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How Mini-Grids Can Help Achieve Universal Access to Electricity

image credit: Credit: State of the Global Mini-Grids Market report 2020

Mini-grids are fast becoming an important part of the equation to reach the UN’s Sustainable Development Goals of universal electricity access by 2030. According to estimates, forty percent of all installed capacity will have to come from mini-grids, if we are to reach that goal. Such grids are disconnected from main electricity lines and provide access to distant and rural areas, which are difficult to reach for traditional utilities. 

Mini-grids offer several advantages. For example, they boost the economic prospects for such areas by providing access to electricity - the engine of a global economy. More importantly, this access does not necessarily come at an additional cost to the environment. According to the State of the Global Mini-Grids report in June, solar hybrid mini-grids, that combine PV with battery storage, are the most popular type of mini-grids and account for as many as fifty percent of the total number for mini-grids globally. (Typically, mini-grid developers prefer lead acid batteries due to low costs but that is changing because the LCOE for Li-Ion is decreasing fast). 

Advantages apart, the market for mini-grids is still nascent. National utilities and large developers have set up bases in Africa and India, two of the biggest markets for such grids, but their efforts have run into problems. 

The report details the case of Italian developer Absolute Energy which installed a mini-grid on Kitobo island, off the coast of Uganda. Existing regulations in Uganda do not allow developers to recoup costs through rates. As a result, Absolute’s tariff was $0.2675/KwH, more than three times the LCOE of its generating costs. The subsidy might have been justified if the emergent market was big enough to warrant future prospects. However, most of Absolute’s power went towards the operations of a nut-grinding setup, which ran its machines only at certain times of the day. Power supply became strained during those times and, as of 2017, the local community was vacillating on a decision involving the installation of a water purification machine and ice machine, both of which would have consumed power.

Despite the challenges, mini-grids are still the most viable option for utilities to expand their reach. Their proliferation is creating a market for electricity in rural economies, making it cost-effective for national utilities and large energy developers to provide their services. In some countries in Africa, utilities have even taken a stake in the operations of mini-grids.

Once a critical mass of consumers is reached, utilities have several options to work with mini-grid developers. For example, they can purchase excess power generated from mini-grids at feed-in tariff rates determined by regulators. Or, they can convince mini-grid developers to act as a distribution franchise for the utility based on set terms. In some cases, such as in Bihar in India, some mini-grid operators have chosen to remain independent and work in parallel to the grid. This is mainly because the community they serve trusts them and is prepared to pay additional costs to ensure reliability from a community grid.

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