Minigrids in the Money Six Ways to Reduce Minigrid Costs by 60% for Rural Electrification

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Minigrids in the Money Six Ways to Reduce Minigrid Costs by 60% for Rural Electrification M OUN KY T C A I O N R I N E STIT U T MINIGRIDS IN THE MONEY SIX WAYS TO REDUCE MINIGRID COSTS BY 60% FOR RURAL ELECTRIFICATION BY JOSH AGENBROAD, KELLY CARLIN, KENDALL ERNST, AND STEPHEN DOIG AUTHORS & ACKNOWLEDGMENTS AUTHORS PROGRAM SPONSORS Josh Agenbroad, Kelly Carlin, Kendall Ernst, and Sponsors of RMI’s Sustainable Energy for Economic Stephen Doig Development Program: Also contributing to this report: Ebun Ayandele, Olu Aruike Olu, Scarlett Santana, James Sherwood, and Eric Wanless * Authors and contributors listed alphabetically. All authors and contributors from Rocky Mountain Institute unless otherwise noted. CONTACTS Kendall Ernst, [email protected] Kelly Carlin, [email protected] SUGGESTED CITATION Agenbroad, Josh, Kelly Carlin, Kendall Ernst, and Stephen Doig. Minigrids in the Money: Six Ways to Reduce Minigrid Costs by 60% for Rural Electrification. Rocky Mountain Institute, 2018. www.rmi.org/insight/minigrids2018 Cover and back cover images © RMI, Solar Panels in Nigeria. Images courtesy of iStock unless otherwise noted. ABOUT US M OUN KY T C A I O N R I N E STIT U T ABOUT ROCKY MOUNTAIN INSTITUTE Rocky Mountain Institute (RMI)—an independent nonprofit founded in 1982—transforms global energy use to create a clean, prosperous, and secure low-carbon future. It engages businesses, communities, institutions, and entrepreneurs to accelerate the adoption of market-based solutions that cost-effectively shift from fossil fuels to efficiency and renewables. RMI has offices in Basalt and Boulder, Colorado; New York City; Washington, D.C.; and Beijing. TABLE OF CONTENTS EXECUTIVE SUMMARY ...................................................................................................................................... 5 01: THE OPPORTUNITY TO TRANSFORM RURAL AREAS WITH MINIGRID ELECTRICITY ....... 9 02: CHALLENGES TO SCALING RURAL MINIGRIDS ..............................................................................15 03: COST-REDUCTION PATHWAYS FOR RURAL MINIGRIDS .............................................................21 04: DEVELOPING AN INVESTMENT ROADMAP .....................................................................................33 05: CONCLUSION...............................................................................................................................................37 APPENDIX: ANALYSIS METHODOLOGY AND ASSUMPTIONS ........................................................39 ENDNOTES............................................................................................................................................................54 EXECUTIVE SUMMARY Image © RMI. RMI site visit in Kenya EXECUTIVE SUMMARY More than 600 million people—65% of the sub- a mobile phone, and, increasingly, power small Saharan African population—lack electricity access. appliances such as fans and televisions. The market Hundreds of millions more have only an unreliable for these solar home systems is growing rapidly. and intermittent supply, at best. Across much of Equally important, the solar lantern and home systems Africa, many communities and businesses without have proven to be a viable business and market reliable grid electricity have turned to expensive, opportunity, attracting hundreds of millions of dollars noisy, polluting, unreliable electricity from diesel- or in investment. petrol-powered generators (i.e., gensets). Despite the success of solar lanterns and solar home The traditional path to bringing power to the unserved systems, another critical leap must be made: providing millions is to expand the electricity grid, building new not just watts of electricity but kilowatts. People need fossil-fueled power plants and running transmission not only solar lanterns and mobile phone chargers but and distribution lines to far-flung villages, farms, and also appliances and equipment that support greater homes. That model has worked in the developed economic growth and quality-of-life improvements. world, where strong government agencies and locally Minigrids can bridge this critical gap between smaller, organized cooperatives have driven electrification. But solar-powered off-grid efforts and the hundreds of the approach has not worked as well in sub-Saharan millions of people traditional grid extension has failed Africa and other developing regions for several to reach. reasons, including: Once people have access to larger amounts • high infrastructure costs of electricity, they can use cassava grinders, • low ability of end-users to pay welding equipment, sewing machines, band saws, • disproportionately small end-use demand in villages refrigerators, water pumps, washing machines, and • unreliable and intermittent electricity supplied via scores of other important devices. That, in turn, puts grid extension. more money into people’s pockets, enabling local regions to grow in a virtuous cycle of development Today, innovative business models using modern that many African governments are targeting. technologies such as solar photovoltaics (PV) and low-cost batteries are emerging as an effective way For this reason, there is currently a vital role for to provide off-grid power in rural areas, enabled by minigrids—small-scale distribution networks with developments such as mobile money and pay-as- local generation based primarily on solar PV power, you-go financing. Rocky Mountain Institute (RMI) and backed up with batteries or gensets for reliable 24/7 others have already seen these effects on a small power. However, although successful examples exist, scale in communities that have recently adopted minigrids have so far largely failed to scale across the innovative off-grid power approaches, such as solar subcontinent. Addressing and overcoming barriers will home systems or larger solar-based minigrids. thus be critical for minigrids to deliver benefits for the populations that need them most. At the smallest scale, solar lanterns and home solar systems can light a house, run a radio, recharge 6 EXECUTIVE SUMMARY BARRIERS TO SCALING RURAL COST-REDUCTION PATHWAYS FOR MINIGRIDS RURAL MINIGRIDS Four key barriers stand in the way of using minigrids to Our analysis has identified one pathway by which achieve widespread rural electrification: minigrid costs can be reduced by 60%. This cost reduction would rapidly accelerate market growth for 1. Most minigrids are still too expensive. minigrids by cutting the LCOE of minigrid-produced Although several companies are now developing power from between $0.60 per kWh and $1.00 per standardized designs, most current minigrids are kWh today, to $0.25 per kWh by 2020: unique, custom installations. As a result, the typical levelized cost of energy (LCOE) for a well-run minigrid 1. Reduce costs of minigrid hardware. today is at least $0.60 per kilowatt-hour (kWh). a. Leverage ongoing hardware cost declines b. Pursue bulk purchasing and streamlined 2. Minigrid-produced power is underutilized. procurement The typical rural household lacks the resources to c. Use standardized designs and simplified buy water pumps, electric irons, refrigerators, and construction methods other devices and appliances—even sometimes d. Use a “minigrid-in-a-box” approach a fan—that would put to use more of a minigrid’s potential electricity generation. Poor utilization 2. Ensure that the electricity generated is fully rates thus further drive up the resulting cost per utilized through demand stimulation and unit of electricity sold because a smaller number of optimized load management. kilowatt-hours of consumption share the up-front a. Locate minigrids near productive uses of capital and ongoing operational costs. Moreover, energy—operations such as grain mills, garment the demand that does exist may not match the factories, hospitals, or a business district generating profile of a solar-based minigrid. of shops—to ensure sufficient demand and revenues 3. Financing is expensive or unavailable. b. Find ways to create or stimulate demand Minigrid companies have struggled to secure equity, sustainably, for example, by providing financing or either concessional or commercial debt, keeping for people to buy electric motors for grain mills them from scaling up their operations. In addition, or electric pumps in addition to buying the any financing that is available is expensive, with electricity that runs them rates of commercial debt available to developers c. Proactively manage demand—especially flexible typically 15% or more in sub-Saharan Africa. loads—to more fully utilize/absorb variable renewable generation 4. Regulatory and policy barriers slow progress and increase costs. Slow, unclear, or unpredictable 3. Focus on customer acquisition and relationship licensing and tariffs, as well as requirements that management. Work closely with local communities limit the prices that can be charged for electricity, and local actors. Not only can local people be add further challenges and risks. trained for many jobs connected with minigrids but also communities could take over management and even ownership roles. This approach better aligns incentives for finding loads, signing up new customers, ensuring security, siting, and improving collections. Some level of community ownership M OUN KY T C A I O N R MINIGRIDS IN THE MONEY | 7 I N E STIT U T EXECUTIVE SUMMARY will also keep part of profits in the local community, a. Standardizing different parts of minigrid creating a virtuous cycle for further economic financing, including the supply chain, project development and new electricity
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