Saturday, March 10, 2012

Mini-grids, feed-in-tariff and grid parity

"With RES incentives of 15 c€/kWh, a feed-in-tariff specifically designed for mini-grids, PV electricity would reach grid parity"

This is the main conclusion of a really interesting paper (1) published by the Joint Research Center (JRC) last July. And that would mean that decentralized PV could become economically feasible for those 600 million people that currently have no access to energy services in Africa, even for those living at a reasonable distance from the existing grid.

The study compares the Levelized Cost of Electricity (€/kWh) delivered by several electrification technologies, such as: PV mini-grids, off-grid diesel generators and grid extension. The calculation attempts to find a comparable unit cost of electricity for the quatification of the Least Cost Option over the lifetime of the systems. For this purpose, up-front costs and operation costs have been evaluated and included in the calculations. Also, innovative research methodologies have been used to facilitate the decision making: spatial mapping, GIS technologies, interpolation of statistical and economic data, etc. Main considerations for the cost comparison are listed below:

Solar resource evaluation and PV  mini-grid characterization: satellite solar irradiation data made using the photovoltaic geographic information system (PVGIS) The main output is the mapping of the estimated cost of electricity (€/kWh) delivered by standard 15 kWp mini-grids in different regions of Africa (fig.1)

Large geographical differences can be observed since electricity cost from PV mini-grid ranges from 0.2 up to 0.55 c€/kWh.

Off-grid diesel generators electricity costs: As opposed to PV systems, where the capital costs are dominant, fuel consumption is the major cost over the lifetime of a diesel generator. For this purpose, the database of internatiotal diesel prices in African countries has been used, showing  large differences depending on national taxes/subsidies. Thus values range between 8 c€/l (Lybia) and 113 c€/l (Malawi) Travel data time integrating transport costs have been combined with the country-based diesel prices to estimate the specific operation costs for each location (fig.2)



Grid extension: The costs of electricity, when considering grid extension, are determined by the load density (households/km2), number of HH conected and line length. Althoug for most of the Sub-Saharan countries this information is not easily available, information on existing distribution and transmission lines have been gathered from freely available databases or regional institutes. Another factors that must be considered when planning for network extension are:
  • Sensitivity of grid electricity markets to global fossil fuel prices and national subsidies
  • Differences in the connection costs depending on customers located in urban or isolated rural.
  • Capital costs of distribution and transmission facilities, that is proportional to both the circuit-length and the rated output of the generation source. And obviously, up-front costs are strongly influenced by country-based labor and material costs (see fig. 3 in this post)
By establishing an electricity cost threshold of 25 and 30 c€/kWh (appropriate according to the average cost of grid electricity in Sub-Saharan Africa) and integrating all the information mapped previously, some interesting conclusions can be obtained (see table below)


But perhaps the main one is that only 5 c€ difference in ability to pay would significantly increase the proportion of regions (see fig.3) where PV would be the Least Cost Option. So for large remote areas, where the extension costs would increase the electricity costs by around 10-15 c€/kWh, PV electricity could become competitive with grid electricity. Although it is extremely complicated to collect data from subsidies for grid electricity, for  most of the countries it can be placed in the range of 12-18 c€/kWh. Why  not subsidize with a similar amount the PV electricity?

As explained above, the analysis also reveals the high sensitivity of the decentralized rural electrification systems to the diesel prices. As fuel is often subsidized by certain African governements, why not also consider to support PV (in the form of feed-in-tariff, for example) and thus avoiding to distort the rural electrification markets?

This study confirms that renewable energy can and must play an essential role to put the energy to the service of the human development, resulting in a long-term sustainable energy mix that make the access to modern energy services affordable to the BoP. Since the lack of valid information with respect to subsidies and taxes, grid-extension master plans, load profiles and socio-economic data is one of the main barriers, the involmement of regional and national stakeholders is seen as indispensable for country-specific evaluations.

Sources:

S. Szabó, M. Moner-Girona, K. Bodis and T. Huld; "Mapping electrification costs of distributed solar and diesel generation versus grid extension"; JRC and UNEP.
"Renewable Energies in Africa"; JRC Scientific and Technical Reports.
"Technical and Economic Assessment of Off-grid, Mini-grid and Grid Electrification Technologies"; ESMAP Technical Paper 121/07.