The GGKP's Seventh Annual Conference took place on 21-22 October 2019 in conjunction with the Global Green Growth Institute’s Global Green Growth Week 2019 (GGGW2019) on the theme of “Achieving Global Energy Transformation” in Seoul, Republic of Korea.
Tim Reber presented his paper “Low Carbon Power Sector Transformation Pathways: Exploring Objectives, Factors and Technology Innovations to Inform Power Sector Decisions” in Session A.1: Pathways to the Green Energy Transition. Reber is a Project Lead for International Programs at the US National Renewable Energy Laboratory. He leads a diverse portfolio aimed at accelerating deployment of renewable energy and increasing access to reliable, clean and affordable electricity with partners around the world, with a primary focus in sub-Saharan Africa.
1) Briefly describe the topic and conclusion of your research.
Micro-grids, particularly green micro-grids powered by clean energy, are expected to play a critical role in providing electricity access to the roughly 600 million people in sub-Saharan Africa who currently lack electricity while delivering critical environmental and development benefits in alignment with SDG7. Private investment in the micro-grid sector will be necessary for the sector to scale, but it has been slow to take off in the region because of the high level of risk relative to reward and the relatively high transaction costs as compared to larger grid-tied projects. Micro-grids are also subject to policy and regulatory risk, a lack of proven business models, and uncertainty about demand and the ability and willingness of customers to pay. The National Renewable Energy Laboratory (NREL), supported by Power Africa, has produced a compendium of knowledge resources to share lessons and best practices for scaling up green micro-grid deployment. Specifically, this work highlights key elements of micro-grid business models which can help successfully attract and scale up investment: productive use of energy, financial bundling, and tariff and revenue strategies. Demand stimulation, through productive use of energy (PUE), has been shown to be a key success factor to enhance economic development benefits for communities and ensure stable revenue streams for developers. On the other side of demand, flexible approaches to tariffs and revenue collection are critical to ensure revenues are high enough to cover costs without exceeding customers’ willingness and ability to pay. Finally, financial and operational bundling of micro-grid portfolios can help lower transaction costs and diversify investor risk, thereby attracting increased finance to the sector.
2) What are the key policy messages/implications?
Significantly scaling up green mini-grid deployment will require political will and human capacity to spur action across the stakeholder spectrum. Improvements and transparency in regulatory and policy frameworks can help unlock financing for mini-grid deployment. Meanwhile, mini-grid developers continue to test, refine and improve their business models. Ensuring a flexible institutional environment that enables innovative new business and operational models may be key to helping drive continued investment and innovation in the sector. Importantly, there is a massive community of practitioners working on similar issues across the world, and it will be critical to ensure that ongoing lessons learned – both on what does and does not work – are captured, refined and built upon.
3) Are there any challenges you would like to underline from this research?
Grid-tied electricity and large state-owned and private utilities have largely been subsidized in one form or another throughout their history, but the same level of support is generally not widespread for small-scale energy systems and mini-grids, though mini-grids typically remain the least-cost option and the most viable solution for communities to be electrified. Addressing this viability gap (e.g. by lifting subsidies or sharing equal subsidies) – and thus reducing the difference in tariff rates – will be critical. Additionally, for many investors and governments in the sector, mini-grids are still not well understood and thus there remains a high level of perceived risk (both technical and financial). Addressing these risks through improved data collection and market information, training and capacity building, and lesson sharing and peer learning can alleviate some of the perceived risk around mini-grids.
4) What are the opportunities for collaboration around this issue?
Some of the biggest opportunities for collaboration right now seem to revolve around data and information sharing. There is a very large community of practitioners working on similar issues in this space, all testing innovative new business models and operational approaches, yet our ability to collect, analyse and share lessons from these disparate efforts remains limited, hindering our collective ability to make fully informed policy, programme and investment decisions. Data and information sharing will thus be critical to helping build the enabling environment necessary to scale up the sector.