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Mini Grids and the Arrival of the Main Grid

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Mini Grids and the Arrival of the Main Grid TECHNICAL REPORT 013/18 Public Disclosure Authorized MINI GRIDS AND THE ARRIVAL OF THE MAIN GRID: LESSONS FROM CAMBODIA, SRI LANKA, AND INDONESIA Public Disclosure Authorized Public Disclosure Authorized Public Disclosure Authorized 9910_ESMAP_Mini_Grids_Arrival_of_Main_Grid.indd 1 1/31/19 12:12 PM ESMAP MISSION The Energy Sector Management Assistance Program (ESMAP) is a global knowledge and technical assistance program administered by the World Bank. It provides analytical and advisory services to low- and middle- income countries to increase their know-how and institutional capac- ity to achieve environmentally sustainable energy solutions for poverty reduction and economic growth. ESMAP is funded by Australia, Austria, Denmark, the European Commission, Finland, France, Germany, Iceland, Italy, Japan, Lithuania, Luxembourg, the Netherlands, Norway, The Rock- efeller Foundation, Sweden, Switzerland, and the United Kingdom, as well as the World Bank. Copyright © October 2018 The International Bank for Reconstruction and Development / THE WORLD BANK GROUP Energy Sector Management Assistance Program 1818 H Street, NW | Washington DC 20433 | USA ESMAP reports are published to communicate the results of ESMAP’s work to the development community. Some sources cited in this report may be informal documents not readily available. The findings, interpretations, and conclusions expressed in this report are entirely those of the authors and should not be attributed in any manner to the World Bank, to its affiliated organizations, to members of its board of executive directors for the countries they represent, or to ESMAP. The World Bank and ESMAP do not guarantee the accuracy of the data included in this publication and accept no responsibility whatsoever for any consequence of their use. The boundaries, colors, denominations, and other information shown on any map in this report do not imply on the part of the World Bank Group any judgment on the legal status of any territory or the endorsement of acceptance of such boundaries. The text of this publication may be reproduced in whole or in part and in any form for educational or nonprofit uses, without special permission, provided the source is acknowledged. Requests for permission to reproduce portions for resale or commercial purposes should be sent to the ESMAP Manager at the address above. ESMAP encourages dissemination of its work and normally gives permission promptly. The ESMAP Manager would appreciate receiving a copy of the publication that uses this report for its source, sent in care of the address above. All images remain the sole property of their source and may not be used for any purpose without written permission from the source. Cover photo: Transformer connecting the previously isolated 21 kW Athureliya micro-hydropower project to Sri Lanka’s national grid. © Chris Greacen/World Bank. Further permission required for reuse. Attribution | Tenenbaum, Bernard, Chris Greacen, and Dipti Vaghela. 2018. Mini Grids and the Arrival of the Main Grid: Lessons from Cambodia, Sri Lanka, and Indonesia. Energy Sector Management Assistance Program (ESMAP) Technical Report 013/18. Washington, DC: World Bank. 2 9910_ESMAP_Mini_Grids_Arrival_of_Main_Grid.indd 2 1/31/19 12:12 PM TABLE OF CONTENTS PREFACE iv ACKNOWLEDGMENTS vii ABOUT THE AUTHORS viii ABBREVIATIONS ix EXECUTIVE SUMMARY x Case Studies xi Cambodia xi What happened? xi Why? xi Sri Lanka xii What happened? xii Why? xiii Indonesia xiii What happened? xiii Why? xiv Concluding Observations on the Case Studies xiv New Ownership and Regulatory Approaches: Public–Private Partnerships and “Regulation by Contract” xvii Recommendations xviii 1 | INTRODUCTION 1 Country Overviews 1 Cambodia 1 Sri Lanka 1 Indonesia 2 Options for Previously Isolated Mini Grids 2 Scope of This Study 3 2 | CAMBODIA: FROM ISOLATED DIESEL MINI GRIDS TO DISTRIBUTION FRANCHISEES 5 Powering Households before a Village Is Connected to the Main Grid 5 Regulatory Framework for Isolated Mini Grids 6 What Happened after the Main Grid Arrived? 7 Regulatory Aspects 9 Licenses to Distribution Franchisees 9 Regulation of Retail Tariffs Charged by Licensees 9 Regulation of Wholesale Tariffs 11 Commercial Aspects 11 Technical Aspects 13 Concluding Observations 14 3 | SRI LANKA: TRANSITIONAL COMMUNITY-OWNED MINI GRIDS 16 Powering Households before a Village Is Connected to the Main Grid 16 Public–Private Partnership 17 Financing 18 Tariff Regulation 19 What Happened after the Main Grid Arrived? 20 Going out of Existence as a Retail Supplier 20 Becoming a Small Power Distributor: A Nonviable Option 21 i 9910_ESMAP_Mini_Grids_Arrival_of_Main_Grid.indd 1 1/31/19 12:12 PM Becoming a Main Grid-Connected Small Power Producer 22 Legal Prerequisite for Becoming an SPP 23 Barriers to Conversion 24 Adopting a Different Ownership Model 25 Technical Aspects of Interconnection 25 Concluding Observations 26 4 | INDONESIA: PIONEERING GRID-INTERCONNECTION OF MICRO-HYDROPOWER MINI GRIDS 28 Mini grids, Micro-Hydropower, and Rural Electrification 28 Regulations Facilitating Grid Interconnection 31 What Happened after the Main Grid Arrived? 33 Selling All Output to the Grid 34 Selling Only Excess Electricity to the Grid 36 Why Have So Few Micro-Hydropower Projects Been Converted to Small Power Producers? 36 Inability to Obtain Permits 36 Inadequate Tariffs for Projects Interconnected before 2009 37 Expense of Complying with Post-2009 Regulations 37 Concluding Observations 37 5 | CONCLUDING OBSERVATIONS AND EMERGING DEVELOPMENTS 39 Options for Mini Grids When the Main Grid Arrives 39 Stop Selling Self-Generated Electricity Directly to Retail Customers 39 Differences in Tariffs 40 Differences in Service Levels 40 Legal Restrictions 41 Livelihood Motivations 42 Become a Small Power Producer 42 Embrace the Transition from Mini Grid to Small Power Distributor 43 Factors Affecting Interconnection Outcomes 43 Technology 44 Scale 44 Country Context 45 Post-Connection Business Model 45 Wholesale Tariffs 47 What Is Likely to Happen in Other Countries When the Main Grid Arrives? 47 Recommendations 49 APPENDIX A | Differences between Microgrids and Mini Grids 52 APPENDIX B | Short Technical Primer on Main Grid-Connected Mini Grids 54 Mini Grids Connected to the Main Grid 54 Selling to Both Main Grid and Mini Grid Customers 55 Selling to and Buying from the Main Grid 56 Islanding 56 ii 9910_ESMAP_Mini_Grids_Arrival_of_Main_Grid.indd 2 1/31/19 12:12 PM APPENDIX C | Three Generations of Mini Grids 59 First- and Second-Generation Mini Grids 59 Third-Generation Mini Grids 59 APPENDIX D | Public–Private Partnerships for Mini Grids in Kenya, Nigeria, and Sierra Leone 61 Kenya: Engineering, Procurement, and Construction (EPC) Contractor and Transitional Mini Grid Operator 61 Nigeria: Owner and Operator of Mini Grid Generation and Distribution Facilities 62 Sierra Leone: Long-Term Owner of Generation and Long-Term Operator of Distribution 63 Features of the Three Business Models 63 APPENDIX E | Regulatory Contracts and Mini Grids 65 National Regulatory Policies 65 Regulatory Contracts 65 REFERENCES 69 Tables, Figure, Boxes, and Map Table 2.1 Standardized Tariffs Charged by Distribution Franchisees That Purchase Wholesale Electricity from the National Grid 10 Table 2.2 Example of Typical Distribution Franchisee with Calculated Full Cost–Recovery Tariff 10 Table 4.1 Donor Programs for Scaling Micro-Hydropower in Indonesia 30 Table B4.1 Components of Grid-Connected Micro-Hydropower Projects in Indonesia 31 Table 4.2 Policies Affecting Independent Power Producers of Renewable Energy in Indonesia 32 Table 4.3 Grid-Interconnected Mini Grid Projects in Indonesia That Started as Stand-Alone Projects, 1991–2006 34 Table 4.4 Grid-Interconnected Mini Grid Projects in Indonesia That Started as Stand-Alone Projects, 2008–13 35 Table 5.1 Equipment Requirements of Post-Interconnection Business Models 46 Table D.1 Business Models for Top-Down Competitive Bidding for Mini Grids in Kenya, Nigeria, and Sierra Leone 64 Figure B.1 Schematic of Mini Grid Supplying Electricity to Its Own Customers and Selling Excess to the National Grid 56 Box 4.1 Using Local Technology to Connect Micro-Hydropower Projects to the Grid in Indonesia 31 Box 4.2 Curugagung, Indonesia’s Pioneer Grid-Connected Micro-Hydropower Project 35 Box 4.3 The Seloliman Project, an Excess Only Micro-Hydropower Mini Grid 36 Map 2.1 Electricity Licensees in Battambang Province, Cambodia, 2015 8 iii 9910_ESMAP_Mini_Grids_Arrival_of_Main_Grid.indd 3 1/31/19 12:12 PM PREFACE About 1 billion people in the world lack access to electricity. Although the number has been steadily declining, the current speed of progress is too slow to meet the target of universal electrification by 2030 (Sustainable Development Goal 7). By 2030, 674 million people are projected to remain unelectrified. A sizable portion of this gap can be attributed to lack of financing. Current commitments are estimated at less than half of the $52 billion a year needed to achieve universal access by 2030. Another reason for the gap is that electrification programs have traditionally focused on extending the national grid. Doing so is often prohibitively expensive in remote settlements and areas with low population densities and low demand for electricity. Developing electrification models that complement grid extension is therefore critical. Mini grids and off-grid systems are two practical complementary approaches to grid extension. Recent technological breakthroughs, the emergence of innovative business
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