAP, 2019) o Net profit potential across all mini grid component and service suppliers in 2030 alone of USD 4.7

billion (globally) (ESMAP, 2019)

Private Sector Business Models for Mini-Grids in South-East Asia

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Ownership Revenue model for private sector company Example from South-East Asia

Private operator Micro-utility (USD per kWh) Mlinda (India), Rahimafrooz (Bangladesh)

Service packages (price for services)

Okra Solar (Cambodia)

Public (utility) Power purchase agreement (USD per kWh) Clean Power Indonesia

Community Power purchase agreement (USD per kWh) Blue Solar (Thailand)

Hybrid (e.g. Special purpose vehicle)

Micro-utility (USD per kWh) Gham Power (Nepal)

Service packages (price for services)

Interconnecting Mini-Grids with the National Grid (1/3)

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The Problem: Mini-grids are isolated systems deployed in areas where is too costly to extend the national grid (very high costs of establishing high voltage transmission lines). In some cases political priorities may change and then the national grid arrives unexpectedly in a location where an isolated mini-grid is operated by a private company. This financial and political risk of grid arrival remains among the key risks for mini-grid developers and investors in such systems. Given the often extremely low (subsidised) tariffs offered by national utilities, grid extensions are often highly disruptive or detrimental to mini-grid project economics.

Interconnecting Mini-Grids with the National Grid (2/3)

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Six models for clean energy mini-grid integration with the national grid

1. Small power producer: The mini-grid developer converts to a main grid–connected small power producer and no longer sells at retail to villagers, but to the national utility.

2. Small power distributor: The mini-grid developer converts to a small power distributor that buys its full supply at wholesale from the main grid and sells its purchased electricity to villagers.

3. Small power producer and distributor: The mini-grid developer continues to sell electricity to its retail customers with its own generated electricity or wholesale purchases from the main grid operator and also sells electricity to the main grid operator when a surplus is available.

Interconnecting Mini-Grids with the National Grid (3/3)

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4. Side-by-side, but not interconnected: The mini-grid continues to serve customers even when the grid arrives, with no electrical interconnection between it and the main grid, even though both operate in the same village.

5. Compensation and exit: The mini-grid goes out of business, and the developer receives some compensation for assets taken over by the national utility. 6. Assets abandoned: The mini-grid goes out of business and is abandoned. Unfortunately, while being avoidable (see above) this way leading to stranded investments, has been the case in most mini-grids historically.

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• USD 990,000 for launching a Call for Proposals funding in the form of grants for installation of hybrid mini-grids.

• Three success stories from Bangladesh, India and Mali.

• The projects brought great improvements in the quality of life of people and grid connection ready mini-grids.

• The possibility of using clean power productively is bringing local economic development.

Naratoli - Jharkhand, India Muradpur Island, Bangladesh Blendio, Mali

ARE-OFID: Call for Proposals for hybrid mini-grids

Project Results:

• 358 households (24/7 provision of electricity), 61 commercial outlets (poultry units), 57 productive users connected

• 65 direct and indirect jobs created within local communities

• Income increase of 10.6% in the project villages, as a result of electricity connection

Business model: micro-utility (privately owned and operated)

Innovations: grid interconnection ready (side-by-side, but not interconnected), O&M clustering, loans to farmers, productive uses

ARE Case Study: Mlinda Foundation, India

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Project Description: Installation of three new hybrid mini-grids in three rural villages in India (Narotoli, Sahitoli, Pasanga) as part of ARE-OFID grant cooperation agreement.

ARE Key Recommendations (from EAIF 2019)

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Challenges Recommendations

Lack of off-grid market information, data and transparency - Aggregate data to create benchmark on financial costs of mini-grids for the sector

- Analyse and develop business & financing models for productive use of energy and sector coupling

Unsupportive or non-existing policy frameworks - Trainings for policy makers on mini-grid regulations (incl. connection with nat.grid), tariff setting and financing

Lack of interaction between market players inside & outside of local markets

- Support for local and international developers in setting up partnerships

Lack of debt finance (both in terms of volume and design)

- Develop schemes that reward strong results and track records (RBF, climate finance)

Lack of capacity among market players (local associations, project developers and entrepreneurs)

- Facilitate the exchange of knowledge and experience across regions

- Develop training programmes for entrepreneurs, youth and technical staff to build up capacity

Meet us at next ARE Activities

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• Clean Energy Mini-Grid Innovation Workshop

(Singapore, 1 November 2019) • ARE Micro-Grid Workshop & Exhibition

(Bangalore, 27-29 November 2019)

• 6th ARE Energy Access Investment Forum

(Lusaka, 18-19 March 2020)

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Looking forward to see you again you at: 6th ARE Energy Access Investment Forum Lusaka, 18-19 March 2020

Alliance for Rural Electrification

Rue d’Arlon 69-71 1040 Brussels, Belgium

are@ruralelec.org www.ruralelec.org

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