Mini Grids

Basic Energy Services in a Nutshell: Context | Basics | Energy Systems

Overview

A mini grid, also sometimes referred to as a "micro grid or isolated grid", can be defined as a set of electricity generators and possibly energy storage systems interconnected to a distribution network that supplies electricity to a localized group of customers."They involve small-scale electricity generation (10 kW to 10MW) which serves a limited number of consumers via a distribution grid that can operate in isolation from national electricity transmission networks."

This power delivery architecture can be contrasted to a single customer system such as in the case of a solar home system (SHS). Where there is no distribution network interconnecting customers it can be connected to a centralized grid systems, where electrical energy is transmitted over large distances from large central generators where local generators are generally not capable of meeting local demand.
Mini-grids have a unique feature as they can operate autonomously without being connected to a centralized grid. However the mini-grid may be designed to interconnect with the central grid which means it operates under normal conditions as part of the central grid with disconnection occurring only if power quality needs to be maintained. For instance in the case of a central grid failure. Alternatively, a mini-grid may be designed to operate autonomously in a remote location with the option to connect to a central grid when grid extension occurs. A mini-grid can be supplied by all sorts of energy resources and power plants, however most of the time a mini-grid will use low AC voltage (220-380V) with a centralized production and a storage system and will have an installed capacity of between and 5 and 300kW even though bigger systems exist.

Impacts

Implementation of mini-grids have proved to have a positive social impact by fostering and improving the local governance structure through the involvement of the community in the decision making process linked with the energy system. Furthermore, mini-grids are often the only economically viable option of electrifying rural communities. There are hundreds of diesel-based isolated grids worldwide which lend themselves to be retrofitted with renewable energy technologies. Sharing limited resources and power among users in a mini-grid requires rules and a tariff structure that ensures sustainability in the operation. In general, mini-grids involve intense preparation to ensure the systems operation and maintenance will be sustainable.

Opportunities

There are a lot of opportunities that have been observed with mini-grid systems:

• They can be used to increase the reliability of electricity supply. Due to their small scale in nature and enhanced local level ownership of physical infrastructure or management, power theft which is a commonly associated with centralized on grid systems can be reduced.
  
• Reliability of supply is generally greater from hybrid mini-grid systems as compared to a single technology. This not only lowers the net costs over the lifetime of a project, but also ensures availability of power when one system is not working.
• There is environmental improvement from the use of mini-grids. This is in terms of efficiency and reduction in carbon emissions. Hybrid mini-grid systems, for example, often incorporate a 75-99% renewable supply.
  
• Economic assessments indicate that of the renewable technologies available, biogas, geothermal, wind and micro-hydro systems costing US¢6-15/kWh are the potential least-cost generation options for mini-grids in developing countries, this however assumes that sufficient renewable energy resources are available. Biogas digesters and biomass gasifiers are particularly promising from this economic perspective; this is because of their high capacity factor and availability in size range matched to mini-grid load. Geothermal on the other hand also appears economically viable for countries that have geothermal resources although it is limited to larger grid connected systems.
  
• For countries where the grid system is not well developed and there is a vibrant private sector, mini-grids provide opportunities and they are adaptable due to the fact that they can be connected to the grid as they expand.
  
• Conversely as the cost of fossil fuel increases, mini-grid systems are becoming more economically attractive as the cost of renewable energy resources decrease. However subsidies are still required for the different schemes but they are a smaller percentage of the investment than on-grid subsidies
  

Challenges

Despite the opportunities with mini-grids, their penetration remains low in most developing countries. Progressive development in mini-grids has been greatest in China where there is an estimated 60,000 schemes, and in Nepal, India, Vietnam and Sri Lanka which have 100-1000 mini-grids each. Majority of the schemes however use diesel or hydro power generation and are run and maintained by the government.

Common challenges for the implementation of mini-grids include:

• Lack of maintenance or the use of poor quality or untested technology. This could be as a lack of sufficient funding to sustain the project over its lifetime or the shortage of local skills for maintenance of the mini-grid.
  
• Insufficient primary energy resource, in bio gasification projects for example, there are challenges in finding sustainable sources of biomass and operating effective supply chains for biomass feed stocks. Similar challenges can affect diesel powered mini-grids in remote locations where infrastructure is not adequate, thus most of these schemes remain in their pilot stages (e.g. in Zambia).
  
• Poor assessment that is mostly compounded by lack of data on the local physical parameters that affect the power output and economics including:
  
  • Population density within the location of the mini-grid, This will have an influence on the load factor as well as the overall economics of the mini-grid.
    
  • Type of terrain, this will have an impact on the various resources required for the mini-grid i.e. the cost of infrastructure, fuel cost (for diesel systems) as well as the operation and financing of the system.
  • Seasonal resource fluctuations- This includes solar isolation, wind speed fluctuations and river flows.
  • Future policies- This policies are important in determining the future investment capacity in renewable energies, as an example it should include suitable sites and an ambitious rapid rural electrification programme.

• Development of schemes without attention to developing supplementary programes dealing with issues such as market access, small medium enerterprise (SME) development and working with local financing institutions, has contributed to a lack of demand and inability to sustain the schemes.

Operator Models

Institutional and financial structures for mini-grids are more diverse, and they can be owned and managed by the state, private sector or the community. Often however a combination of different actors is involved, owning or managing different parts of the system. Different financial models may also be applied in order to cover upfront capital costs and the on-going operation and maintenance costs.

Four main approaches can be distinguished based on the institutional and financial system:

1. Community based model: In this case, the community becomes the owner and operator of the system and provides maintenance, tariff collection, and management services. Community based systems tend to be more common in developing countries where the private sector or utilities remain limited.
2. Private sector operator: In private sectored systems, a private actor establishes the mini-grid system, although there may be many different forms depending on whether the ownership is retained or transferred to another actor depending on the types of contracts in place (e.g. with a utility or with end-users), and the types of subsidies used.
3. Utility-based approach: In this approach, a utility company is responsible for all or part of the electricity system. The company may be a national public institution, investor owned or a cooperative. The utility-based approach is the most common for rural electrification in developing countries.
4. Hybrid business model: This approach combines different aspects of the approaches above in order to maximise effectiveness and efficiency. Hybrid business models are very diverse and may involve different entities owning and operating different parts of the system.

The systems however have their advantages and disadvantages:

Model	Advantages	Disadvantages
Community	Improves maintenance by increasing sense of ownership Reduces bureaucratic levels hence more efficient.	There is sometimes lack of technical and business skills leading to higher costs from outsourcing this services. The governance of the system needs to be well managed.
Private	There is great efficiency. May have the capacity to offer better operation and management services. May be able to deal better with political interference.	In most cases there is lack of upfront financial support. There is often a difficulty in finding an experienced company to run the scheme leaving smaller companies with less capacity to run them.
Utility	Responsibility is left to an experienced organization. There is a better legal system. Their capacity gives them the advantage of having better access to spare parts and maintenance.	They are usually market driven so they may not prioritize decentralized systems in rural areas. Quite often they are inefficient and bankrupt. Political agendas govern them.
Hybrid	This combines the advantages of all the above systems such as the technical capacity of a utility with the financial capability of a private entity.	The difference in management for each entity can increase the transaction costs for the scheme.

Financing Mini Grids

Building a sustainable financial structure can be challenging despite the vast and growing understanding of financial barriers in project development and an increase in financing tools. While mini-grids may stand out as being economically more attractive than grid connections especially in remote areas, they are usually accompanied by high upfront costs which are usually predominant in certain renewable generation technologies as compared to the conventional option such as diesel run generators. Financial schemes are designed in a way that they need to be able to pay for themselves in order to be sustainable and that is achieved by setting realistic tariffs for the consumers despite potential equality implications.

Funding of mini-grids in many countries has been mostly through grants and subsidies, this is in order to cover the upfront capital cost and sometimes the ongoing cost. Although this is a good method, it can prevent the development of sustainable electricity market if not carefully designed. For example, the ProSolar project of GIZ in Kenya provides incentives for investment through a results-based financing (RBF) intervention, funded by DFID and implemented through Energising Development (EnDev). It aims to provide incentives to project developers to create a market for mini-grid electricity generation and trigger private sector investment. Another approach that can be used is through the use of microfinance schemes, however there is a limitation to these mainly due to lack of coordination between the energy and the microfinance sector as well as high perceived investment risk within the financial institutions.

Investment barriers can also be experienced from complicated or out of date energy regulations such as those related to the process of tariff setting. For example, KFW has been using a negative concession system to identify providers (i.e. lowest price for a preset number of connections) in countries such as Senegal and Mali and to increase efficiencies in delivery. In practice, however, this has led to very long and complex procedures with high transaction costs that are unattractive to investors.
While mini-grids schemes help in increasing access to electricity in rural area at a significant scale in some countries where the poorer members of the community may remain without energy access, the evidence between the impacts of mini-grid systems and poverty reduction is limited. On the other hand rural electrification programmes indicate that they have often failed to improve access for poor people. This is due to their incapability of paying fees and tariff structures which can result to them paying more. For example, if minimum monthly payments are required, people may face higher costs through payments for reconnection or find it hard to make payments due to fluctuating income throughout the year. In schemes which target poorer people, elite capture in management systems can result in inequities in supply. These opportunities and challenges are likely to vary between the different business model approaches.

Further Information

• GVEP international: The history of mini - grid development in developing countries
  
• Basic Energy Services - Overview
• Grid Portal on energypedia
• Facing the Operational Challenges of Mini-grids
• The Potential of Mini Grids and Critical Factors
• Mini-grid Policy Toolkit
• Mini-Grid loas assessment and system sizing handbook