Increasing Energy Access in Sub-Saharan Africa Distributed Generation and Microgrids in Rural Ghana

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Byron ScerriNew York University

May 2011

“The policy objective is to achieve universal access to electricity to all communities by 2020.”

- The National Energy Policy of Ghana

February 2010

Introduction

The International Energy Agency has projected that worldwide growth in distributed generation will be substantial in the coming decades. The following analysis illustrates that distributed generation on a microgrid platform can increase access to electricity in Ghana, and more specifically in rural areas. The government has facilitated phenomenal growth in the telecom industry by lending the private sector both institutional and financial support. In similar fashion, Ghana is looking to nurture a market for private sector-led power solutions in order to meet a target of 100 percent access to electricity by 2020. With many of the right conditions already in place, Ghana may become the vanguard for developing distributed generation in sub-Saharan Africa.

Roadmap of the presentation

• Executive Summary• The research questions– definitions

• Background– challenges faced by the domestic power sector– evaluating distributed generation

• Private Sector Analysis• Financial Sector Analysis• Financial Cost Analysis• Concluding remarks

Executive SummaryThe government of Ghana has a national energy policy that aims to

achieve 100 percent access to electricity by 2020. However, the national electrification rate of 66 percent is well below this target. While the traditional paradigm of centralized generation continues to lead power sector development in Ghana, the electrification of rural areas through grid expansion will remain a challenge due to the geo-spatial characteristics of population centers and cost. Where grid expansion is too expensive, distributed generation through a microgrid platform can provide electricity in rural areas. Further, rural electrification programs that have been established by the government are moving too slowly to reach the 2020 access target, and the private sector can induce more rapid development.

The following analysis of developing distributed generation (DG) in Ghana has been guided by the following lines of inquiry: 1) what is the private sector capacity to develop DG projects, 2) can the indigenous financial sector support private sector energy projects, and 3) how does the financial cost of DG compare with grid expansion.

A number of domestic companies have already established a presence in the DG market in Ghana, though their operations largely serve single buildings or customers and not entire communities. The financial sector will be unable to provide attractive terms for loans, which supports the entry foreign companies that have better access to capital markets.

A financial cost analysis that compares distributed generation options with grid expansion illustrates that DG can be an economically viable power supply and delivery solution. It is already competitive with marginal grid expansion in many parts of the country. While the government will still need to financially support many of these developments due to a gap between cost recovery requirements and affordability (as would also be the case with grid expansion), the total project costs associated with two DG options -micro grid solar PV and wind- are substantially lower than grid expansion. Financial support from the public sector may not be necessary at all for micro grids that utilize diesel and biodiesel-fueled generators, and in the areas where community-wind developments are feasible.

Executive Summary (2)

The research questions

Can distributed generation through microgrids be developed to improve access to affordable electricity in Ghana?

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• Is the climate for Public Private Partnerships in place to support distributed generation?

• Are the financial institutions able to support distributed generation projects?

• Is distributed generation cost competitive with grid expansion?

Research Question BackgroundPrivate Sector

Analysis

Financial Sector

Analysis

Financial Cost Analysis Conclusion

Key Definitions• Access – 250 kWh per household per annum

“This will provide enough power for lighting, basic health services, education, communication and community services.”*

• Off-grid areas – Any community located more than 20 kilometers away from the national grid network.

• Microgrid – Power supply and distribution that is designed to service a load within a specified geographic area.

• Distributed Generation – Electricity is generated by multiple sources and a sophisticated delivery system manages distribution to the load points. This analysis looks at four technologies: wind, solar, diesel and biodiesel.

* "Energy for a Sustainable Future." The Secretary-General's Advisory Group on Energy and Climate Change (AGECC). April 2010.

Research Question BackgroundPrivate Sector

Analysis

Financial Sector

Analysis

Financial Cost Analysis Conclusion

Challenges faced by the Power Sector• More than 30 percent of the population lacks access to

electricity, mostly in rural areas• Approximately 80,000 communities are not currently served

by the national grid network• The geospatial characteristics of these population centers

make grid expansion costly• Affordability on the part of the ratepayer is a concern for a

heavily indebted national utility company• The grid system is outdated, and line losses exceed 20 percent

due to technical inefficiencies and theft• A lack of capital for additional investment in the grid

Research Question

Background

Private Sector

Analysis

Financial Sector

Analysis

Financial Cost

Analysis

Conclusion

Research Question

Background

Private Sector

Analysis

Financial Sector

Analysis

Financial Cost

Analysis

Conclusion

The National Power Grid

Research Question

Background

Private Sector

Analysis

Financial Sector

Analysis

Financial Cost

Analysis

Conclusion

Number of Un-Electrified Communities by Region

Evaluating Distributed Generation Pros• No need to build extra capacity in the grid network• Ripe for private sector activity

“Developers of minigrids are often local entrepreneurs or community-based organizations.”

• Multiple generation sources improve security in the grid• Mobility and Adaptability

Cons• High upfront capital costs• Requires a new energy supply chain • Management and maintenance is highly localized• Renewable energy projects require a resource assessment

Research Question

Background

Private Sector

Analysis

Financial Sector

Analysis

Financial Cost

Analysis

Conclusion

Capacity in the Private Sector• Over 20 percent of the population operates a non-farm enterprise

• A number of domestic companies are working on distributed generation:Deng Ltd. Power

World Ltd.EcoZone Solar

Light Co.

However, these projects service single customers and not entire communities

• Kumasi Institute of Technology and Environment (KITE)– NGO supporting private enterprise to engage in sustainable energy

projects– Channeled 15 million USD in international aid to support sustainable

energy projectsResearch Question

Background

Private Sector

Analysis

Financial Sector

Analysis

Financial Cost

Analysis

Conclusion

• World Bank Microgrid project (GEDAP) - supports the role of the private sector to introduce “innovative approaches for off-grid electricity service”

• The government of Ghana has instituted power sector reforms including the unbundling of generation services in order to "attract private sector investment into capacity expansion"

The government should take further steps:1) Institutionalize competition laws for the energy sector and simplify

the process for starting a business2) Consider public private partnerships that combine the resources and

expertise of the existing public utilities with innovative businesses- Abu Dhabi-based venture, TAQA Ghana Limited has operated

approximately 30 percent (entirely thermal) of Ghana’s power supply in a PPP with the domestic utility for twenty years

Capacity in the Private Sector

Research Question

Background

Private Sector

Analysis

Financial Sector

Analysis

Financial Cost

Analysis

Conclusion

Capacity in the Financial Sector

• The financial sector in Ghana does not adequately support micro-enterprise, as lending options are scarce in rural areas and the price of borrowing can be prohibitive

• The Ghanaian government can support developers of distributed generation systems in the following ways:– Subsidies for capital investments that are not grid-tied

Note: these subsidies should target connections and not electricity use, which focuses the incentive on increased access and not greater

consumption – Special funding mechanisms– Tax breaks such as import tariff reductions for RE technologies – Financial guarantees to help attract capital from private financial institutions

• Foreign developers with greater access to capital markets may be better positioned financially, and thus should be welcomed into the market

Research Question

Background

Private Sector

Analysis

Financial Sector

Analysis

Financial Cost

Analysis

Conclusion

Financial Cost Analysis

Framing the inquiry

1) Is it more cost-effective to develop microgrid projects than extend the grid network to communities that lack access to electricity?

2) What price of electricity are households able to afford or willing to pay?

3) Can the cost of developing and maintaining a microgrid be recovered from the ratepayers, or will a subsidy be necessary?

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Research Question

Background

Private Sector

Analysis

Financial Sector

Analysis

Financial Cost

Analysis

Conclusion

Research Question

Background

Private Sector

Analysis

Financial Sector

Analysis

Financial Cost

Analysis

Conclusion

National-level Analysis• Based on results from a World Bank report and energy model• The cost of expanding the grid is compared to stand alone generating units and community-sized microgrids• The cost of solar and wind technologies is calculated a second time with a twenty-year technology learning curve

Local-level Analysis• Based on National Renewable Energy Laboratory (NREL) models• Assessment for a community in the Upper East region of Ghana• Understand what electricity price a household can afford• Consider the financial viability of a microgrid in rural communities, and understand what financial support may be necessary to develop these types of power projects

Explaining the Analysis

National-level AnalysisBaseline Scenario Cost per kWh (in U.S. cents)

Marginal grid expansion 18-42 [$5.65 in the most remote areas]

Stand alone units• Solar PV 60-71 • Diesel 61-68 • Wind 23-27

Microgrid• Solar PV 60-71• Wind 14-16 • Diesel & Biodiesel 18-50 [competitive with the grid

in almost all areas]

With a twenty-year technology learning curve– The costs for grid expansion, diesel and biodiesel remain constant– The cost of Solar PV and Wind microgrid projects drop substantially:

• Solar PV 17.5-20.5 US cents• Wind 11.7-13.8 US centsResearch

QuestionBackgro

und

Private Sector

Analysis

Financial Sector

Analysis

Financial Cost

Analysis

Conclusion

Affordability: Will there be cost recovery from the rate payer?

Average monthly household energy expense: $5.15(not including fuel for heating and cooking)

Affordability estimates indicate that 24 cents per kWh is the most that can be paid, thus a subsidy is needed when the price of electricity exceeds this threshold

Local-level Analysis

Research Question

Background

Private Sector

Analysis

Financial Sector

Analysis

Financial Cost

Analysis

Conclusion

Local-level AnalysisMarginal Grid Expansion $ 2,289,476

LCOE $ 1.35Subsidy needed

One-time: $ 1,884,080First year: $ 55,770*

Community-sized solar PV installation $ 288,000LCOE $ 1.06Subsidy needed

One-time: $ 274,000First year: $ 41,000*

Community-sized wind installation $ 56,000 LCOE $ 0.16No subsidy required

* Based on a 20-year loan taken out by the utility

Research Question

Background

Private Sector

Analysis

Financial Sector

Analysis

Financial Cost

Analysis

Conclusion

Concluding Remarks• Distributed generation on a microgrid platform can bring electricity to

over 8,000 communities at a cost below that of national grid network expansion

• Wind energy does not require a subsidy and should be developed where the resource is adequate

• Diesel and biodiesel-powered microgrids are lower in cost than grid expansion almost everywhere

• Solar PV will not require a subsidy in the long term as technology advances lower costs

• The government must act to ensure that the private sector is well-supported institutionally and financially

• The government should seek to promote public private partnerships and opportunities to link private energy companies with international financial resources that support microgrid development

Research Question

Background

Private Sector

Analysis

Financial Sector

Analysis

Financial Cost

Analysis

Conclusion