National Approaches to Electrification – Technology
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Technology: The physical means by which electricity is generated, transmitted and distributed
Grid-connected mini-grids and distribution systems share characteristics with both Grid Extension and Isolated Mini-grids – They are linked to the grid system and are able to import electricity from and export electricity to it, so technically they have more in common with Grid Extension. However, in that they are owned and managed independently they are more similar to Isolated Mini-grids. These differences call for different policy and regulatory approaches, so a separate Technology category has been established.
Grid Extension
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Definition: |
Establishment and extension to new users of a system that connects electricity generation plants to consumers via a transmission and distribution network across the country. Grid systems draw on a variety of generation sources, from nuclear and hydro-power to coal, oil and combined-cycle gas turbines and solar- and wind-power. Each form of generation has different characteristics in terms of flexibility, reliability and costs. A mix of generation sources is required to match generation to demand, with over-reliance on any one form of generation risking lengthy outages (for example, a drought can significantly affect a predominantly hydro-powered grid system). Technology advances, combined with environmental concerns, have led to an increasing focus over recent years on Renewable Energy based generation. Transmission and distribution system designs also vary, with low-cost distribution technologies such as Single Wire Earth return (SWER) being used to reduce costs in remote areas. |
Internactions wiht other NAE Categories:
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Delivery Model
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The national grid system may be publically or privately owned or combine both in a public-private partnership. Common public-private models for grid systems include:
(Where individual distribution areas are separately owned, eg by municipalities or regional bodies, these may be regarded as grid-connected distribution systems and are discussed under that category). | |
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Legual Basis
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Grid systems almost always act as monopoly concessions (because of the need to balance demand and supply across the system in real-time, and the substantial investment required to establish and maintain the infrastructure). As a result, the right to transmit and sell electricity is often reserved to the national grid utility or company (at least within the area reached by the grid system). | |
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Price/Tariff Regulation
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In line with the nature of the national grid as a single coherent system, uniform tariffs are almost invariably charged across the system (though often with different tariffs for different classes of user and levels of usage, or in some cases time-of-use pricing). Electricity prices are a highly political issue in almost every country, and therefore there is almost always some oversight of these tariffs. Without explicit regulation there is a risk of political pressure leading to tariffs which fail to cover costs, and hence system deterioration. | |
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Finance
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Almost all national grid systems (including those in developed countries) are constructed using public funding, drawing on government funds sometimes supplemented by concessionary loans and grants from international agencies. Where the grid system is (wholly or partially) privately owned (often as the result of a privatisation process), private investment in infrastructure may be leveraged by subsidies (egfor connection charges). User charges are the other main source of grid system funding, and uniform tariffs mean that some element of cross-subsidy is inherent in grid-based electricity provision, with users who are more expensive to supply being subsidized by those who can be supplied more cheaply. | |
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Non-Financial Interventions
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National energy planning is key to establishing the economically optimum extent of the grid. Institutional restructuring, regulatory reform and policy and target setting may all be beneficial in creating the institutional and policy basis for grid extension. Capacity building or technical assistance may be needed where the key actors involved in grid extension lack capacity. Technology development/adoption and adoption of appropriate technical standards can enable grid extension at lower cost (as shown in the Tunisia NAE Case Study where adoption of standards allowing MALT (Mise A La Terre) distribution lowered costs), while demand promotion may be needed to increase revenues and make it economically sustainable. |
Advantages and Disadvantages (Including Level of Electricity Provided)
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Grid extension (combined with construction of additional generation capacity) is particularly appropriate for densely populated areas with higher demand levels, close to the existing grid system. Grid systems provide the ability to build large, efficient generating plants in optimum locations, and make use of economies of scale. These economies may, however, be overwhelmed by the costs of the transmission and distribution infrastructure needed for smaller, more remote communities where mini-grid and off-grid technologies may provide better solutions. Significant extension of the grid also calls for a series of major infrastructure projects, requiring planning, procurement and project management capabilities and is therefore often a lengthy exercise, meaning that other solutions, even if more expensive, may merit consideration as a means to achieve electrification more quickly. Grid systems are usually designed to provide a high level of electricity, suitable to serve all household, commercial, industrial and community requirements (Tier 51). However, where generation is inadequate (or liable to interruption); or transmission and distribution systems are insufficiently robust or poorly maintained; reliability and quality of supply may deteriorate. Thus while users have a physical connection to the grid, they may not in fact have reliable access to electricity (bringing the supply Tier 3 or lower). It is therefore important to couple grid extension with development of additional generation capacity to support the resulting additional demand. |
Further Informaiton and Guidance
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Relevante Case Studies:
- Rwanda, Sector-Wide Approach to Planning
- South Africa, Integrated National Electrification
- Tunisia, Low Cost Distribution Technology
Grid-Connected Mini-Grids/Distributed System
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Definition: |
An electricity system connected to, but owned and/or separately managed from, the main grid system which supplies electricity to users within a local area. Grid-connected mini-grids and distribution systems exist at a wide range of scales from those supplying a few households to systems covering entire districts or regions. The term “grid-connected mini-grid” is most frequently used to refer to systems built around their own, usually small-scale (diesel, bioenergy, biomass, hydro, solar, wind or hybrid) generation and connected to the grid to allow import and export of electricity. While these include fossil-fuel based generation, technology advances combined with environmental concerns mean that policy-makers are increasingly focussing on encouraging Renewable Energy based generation. A “distribution system” generally refers to a larger system designed primarily to distribute electricity from the main grid system to users. However distribution systems often also include their own generation and there is no clear distinction between grid-connected mini-grids and distribution systems (and the term “grid-connected mini-grid” is used to refer to both in the description below). At the larger end of the scale, distribution systems may be closely integrated into the main grid system, and the distinction between electrification through grid extension and through grid-connected distribution system expansion is one of ownership and management rather than technology. |
Internactions wiht other NAE Categories:
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Delivery Model
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Grid-connected mini-grids are often privately owned, but may be publically owned or combine both in a public-private partnership. Common models include:
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Legual Basis
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Larger grid-connected mini-grids will generally require monopoly concessions (because of the substantial investment required to establish and maintain the infrastructure). Even for smaller grid-connected mini-grids, some form of licensing will almost invariably be appropriate to assure investors that they have the right to sell electricity (both to users and the grid), to ensure that technical standards for grid connection are met, and as the means of regulating prices for export and import of electricity from the grid and sale of electricity to users (see price/tariff regulation). | |
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Price/Tariff Regulation
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Grid connected mini-grids rely on the sale of electricity to the grid, and import of electricity from the grid and its sale to users, as well as sale of own-generated electricity to users. Clarity on how each of these tariffs is set and regulated will be key to securing investment:
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Finance
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The primary financing for grid-connected mini-grids will generally align with the delivery model, with publically-owned mini-grids using public finance and privately owned mini-grids drawing on private finance. However, where incomes are lower or system costs higher, some form of public-private partnership is likely to be needed with public funding (eg through grants and subsidies) making electricity from grid-connected mini-grids affordable to users and the mini-grid systems economically sustainable. User charges are the other main source of funding with connection charges and ongoing tariffs are used to contribute to investment, cover ongoing operating costs and support repayment and return on investment. As with any system supplying multiple users there is likely to be some element of cross-subsidy between users connected to any individual mini-grid system. Cross-subsidy between grid-connected mini-grids or between the main grid and grid-connected systems may be appropriate, particularly if a uniform tariff is applied. | |
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Non-Financial Interventions
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National energy planning and sharing of market information are key to establishing the planned extent and timescales for grid extension and hence the scope for grid-connected mini-grids. Institutional restructuring, regulatory reform and policy and target-setting may all be required to create the framework for grid-connected mini-grids to be developed and establishment of technical standards is vital for enabling grid-connected mini-grids. Capacity building or technical assistance may be beneficial where potential developers or those (such as municipalities or user cooperatives) expected to take on responsibility distribution system operation lack capabilities. User awareness raising and demand promotion are often essential to increase revenues and make mini-grids economically sustainable. |
Advantages and Disadvantages (Including Level of Electricity Provided)
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Mini-grids are particularly appropriate for relatively densely populated areas with higher demand levels (with off-grid systems providing the best solutions for sparsely populated low-demand areas). For mini-grids to be grid connected they must also be relatively close to the existing grid system. In theory mini-grids should only be the best option where the costs of infrastructure to connect to the grid system out-balance the economies of scale from large-scale centralized generation and pooling demand. Connection to the main grid system allows import and export of electricity and so enables the mini-grid to access these economies of scale and (provided the grid itself is reliable) supports higher levels of quality and reliability – however it also requires construction of connection infrastructure and compliance with grid technical standards. Grid-connected mini-grids can therefore be seen primarily as an alternative to grid extension, with the main differentiator being the ownership and/or management model. If a source of energy for generation exists in an area beyond the extent of the grid, it may provide an opportunity for a mini-grid to be developed to supply local users, and connected to the grid, more quickly than the grid itself would be extended. Management of distribution by the central grid company should provide organisational economies of scale, but in practice separate ownership or management of a local distribution system may increase organisational efficiency and allow an electricity service which is more responsive to users and their needs than that provided by the national grid company. Grid-connected mini-grids can, in theory, provide any level of electricity supply, but in most cases if the investment is made for grid connection and associated standards are met, they provide a grid-equivalent service, meeting all household, commercial, industrial and community requirements (Tier 5). (If the grid system itself is over-stretched with inadequate generation; or insufficiently robust or poorly maintained transmission and distribution systems reliability and quality of supply may deteriorate so that while users have a physical connection, they may not in fact have reliable access to electricity (bringing the supply Tier 3 or lower). To the extent that a grid-connected mini-grid draws on electricity from the grid its construction should be coupled with development of additional centralized generation capacity to support the resulting additional demand. |
Further Informaiton and Guidance
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Relevante Case Studies:
- Brazil, Luz para Todos (Light for All)
- Cambodia “Light Touch” Regulation
- Costa Rica, Distribution Cooperatives
- Rwanda, Sector-Wide Approach to Planning
- Tanzania, Mini-Grids Regulatory Framework
- Vietnam, Rapid Grid Expansion
Isolated Mini-Grids
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Definition: |
A system for generation and distribution of electricity to multiple users which is not connected to the main grid system. Mini-grids exist at a wide range of scales, from those supplying a few households to systems covering several communities. Isolated mini-grids rely on one or more local, usually small-scale (diesel, bioenergy, biomass, hydro, solar, wind or hybrid), generating plants and must balance demand and generation at all times. While these include fossil-fuel based generation, technology advances combined with environmental concerns mean that policy-makers are increasingly focussing on encouraging Renewable Energy based generation. Being separated from the grid system, isolated mini-grids can used lower voltages and lower-cost technologies than the main grid, and may be designed to provide anything from lighting alone (a “skinny grid”) to a full grid-equivalent electricity service. |
Internactions wiht other NAE Categories:
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Delivery Model
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Isolated mini-grids are often privately owned, but may be publically owned or combine both in a public-private partnership. Common models include:
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Legual Basis
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Mini-grids require substantial, long-term, capital investment and hence a regulatory framework which will give developers, and particularly private financiers, confidence that there will be a market for electricity from the mini-grid for a long enough period to repay and provide an adequate return on their investment. Larger systems may require concessions (which protect against competition over a designated area and time period) to give investors the confidence in revenue forecasts to commit the long-term capital investment needed. For smaller mini-grids, with lower and shorter-term capital investment, a licensing regime (which grants a non-exclusive right to sell electricity) may be more appropriate, with greater flexibility and a generally less demanding process balancing lack of protection from competition for the investor, while still providing the means to protect users through price/tariff regulation and setting technical and safety standards. Mini-grids below a certain size (eg <100kW in the Tanzania NAE Case Study), are often unregulated, as the administrative burden (and costs) of regulation are seen as disproportionate to the protection it would provide to investors and users, and the right to operate instead being granted through a general derogation from regulation. Under any regulatory regime a key question for private mini-grid investors will be what happens when the main grid arrives? Grid extension into a mini-grid concession area within the concession period may be prohibited by the terms of the concession, or there may be explicit provision for compensation and transfer of assets to grid ownership. mini-grid licensees have less protection from grid extension than concessionaires, but even where there is no formal concession it is often beneficial to establish a compensation regime in the event of grid extension, to encourage private mini-grid investment in the interim. Where mini-grids are delivered through a public model with purely public finance, the legal basis will generally be less critical as public financiers are less likely to be concerned about recovery of and return on investment through future revenues. | |
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Price/Tariff Regulation
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Isolated mini-grids rely on revenues from the sale of electricity to users to cover ongoing operating, maintenance and administrative costs and repayment and return on investment. Regulation of tariff levels is therefore a critical factor for private investors in mini-grids, with inadequate or inappropriate tariff regulation often cited as the key barrier to mini-grid investment. A uniform-tariff regime, where all mini-grid operators must charge the same tariffs, has the attraction of apparent equity, but will generally encourage investment only in those areas where electricity can be supplied at a lower cost allowing the investor to retain a margin and discourage investment in harder to supply areas (unless public funding/subsidy, or cross-subsidies, are made available to overcome higher costs). Individually set tariffs, based on costs specific to individual mini-grid contexts, are more likely to encourage investments in more remote areas. Whatever form of tariff regulation is used the critical requirement is that it is clear and transparent, to reduce project development costs and give private financiers confidence that revenues from mini-grids are not vulnerable to arbitrary regulatory decisions and political pressure. | |
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Finance
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Financing for isolated mini-grids will generally align with the delivery model, with publically-owned mini-grids using public finance and privately owned mini-grids drawing on private finance. However, where incomes are lower or system costs higher, some form of public-private partnership is likely to be needed with public funding (eg through grants and subsidies) making electricity from mini-grids affordable to users and the mini-grid systems economically sustainable. User charges are the other main source of funding with connection charges and ongoing tariffs are used to contribute to investment, cover ongoing operating costs and support repayment and return on investment. As with any system supplying multiple users, there is likely to be some element of cross-subsidy between users connected to any individual mini-grid system. Cross-subsidy between isolated mini-grids or between the main grid and mini-grid systems may be appropriate, particularly if a uniform tariff is applied. | |
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Non-Financial Interventions
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National energy planning and sharing of market information are key to establishing the planned |
Advantages and Disadvantages (Including Level of Electricity Provided)
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Mini-grids are most appropriate for relatively densely populated areas with higher demand levels which are distant from the grid system, particularly where there is a good local source of energy for electricity generation. Because mini-grids rely on local, small-scale, generation, and their demand profiles often have pronounced peaks (because their users want electricity at the same times of day), their generating costs are usually higher than costs of electricity from larger power plants connected to the main grid, so in areas closer to the grid, where the cost of connecting to the grid is relatively low, grid extension will usually be more economic. In sparsely populated low-demand areas, standalone systems, despite their higher generating costs, may be more economic because they avoid the cost of a distribution system. mini-grids may also, even in areas for which grid extension would be more economic in the longer term, provide a means for achieving energy access more quickly. Mini-grids may be designed to provide any level of electricity access, from “skinny-grid”, which just support lighting and, perhaps phone-charging (Tier 1) to a grid-equivalent service, meeting all household, commercial, industrial and community requirements (Tier 5). In many more remote communities where isolated mini-grids are the most appropriate solution, it is a Tier 2-3 level (to support medium power appliances such as fans, refrigerators, small water pumps and hand tools). In theory, the grid system which is able to call on multiple sources of generation should be more reliable than an isolated mini-grid, but in practice if the grid system itself is over-stretched with inadequate generation; or insufficiently robust or poorly maintained transmission and distribution systems, reliability and quality of supply may deteriorate so that while users have a physical connection they may not in fact have reliable access to electricity. Poor grid reliability is one of the reasons many users turn to mini-grids and standalone systems even in areas where grid connection is available. |
Further Informaiton and Guidance
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Relevante Case Studies:
- Brazil, Luz para Todos (Light for All)
- Cambodia “Light Touch” Regulation
- Kenya, Off-Grid for Vision 2030
- Mali, Rural Electrification Programme
- Nepal, Rural Energy Development Programme
- Philippines, Islanded Distribution by Cooperatives
- Rwanda, Sector-Wide Approach to Planning
- Tanzania, Mini-Grids Regulatory Framework
Standalone Systems
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Definition: |
A system for generating and supplying electricity to a single user (separate from any distribution system). Standalone systems may use any locally available source of energy (including solar, wind, hydropower, biogas, biomass, biofuels or diesel generators). While these include fossil-fuel based generation, technology advances combined with environmental concerns mean that policy-makers are increasingly focussing on encouraging Renewable Energy based generation. They may serve a single purpose (such as lighting or irrigation water-pumping) or be designed to meet all the electricity needs of the user. They range in size from solar lanterns, through small household systems to larger installations serving industrial enterprises (though for the purposes of this review the focus is on systems suitable for households, community facilities and SMEs). |
Internactions wiht other NAE Categories:
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Delivery Model
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Standalone systems are most frequently supplied to users through a purely private-sector chain of manufacturers, importers, distributors and retailers. In a number of cases (such as shown in the NAE Case Study of the IDCOL programme in Bangladesh), public-private partnership models have been used. In general this has been through use of public finance (grants, subsidies and loans) to enhance affordability and support market growth, though there could be benefits in certain circumstances for government energy agencies to become directly involved in the standalone system market, by forming a joint entity to supply systems or by taking on one of the roles along the value chain (eg providing a distribution service for all system providers). More rarely a purely public model is used to provide standalone systems to users, for example where the grid company provides standalone systems to those it is not economic to connect to the grid (eg in NAE Case Study South Africa). | |
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Legual Basis
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Standalone system providers are rarely subject to regulation (beyond general business licensing requirements), though they may be required to meet certain standards in order to access subsidies and tax exemptions. In part this reflects policy-makers’ perception of them as product retailers rather than infrastructure providers, but also that without long-term fixed capital investment, private companies have not needed the protection of a concession or license to attract private capital (and would regard it simply as a regulatory burden). Concessions for standalone systems may however, as in NAE Case Study Peru, be used to bring standalone system companies into a market which they might otherwise be unwilling to enter by protecting them from competition (though the long-term risks of market distortion under such an arrangement should be carefully considered). Standalone systems may also be included as one means of providing electricity within an integrated electricity concession also encompassing mini-grid and/or grid system access. It’s also possible that with standalone system providers increasingly looking to pay-as-you-go arrangements, where they retain ownership of the system until the user has bought it through monthly payments, or even over its full life with the user simply paying for electricity used, regulating electricity supply through standalone systems may become more appropriate. | |
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Price/Tariff Regulation
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Prices of standalone systems supplied by the private sector are generally unregulated. Where public funding is used to support provision of standalone systems it may (as with the NAE Case Study of the IDCOL programme in Bangladesh) be appropriate to regulate prices. Also, if the move towards pay-as-you-go, with users paying for electricity as they do from grid or mini-grids, while suppliers retain ownership of the capital equipment, continues or accelerates, regulation of the prices they pay may become more relevant. Regulation of prices for standalone systems, or of electricity supplied through these systems, on an individual basis is impractical given the multiplicity of systems. Uniform price regulation, where a standard price or tariff is set is more likely to be viable. However, any such regulation should recognize the differentials in costs between different types and sizes of standalone system, and parity | |
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Finance
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Though provision of standalone systems requires less capital investment than investment in grid or mini-grid systems, those establishing standalone system business nevertheless require capital for business development and working capital to fund the period (typically three months or more) between purchase/ import of the product by the business and sale to the end-user. Because standalone systems are often imported, this also brings a requirement for access to foreign capital. Where standalone systems are sold to users, it is to these users that much of the requirement for capital investment falls. This need for up-front user finance has formed one of the most substantial barriers to growth of markets for standalone systems (even where these systems are demonstrably an economic option for the user in the longer term). This barrier can be alleviated through micro-finance and similar programmes, and has also driven the growth of pay-as-you-go arrangements whereby the need for up-front finance is transferred to the supplier (though users remain the ultimate source of finance through their payments for electricity). Though most standalone system providers are private companies, many have struggled to access private finance, reflecting private financiers reluctance to invest in start-up companies without established track-records seeking to grow a new market. Instead many have relied on finance from donors and social funders. This has been one of the main constraints on standalone system market growth. Public finance, through grants, subsidies and concessionary loans (to both suppliers and users) and tax exemptions (eg VAT and import duty exemptions) have been used to make standalone systems more affordable to users. | |
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Non-Financial Interventions
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Clear national policies and targets and availability of market information have been identified as key factors enabling standalone system providers to assess market scale and so encourage market entry. Regulatory reform, particularly in the finance sector to enable pay-as-you-go arrangements is also seen as vital, as is establishment and enforcement of quality standards to give consumers confidence in products. Exemption from taxes and duties (particularly where this is needed to create a level playing field with other forms of energy access) can catalyse market development, and user awareness raising and development of a workforce with the technical and business skills need to support business growth are also important (and beyond the capacity of individual standalone system businesses) to support its growth. |
Advantages and Disadvantages (Including Level of Electricity Provided)
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Standalone systems encompass a wide range of technologies from solar lanterns, to solar home systems and pumps, to larger scale diesel, hydro, biomass and wind-powered generators. Because they lack the economies of scale provided by grid (or even mini-grid) systems, the cost per unit of electricity from standalone systems is generally higher than from a grid (or mini-grid) connection. However in areas which are remote from the grid system and are sparsely populated (or lack a substantial energy source), standalone systems may provide the lowest cost option for electricity supply because they avoid the cost of distribution infrastructure. In addition, while the cost per unit of electricity may be relatively high, for low-demand users (eg those only looking for lighting and phone charging) they can still offer the most economic solution. Standalone solutions are also used by those who want back-up for an unreliable grid or mini-grid supply, or who want independence from the grid system. In line with the wide range of technologies encompassed by standalone systems, they can be designed to provide any level of electricity. In general, however, the differential in cost between grid/mini-grid and standalone systems increases as the level of supply goes up (particularly for solar standalone systems), and standalone household systems therefore most often provide only Tier 1 (or even lower) access and rarely provide more than Tier 2-3 access, though systems for enterprises and community facilities may be larger and provide a higher level of access (with larger systems often being supported by hydro or fuel rather than solar generation). |
Further Informaiton and Guidance
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Relevante Case Studies:
- Bangladesh, IDCOL Solar Home Systems
- Brazil, Luz para Todos (Light for All)
- Ethiopia, Solar Market Development
- Kenya, Off-Grid for Vision 2030
- Peru, Concession Model for Standalone Systems
- Rwanda, Sector-Wide Approach to Planning
- South Africa, Integrated National Electrification
References
