EXPLORING NEIGHBORHOOD POWER PRODUCTION TECHNOLOGIES
AND BUSINESS MODELS FOR DEVELOPING ECONOMIES
by
ARCHES
' MZMTjTE
MAssAC'FC
OF )-&HNLL'Y
Adeyemi Adepetu
AUG 0 6 2015
B.S. Computer Engineering
Purdue University, 2005
LIBRARIES
M.Sc. Computer and Electrical Engineering
Purdue University, 2009
SUBMITTED TO THE SYSTEM DESIGN AND MANAGEMENT PROGRAM IN PARTIAL
FULFILLMENT OF THE REQUIREMENTS FOR THE DEGREE OF MASTER OF SCIENCE
IN ENGINEERING AND MANAGEMENT AT THE
MASSACHUSETTS INSTITUTE OF TECHNOLOGY
SEPTEMBER 2014
Adeyemi A. Adepetu All rights reserved.
The author hereby grants to MIT permission to reproduce and to distribute publicly paper and electronic
copies of this thesis document in whole or in part in any medium now known or hereafter created.
//
Signature of Author
I
Signature redacted
Adeyemi A. Adepetu
System Design and Management Program
Signature redacteder,
Certified by
gram in Me '
Joost P. Bonsen
a Sciences
upervisor
Thesi
Signature redacted
-
Certified by
'
5P
Patrick C. Hale
enior Lecturer, Engineering Systems Division
and Management FJons Program
Director, ysjen
-
Accepted by
Signature redactedatrick C. Hale
_Q X
Senior Lecturer, Engineering Systems Division
Director, System Design and Management Fellows Program
I
This page has been intentionallyleft blank
2
Acknowledgment
The author would like to acknowledge the following people and organizations for their
support and encouragement through this program of study. Without them this thesis
would not have been possible.
-
e
e
-
e
e
-
e
Joost Bonsen for helping me to finally put to paper the ideas and thoughts I spent
over a year trying to figure out. Thank you for sticking with me to the end on this
thesis.
Pat Hale for seeing something in me during my program entry interview and for
choosing me to be part of the Systems Design and Management (SDM) 2013
cohort. Also for his leadership and support of the fellows.
The SDM administrative and support staff for their kind support of sometimes
confused and cranky fellows; you made the department a second home.
The 2012, 2013 and now 2014 SDM fellow cohorts for all the cheer, competency
and intensity you brought to the MIT classes, projects and hangouts.
The MIT Legatum Center for Development & Entrepreneurship for believing in
my dream, equipping me to go do it. My special thanks to Will Guyster for his
excellent coaching.
My church family at Pentecostal Tabernacle, Cambridge for all your prayers and
kindness during the stressful "thesis crunch" times.
My sisters, brother, nephew and nieces for still loving me even when I was too
busy to call.
My parents who never stop believing no matter how ridiculous my dreams get.
You make me fearless.
My darling wife whose love and encouragement means the world. Thank you
does not begin to cover what I need to say. Your faith in me makes me want to
conquer the world for us.
And finally to my Lord and Savior who gives strength, direction and abundant
favor, this is all your doing and for your glory.
3
&
Exploring Neighborhood Power Production Technologies
Business Models for Developing Economies
by
Adeyemi Adepetu
Submitted to the System Design and Management Program in Partial Fulfillment of the
Requirements for the Degree of
Master of Science in Engineering and Management
ABSTRACT
A Neighborhood Power Producer business solution, which aggregates customers and
therefore employs economies of scale, is one solution to the energy access issue of most
developing economies. In this approach, entrepreneurs contract with a group of colocated residents or businesses to provide modem energy services. This service can be
grid-tied or off-grid, serving as either backup power to the central electricity grid or as
primary power, depending on access to the electric grid and/or the quality and availability
of power. These systems are essentially micro-grids with distributed generation.
These developing world Neighborhood Power Producers will also benefit from the rising
demand for a more distributed electric grid as a solution to the threat of adverse weather
like hurricanes and super storms in developed economies. Cyber security threats are also
leading to increased research into distributed power generation systems. This provides
technological advances that are powered by investments in developed markets. The
developing economies can essentially leapfrog their more developed counterparts with
regards to grid-resiliency.
The goal of this thesis is to examine broad trends in the Neighborhood Power Producer
business model and what strategies are necessary for business sustainability in the short,
mid, and longer term.
Thesis Supervisor: Joost Bonsen
Title: Lecturer, Program in Media Arts and Sciences
Thesis Supervisor: Patrick C. Hale
Title: Senior Lecturer, Engineering Systems Division
Director, System Design and Management Fellows Program
4
Table of Contents
TABLE OF CONTENTS
5
TABLE OF FIGURES
6
1. INTRODUCTION AND MOTIVATION
7
2. THE CASE FOR NEIGHBORHOOD POWER PRODUCER BUSINESS MODEL
11
3. BACKGROUND ON NEIGHBORHOOD POWER PRODUCERS
15
4. SUMMARY OF THE SUCCESS FACTORS AFFECTING A NPP
4.1.1 Affordability of the service
4.1.2 A secure, reliablefuel source
4.1.3 Design for demand growth and population density
4.1.4 Optimize the system for scale
4.1.5 Clear and appropriateservice area definitions
4.1.6 Light-handed regulation
4.1.6 Appropriatetariffs by regulators
19
19
19
21
22
23
23
24
5. FUTURE SIGNALS FOR NEIGHBORHOOD POWER PRODUCER MODELS
27
5.1
27
TRENDS IN RENEWABLE ENERGY SOURCES
27
28
28
5.1.1 Energy Storage
5.1.2 Solar photovoltaic (PV)
5.1.3 Trends in Wind Power
5.2 TRENDS IN MICROGRID AND SMART GRID TECHNOLOGIES:
5.3 INVESTMENT TRENDS
5.4 POLICY TRENDS
6. STRATEGY DESIGN FOR NEIGHBORHOOD POWER PRODUCERS
33
35
35
6.1 SYSTEM STAKEHOLDERS
35
36
36
37
37
38
6.1.1 The Community
6.1.2 Diesel Supplier
6.1.3 CapitalProviders
6.1.4 Technology Suppliers
6.1.5 The Regulator
6.1.6 Utilities:
39
6.2 KEY CONSIDERATIONS FOR NPP STRATEGY
6.2.1
6.2.2
6.2.3
6.2.4
6.2.5
30
32
Central GridAvailability
Central Grid Reliability
Fueling Costs and Supply Chain Reliability
Seed and Expansion Capital
Policy Environment
39
39
40
40
40
7. BUSINESS STRATEGY RECOMMENDATIONS FOR NPPS
41
SUMMARY OF MACRO TRENDS AND BROAD STRATEGIES
THE RURAL, OFF-GRID, FOR-PROFIT AND RETAIL NPP
THE URBAN, OFF-GRID, FOR-PROFIT AND RETAIL NPP
THE URBAN, GRID-CONNECTED AND RETAIL NPP
41
42
43
44
7.1
7.2
7.3
7.4
46
APPENDIX A: BIBLIOGRAPHY
5
Table of Figures
FIGURE 1: AVERAGE ANNUAL INVESTMENTS REQUIRED BY REGION AND TECHNOLOGY TO
7
PROVIDE ENERGY ACCESS FOR ALL (INTERNATIONAL ENERGY AGENCY, 2011)
FIGURE 2: NUMBER OF PEOPLE WITHOUT ACCESS TO ELECTRICITY BY REGION IN MILLIONS
8
(INTERNATIONAL ENERGY AGENCY, 2011)
FIGURE 3: ADDITIONAL ELECTRICITY GENERATION BY GRID SOLUTION AND FUEL, 2030
(INTERNATIONAL ENERGY AGENCY, 2011)
12
FIGURE 4: GENERATOR SET MARKET BREAKDOWN IN MIDDLE EAST AND AFRICA REGION, 2013
&
12
((TECHNAVIO INSIGHTS), 2014)
FIGURE 5: GENERATOR MARKET IN REST OF AFRICA 2013-2018 - US$ MILLION ((TECHNAVIO
13
INSIGHTS), 2014)
FIGURE 6: TYPES OF ENERGY ACCESS COMPANIES BASED ON LEVELS OF ACCESS AND
15
CONNECTEDNESS (BARDOUILLE ET AL., 2012)
FIGURE 7: TYPES OF SMALL POWER PRODUCERS BASED ON TYPES OF ELECTRICITY SALES
16
(TENEBAUM ET AL., 2014)
FIGURE 8: AN ANALYSIS OF MICROGRIDS (NPPS) ACCORDING TO PROFIT MAKING STRUCTURE
17
(SCHNITZER ET AL., 2014)
FIGURE 9: ELECTRICITY GENERATION COSTS BY MINI-GRID (NPP) TECHNOLOGY (BARDOUILLE ET
20
AL., 2012)
22
ET
AL.,
2008)
(ALZOLAR
(NPP)
LAYOUT
A
MICRO-GRID
FOR
DEFINING
FIGURE 10: PROCEDURE
SEGMENT
BY
CUSTOMER
BREAKDOWN
REVENUE
MONTHLY
POWER
SYSTEMS'
11:
HUSK
FIGURE
22
FOR A PARTICULAR MICRO-GRID SYSTEM (SCHNITZER ET AL., 2014)
26
FIGURE 12: EXAMPLES OF LIGHT-HANDED REGULATION (TENENBAUM & IZAGUIRRE, 2007)
FIGURE 13: US DOE ENERGY STORAGE TREND (GYUK ET AL., 2013) - NEAR: CAPITAL $250/KWH;
27
LONG-TERM: $150/KWH
28
FIGURE 14: SOLAR-PV TRENDS (US DOE?)
FIGURE 15: WIND TECHNOLOGY ROADMAP SHOWING PROJECT COST REDUCTIONS (PHILIBERT
29
HOLTITINEN, 2013)
FIGURE 16: EXAMPLE OF STRUCTURAL MANUFACTURING IMPROVEMENTS FOR LARGE WIND,
30
KEYSTONE TOWER SYSTEMS ("SOLUTION I KEYSTONE TOWER SYSTEMS," 2014)
FIGURE 17: MODULAR POWER METER THAT IS UPGRADABLE WITH COMMUNICATIONS MODULE
31
(WWW.ITRON.COM, 2014)
31
2011)
(SANCHEZ,
ECONOMIES
IN
DEVELOPED
FIGURE 18: MICRO-GRID COST COMPONENTS
2012)
33
TRUSTS,
(PEW
CHARITABLE
2012
INVESTMENTS
ENERGY
CLEAN
FIGURE 19: GLOBAL
34
FIGURE 20: US CARBON PRICING OUTLOOK (LUCKOW ET AL., 2014)
35
FIGURE 21: NEIGHBORHOOD POWER PRODUCER (NPP) STAKEHOLDER NETWORK FLOW
FIGURE 22: FINANCING NEEDS AND OBSTACLES EARLY IN COMPANY LIFE CYCLE (BARDOUILLE ET
37
AL., 2012)
FIGURE 23: REDUCED NPP STAKEHOLDER NETWORK FLOW HIGHLIGHTING KEY FACTORS USING
39
NIGERIA AS A MODEL
FIGURE 24: SUMMARY OF MACRO TRENDS FOR STRATEGY IMPLEMENTATION FOR NPP BUSINESS
41
MODEL
42
FIGURE 25: GENERAL NPP NEAR-TERM, MID-TERM AND LONGER-TERM STRATEGIES
43
FIGURE 26: MACRO STRATEGIES ADAPTED FOR RURAL AND OFF-GRID NPPS
44
FIGURE 27: MACRO STRATEGIES ADAPTED FOR URBAN AND OFF-GRID NPPS
45
FIGURE 28: MACRO STRATEGIES ADAPTED FOR URBAN AND GRID-CONNECTED NPPS
6
1. Introduction and Motivation
According to the International Energy Agency (IEA) in its World Energy Outlook 2013
report (WEO-2013) there are 1.3 billion people without access to electricity and more
than 2.6 billion rely on traditional biomass burning for cooking, with harmful indoor air
pollutants. Moreover most are in developing economies in Asia and Sub-Saharan Africa.
This holds back development and prosperity in these developing markets.
as.
as.
as-
$1.1 bo
Is.
12-
B5.
5-
a.
S.
1. Sbillion
I
Indis
.
CA8 b llin
,
Access to clean cookin facilities
Advamced biomass coctstoves
* 8.ogas sysems
0 N PG stoves
World: $3.5 billion
$6.4 bhon
Electricty access
Isotated off-grid
S07beio
1bflio
Min-grid
On-grid
World: $30.5 billon
Figure 1: Average annual investments required by region and technology to provide energy access for all
(International Energy Agency, 2011)
7
The bulk of the discussion and research around energy access is rightfully centered on
rural areas, as the percentage of modem energy poverty is typically higher than in urban
areas. A 2009 lEA estimate puts the rural energy access poverty at five times the urban
rates and projected to be six time higher by 2030 (International Energy Agency, 2011, p.
15).
2030
2009
RualUrli)
Ru~i Ub~s
Africa
Sub-Saharan Africa
Developing Asia
China
Share of
Populationi
R rl
Ubn
Rrl
Ubn
Share of
Population
466
121
5%
539
107
42%
465
121
60%
538
107
49%
595
81
19%
327
49
9%
8
0
%
0
0
0%
India
268
21
25%
145
9
10%
Rest ofdevelopingAsia
319
60
36%
181
40
16%
Latin America
26
4
7%
8
2
2%
Middle East
19
2
11%
5
0
2%
Developing countries
1 06
208
25%
879
157
16%
World
1109
2W
19%
879
157
12%
Figure 2: Number of people without access to electricity by region in millions (International Energy Agency, 2011)
Having grown up in a rapidly urbanizing Nigeria with its worsening power supply and
the subsequent unbundling of the electric power grid, I am motivated to include the often
overlooked impact Neighborhood Power Producers can have in urban areas in poorly
performing energy infrastructures. While grid-connected, the power supply in urban areas
of developing markets are often unreliable, of poor quality and sometimes only available
when it is of least use. The poor state of electricity in these grid-connected sites is usually
due to low generation capacity, inadequate transmission infrastructure with high losses,
inefficient distribution networks and non-technical losses. These issues will take years to
8
fix and significant capital investments if developed in a centralized manner. Off-grid sites
will take even more time to implement as the distance to the central grid increases gridextension costs.
One compelling approach to help meet the need for rapid expansion of energy generation
and access is that of the local neighborhood power producer (NPP). In this approach,
entrepreneurs contract with a group of co-located residents or businesses to provide
electrical power. This service can be grid-tied or off-grid, serving as either backup power
or primary power, depending on access to the electric grid and/or the quality and
availability of power. These systems are essentially micro-grids with distributed
generation.
In contrast to developed economies with a relatively more efficient and available
electricity grid, the poor grid in most developing economies is driving a demand that
motivates investments in micro-grids and distributed power generation. The benefits are a
more resilient electrical infrastructure that is better able to ride out climate change effects.
These economies can essentially leapfrog their more developed counterparts with regards
to grid-resiliency. However, with a bottom-up approach such as this, there is pressure on
the entrepreneurs to focus on profitability, thus motivating investments in cheaper fossil
fuel technologies, adding to climate change inducing emissions.
The scope of this thesis is to study the Neighborhood Power Producer business model in
the context of developing economies, especially countries that are expanding energy
9
infrastructure and access. I will examine the political and technological ecosystem that
supports this model and that might help or impede business success. The core question I
will answer is what broad strategies are needed for such a business to be viable in the
short-term to longer-term, especially in light of expanding energy access, complex
regulatory and political dynamics, and the growing push for clean technologies'.
1("UN Decade of Sustainable Energy for All launched to business community; private
sector engagement seen as crucial to meet objectives ISustainable Energy for All," 2014)
10
2. The Case for Neighborhood Power Producer business model
In on-grid urban areas with poor electricity supply there is a demonstrated demand for
energy, already developed distribution lines and a tariff regime. However the tariffs in
most developing economies do not reflect market conditions and are actually kept below
operating cost. This is due to the fact that most systems were centralized and ran as a
public entity. Governments face the threat of political backlash in raising tariffs; in fact
raising tariffs too fast is unfair to consumers, but not raising them at all is untenable in an
unbundled system. These low tariff regimes make it difficult for the private owners of the
unbundled grids to recoup costs and invest in further infrastructure.
The public is unwilling to pay higher tariffs for poor electric power, thus distribution
companies operate at a loss. These new utilities are however under pressure, as the visible
face of the energy issue, to improve system efficiencies. In fact in recently unbundled
systems like in Nigeria, the regulator has very aggressive targets for efficiency
improvements on the grid with potential loss of operating licenses as penalty.
This gap in grid-connected areas and the pressure to improve efficiency means that
utilities are highly motivated to find solutions for improving grid-connected urban areas.
According to the IEA grid-connected investments account for 55% of private sector
investments as well as 40% of multilateral institution investments and 63% of these ongrid investments will be with fossil fuels (International Energy Agency, 2011). However
11
these investments will take years to begin affecting the state of the power systems, while
energy demand continues to grow [find reference and/or chart].
Mhs-gdd idoE-dpgeratia
o 3UTIenal"
3Ua n
470W1
S
*Fossil fuels*
sowa
Nuclear
Gill
0 Hydro
hydr
FosiWofuess
SWind
* Solar
B Other renewables
21%
Wind
* Diesel
Coal accounts for more than 80% of the additional on-grid electricity generated from fossil fuels.
Figure 3: Additional electricity generation by grid solution and fuel, 2030 (International Energy Agency, 2011)
The pent up demand for energy and lack of confidence in grid improvements is resulting
in consumer and industry investments in backup power systems, which are typically
fueled by non-renewable sources like diesel due to the relatively low capital required. For
example, in a single week in January Nigeria imported over $8 million of generators.
Gensets Mrket i the MEA Region by Geogiaphocal Segmentation 2013
A34"
34.A%
Figure 4: Generator set market breakdown in Middle East and Africa region, 2013 ((Technavio Insights), 2014)
12
Gensets Market in the Rest of Africa 2013-2018 (US$ rnillon)
44-0
70 D
4.6%
500
45
4 4%
40D
.30D
2013
ama
014 2159%206
204 2
4.3%
t1
41ee--GothRt
4.2%
2(iD
4.0%
0o
2013
2M14
20115
2M16
2018
2017
Figure 5: Generator Market in Rest of Africa 2013-2018 - US$ million ((Technavio Insights), 2014)
Coupled with very high population growth rates and rapid urbanization in Asia and SubSaharan Africa, growing fossil emissions from on-grid backup power are a concern.
These backup systems are essentially distributed generation with dirty fuel sources. To
fulfill the goals of the UN Sustainable Energy for all (SE4ALL) initiative we cannot
afford to assume the utilities in developing economies can single-handedly improve
efficiency, provide better access and increase the renewable energy mix. Bringing in
entrepreneurs into this segment has the potential to competitively help reduce demand,
thus improving efficiency. Entrepreneurs that aggregate can also more efficiently manage
distributed generation sources and allow distribution companies (DISCOS) to focus on
grid extension activities.
Since fossil fuel is oil based it also suffers from price variability and if the supply
infrastructure is poor it can be even more erratic. This creates an incentive to diversify or
switch entirely to renewable energy sources. If a sustainable business can be proven, the
13
relatively smaller capital requirements of the model makes it less risky, which leads to
easier access to capital. Thus the success factors for a Neighborhood Power Producer
(NPP) are worth investigating.
14
3. Background on Neighborhood Power Producers
Energy access analysts have classified solutions along the lines of level of energy
provided (Bardouille, Avato, Levin, Pantelias, & Engelman-Piger, 2012), or on grid&
connectedness (Bardouille et al., 2012; Tenebaum, Greacen, Siyambalapitiya,
Knuckles, 2014).
Impruved cookstowes
Cookstovw with higher effiency
and lower emissions, using biomass
(wood, charcoal, other processed
solid fuel)
Solar and rechargeable lanterns
Integrated device combining small
solar panel, batteries, and typically
LED lights; sometimes offers limited
external charging, e.g, cell phones.
Also covers rechargeable lanterns
Min grids
Fixed installation, typically on
rooftop, provides good storage of a
few days, can run lights and
appliances, e.g, refrigerator, TV, fans
Solar kits
Plug-and-play system including
portable solar panel, batteries.
multiple lights, and sockets for
running small appliances, e.g., black
and white TV, radio
Grid extension
Small generation facilities using
diesel, biomass, hydro, wind, or solar
with distribution network to a local
cornmunity
Extending access from the national
electricity grid to cornmunities in
urban, periurban, and rural areas
Figure 6: Types of Energy Access Companies based on levels of access and connectedness (Bardouille et al., 2012)
Bardouille et al classify modem energy access solutions as 1: Devices; 2: mini-utilities 2
and 3: grid extension. Under devices were improved cook stoves, solar lanterns, solar kits
2 Mini-utilities,
mini-grids, micro-grids are used interchangeably for a system comprised
of a power generation source, electricity distribution to residences or businesses, and the
interconnection (where available) to the central electricity grid.
15
and solar home systems. Tenebaum et al focused on Small Power Producers (SPPs),
which encapsulate both the mini-grid and grid extension classes of Bardouille et al. SPPs
are essentially sub-10MW generation sources that can either supply the grid or an
isolated community. SPPs were differentiated in two dimensions, namely the nature of
the customers and whether the system was grid-connected or not. Customers fell into
retail i.e. final consumers, or into wholesale i.e. back to the utility.
Location ofgeneration
Nature of
customers
Connected to isolatedmini-grid
Connected to main grid
Case 1
Case 3
Case 2
Case 4
Selling retail (directly
to final customers)
Selling wholesale
(toutility)
Figure 7: Types of Small Power Producers based on types of electricity sales (Tenebaum et al., 2014)
A third dimension is location based, that is urban versus rural systems. Both the systems
described by Tenebaum et al and Bardouille et al can be applied in either urban or rural
settings but the external factors that affect timing of key decisions might be different. For
example an urban system is most likely connected to the grid and if not connected, it is
close enough for grid connection in the future. Also urban areas are denser and probably
have distribution networks available. Thus grid extension is probable, depending on the
tariffs setup by the regulator. Here the entrepreneur operating an NPP has to consider the
timing of grid improvements by the utilities.
However some urban slums and periurban areas might have communities that have no
land use rights and might not be grid connected. The power producer serving these areas
16
has to create distribution networks and add metering for collection. This is not too
different from a rural off-grid site apart from the fact that distance to the grid is probably
greater and population density is relatively less.
3
Tariff-based O&M
cost recovHty
______
N
Tarifibased capital
C Irecovety
cost
___
High
Theft
High
High
LAW
LOW
_____
_____
High
Medium
Medium
Medum
Msdkxn
fgh
Local vrining end
_ _
_
insdtudmaliation
Load limits
___growth
_
Norm
_
_
_
_
_
_
Hkffi
High
High
H
High
High
Medium
_____:t_______
I_______
Figure 8: An analysis of microgrids (NPPs) according to profit making structure (Schnitzer et al., 2014)
We can also examine mini-utilities in terms of profit making aspect of the business model
(Schnitzer et al., 2014), that is whether it is a For-Profit entity, a partly subsidized nonprofit entity and a fully subsidized non-profit. Subsidies might come from the
government or from multinational institutions with interests in expanding energy access.
From these sources, there are three main scenarios that the Neighborhood Power
Producer business model discussed in the thesis fits into:
* Rural, off-grid, for-profit and retail customers (ROGFPRC)
* Urban, off-grid, for-profit and retail customers (UOGFPRC)
e
Urban, grid-connected, for-profit and retail customers (UGCFPRC)
17
In all we are interested in examining a mini-utility or mini-backup-utility scheme. The
backup nature depends on grid connectedness and the level of energy access provided. If
the neighborhood or community being served is grid-connected but the power supply is
poor or erratic the NPP primarily serves as the backup for when the grid is unavailable.
When the community is not connected then the NPP is the primary power source and
might operate 24/7 or for a set-period depending on how much generation is available
and the consumer energy demand.
18
4. Summary of the Success factors affecting a NPP
Tenebaum et al concisely captured the macro business success factors that affect an
entrepreneur in the energy access market, and Bardouille et al further examined the
regulatory environment needed to encourage private participators in mini-grids for
renewable energy in Africa. Schnitzer et al examine several projects in developing
economies for success factors and lessons learned.
4.1.1 Affordability of the service:
If the NPP is serving the middle class and the so-called "bottom-of-the-pyramid" market
segments then there is a need to accommodate relatively small disposable incomes and
provide a means for the retail clients to pay over time for the relatively high connection
costs. This is especially important for off-grid communities where the per household
connection costs can range from $50-$300 (Bardouille et al., 2012).
Beyond connection costs having a pay per use system in place also raises chances of
success. Retail customers pay for how much electricity they can afford just as they would
for diesel or kerosene fuel sources. Along with the flexible payments a visible measure of
energy usage and limits should also be provided for the customers.
4.1.2 A secure, reliable fuel source
A key factor in the long-term sustainability of the NPP business model is to make sure
the fuel source is not at risk of price volatility or supply scarcity. An example is a system
that relies primarily on diesel, which is affected by oil prices and depending on supply
19
infrastructure might be prone to scarcity. While the up-front capital investment is low,
over time the operating costs add up, and where a solar-diesel hybrid system might be
more expensive, a diesel-only system can have high operating costs. Additionally if the
technology relies on fuel that is transported over long distance (for example biomass
feedstock) then diesel price increases will also affect the operational costs.
Levelized cost of electrclty, US cents/kWh
Fuel cost
* O&M cost
M Investment costa
43
33
17
U
Solar PV
Mini-wind
Biomass
Micro-hydro
Diesel
generator
gasifier
Main Assumptions
4,800
3.300
3.800
3.000
850
Useful life
Years
20
20
20
25
15
Capacity factor
20
18
80
20
s0
Fuel costs
n.a.
n.a.
32*
n.a.
0.98
Capex
$/kW
$1kW
$/ton
$11
a WACC at 10%
a 20% premium pric over
the rouestia PV prkcs
th re
* Ieat content at 2 MWVt4on
(wood after falling at
S
FIGURE 3.13: Electricity generation costs by mini-grid technology
Sorce: ESMAP-World Bank, Mclinscy analysis.
N.e: kW = kilowatt; kWh = kilowatt hour; MWh = mcgawatt hour; O&M = operations and maintenance; PV = phowookaic;
WACC = weighted average cost of capital.
n.a. = not appicablc.
Figure 9: Electricity generation costs by mini-grid (NPP) technology (Bardouille et al., 2012)
20
moisture)
4.1.3 Design for demand growth and population density
To recoup capital costs and ensure long-term profitability the electricity demand should
be enough that the affordable rates to customers translates into profits for the NPP. The
NPP needs to ensure that energy usage is high enough to recoup costs. The NPP can do
this by engaging businesses in the communities that would use the energy for productive
purposes such as milling or other processing activities. The NPP could also provide
community centers that use energy such as sports bars, business centers, computer
training centers and so on. Figure 11 shows how in a particular NPP run by Husk Power
Systems in India only 12% of customer base were business customers but they accounted
for 24% of monthly revenues.
Another aspect the NPP needs to ensure is that energy losses in the distribution system
are minimized. In communities where the population is dispersed, the NPP has to
strategically design the grid such that the distribution system is not prohibitively
expensive. Alzolar et al discuss a process summarized in Figure 10 below for ensuring a
balanced and efficient distribution system (Alzolar, Camblong, & Niang, 2008).
Generator locations should be chosen as a tradeoff between locating close to large loads
and the community receptivity for noise and aesthetics. Distance should also be
optimized to reduce losses.
21
CONDITIONS:
.Vdbpag drMP WW powwr lome
Users
a-ond
eSafety I Reliability
100w
200w200w,
Forecasto
W
Mh
uure
400w
Locaton of
genersor
100w
CONDITIOen:
-Close tD larme
g'id
badt
- SPaEM avallawsty
-0 Noine
9
[]] 200w
Fuel Supply
400W
Procedurefbr the definition of system layout
Figure 10: Procedure for defining a micro-grid (NPP) layout (Alzolar et al., 2008)
100%
90%
80%
70%
60%
I!
I
I0
50%
40%
30%
20%
10%
0%
0%
'40001r,
20%
40%
60%
amMousinomi
80%
100%
Percentage of Customers
Figure 11: Husk Power Systems' monthly revenue breakdown by customer segment for a particular micro-grid
system (Schnitzer et al., 2014)
4.1.4 Optimize the system for scale
After validating the NPP model in select communities the NPP has to optimize operating
22
basics to remove inefficiencies and create a replicable and profitable system. It might be
necessary to recruit technical and business expertise that ensures that the NPP can scale.
This is even more important as the NPP attempts to replace the centralized grid and
expands access to more communities.
4.1.5 Clear and appropriate service area definitions
The government needs to encourage private participants in NPPs to expand energy access
clear and consistent signals need to be in place about grid extension plans as well as
projected efficiencies of the service areas. In off-grid cases the NPP needs to be able to
sufficiently predict when or if the centralized grid will be extended to a service area. For
grid-connected areas the NPP needs to be able understand how soon public utilities are
likely to improve quality of service. If these pieces of information are made available to
NPPs they can then decide on the risks associated with each level of investment in
infrastructure development.
4.1.6 Light-handed regulation
According to Tenebaum (see page 66) the regulator's role is mainly to set maximum and
minimum electricity prices (tariffs), establish minimum quality-of-service standards, and
specify entry and exit conditions through licenses, permits and concessions. However due
to the high capital and operating costs of the NPPs, as well as there is typically very little
barrier of entry for other participants (in off-grid sites) and little power compared to the
centralized utility (grid-connected sites) the regulator should be careful to adapt
regulation for NPPs.
23
Tenebaum et al give a summary table on examples of light-handed regulations (see
Figure 12). They caution against applying light-handedness without consideration of
consequences. For example to low barriers might give rise to "prospecting" license
applications where developers might just be holding a license in place for the possibility
of future development. However
4.1.6 Appropriate tariffs by regulators
While it is important to set tariffs such that the consumers are not taken advantage of, the
regulator should recognize that capital costs for expanding energy access using minigrids are much more critical to the survival of NPPs compared to the utilities he/she is
used to. In areas where there are no other options the NPP should be allowed to recoup
costs at tariffs that are higher than the centralized grid but cost competitive to what
communities currently pay for current energy sources. In off-grid areas the impact of
changing to modem energy sources can be measured in avoided emissions and thus
impact on health can be considered as well. Social impact factors such as prolonged
hours of operation and clean light for families.
In grid-connected areas the consumers have an alternative already in the grid and
probably diesel/gasoline-powered generators. Thus the role of the NPP is to provide
backup to an inefficient and unsatisfactory supply of modern energy. There is often open
competition and the consumers can choose other providers if an adequate regulatory
policy is in place to encourage NPPs as a whole. Thus the need for "heavy-handed"
regulation is not needed here as well. If the NPP sets prices too high the customers can
opt out of the service and select a competitor.
24
According to Bardouille et al mini-grids (NPPs) "... should be allowed to charge market
prices - rather than be subject to tariff regimes designed for centralized plants - at least
until they are established and can exploit economies of scale..." Tenebaum et al suggest a
light-handed policy that allows NPPs to charge market prices so long as customer
complaints are not excessive and a 5-year periodic review period.
25
Characteristicsof light-handedregulation
Example
Example
Characteristics of light-handed regulation
Minimize the amount of information
provided to the regulator.
For very small power producers (VSPPs) (installed capacity
of 100 kilowatts [kWI or less), the VSPP need not make
a retail tariff filing with the Energy and Water Utilities
Regulatory Authority (EWURA). But if the EWURA
receives complaints about the tariffs, it reserves the right
to review the VSPP's tariffs using a publicly available
cost-of-service model employed for the larger small
power producers (SPPs) (Tanzania).
In setting feed-in tariffs (Fs), the regulator does not
require individual cost-of-service studies for each
SPP (Tanzania, Sri Lanka, and Kenya), but instead sets
generic-technology-based tariffs or tariffs based on
estimates of the buying utility's avoided costs.
Minimize the number of separate
Licenses are not required for SPP projects less than
regulatory processes and decisions.
1 megawatt (MW) (Tanzania).
Use standardized documents or similar
Standardized power-purchase agreements (PPs)
documents created by other agencies,
and standardized application forms are used for
and make documents available on
interconnection to a national or regional utility (Tanzania,
the Web.
Thailand, and Sri Lanka).
A standardized template for prefeasibility studies is used
when SPPs that wish to sell to the national utility apply
for provisional approvals (Sri Lanka).
A standardized model electricity supply agreement is
preapproved by the regulator for villages served by the
private operator of an isolated mini-grid with an SPP
(Cambodia).
Rely on related decisions by other
The regulator gives considerable weight to the rural
government agencies or community
energy agency's (REAYs approval of an SPP business
bodies.
plan when the regulator reviews license applications
(Tanzania).
The regulator gives considerable weight to the renewable
energy agency's issuance of an energy permit when it
makes its decision as to whether it will issue a generation
license (Sri Lanka) (pre-2011).
Figure 12: Examples of light-handed regulation (Tenenbaum & Izaguirre, 2007)
26
5. Future Signals for Neighborhood Power Producer models
5.1 Trends in Renewable Energy Sources
There is a general expectation that the cost of electricity will increase over time due to
increased cost of fossil fuels and concern around global warming. This gives an increased
growth potential for renewable energy sources over time and may displace parts of the
power production from coal and diesel/gasoline generation. Continued growth will drive
down cost as one continues down along the learning curve.
5.1.1 Energy Storage
Another trend is the focus on grid-storage technologies. Traditionally the issue with
variable sources like wind and solar generation has been the fact that there is no
generation when there is no wind for wind power and when there is no sunshine for solar.
Thus systems have to have electrical energy storage, which has been either too expensive
or short-lived.
I
I
C
a:
*1
0
-J
2
2013
ea r- term
2015
2017
2
2019
2021
2023
Years
Figure 13: US DOE Energy Storage trend (Gyuk et al., 2013) - Near: Capital $250/kWh; Long-term: $150/kWh
27
New research and development has resulted in different startup companies implementing
new relatively low-cost and longer-lived battery storage technologies. Figure 13 shows
the US Department of Energy's technology roadmap for affordable grid-storage. The
DOE expects to realize a $250/kWh capital cost for energy storage by 2020 and at least
$150/kWh by 2030.
5.1.2 Solar photovoltaic (PV)
IEA issued a roadmap for PV in 2011 (IEA, 2011), illustrating potential for Solar-PV to
become cost competitive with grid-based generation by 2030. In areas that are not gridconnected or have poor grid performance well-designed Solar-PV and diesel backup
hybrids are already the best option, especially where the diesel fuel prices are prone to
vary significantly.
2010
2020
2030
fYfWWoM
250
S150
100
So
0
qwwatioccosts
ar
gmabacum
10% =WrW
niueleckictycoft
Figure 14: Solar-PV Trends (US DOE?)
5.1.3 Trends in Wind Power
According to the IEA (Philibert & Holtitinen, 2013) land-based wind installations are
projected to realize about 20% reductions in installation costs by 2020 and off-shore
installations are projected to have 45% cost reductions. Some of the expected
28
improvements are from technologies targeting low wind sites, which will enable greater
adoption in distributed generation needs like Neighborhood Power Production. Low wind
systems can then be more easily incorporated in urban environments and rural areas with
low wind speed.
9080-
70
E
60-
50
40-
30
_0
20 _
100
-r
Blade
architecture,
controls,
aeroacoust s,
aerodynamics
control
systems
reduce blade
loads
Drivetrain
architecture
power
electron'cs
control
systems
reduce
generator
loads
Tower
architecture,
innovatiw
material.
conrol
systems
reduce
tower loads
Optimised
electrical
infrastructure
Optirnsed
resource
assessment,
forecasting,
optinised
micro-sitin
control
strategies
Testing.
standards, Reduced
componenft
transparent defects and
information failures,
sharing
condition
monitonng,
optimised
0 and M
strategies
-v
of
0 2009 LCOE benchmark
System validation
MTower
U Drivetrain
U
Plant performance optimisation
0 Balance of plant
In Operating costs
-
4 000
M Rotor
500
3
000
-
-
3
2 000
-
2 500-
I Soo0-
---------------
500
-
-
1 000
0 -4
2010
2015
2020
2025
2030
2035
2040
--
Offore
2045
-
2050
Land"Maisd
Figure 15: Wind Technology Roadmap showing project cost reductions (Philibert & Holtitinen, 2013)
Other potential improvements that can lead to cost reduction are onsite manufacturing
deployments for tower and support infrastructure. An example is Keystone Tower
Systems ("Solution IKeystone Tower Systems," 2014), which is a startup pioneering the
29
onsite manufacturing of wind tower systems using a spiral welding technology. This
reducing transportation costs by eliminating the need for specialized transportation
permits for the traditionally modes of transportation.
-
A
/
Figure 16: Example of structural manufacturing improvements for large wind, Keystone Tower Systems
("Solution I Keystone Tower Systems," 2014)
5.2 Trends in Microgrid and Smart Grid technologies
According to Klemun's article 3, one of the key trends in the Microgrid and Smart Grid
space is the development of standardized system controllers that reduce the setup costs of
microgrid systems. She cites the work that Consortium for Reliability Technolgy
Solutions (CERTS) has been doing to create a plug-and-play control scheme to reduce
costs of Microgrid controllers and communications devices, whuch can be up to 20% of
the systems costs (Sanchez, 2011). Technology developers like iTron are also
implementing hot-swappable smart meters so that the NPP can start out with limited
metering-only functionality and then upgrade its meters with communications capability
(see Figure 17).
3 (Klemun,
2014)
30
CENTRON® R300
Figure 17: Modular power meter that is upgradable with communications module (www.itron.com, 2014)
Switchgear
Protection &
Transformers
(20%)
SG
Communications
& Controls
(10-20%)
Site
Engineering &
Construction
(30%)
Operations
Markets
Energy storage;
Switchgear
Standards &
A&E (System
O&M; Market
controllable
loads; DG;
renewable
utility
Interconnection
(incl. low-cost
protocols;
Control &
protection
design and
analysis);
System
(utility)
acceptance
generation; CHP
switches,
interconnection
technologies;
Real-time signals
integration,
testing,
study,
(openADR); Local
validation
protection
schemes, and
SCADA access;
Power electronics
protection
(Smart Inverters,
studies)
DC bus)
&
&
Energy
Resources
(30-40%)
Figure 18: Micro-grid cost components in developed economies (Sanchez, 2011)
In the developed markets, Microgrids are also gaining a boost from the fact that once
1 00-year weather phenomena is occuring more frequently. For example power outages
from hurricane Sandy and others have prompted investments in Microgrid demonstration
sites.
31
5.3 Investment Trends
In 2012, solar technolgy achieved the most financing of any other clean energy
technology for the second year in a row, with a cumulative global investment of $126
USD billion (Pew Charitable Trusts, 2012). China is the clear leader in solar energy
investment, contributing 25% of this total. The majority, of China's PV manufacturers
are focused on first generation c-Si technology, so given this investment leadership we
can expect that first generation PV will continue to dominate the global market in the
near future.
In 2012, overall clean energy investment in the non-G-20 nations grew 52%, while the G20 nations declined by 16% (Pew Charitable Trusts, 2012). Bloomberg New Energy
Finance predicts that this trend will continue and anticipates 10-18% annual growth for
clean energy investment in the developing nations. Given the growth in developing
markets, we can expect new investments in off-grid systems. For example, in nations
such as India there is very poor grid infrastructure. Electricity technologies that can be
deployed in distributed rural communities will be more competitive than those designed
for centralized grid applications.
32
aem
W"ieStfts
GinkesteW-27
b
-
Ausm
Sodhthka
kiy
b.Sfl
-- I
-60
wfl7l
-I
5.4Polcy red
The world isb mg mh moearebs of tsse
Figure
19: Global Clean energy Investments -2012 (Pew Charitable Trusts, 2012)
5.4 Policy Trends
The world is becoming much more aware of the economic risks posed by global climate
change from greenhouse gas emissions such as carbon. We see a long term trend of
increased emissions tax pricing 4 and government policy incentives which support further
4 US Carbon Pricing Outlook (Luckow et al., 2014)
33
investment in clean energy technology such as solar as a substitute for carbon emitting
technologies. It is not clear at this time whether these policies and taxes will benefit one
PV technology over another. Organics arguably have a smaller carbon footprint than its
predecessors which may give them an economic advantage in a market with strong
carbon taxes.
2020
2021
2022
2023
2024
2025
2026
2027
$10.00
$11.50
$13.00
$14.50
$16.00
$17.50
$19.00
$20.50
$15.O
$17.25
$19.50
$21.75
$24.00
$26.25
$28.50
$30.75
$25.00
$28.25
$31.50
$34.75
$38.00
$41.25
$44.50
$47.75
2028
$22.00
$33.00
$51.00
2029
2030
2031
2032
2033
2034
2035
2036
$23.50
$25.00
$2650
$28.00
$29.50
$31.00
$32.50
$34.O
$35.25
$37.50
$39.75
$42.00
$44.25
$46.50
$48.75
$51.00
$54.25
$57.50
$60.75
$64.00
$67.25
$70.50
$73.75
$77.00
2037
2038
$35.50
$37.00
$53.25
$55.50
$8025
$83.50
2039
2040
$38.50
$40.00
$57.75
$86.75
$60.00
S90.00
Figure 20: US Carbon Pricing Outlook (Luckow et al., 2014)
34
6. Strategy Design for Neighborhood Power Producers
To create a broad strategy framework for Neighborhood Power Producers the key system
stakeholders and their motivations must be understood. Figure 21 synthesizes the main
stakeholders in the Neighborhood Power Producer's ecosystem in a developing economy.
It assumes that the electrical power infrastructure is unbundled or about to be unbundled.
6.1 System Stakeholders
Stakeholder Network Flow
"
-.
%(Sales)
$Sls
Policy
(Sales)
Money
Generator Fuel
(Diesel)
Flexibilty Optionl
$ (Sales)
IElectrical Power
SKnowledge
Primary or
BackPup
ElectricityGrid
Goods and
Se
es
Expansion Capital
Investment
1I
Veture
Seed
Energ
Services
$ (Sales)
Capital
I
lectridty Grid
tie-in,
FeiAclaySrie
N
Political
21Feed
Suppo
rs
Setting Tariffs
Environ
talO
Protection
$ (Revenue)
Lbor Expansion
Technology
Employment
The comnt/eihoho
Oto
Communkty
Social
Governance,
agrgae
hoshod an busiesse creti
Theft Reportdng
glans
Figure 21: Neighborhood Power Producer (NPP) stakeholder network flow
6.1.1 The Community:
The community/neighborhood aggregates households and businesses creating a dense
enough set of consumers for a NPP business model to work. The communities are in need
35
of modem energy services (off-grid areas) or a backup system to the central grid's poor
power supply (grid-connected areas) or are interested in a cleaner more reliable
alternative to their existing backup system (diesel/gasoline based generators). The
community can also serve as a source for labor allowing the NPP to make use of more
labor intensive but cheaper generation technology like biomass. The community can also
provide self-governance for electricity theft depending upon the NPP infrastructure
design. For example if residents are aggregated into nodes of sub-divisions with energy
monitoring and shut-off per node, this will deter electricity thefts or at least help with
reporting.
6.1.2 Diesel Supplier
Sources diesel/gasoline from fuel depots and transports to NPP sites. Fuel prices are tied
to global oil markets and additional supply constraints. If oil prices increase then
transportation costs also increase thus remote sites have knock-on effects.
6.1.3 Capital Providers
Non-governmental Organizations (NGO) and development agencies can provide needed
seed capital especially in off-grid areas that have high connection costs. This will help
establish the NPP's initial sites and subsidize communities hastening energy access. Once
the NPP is expanding to other communities and demonstrating a scalable business model
the NPP can seek venture capital. Some Venture Capitalists are also interested in social
impact and development and can thus be earlier in the NPP's growth path. Figure 22,
created by Bardouille et al (based on IFC source), summarizes capital needs in a
company's life cycle.
36
-
snem Model Development
-
o"O Concept
-
-4
Camipaniesoften have
wmihaeaig
urtarad prodwft and
c
besisn
uto
'*.Pop
Or"'6-1mTheo
qr
sa6..4 Tehigy
Spers
R&Dand oer
Break- ds
even
deopment
Laenr
"Tchn
g
fimodiangmwntno r
Ealy st
ag.
s
T
at
,
s.wrkn
peaniednt The need a tOs stags a Matoring companies anrd
and angel financing to stay afloat sisl.
theywork tward proo of congey
for wntsu. cap"tal
management a
to establish operations.
iin
mprn
a
cpMQn
1ilslngterm local-aarrncy-
e
demtnas
dest to gow
Woaking capita and Vrad financ
am, also required
a
Figure 22: Financing needs and obstacles early in company life cycle (Bardouille et al., 2012)
6.1.4 Technology Suppliers
As discussed in the "Technology Trends" section, renewable energy and energy storage
technologies are expected to decrease in costs and new microgrid technologies are
expected. The Technology Supplier becomes important as this represents significant cost
savings for the NPP over the long term and as it scales to other communities.
6.1.5 The Regulator
The regulator is critical to the success of the NPP as he/she works to create simplified and
straightforward processes and market representative tariffs. If the regulator is too "heavyhanded" (see Figure 12), too slow in processing licenses or making decisions or
inconsistent in policy setting the NPP could be at risk of going out of business. The
regulator should establish standard Power Purchase Agreements to help balance the
bargaining power of utilities versus NPPs if grid-connected or when grid-extension
occurs.
37
Tenebaum et al recommend 5 year periods between reviews to allow companies to have a
sense of stability while the regulator can make adjustments for unplanned for
consequences of prior regulations. Thus the NPP can make plans in 5-year increments
looking at macro trends and policy roadmaps to make decisions. The regulator also drives
efficiency requirements for distribution utilities.
6.1.6 Utilities
Utilities in a newly unbundled electric power system are typically faced with non-market
representative tariffs, poor system efficiency and political and regulatory pressure to
improve efficiencies and generation capacity. There is the added pressure of losing
licenses for perceived lack of performance. Thus unlike developed economies with
relatively efficient centralized electric grids, utilities in developing markets are faced with
pressures that make partnerships with private participants attractive.
In grid-connected areas NPPs that can aggregate customers and help with energy demand
management, helping reduce demand on the main grid or completely disconnecting from
the main grid ("islanding") might be seen as a partner rather than competition. With the
right technology mix the NPP can also provide ancillary services like frequency
regulation, black start (in case of shutdowns), energy reserves (spinning and nonspinning). Off-grid NPPs help relieve pressure on the utilities for grid-extension and if
properly planned can be complimentary to the main grid when or if it arrives.
38
6.2 Key considerations for NPP strategy
Based on the stakeholder analysis Figure 23 is a reduction the NPP stakeholder network
flow to the following key decision factors:
A model of Lagos's power relebnly forecast
Grid
Reliability
0
Stable
40%
up to 2019
,
Diesel Fuel Price
schools
200
Holels
Feed
in Tariff
202"
2034
201
_,O
0on
R""t y (up mw rM per yew)
2042
$(Fuel :osts)
Modern
Energy
Services
Investme nt
Realizi
Deman id
d
Seed
Capital
Venture
Capitl
ROI
Social
Technology
Impact
Labor Expansion
Option
Technology
Suppikrsj
Figure 23: Reduced NPP stakeholder network flow highlighting key factors using Nigeria as a model
6.2.1 Central Grid Availability
If the community is not connected to the grid then the distance to the central grid and grid
planning becomes a factor in determining how soon or if there will be grid-extension to
the community.
6.2.2 Central Grid Reliability
If the community is connected to the central grid then in a recently unbundled system, for
39
the NPP it is a race to scale and be able to offer grid ancillary services by operating as an
aggregator of Demand Side Management, Virtual Grids and Renewable Generation
sources. Until the grid improves in efficiency the NPP operates as a cleaner, more costeffective backup alternative versus diesel/gasoline sources.
6.2.3 Fueling Costs and Supply Chain Reliability
If the generation fuel is subject to price volatility then the NPP might not be sustainable.
The NPP should seek to diversify to renewable hybrids quickly to reduce operational
costs.
6.2.4 Seed and Expansion Capital
Apart from the obvious human value of focusing on improving the living conditions of
the energy poor, Bardouille et al have shown that it is a also a large market. Social Impact
funds are flowing towards energy access projects and off-grid sites, which have the most
impact right away. If an entrepreneur is considering off-grid versus grid-connected,
depending on access to capital, the off-grid sites have a better chance of being funded.
However there is the added risk of the need to invest in a distribution system
6.2.5 Policy Environment
The NPP's ecosystem plays a huge role in strategy decisions, for example the availability
of standard Power Purchase Agreements between NPPs and the main grid encourages
planning for grid tie-in. Also market appropriate tariffs that recognize the high capital
costs of off-grid energy access can help encourage investments in these areas. If there is
an attractive feed-in-tariff it might offset the costs of investing in renewable technologies.
40
7. Business Strategy Recommendations for NPPs
7.1 Summary of macro trends and broad strategies
The key macro trends for NPPs are summarized in Figure 24 where it is assumed that this
is a newly unbundled electric grid system. Figure 25 gives broad strategies and timing for
developing market NPPs. Figures 26-28 adapt the broad strategies to specific market
segments.
Summary ot key macro trends tor NPPs
Near-term
Mid-range
Long-range
Some macro trends that affect a Neighborhood Power Producer's strategy
Figure 24: Summary of macro trends for strategy implementation for NPP business model
41
Key macro strategies for NPPs
Near -term
(y ears
0- 5)
Refning the basiCs
a Design efficient distribution system
e Pay-for-use and automatic shut-off
Reliable and cost-effective fuel supply
* Anchor customers high energy
demand; feed excess into community
Mid-term
(y ear s 515)
Scaling the model
* Expand to nearby communities
* Expand renewable generation
* Upgrade for communications
- File for Carbon Emission
Reduction credits
Upgrade for grid-tie-in
( Add smart grid intelligence
* Aggregate site, operate as virtual grid
Long-term
it egr a tln
nto t h
e
Provide grid ancillary services
grd
Figure 25: General NPP near-term, mid-term and longer-term strategies
7.2 The Rural, Off-Grid, For-Profit and Retail NPP
Here the grid-extension option is typically not a priority for the central grid utilities as
they are working on improving efficiencies of current assets and markets. The NPP has
some time to perfect the business model but has to incur distribution assets costs. The
NPP also has to determine the most cost effective method of tariff collection.
Off-grid sites without prior modem energy access are also typically characterized with
low initial energy usage per household. Thus the NPP has to find "anchor customers"
who have higher energy usage rates, which offsets the low usage from residents. Anchor
customers can be telecom tower operators or local businesses with productive power
needs or high heating needs. The NPP can sell heat to businesses and residents effectively
42
increasing system efficiency as a Combined Heat and Power producer.
Macro strategies for ROGFPRC type NPP
" Design efficient distribution system
" Nodes of customers to reduce metering
* Pay-for-use and automatic shut-off
" Reliable and cost-effective fuel supply
"Anchor: businesses, mobile operators,
community center etc.
ROGEPRC NPP
R
- Rural
OG - Off-grid
FP - For-profit
RC - Retail Customers
" Expand to nearby communities
" Expand renewable generation
" Upgrade for communications
" File for Carbon Emission
Reduction credits
Figure 26: Macro strategies adapted for Rural and Off-grid NPPs
7.3 The Urban, Off-Grid, For-profit and Retail NPP
While off-grid, the urban nature of this type of NPP makes grid-extension considerations
more near-term. With proximity to grid-connected urban sites these areas typically have
growing energy needs that are constrained by costs. The NPP should focus on providing
an alternative to privately managed gasoline/diesel generation and provide pay-per-use
functionality. There is still the need for investment in distribution infrastructure.
43
Macro strategies for ROGFPRC type NPP
Near-t*erm
(years
0-5)
* Design efficient distribution system
* Cost-effective tariff collection
* Nodes of customers to reduce metering
e Reliable and cost-effective fuel supply
e Anchor: businesses, mobile operators
years
-1Ex
Sc arlng t he m
Expand metering to individual homes/businesses
Expand to nearby communities
pand Renewables & Energy Storage
Upgrade for communications
eFile for Carbon Emission Reduction credits
odel
U
Lo ng-term
to the o Provide grid
ancillary services
-
O
*
gi
UmGFmRC
- Urban
OG - Of-grid
FP - For-proft
RC
Retail Customers
U
teg.rcl
- Upgrade for grid-tie-in
* Add smart grid intelligence
* Aggregate sites, operate as virtual grid
I
e Feed-in-Tariff for generating into the grid
Figure 27: Macro strategies adapted for Urban and Off-grid NPPs
The NPP can also still use the community to manage energy theft by creating nodes that
are shut off if bypassed. Other residents in the node will be more likely to help selfgovern against theft. The NPP can work to partner with utilities to install renewables and
storage to delay transmission investments. When connected to the grid the NPP can
aggregate with other urban and grid-connected sites as a Virtual Power Plant.
7.4 The Urban, Grid-Connected and Retail NPP
The grid-connected urban system is essentially competitive so long as the central grid is
unreliable and unpredictable. As the regulator pressures the unbundled utilities to
improve the system efficiency and generation, the urban grid-connected areas are the
"lowest hanging fruit" for utilities and thus the NPP needs to aggressively plan for grid-
44
integration.
Macro strategies for ROGFPRC type NPP
N e a r-t e r rn
(y e ars 0-3)
Rf n
UGCFPRC
a Design effie~eiqt dizutieisystem
N
urban
Grid-connected
r t
- For-profit
eu
. Cost-effective tariff collection
GC
- Pay-for-use and automatic shut-off
i Reliable and cost-effective fuel supply
FP FP
-
Anchor: businesses
*
S
Expand to nearby communities
renewable generation
*Upgrade for communications
e File for Carbon Emission
Reduction credits
I Expand
(years 3-10)
Lo n g- te rm
nteg ratmg in t o t h e
- Upgrade for grid-tie-in
e Add smart grid intelligence
9 Aggregate sites, operate as virtual grid
Provide grid ancillary services
e Feed-in-Tariff for generating into the grid
Figure 28: Macro strategies adapted for Urban and Grid-connected NPPs
To achieve system efficiencies the utility will need the regulator to raise tariffs gradually.
The NPP can use the tariff structure planning as an indication of how soon the grid will
improve. The NPP should plan to scale as soon as possible to other sites, so long as there
is a proper regulatory environment such as standard PPAs, Feed-in-Tariffs, Demand Side
Management incentives and a market for ancillary services. The NPP needs to be
positioned as a partner with the utility to improve efficiencies and defer infrastructure
investments.
45
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