Sunday, December 4, 2011

Choosing the least-cost option

Figure 1: Example of decision tree for least-cost technology choice (AFREA)

Then main part of the preliminary assessment that should be conducted at an early stage of the development of a rural electrification project (see also this post) is to determine which is the least-cost solution, comparing life-cycle costs (LCC) per kilowatt hour (kWh) of the system/s under evaluation (PV stand alone, wind-PV hybrid mini-grid,etc) against traditional solutions, that is, grid extension and diesel generators. For this purpose, standard cost curves are an useful tool.

Previously, the following information should have been gathered and evaluated:
  •  Estimated daily energy demand: which, where and how many facilities and services to cover
  • Availabity of renewable energy resources: solar, wind, water,etc
  • Diesel-fuel affordability and reliability of supply
  • Grid extension plans and distance from the national grid
  • Estimated system sizes
  • Estimated system costs
  • Estimated system operating cost

As said above, for a preliminary LCC assessment, standard cost curves and rough data may be valid, although it is highly recommended to try to obtain updated information according to local parameters and market state of the art. Figure 2 shows a comparison between typical arrangenments for rural electrification, that is: PV stand-alone, PV-diesel hybrid system, diesel generator and grid extension. Two distances are considered for the option "grid extension", since distance to the facilities to be powered is a determining factor that must be considered.

Figure 2 (AFREA)
After a LCC analysis as above, some interesting conclusions can be obtained, such as:
  • Low energy demands favor solutions based on PV technology (stand-alone or hybrid) This is usually true from 3,5-4 kWh/m2/day of solar radiation.
  • From 3 kWh/day of energy demand, PV-diesel is not longer cost-effective against grid extension (if the national grid is in a radius of 1 km or less)
  • From 20 kWh/day, PV is not longer competitive with diesel generators
  • From 30 kWh/day, grid extension is the least-cost option

Usually the information needed for a good LCC assessment is not available at early stages of project development. Figure 3 shows the differences in grid extension costs depending on the project location. Also operating costs are not always easy to predict. As a rule of the thumb, these are usually estimated as a fixed proportion of investment costs. For example, PV operating costs may be estimated at about 15% of the capital costs for stand-alone systems (that is, 50% of the total life cycle costs)

Figure 3: Costs of grid extension in US$/km (ESMAP,2000)

Likewise, operating costs also depends on the ownership structure, distance to the closest service center, system sizing and design, fuel prices, etc. For exmple, depending on the type of batteries chosen these may last up to 8-10 years or need to be replaced every three years. Something similar happens with diesel generators. The durability of a generator is limited by the number of operating hours and also linked to the load curve at which the generator is usually operating.

According to the above, a proper LCC analysis should incorporate as many variables and potential scenenarios as possible. In this regard, the use of energy modelling software like HOMER is strongly recommended in order to limit and discard options and ultimately decide what is the least cost option for a SPECIFIC project. For example, once evaluated capital and operating costs for several options, HOMER can provide a graph as this below:

This graph aims to compare different arrangements (PV and wind stand-alone, PV and/or wind diesel hybrid system ,only diesel generator,etc.) and provides this information:

  1. Diesel generator is not a cost-effective option in any case, even when fuel price is 0.4 $/L.
  2. PV systems are the least cost option as long as average solar irradiation is higher than 4.0 kWh/m2/day and average wind speed is lower than 5.0 m/s.
  3. Wind energy is always the most cost-effective option when average wind speed is higher than 6.0 m/s.
So even if the renewable energy resource has been not evaluated yet (wind resource is especially hard to assess) or there is uncertainty about diesel prices, these kind of software enable the project developer to further progress over the decision tree.

Author's observations (Rwanda Electrification Challenge, 2009)
Green light for renewable energy in developing coutries (ARE, 2009)
Guidance for Sustainability (AFREA)