Rural electrification Policy brief 3: The potential of solar PV off-grid systems NORPLAN AS Prepared by: Marissa Jackson Ræstad, Bjørn Thorud, Ryan Glenn Anderson and Piyush Sainju December, 2012
Agenda Benefits of solar for off-grid solutions Costs of solar systems Cost developments and cost projections for solar PV Installation costs for on-grid, off-grid and hybrid solar-diesel Operation and maintenance costs of an off-grid system The Sunbelt potential Cost competitiveness of solar systems Barriers for solar off-grid Examples of solar systems in rural areas Key questions/criteria for the successful implementation of a solar rural electrification project
The solar revolution is happening now
Benefits of solar PV for off-grid solutions Abundant and locally available Sustainable clean and renewable with no emissions Decentralized no need for long transmission lines Free and predictable energy source no need to worry about increasing/fluctuating fuel prices No moving parts easy to operate and maintain Flexible and scalable easy to addon more capacity should demand increase Short construction time Solar PV is ideal for decentralized solutions Photos: Scatec Solar and Marissa Jackson Ræstad
Cost reductions have by far surpassed even the most optimistic projections /kwp - system 3000 2500 2000 1500 1000 500 0 EPIA Max EPIA Min 2012 real -10% p/a 2012 2014 2016 2018 2020 2022 2024 2026 2028 2030 One example: EPIA (European Photovoltaic Industry Association) report from 2011* Blue columns represent EPIA`s price projections for two scenarios EPIA Min (light blue) represents EPIA`s most optimistic price projections Yellow columns represent actual system cost for 2012, and projecting a 10% annual price reduction between 2012-2020 (Photon projections), and then a 5% annual price reduction 2020-2030 Lowest reported system price in Germany in 2012 is 1 100 /kwp This is equivalent to year 2024 in EPIA`s most optimistic price projections (EPIA Min) *Sources: EPIA, 2011. Unlocking the Sunbelt Potential of Photovoltaics. Norplan database and analysis
Cost breakdown for PV on-grid large-scale in Africa /kwp 1600 Assumptions: Size: +1MWp Location: semi-mature market in Africa 1400 160 1200 200 100 1000 150 800 200 1 500 600 190 400 200 500 0 Modules Mounting system Inverter Cables Other BoS Infrastructure and construction site prep Overhead Total CAPEX Source: Norplan analysis based on input from industry actors (all figures are rough estimates).
Cost breakdown for PV off-grid system in remote Africa /kwp 5000 4500 4000 3500 3000 2500 110 650 850 770 4 900 Assumptions: Size: 30kWp Location: remote Africa Battery autonomy: 3 days Cost means sales price Note that installation costs for off-grid in particular can be highly market and site specific, and that the figures here only represent an example. 2000 960 1500 1000 500 690 270 600 0 Modules Mounting structures Inverters & battery chargers Batteries (3days autonomy)* Other BoS, distribution boxes, cables Transport to site, inside Africa Civil works & foundations, fence (incl control room) Project man.mt, installation and commiss. * Experienced industry actors in the off-grid market report that 5 days autonomy would be a preferable design. This way, batteries will only be discharged 20% and may last throughout the life of the system (i.e. no replacement of the batteries will be required). Although this will increase installation cost, it will decrease life-cycle cost, and also increase the sustainability of the system as it eliminates the risk of how to finance replacement of batteries. Source: Norplan analysis based on input from industry actors (all figures are rough estimates).
Cost breakdown for solar-diesel hybrid (off-grid), remote Africa /kw 5000 4500 4000 Assumptions: Size: 30kW (23kWp PV + 7kW generator) Location: remote Africa Battery autonomy: 1 day Cost means sales price 3500 3000 2500 2000 1500 1000 500 0 530 Modules 200 Mounting structures 470 Inverters & battery chargers 250 Batteries (1day autonomy) 154 Generator 90 Other BoS, distribution boxes, cables 500 Transport to site, inside Africa 650 Civil works & foundations, fence (incl control room) 590 Project man.mt, installation and commiss. 3 434 Installation costs are considerably lower for a hybrid system than a pure PV system. However, the O&M costs of a hybrid system are significantly higher (due to diesel costs), leading to a higher lifecycle cost. Source: Norplan analysis based on input from industry actors (all figures are rough estimates).
Installation costs are considerably higher for off- than on-grid /kwp - system 5000 4500 4000 3500 3000 2500 2000 1500 1000 500 0 Off-grid 30kWp Africa Off-grid 30kWp India Off-grid 1MWp Pacific Islands* On-grid On-grid large-scale large-scale Africa best practice Germany *Refers to the Tokelau project mentioned at the beginning of the presentation cost of this project are reported to be NZ$ 7.5 million, or EUR 4.7 million. The costs are high because the Tokelau islands are locaed far out in the South Pacific, and everything (equipment as well as manpower) has to be shipped from Samoa. Still, the PV electricity comes at a much lower cost to the consumers than the previous diesel-based electricity that was replaced. Why are costs so much higher for off-grid: The need for storage Off-grid solutions require a battery bank for storing the energy (for evening use and as a back-up for cloudy days). The batteries are usually the largest cost component for off-grid installations, making up typically between 20-30% of total installation cost A market in its infancy: immature markets (imported equipment, lack of competence) and many pilot projects Remote locations makes transportation a large cost component Equipment and manpower (except for parts of the civil work where local manpower should be used), needs to be transported into the remote areas, typically on bad roads Example: remote village in Mali. Equipment is shipped from abroad (typically Germany or China) to nearest port (i.e. Dakar). From Dakar by truck to Bamako. New truck from Bamako to nearest town. New truck from nearest town to village. (Sometimes a road even has to built to get the equipment to the village). Small system sizes and lack of scale Leads to higher equipment costs (i.e. not possible to obtain lowest module prices when sourcing small quantities) Leads to higher project management costs, as each system has to be designed individually Several costs are fixed per installation and not per installed kwp, including for instance civil work and infrastructure (control room, fence), project management, and to a certain degree transportation. Thus the smaller the system, the larger the share of these costs. Source: Norplan analysis based on input from industry actors (all figures are rough estimates).
Operation and maintenance (O&M) costs One of the major benefits of solar PV solutions, are the low associated O&M costs, pertaining to: Free source of energy no need to worry about high and fluctuating fossil fuel prices No moving parts reducing the expenses on after-sales services The following cost items are essential, and a minimum of O&M cost elements in any off-grid system: Local operator for daily O&M Security (security guard, or other security measures to avoid theft and tampering) After-sales service (preferably through an agreement with a service provider) Insurance Replacement of batteries Money needs to be set aside for replacement of batteries, unless the battery bank is designed and sized so as to last through the life-time of the system (i.e. 5 days autonomy). The local operator and security components are likely to be fixed costs (salaries) regardless of the size of the system, while the after-sales service, insurance and batteries will increase with the system size. Further, the cost of local operator and security guard will depend on local salary levels, and to what extent the operator and security guard will be working full/part time.
Countries in the sunbelt receive up to double the amount of solar irradiation than Germany This is the world`s larget solar PV market today Source: NASA 2008
How big is the market where there is most solar energy?
Cost competitiveness of solar systems The EU Joint Research Centre published a report in 2011 comparing costs of electricity generated with PV and diesel systems. The results are presented in the map. Yellow-to-red areas show regions where solar PV would be the most cost-efficient option, while blue areas show regions where diesel proved to be the most cost efficient. Two issues need to be highlighted: The report is from 2011, with cost figures probably from 2010. Costs for PV have dropped significantly since then, so more regions would probably be yellowto-red with updated cost figures. Many of the blue regions are found in countries that provide (generous) subsidies for diesel. Joint Research Centre, 2011
Hybrid with diesel is no longer a preferred solution to pure solar systems Due to dramatic reductions in PV costs and high fossil fuel prices, there is currently limited economic justification for a hybrid with diesel over a pure solar PV. The exception is when the generator serves as a backup to ensure security of supply. Assumptions System size: 30kWp (pure PV) and 23kWp+7kW (hybrid) CAPEX, pure PV: USD 7200/kWp CAPEX, hybrid: USD 6460/kWp (for PV system only) + USD 6000 for generator Distribution grid: 2km of USD 18 000/km O&M costs, pure PV: USD 1250/yr O&M costs, hybrid: USD 1700/yr Battery autonomy: 5 days (pure PV) and 1 day (hybrid) Diesel cost: USD 1.20 + 50% for transportation to rural area Life of system: 25 years (generator is replaced every 10 yrs) Generator use: 3 hrs/day Discount rate: 10% Exchange rate: EUR 1 = USD 1.3 Source: Norplan analysis based on input from industry actors (all figures are rough estimates).
Cost competitiveness of solar off-grid systems in selected countries Assumptions System size: 30kWp CAPEX, pure PV: USD 7200/kWp Distribution grid: 2km of USD 18 000/km O&M costs: USD 1200/yr Battery autonomy: 5 days Diesel cost: actual diesel price of the given country + 50% for transportation to rural area Electricity tariffs are for the lowest consumption groups Life of system: 25 years Discount rate: 10% Exchange rate: EUR 1 = USD 1.3 Solar PV off-grid systems are highly competitive when compared to diesel-based systems Solar PV off-grid systems cannot compete with current electricity tariffs in most countries, perhaps with the exception of Ethiopia Source: Norplan analysis based on input from industry actors (all figures are rough estimates).
Cost competitiveness of solar on-grid systems in selected countries Assumptions System size: 1MWp CAPEX, pure PV: USD 2000/kWp O&M costs: 1.3% of CAPEX /year Diesel cost: actual diesel price of the given country + 50% for transportation to rural area Electricity tariffs are for the lowest consumption groups Life of system: 25 years Discount rate: 10% Exchange rate: EUR 1 = USD 1.3 Solar PV on-grid systems have already reached grid parity in several of Norway`s partner countries (Liberia, Uganda and Namibia) Source: Norplan analysis based on input from industry actors (all figures are rough estimates).
Barriers for solar PV off-grid Barriers for developers Financial barriers Overcoming the high upfront investment Rural electrification is costly (particularly transaction/project management costs): requires public and/or donor money The availability of funds is in many cases less of a barrier than accessibility and attractiveness of financing schemes Project finance: commercial banks are very reluctant to provide debt financing (at affordable rate) Business model How to make a profit? (Revenues from villagers are minimal, unstable, and challenging and costly to collect) Who is the customer? (Individual consumer? Community? Utility? Local govt? Development organization?) Policy barriers Subsidies on alternatives (diesel and electricity tariffs) Lack of functional incentive schemes Lack of policy framework allowing for solar PV off-grid development (license to build and operate, tax and VAT regime, agreement securing developers revenue if grid is extended to the village etc) Sustainability of the system Incentive schemes typically favor low cost (and thus often low quality) equipment Ownership: who will own the system Installer? Community? Local entrepreneur? Local government? Utility? Ensuring proper operation and maintenance Lack of knowledge Lack of finances Revenue collection Even if developer`s revenue is secured through other means (such as public incentive schemes), revenue collection is key for O&M Security/theft Several developers are pushing for a feed-in tariff scheme for off-grid systems, arguing that such a scheme could help overcome several of the barriers
Example 1: Scatec Solar village electrification in Jharkhand, India About the project: 10 remote villages electrified by solar power (part of a larger project electrifying 30 villages in India) Productive uses (silk reeling) is connected directly to the power, while households can charge lanterns at the installation Impacts: Pedal-operated silk reeling machines were substituted with electrical machines (although obtaining financing for the new machines was challenging) Because of the lighting, the women can continue after sunset, allowing them more flexibility and/or increased revenues Reeling activity in summer was previously not possible due to high temperatures and low humidity. Threads used to break frequently. Now, because they can work in the evenings when it is cooler, they can work also during the summer. Productivity doubled Some lessons learned: Existing social infrastructure (i.e. women self-help groups) is key for success Existing income generating activity, and available financing schemes for shifting to electrical machinery, helps to connect productive uses The consumer is not the customer - end-beneficiaries can maintain O&M costs through end-user tariffs, but installation costs require external financing Photos: Marissa Jackson Ræstad
Example 2: Solar23, Africa About Solar23: German-based company operating since 2000 with offices/partners in 20 countries across Africa 80-90% of projects are off-grid installations in Africa First off-grid village system was installed in Ndelle, Senegal, in 2008 (pictures) Customers include Development Banks, Private and Industry Foundations (CSR activities), Telecom companies, Oil companies Business and operational model: Solar23 sell turnkey projects to customer They also provide after-sale services (through an after-sales agreement with a local partner company) Village systems are usually owned by the community (through a Village Energy Committee) Daily operations taken care of by a local technician Tariffs are collected by an independent service company, and are kept in a separate bank account for O&M expenses Some lessons learned: High quality components are key to ensure system sustainability Life-cycle cost should be prioritized over installation cost (i.e. 5 day battery autonomy is preferable) Consumer is not the customer - end-beneficiaries can maintain O&M costs through end-user tariffs, but installation costs require external financing Source and photos: Solar23
Example 3: Sunlabob, Laos About Sunlabob: A Lao private commercial company, operating since 2001. Has reached more than 600,000 direct beneficiaries in rural areas of developing regions of the world, including Asia, Africa, India and the Pacific Islands Sunlabob has received numerous international awards for its innovative ideas. Provide a wide range of products and services: minigrid (also as hybrid solutions), off-grid, SHS, water pumping and purification and more. Community-focused programs include training of locals and establishment of a Village Energy Technician and Village Energy Committee. This is a self-sustaining model that ensures social, economic and technical sustainability. Some lessons learned on financing: External sourcing (public funding or private/corporate donors) essential for covering upfront installation costs Public-Private Partnerships and close collaboration with local partner is the optimal scheme However, most effective policy in practice is International Competitive Bidding however must be aware of critical issues: Price competition favors low cost/low quality equipment Lack of local involvement Mismatch between end-user needs and bidding documents Lack of transparency Source and photos: Sunlabob
Key questions/criteria for evaluation of solar off-grid projects Project Development Phase Construction Phase Operation & Maintenance Phase What should donors be attentive to in a solar off-grid rural el project? 1. Project set-up and project organization i. Are local partners involved? NGOs? Local business partner? Use of local workers? Local government? 2. Financing i. How will developer secure financing? 3. Site/village selection i. Who is responsible for village selection? ii. Criteria list for village selection: a. Needs assessment (what is demand and willingness to pay?) b. A certain level of social cohesion (to ensure a common sense of ownership and prevent theft) c. Existing NGO/development programs in village is an advantage d. A village already known to local NGO (partner) is an advantage e. Some existing business activity that could benefit from electricity access is an advantage f. Does the village figure in public grid extension plans? g. Suitable site for the PV plant 4. Technical design i. Design should aim at a sustainable/long-lasting system with a low life-cycle cost (rather than lowest possible installation cost) 5. Procurement i. How are cost vs quality issues dealt with? ii. Transparency and anti-corruption measures in procurement processes? iii. Ensure warranty issues on the equipment 6. Construction & Installation i. Use of local workers and local material where possible 7. Training to locals 8. Tariff model and tariff collection i. Tariffs should be at a level to at least cover O&M costs ii. Payments should be upfront and ideally automated (pre-paid meters or mobile phone payment solutions) 9. How will Operation & Maintenance be ensured? The list should be considered as non-exhaustive
Conclusions Solar PV has seen dramatic price reductions the last couple of years, particularly for large-scale on-grid projects The price reductions have not been as dramatic for off-grid installations because the modules make up a much smaller share of the overall cost for off-grid systems Solar PV off-grid systems are highly competitive when compared to diesel-based systems Solar PV off-grid systems cannot compete with current electricity tariffs in most of Norway`s main partner countries Solar PV on-grid systems however, are becoming increasingly competitive, even with grid-based electricity tariffs Several barriers are holding back the full potential of solar off-grid solutions in developing countries, yet more and more developers are finding ways to overcome (at least some of) these barriers. Still, much more needs to be done to overcome the barriers in order to release the full potential for solar PV off-grid solutions for rural electrification.