Abstract
Solar hybrid mini-grid systems possess the potential to substantially support electrification in sub-Saharan Africa. While their technical reliability has been proven, their financial viability is achieved only by heavy subsidization as of now. Due to the growing importance of results-based financing, we ask whether newly developed business models leveraging on the value added of electricity supply in rural areas (such as the KeyMaker Model) bare the potential to substantially reduce amount of grants required to finance the initial capital investment and thus contribute to a sustainable form of development. The principle of the KeyMaker Model is based on utilizing the locally supplied mini-grid electricity to establish a local agro-processing project, the revenues of which are an additional income stream for the mini-grid operator, while the project creates an end-market for the local farmers to sell their produce. We have developed two scenarios (without and with KeyMaker Model) for four rural villages in Nigeria as a case study to scientifically assess the potential of KeyMaker Models. We simulated and optimized the mini-grid systems using the software tool HOMER. We then assessed their financial viability. Our analysis demonstrates grant finance requirements ranging from 82% to 99% of the total investment for the base-case mini-grid projects without consideration of the KeyMaker Model. We find that a well-selected KeyMaker Model such as cocoa bean processing reduced the grant requirement by 68 percentage points, while processes based on maize, palm oil and cassava processing achieved reductions of 36, 26 and 8 percentage points, respectively. Hence, we conclude that the value added by the introduction of new local business models bares the potential to reduce grant requirements for the socially and economically necessary electrification across the Global South.
Highlights
In 2015, Member States of the United Nations adopted the 2030 Agenda for SustainableDevelopment and defined the 17 Sustainable Development Goals (SDGs), which among others aim to ensure clean and affordable energy (SDG7) and reduce the world’s population share living under extreme poverty to 3% by 2030 (SDG1) and take urgent climate action (SDG13)
The Nigerian Federal Ministry of Power, Works and Housing [37] as candidates to be electrified though the establishment of mini-grid technology rather than through national grid extension or the implementation of solar home systems; (2) they are demographically comparable, with a recorded population of between 1000 and 2000 inhabitants and existence of two schools and one health centre; (3) the villages are located near rivers or bodies of sweet water and outside of national parks; (4) they are located in geographical zones where the farming of potentially promising crops to be processed as part of a KeyMaker Model (KMM) are predominant
We found that the first key impact factor for a successful KMM application is securing the supply of crops in the required quantities for the business to operate at its designed capacity
Summary
In 2015, Member States of the United Nations adopted the 2030 Agenda for SustainableDevelopment and defined the 17 Sustainable Development Goals (SDGs), which among others aim to ensure clean and affordable energy (SDG7) and reduce the world’s population share living under extreme poverty to 3% by 2030 (SDG1) and take urgent climate action (SDG13). MGs in this context refer to stand-alone systems with the capability to supply up to 1 MW of electrical power to a wide range of customers that are connected through a distribution grid [3]. Mini-grids have the capability to cost-effectively power both direct current (DC) and alternating current (AC) appliances at household level and heavier loads such as welding shops, mills, rural agro-processing businesses, health centers, schools and village-level water purification units. They have the potential to turn an off-grid rural village into a “local business hub” (with the implicit job creation potential) [4]. Cost-reflective tariffs charged to MG customers are by norm substantially higher than tariffs charged to grid-connected customers, which in the sub-Sahara African context are often subsidized [6], with utilities in some instances setting grid tariffs that account merely for 41–80% of the levelized cost of electricity (LCoE) [6]
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