Difference between revisions of "Impact of Tariff Structures on the Economic Viability of Mini-Grids"
***** (***** | *****) m |
***** (***** | *****) m |
||
| Line 6: | Line 6: | ||
Mini-Grids vary significantly in terms of their design and structure, depending on their location, available natural resources in the area, the local policy framework and the demographic being served by the grid. Therefore, many different tariff structures are being implemented and tested in mini-grids throughout the world. | Mini-Grids vary significantly in terms of their design and structure, depending on their location, available natural resources in the area, the local policy framework and the demographic being served by the grid. Therefore, many different tariff structures are being implemented and tested in mini-grids throughout the world. | ||
| − | For more information on mini and micro-grids in general have a look at the energypedia articles: [[ | + | For more information on mini and micro-grids in general have a look at the energypedia articles: [[Mini Grids|Mini-Grids]], [[Mini-grid Policy Toolkit|Mini-grid Policy Toolkit]] and the Micro-Grid Portal |
| | ||
| Line 14: | Line 14: | ||
A project is economically viable when it is able to secure initial funding to cover the capital cost and when the revenues are able to cover the operation and maintenance (O&M) costs throughout the entire lifetime of the project while still generating an acceptable rate of return on the initial investment. In order to achieve this, the project should have a set operation plan which is flexible enough that it can adapt to future changes including political and regulatory changes, ownership hand over or economic fluctuations. Long term economic viability can be achieved through careful planning and economic modelling, taking into consideration external costs. (LafargeHolcim Foundation, n.d.) In a mini-grid the expected sale of electricity can be used to calculate financial indicators such as project return, equity return expectations and payback periods. These values provide the bases on which investment decisions can be made (Al-Hammad, et al., 2015). | A project is economically viable when it is able to secure initial funding to cover the capital cost and when the revenues are able to cover the operation and maintenance (O&M) costs throughout the entire lifetime of the project while still generating an acceptable rate of return on the initial investment. In order to achieve this, the project should have a set operation plan which is flexible enough that it can adapt to future changes including political and regulatory changes, ownership hand over or economic fluctuations. Long term economic viability can be achieved through careful planning and economic modelling, taking into consideration external costs. (LafargeHolcim Foundation, n.d.) In a mini-grid the expected sale of electricity can be used to calculate financial indicators such as project return, equity return expectations and payback periods. These values provide the bases on which investment decisions can be made (Al-Hammad, et al., 2015). | ||
| + | <br/> | ||
| + | |||
| + | = Economic Viability of Mini-grids = | ||
| + | |||
| + | “A financially viable microgrid balances financial incentives/subsidies and revenue streams from tariffs with debt, equity, and operational expenses obligations both in the short and long run.” (Deshmukh , et al., 2013). This does not necessarily mean that the funds needed must all come for consumer tariff payments. Some mini-grid are dependent on support from local or national governments to supply the funds needed to cover the operation and maintenance costs of the mini-grids. A mini-grid dependant on external funding can be just as financially viable as one in which all the costs are met through tariff collection, as long as it follows the set-out operation schedule and delivers the expected amount of power and energy, allowing the customers of the mini-grid to benefit from improved energy access. However, the operation plan for mini-grids which are dependent on government funding should consider the risk of political shifts which might affect the future availability of subsidies for the mini-grids. (Schnitzer, et al., 2014) | ||
| + | |||
| + | According to the ''Micro-grids for Rural Electrification'' study, “it is impossible to compare tariff design without first looking at the elements of the microgrid that tariffs are expected to cover” (Schnitzer, et al., 2014). Figure 1 shows a comparison of different Mini-Grid projects around the world and the costs which the consumer tariffs charged in that mini-grids are expected to recover. | ||
| + | |||
| + | <br/> | ||
| + | |||
| + | IMAGE | ||
| + | |||
| + | <br/> | ||
| + | |||
| + | <br/> | ||
| + | |||
| + | [[Category:Microfinance]] | ||
| + | [[Category:Financing_Grid]] | ||
| + | [[Category:Financing_and_Funding]] | ||
| + | [[Category:Micro-grid]] | ||
[[Category:Mini-grid]] | [[Category:Mini-grid]] | ||
| − | |||
| − | |||
| − | |||
| − | |||
Revision as of 17:04, 26 June 2017
Background
Mini-Grids
Mini-Grids vary significantly in terms of their design and structure, depending on their location, available natural resources in the area, the local policy framework and the demographic being served by the grid. Therefore, many different tariff structures are being implemented and tested in mini-grids throughout the world.
For more information on mini and micro-grids in general have a look at the energypedia articles: Mini-Grids, Mini-grid Policy Toolkit and the Micro-Grid Portal
Economic Viability
A project is economically viable when it is able to secure initial funding to cover the capital cost and when the revenues are able to cover the operation and maintenance (O&M) costs throughout the entire lifetime of the project while still generating an acceptable rate of return on the initial investment. In order to achieve this, the project should have a set operation plan which is flexible enough that it can adapt to future changes including political and regulatory changes, ownership hand over or economic fluctuations. Long term economic viability can be achieved through careful planning and economic modelling, taking into consideration external costs. (LafargeHolcim Foundation, n.d.) In a mini-grid the expected sale of electricity can be used to calculate financial indicators such as project return, equity return expectations and payback periods. These values provide the bases on which investment decisions can be made (Al-Hammad, et al., 2015).
Economic Viability of Mini-grids
“A financially viable microgrid balances financial incentives/subsidies and revenue streams from tariffs with debt, equity, and operational expenses obligations both in the short and long run.” (Deshmukh , et al., 2013). This does not necessarily mean that the funds needed must all come for consumer tariff payments. Some mini-grid are dependent on support from local or national governments to supply the funds needed to cover the operation and maintenance costs of the mini-grids. A mini-grid dependant on external funding can be just as financially viable as one in which all the costs are met through tariff collection, as long as it follows the set-out operation schedule and delivers the expected amount of power and energy, allowing the customers of the mini-grid to benefit from improved energy access. However, the operation plan for mini-grids which are dependent on government funding should consider the risk of political shifts which might affect the future availability of subsidies for the mini-grids. (Schnitzer, et al., 2014)
According to the Micro-grids for Rural Electrification study, “it is impossible to compare tariff design without first looking at the elements of the microgrid that tariffs are expected to cover” (Schnitzer, et al., 2014). Figure 1 shows a comparison of different Mini-Grid projects around the world and the costs which the consumer tariffs charged in that mini-grids are expected to recover.
IMAGE
