module iii - technical and financial options for re

8/4/2019 Module III - Technical and Financial Options for RE

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South Asia Regional Initiative/Energy(SARI/ENERGY)

U.S. Agency for International Development

Course Prepared and Provided By

CORE International, Inc., Washington, D.C.

September 14-16, 2003Kathmandu, Nepal

Course on Organizational and StaffDevelopment Training Rural Electric

Cooperatives, Nepal


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Module III: Technical andFinancial Optionsfor RuralElectrification

Course on Organizational and StaffDevelopment Training Rural Electric

Cooperatives, Nepal


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I. Technical Options for Rural ElectricCooperatives (RECs)

II. Advantages and Disadvantages of Grid andNon-Grid Rural Electrification

III. Financing Options for Rural ElectricCooperatives (RECs)

IV. Type and Role of Subsidy for RECs

V. Methods of gradual withdrawal of subsidy

Module III: Technical and FinancialOptions for Rural Electrification


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I. Technical Options for Rural ElectricCooperatives (RECs)

Grid extension

Distributed power generation and micro-grids

Isolated off-grid systems, which include:

Micro hydro

Photovoltaic Biomass

Wind energy



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I. Technical Options for RECs - cont'd

Grid Extension

Infrastructure required to transmit power from

the source national grid to demand centersand make it available to consumers

Includes both the HV/MV transformer andconnection line from the main supply pointnational grid and distribution network andtransformers at the load center



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Distributed Power Generation and Micro-Grids

Distributed generation is small scale, near the loadthat provides more economic, and/or less pollutingpower supply and management options for energyconsumers and utilities than conventional centralgeneration

Unit cost of delivered electricity is the main factorthat dictates their acceptability



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Distributed Power Generation and Micro-Grids - cont'd

Micro-grids are small electrical distribution

systems that connect multiple customers tomultiple sources of generation

Typically, micro-grids are characterized bymultipurpose electrical power service tocommunities with populations up to about 500households with overall energy demand up toseveral thousand kWh per day



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Isolated Off-Grid Systems

Typically isolated and meet the RE demand ofhouseholds or at the village level, which mayinvolve small IPPs

Village systems are often micro hydro, wind, etc.

Household systems are often solar poweredsystems and biomass based systems



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II.Advantages and Disadvantages of Grid andNon-Grid Rural Electrification (RE)

Grid Extension - Advantages

Traditionally RE has been provided as extension ofthe national grid and perceived positively by therural populations

Experience shows that grid-extension-based REsystems are economical when:

demand density is reasonably high, and

level of collections is high



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II.Advantages and Disadvantages of Grid and Non-GridRural Electrification - cont'd

Grid Extension Advantages - cont'd

It is the most suitable and economical model forproviding electricity service to high density rural loads inthe vicinity of the grid

Even those who cannot afford electricity in their homes

can enjoy the benefits such as pumped water, improvededucation, and better health care facilities

Often perceived as a permanent community investmentand creates a national infrastructure on which to base

future socioeconomic development



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II. Advantages and Disadvantages of Grid and Non-GridRural Electrification - cont'd

Grid Extension Disadvantages

Low demand of electricity in remote rural areasincreases the cost of supply to uneconomical levels

Possibility of lack of local technical and managementpersonnel

Generally, high technical losses

Generally, high administrative costs



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Non-Grid Rural Electrification Advantages

Increased reliability and availability in the case ofmini-grid systems

Lower to zero power transmission losses

Increase potential for consumer participation (in thecase of RECs consumers own the system)

Potentials for utilizing local energy resources togenerate power, which otherwise are considered

uneconomical



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Non-Grid Rural Electrification Disadvantages

High capital costs for similar design standards asurban areas

Lack of capacity to implement and maintain

operations Difficulty to raise private capital in rural areas



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III. Financing Options for Rural ElectricCooperatives (RECs)

Concessional

Commercial

Member contribution

Sweat equity

Supplier credits



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III. Financing Options for RECs - cont'd

Concessional Finance

Government budget Multilateral development institutions (IBRD/IDA,

AfDB etc.) soft loans and credits

Bilateral donors under bilateral agreements

Specialized rural development funds



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Commercial Finance Private Banks

Operate in open market

Generally offer no project financing

Loans mostly short term

High collateral and high interest rates



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REC Member Contribution

REC member up front contribution is a type ofequity participation

REC members pay for service drop and house-wiring

This type of financing in free of interest



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Sweat Equity

The member/consumer takes on a broader rolethan just being a buyer of a product or service

Consumers participate in the implementation of REby contributing time and human resources,thereby:

reducing costs of RE, and

increasing consumer participation andacceptance in the REC



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Suppliers Credit

Widely practiced in financing technologies and inputs

Financing at competitive rates

Primarily used for introducing new technologies andproducts to an otherwise un-served market

For example, the manufacturers, say of mini-turbines, mini-diesel gensets, and PV systems, mayoffer suppliers credit in order to make a marketentry and/or enhance their competitiveness



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IV. Type and Role of Subsidy for RECs

Role of Subsidy

To lower cost of providing electric service to ruralareas and make it affordable

To promote use of electricity income generatingactivities in rural areas

To support rural social development by providingincentives for using electricity in education,health, and other community rural institutions



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IV. Type and Role of Subsidy for RECs - cont'd

Type of Subsidy

Grants received from the Government budget

Low interest and moratorium on interest for someperiod by domestic development institutions on loans

Subsidy by multilateral, bilateral, and other donors inthe form of grants and low interest funds

Tax exemptions on equipment used for providingelectric service

Caps on price of goods



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IV. Type and Role of Subsidy for RECs - cont'd

Apply subsidy appropriately through ensuring

Support for access to energy but not financing

consumption

Creation of a market without distorting marketrules

Equitable use without creating or reinforcing amonopoly

Neutrality in terms of technological choices



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Why withdrawal of subsidy

Only the government would wish to providesubsidy as its policy

The government can not afford to provide subsidyfor ever, otherwise it would face serious financial

problems



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V. Methods of gradual withdrawal of subsidy - cont'd

Why withdrawal of subsidy - cont'd

Other donors would never provide subsidy as agrant on a regular basis

Rural utility (electricity, drinking water, primaryhealth, etc.) service providers can not remaincommercially viable if they provide subsidized

services. Also, the service would deteriorateover time



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Approaches for withdrawal of subsidy

Integrate rural energy and rural developmentprograms for poverty alleviation of ruralpopulation

Train and employ rural population in the activitiesof rural service providers

Create an environment for rural industries whichcan employ rural population thereby increasingrural buying power



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Approaches for withdrawal of subsidy - cont'd

Encourage rural cottage industries Improve educational and health care facilities in

rural areas

Involve local NGOs in all aspects and activities for

poverty alleviation programs Involve local rural population in decision making

for developing and implementing integrated ruralprograms



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Approaches for withdrawal of subsidycontd

Educate the rural population that electricity and other rural services cannot be

provided to them on subsidized rates for ever

that the subsidy would be withdrawn over a period

in a gradual manner that they have to increase their economic condition

to afford rural services after the subsidy iscompletely withdrawn


module iii - technical and financial options for re

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