Productive Use of Electricity from Mini-grids

Introduction to Productive Use

Developing and operating mini-grids could be seen, either, as a means to improve development (the public or Non-Profit Organisation perspective) or as a regular market for the private sector, which has the aim to make profits. Productive use of electricity (PUE) is important for both objectives; it increases the development impact and the economic viability and attractiveness of mini-grids. Mini-grid project developers, therefore, should consider initiating or enhancing productive use of electricity as it significantly increases the sustainability and the profitability of the project.

Definition

A broad definition for productive use of electricity is: “Agricultural, commercial and industrial activities involving energy services as a direct input to the production of goods or provision of services“ . To increase income or productivity in rural contexts of developing countries, PUE can be found in: agriculture (e.g. irrigation, grain milling, electric fencing), manufacturing (e.g. carpentry, tailoring, welding, and looming), and the service sector (e.g. bars and restaurants using electric lights, sound systems, refrigerators, charging stations for mobile phones). Common use applications include electricity used for potable water, public lighting, education, health (e.g. refrigeration of vaccines and anti-venom), etc.

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Rationale for Productive Use

Productive uses of electricity are key to enhance the socio-economic impacts of electricity access through, poverty reduction, increased employment and higher incomes. These impacts can be further developed by the cooperation and coordination with other development efforts, such as infrastructure, education, health or finance programs.

Productive uses of electricity contribute to an increasing demand hence increasing revenue streams that make the development of mini-grids economically viable. Furthermore, through increasing income on the side of the productive consumer the sustainability of the scheme (in terms of payment of bills etc.) will be enhanced.

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Initiating or Enhancing Productive Use

The uptake of productive uses after completion of a mini-grid often lacks behind expectation. For example, the PRODUSE study (EUEI PDF/GIZ, 2013) found that small businesses do not always connect to the grid. They also found that electricity connection and usage do not necessarily translate into higher profits for entrepreneurs. Both findings illustrate that, targeted activities promoting or improving productive use of electricity in rural areas are needed.

The approaches to support productive use are manifold and can vary depending set-up, context and existing capacities of the project. In general, these approaches can be implemented either on the policy level or on the project level, and can be built around existing or new businesses. For all of the approaches it is crucial to collaborate with local cooperation partners, e.g. government ministries and/or agencies, utilities, technology providers, financing institutions, NGOs and development organizations. (This holds true as long as the coordination and the cooperation do not become too complex and time consuming)

Mayer-Tasch et al. (2014) identified five different approaches for productive use of energy promotion:

1. Electrification-Plus-Approach: Complementary services to the electricity infrastructure are provided for example by conducting awareness raising, business development services, enhancing access to finance or technical advice and training.

1. Call-for-Proposals-Approach: Existing businesses or start-ups are invited to make proposals to gain financing for productive use applications.

1. Application-Centered-Approach: Specific production processes are targeted, e.g. grain mills, oil presses, water pumps.

1. PUE-Financing-Approach: Selected productive uses are promoted through a dedicated financing mechanism, e.g. a fund administered by a local bank or MFI.

1. Cross-Sectoral-Approach: Productive use of energy promotion activities are an integral part of a development program, e.g. programs aiming at local economic development, SME promotion, rural development or agricultural development.

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Basic Strategies for Integrating PUE in Mini-grid Design and Planning

Typically, mini-grids can only supply a certain amount of electricity and have a limited capacity, depending on the system design and the resources available. Therefore, it is necessary to accurately estimate the demand of productive use and to optimize the electricity consumption, in order to utilize the mini-grid efficiently. When estimating the electricity demand of the productive use and when optimizing the consumption, it is recommended to at least:

1. Generate typical load profiles for different commercial, industrial, agricultural and common good applications, in the respective country/region. (see Demand Assessment).
2. Identify local SMEs which will likely connect to the mini-grid to use electricity for productive use (e.g. mills, carpentry, tailoring, welding, looming, bars, restaurants, medical centers, schools, administration buildings, agricultural). Categorize them according to the load profile.
3. Factor in suppressed demand (the electricity demand of businesses not existing because electricity is not available) and demand growth in the future
4. Decide on proper Demand Side Management (DSM) strategies to optimize electricity consumption patterns and thus the load factor of the mini-grid. This DSM can include strategies for load scheduling, tariff design or the provision of energy efficient appliances.
5. Add up the electricity consumption patterns of all consumers (productive and end-users).
6. Design the mini-grid accordingly (see System Design).

Mini-grid design for productive use Many productive uses for mini-grids are based on electro motors. It is essential to calculate the electricity consumption of these electro motors and the start-up current needs, and to consider the implications on the mini-grid design. The electricity consumption of electro motors is higher than indicated by the power rating on the nameplate. The nameplate only states the mechanical power output, the efficiency is typically not visible. Electrical power input needs are usually 40% higher for very small motors (< few hundred watts) and 10% higher for larger motors (> a few kilowatts). Additionally, the power factor (the ratio of real power to apparent power), which is in these motors typically around 80%, must be considered as it increases the electricity consumption. Considering both the efficiency and the power factor, very small drives have an apparent power consumption that can be 75% higher than the mechanical power and for larger motors it can be 37.5% higher. Start-up currents for induction motors can also be 6-8 times the rated current for up to several seconds, depending on the inertia of the motor and the connected appliance. Low inertia machines (power tools, drilling machines, etc.) have a start-up current lasting a few milliseconds. High inertia machines (mills, etc.) can need several seconds. Electrical motors with frequency inverts do not have high start-up currents but do have higher investment costs. The energy demand and start-up current have to be considered in designing the electric grid. These parameters should also guide decisions on whether to have a one-phase or a three-phase distribution grid, as well as on the conductor cross-section design. And they have to be considered in designing the generator, battery and inverter; and the demand side management approach.

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Basic Strategies for Promoting PUE in Mini-grids

If a project developer decides to engage in productive use promotion some further steps have to be included into the list above:

1. Identify local cooperation partners for the promotion of productive use of electricity, e.g. government ministries and/or agencies, utilities, technology providers, financing institutions, NGOs and development organizations.
2. Find the most cost effective approach for the promotion of PUE for local economic development, considering the sectors with the highest potential (agriculture, textile processing, servicing, trade, etc.) and
3. Identify best suitable technology solution that uses electricity the most productively and that can be operated either by electricity consumers, entrepreneurs or the mini-grid operator. The mini-grid operator can consider setting up central productive use machines (e.g. mills) which can be used against a fee (e.g. Husk Power, DESI Power).
4. Plan promotion activities of productive use, e.g. awareness activities, business development services, improved finance or technical advice and training.
5. Implement the activities accordingly and ensure the monitoring and evaluation of the PUE activities.

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Useful Materials for the Design and Implementation of Productive Use Activities

• EUEI PDF/GIZ (2011) “Productive Use of Energy – PRODUSE – A Manual for Electrification Practitioners”. This manual provides a systematic step-by-step approach on how to plan, promote and implement productive use components in various electrification programs, including practical advice. It covers tasks during the feasibility and initial planning, the analysis and program design, the implementation and the monitoring and evaluation phase.

• NRECA (2009), “Guides for Electric Cooperative Development and Rural Electrification”, by Yudkin. This guide contains information on the necessary framework conditions and socio-economic parameters for productive use, on possible productive use program design, implementation, monitoring and evaluation. Additionally, it discusses the basic components of PUE programs: market analysis, availability of electric appliances, necessary financial and human resources, and the coordination with partner institutions.

• ESMAP (2008), “Maximizing the Productive Uses of Electricity to Increase the Impact of Rural Electrification Programs”, The World Bank. This report discusses two approaches for the promotion of productive use in more detail – the systematic and the pragmatic approach. The systematic approach entails a review of all productive or social activities that are taking place, assesses the potential for productive use of electricity, and plans and implements promotion campaigns accordingly. The pragmatic approach takes advantage of existing businesses or of other development projects and programs in a given area and cooperates with them on PUE activities.

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Useful Materials on Business Training and Development

• INWENT (2008), “Integrated Southern Africa Business Advisory (INSABA)” This report includes the final report, the handbook, tool applications and examples for integrated business advisory. The INSABA toolkit aims at strengthening a productive application of renewable energy, with a focus on small and medium sized enterprises

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• Training manual on Business Development and Productive Use of Electricity

This training manual can be used for productive use trainings for entrepreneurs.

GIZ-Uganda (2012) “Business Training #26 Productive Use of Electricity”, developed by L. Gege.

• Ev. CEFE, SME IFC/UNDP

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Examples for productive use approaches

• Good examples www.produse.org
• Senegal: In Senegal two different approaches to increase the generation of revenue have been tried: the systematic approach (planning based on analysis of local potential), the pragmatic approach (focusing on existing commercial and productive activities). (ARE/USAID, 2011)

• Philippines – World Bank: In the Philippines Rural Power Project, the World Bank and its partners used an approach integrating institutional applications that are publicly funded into rural electrification (ARE/USAID, 2011)

• Afghanistan – GIZ: The GIZ´s Energy Supply for Rural Areas approach on productive use of electricity generated by off-grid micro hydropower facilities is described under following link.

Micro Hydro Power and Productive Use Promotion (GIZ ESRA Afghanistan)

• Indonesia – GIZ: Lessons learnt of productive use of energy in MHP projects in Indonesia is published in a GIZ report, available under following link.

• Bolivia, Guatemala, El Salvador: The NRECA report (2009) highlights the experience with productive use of electricity programs of NRECA.

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Information on Energy Efficient Appliances

• https://cleanenergysolutions.org/topics/efficiency/appliances
• http://www.globalleapawards.org/- DC based LEDs and TVs
• www.topten.info
• www.energystar.gov
• www.aceee.org/consumer
• www.energyrating.gov.au

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Sample TORs

The following sample TORs, provided by the World Bank, can assist to define consultant work on identifying and designing promotional, marketing and business development programs to increase productive uses.

• WB_TOR_Design of a Promotion Program for electricity-related livelihood activities in rural areas
• WB_TOR_Identification of Productive Uses of Electricity and Design of Business Development Servcies

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Recommended Literature

L. Mayer-Tasch, B. Attigah and M. Rammelt (forthcoming), “Promotion of Productive Use of Energy in Developing Countries – an Overview of Existing Approaches”

Based on a review

EUEI PDF/GIZ (2010) “Productive Use of Energy – PRODUSE – A Manual for Electrification Practitioners”

This manual provides a systematic step-by-step approach on how to plan, promote and implement productive use components in various electrification programs, including practical advice. It covers tasks during the feasibility and initial planning, the analysis and program design, the implementation, the monitoring and evaluation phase.

Study_Introduction.pdf http://www.produse.org/imglib/downloads/PRODUSE_study/PRODUSE Study_Introduction.pdf

NRECA (2009), “Guides for Electric Cooperative Development and Rural Electrification”, by Yudkin

This guide contains information on the necessary framework conditions and the socio-economic parameters for productive use, and on the possible productive use program design, implementation, monitoring and evaluation. Additionally, it discusses the basic components of PUE programs: market analysis, availability of electric appliances, necessary financial and human resources and the coordination with partner institutions.

https://www.nreca.coop/wp-content/uploads/2013/07/GuidesforDevelopment.pdf

ESMAP (2008), “Maximizing the Productive Uses of Electricity to Increase the Impact of Rural Electrification Programs”, The World Bank

This report discusses two approaches to productive use promotion – the systematic and the pragmatic approach. The systematic approach entails a review of all productive or social activities that are taking place, it assesses the potential for productive use of electricity and plans and implements promotion campaigns accordingly. The pragmatic approach takes advantage of other development projects and programs in a given area.

https://www.esmap.org/node/714

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