RESEARCHMICROGENERATION
electrification project itself to increase the positive impacts on the community and generate the needed revenues to cover O&M&M and profits.
Concentrating energy loads or bundling projects in attractive packages is another means of increasing market size and the attractiveness of rural electrification projects. Territorial concessions are a known and good strategy but they need to be simplified to diminish the costs and the time involved in the process.
4) Setting appropriate tariffs and subsidies is probably the most important factor to ensure project sustainability. A sustainable rural electrification tariff must at least cover the system’s running and replacement costs (break-even tariff), even though the opportunity for profit is key to attract private operators (financially viable tariffs). Tariffs must also maintain the balance between commercial viability and consumers’ ability and willingness to pay.
Along with tariff structures, smart combinations of subsidies are key to attract operators and ensure sustainability. They can support the investment, the connection, the operation, and/or the output. Investment subsidies are a good solution if they go along with a good tariff structure, whereas Output Based Aid (OBA) schemes, if adequately planned, are powerful instruments to leverage private investments and ensure O&M. Other forms of support should be offered in parallel to project developers: tax credits; low import duties; site surveys; market studies; and capacity-building.
Regulations, policies and the legal framework are another incentive or barrier to the development of economic activities. This is particularly true for rural electrification with mini-grids, which offer a long- term service requiring stability and suitable instruments. Regulation has to be an instrument favoring new projects, not a burden. It needs to be light and flexible for small power producers in terms of standards and tariffs, and at the same time, it has to protect rural consumers. Power purchase agreements (PPAs) are an especially important feature, since these contracts are regulating the relations between the different parties involved in a long- term rural electrification project with a mini-grid. PPAs frame these relations and must give enough confidence to the private and banking sectors to invest in a project. PPAs must be fair, binding, ban unilateral changes and protect every actor equally. PPAs should also be as standardized as possible to decrease administrative costs, increase efficiency, simplify procedures, and most of all to enhance market transparency and attract operators and lenders.
Organizational Issues
The development of sustainable mini-grid projects can follow several business models according to local social and economic conditions.
The community-based model has been tried out extensively around the world with varying success, depending mostly on the involvement of the people and the pricing policy. The community has to be involved as soon and as much as possible through financial or in-kind participation and through the constitution of a social structure supervising the implementation and the O&M&M of the project. Even community-based organisations need structured legal rules and binding contracts should be signed to secure payments with clear penalties in case of contract breaches.
Tariffs have to be determined in advance, but flat-fees with categories adapted to different users are usually a good option since consumption is generally low. Tariffs always have to be high enough to cover O&M as well as replacement costs. Some community-run mini grids have proved to be successful and this type of organisation can have many positive impacts on the community itself in terms of self governance and local buy-in into the electrification system. However, this approach also needs a long preparation period and much technical and social capacity building to compensate for the lack of skills and the potential for social conflicts. Therefore, the introduction of another partner – either private or public – to take over some aspects of system management is preferable.
Another business approach for mini-grid rural electrification is based on a private operator,
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