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Opinion: Mini-grids in rural communities – considerations for long-term viability

2014-01-Mini grids

This article was originally published in Solar Business Focus on 14 July, 2014.

By Evan Scandling, Sunlabob Renewable Energy

June proved be a month for drumming up much-needed attention for renewable energy in Southeast Asia. The Sustainable Energy for All (SE4ALL) regional hub for Asia-Pacific was launched by the United Nations and partners, and within a week the International Off-Grid Renewable Energy Conference was hosted in the region for the first time.

Despite the recent headlines and events, for those who look at the statistics, it has never been a secret that Southeast Asia holds massive potential for renewable energy growth, particularly in the form of decentralized solutions.

An estimated 130 million people in the ASEAN (Association of Southeast Asian Nations) region still live without access to centralized grid electricity. Considering that many of those people live in remote, isolated communities – such as one of Indonesia’s 18,000 different islands or in inaccessible areas of Laos – extending grid-connected electricity oftentimes isn’t economically or physically realistic.

It’s no surprise then that the market for electrification of off-grid households in the region recently was estimated to be $64.8 billion.

If the market analyses about decentralized energy opportunities aren’t convincing enough, the world’s preeminent voices on energy issues also agree: the International Energy Agency (IEA) says that if universal electrification is to be achieved, 55 percent of all new power between now and 2030 must come from off-grid energy, 90 percent of it being renewable.

In short, off-grid renewables, particularly in the form of mini-grids, are here to stay.

Why renewable energy mini-grids?

What decentralized solutions are expected to be deployed to help close the energy access gap? “Pico” technologies like solar lanterns and standalone solutions such as solar home systems will certainly continue to play an important role in providing basic lighting, phone charging and powering fans and the occasional television.

But if the IEA’s predictions are accurate, mini-grid systems – fully powered by renewable energy or paired with diesel generators for reliability – will supply nearly half (42 percent) of new electricity if universal electrification is to be reached by 2030.

Mini-grids can be implemented faster than a centralized grid, can easily expand capacity to meet a community’s increased energy demands and can sync with the national grid if needed.

Further, off-grid clean energy is the “fastest, cheapest, and most effective means of ending energy poverty – and is going to create a $12 billion annual industry by 2030,” according to a recently released report by the Sierra Club.

It’s hard to argue: renewable energy-based mini-grids are a prime choice for how electrification efforts in the developing world can best be targeted.

Core elements

Whether a mini-grid is run as a for-profit venture, led by a non-profit entity, or is a hybrid of the two, there are core elements to preparing, operating and maintaining a system that is equipped to achieve long-term, continual, reliable electricity provision.

Understanding the community

Before a mini-grid developer can even begin to think about which solar panels to use or how much battery capacity should be included, a first – and likely the most important – question must be investigated: what does the community want? And how will they use the energy?

Collaboration from the beginning between the mini-grid developer and the community of end-users is an absolute requirement in order to understand both the social and technical contexts. As the Alliance for Rural Electrification states, “Developers should not design the system based on pure technological considerations, but instead adapt to the specific social and economic characteristics of the rural community.”

Community surveys and pre-feasibility studies need to explore questions such as:

  • Current and future load profile: how much energy will the community actually use, now and in the coming years? Do community members plan to use the new source of electricity to begin new energy-intensive activities like rice milling or refrigeration? An important element of discussions with end-users is to also manage expectations of electricity supply: the mini-grid will have limits and an unending amount of electricity won’t be available.
  • Realistic pricing: what is the ability, and also willingness, of villagers to pay for electricity? Is the pricing on-par with other electrified communities in the area?
  • Population density: how close together are houses? Is a mini-grid really the best technology for that specific community? Or would standalone solutions like solar home systems be a smarter choice?
  • Know the central grid: are there existing plans for the national grid to arrive in the near future?

These are just a few of the numerous questions that need to be examined prior to designing a mini-grid. Direct conversations and relationship-building with end-users is an essential step that cannot be ignored.

Community-based operational models

While a multitude of operational models exist, one common ingredient in operating a mini-grid is community involvement. Within the context of a rural village – where most mini-grids are built – a community-centric approach in which locals are incentivized to maintain and manage the system can be a major contributor to a project’s longevity.

Providing villagers with technical training to maintain the system on a daily basis, as well as basic accounting skills to collect payments, can empower villagers to manage the mini-grid on a day-to-day basis. When paired with village-based governance in which respected members of the community provide supervision (what Sunlabob calls a “Village Energy Committee”), the new skills are a key element to a self-sustaining model.

Energy access, human capacity building and community-driven management can be a potent enabler of long-term success.

Opportunities for income-generation

A major selling point of a mini-grid is the ability to catalyze “productive uses” of energy – uses of electricity that increase productivity or income – that cannot be enabled by standalone solutions like solar home systems (after all, if lighting and phone charging are the only objective, why even consider a mini-grid?).

As part of its planning, a mini-grid developer needs to work with end-users to identify how the new electricity can best be utilized to improve upon existing activities or develop new opportunities for income and productivity.

An an Energy Sector Management Assistance Program (ESMAP) position paper rightly contends, the most efficient way to enable long-term impacts through rural electrification is to ensure that energy access programs have “a direct impact on livelihoods and revenue generation, in addition to impacts on standards of living. Increasing revenue generation can be accomplished by improving productivity or reducing production costs in an existing production process. It can also result from the uptake of new lines of productive activities based on electricity use that increase local value-added, generate employment and ultimately enhance local demand.”

In summary, access to energy isn’t the end-goal – continuous, impactful economic and social development is.

(Author’s note: for any mini-grid developer seeking an in-depth, comprehensive guide to planning for productive uses of energy in rural electrification settings, the EUEI-PDF and Deutsche Gesellschaft für Internationale Zusammenarbeit (GIZ) offer extensive resources and information.)

Anchor client partnerships

The majority of people living without electricity also live in poverty – an estimated 80 percent of the world’s un-electrified population earn less than $3 a day.

Considering that renewable energy technologies – particularly those of high-quality standards – are not cheap, it means that those who are in most need of such solutions are also least able to afford such options. The equation, unfortunately, doesn’t always balance: a $3 per day income can’t cover the costs of new energy access necessary for impactful social and economic advancement.

While it’s not a panacea, the “anchor client” approach has gained momentum in recent years as a way to bring balance to the affordability and long-term viability of rural electrification programs.

With a more stable base load demand from a reliable, regularly paying client, energy providers can, in essence, de-risk their electricity sales to individual villagers, who are poorer and oftentimes more unreliable in their payments.

The “anchor client” approach is ripe for application across a variety of industries in off-grid areas, ranging from the telecommunications industry (tower base stations), agriculture (milling, water pumping), fishing (ice storage) and mining (extraction and processing).

The telecommunications industry, thanks in part to the efforts of the GSM Association’s Green Power for Mobile program, likely is the most successful adopter of the “anchor client” approach, particularly in countries like India with high mobile phone penetration and low electrification rates.

Companies like OMC Power, which sells power from its rural micro-grids both to mobile phone network towers and rural communities in India, are proving that new business models are transforming the viability of rural electrification.

For the next wave of “anchor client” implementation, keep an eye on Myanmar, the Southeast Asia country with more than 15,000 telecom towers planned for built-out, yet an electrification rate of under 30 percent. Could there be a more perfect scenario for tapping tower power for community electrification?

Context, context, context

Ultimately, there is no “one-size-fits-all” approach to developing a mini-grid and preparing it for long-term success. What works for a company in the mountains of Laos likely won’t be the best approach for a mini-grid developer on an island in the Philippines.

Despite the abundance of insightful, comprehensive literature about renewable energy mini-grids currently available (good examples, here and here), a mini-grid developer must intensively coordinate with, and therefore, deeply understand its end-users.

Social, environmental, political, economic and cultural aspects are unique to each community, and therefore demand an individualized, tailored approach from energy providers.

“Know your customer” is a phrase likely coined by an advertising executive or shoe salesman, but it couldn’t be a more appropriate mantra for mini-grid developers to live by today.