Microgrids are gaining momentum as a rural electrification solution in many emerging markets. Microgrids based on renewable generation can replace costly diesel and take advantage of abundant local renewable energy resources as well as avoiding the costly and slow process of installing centralized grid networks. Despite these advantages, barriers remain to large-scale deployments of microgrids, particularly access to financing needed for upfront equipment investment. Microgrids are capital intensive, and rural areas with limited access to power typically have limited banking or financial access as well, making access to capital a critical problem.
Addressing this financial issue is an emerging model for rural microgrid installation,the phased “ABC” deployment approach. This approach is based on first addressing an (A) anchor client (typically the largest user in a community), next expanding the system to meet the local (B) business demand and finally expanding to serve the broader (C) Community, including residential areas. The phased roll-out simplifies the financing process required to launch the microgrid. Starting with a single client makes evaluation and due diligence much simpler. The process avoids the potential complexities of residential billing, payment systems, and pre-paid meters often present when selling immediately to a community.
As a starting point, the anchor client can be any significant energy user including a factory, commercial building, telecoms tower, or water-pumping facility. These power users will typically already have a commercial basis for their operations. They will also often have banking relationships and credit histories that make them more “bankable” as off-takers. If they’ve been operating for several years, they will be relatively stable from a financier’s perspective. As the microgrid replaces or reduces fuel consumption from expensive diesel generation, the reduced fuel costs can provide clear cost savings and economic rationale for adopting a renewable microgrid.
Staged ABC Approach to Rural Microgrid Deployment
The ABC approach also reduces risks for financiers and third-party owners of microgrid systems. First, working in stages reduces the upfront investment required and allows for revenues to be generated ahead of the next expansion. Phasing the deployment also permits the operator to sell any excess power to other users in the anchor and business phases. This option reduces risks of overestimating demand or mis-sizing systems for a community, especially as historical consumption data is typically limited or unavailable. Phasing also allows relations with the community to evolve over time and potentially ease acceptance of renewable power.
The ABC approach is especially well-suited to solar-battery-based systems, as these technologies are very scalable, and the efficiency of both photovoltaic modules and battery systems does generally not change with the size of the installation. Even in terms of cost, the unit cost of installing in phases does not vary significantly, as the fixed costs are usually a small proportion of the total cost. Furthermore, incorporating future expansion in the initial planning and designs can reduce cost differences. Cost reductions in panel and battery prices between phases will also compensate for any additional expense in the phased approach.
The phased ABC model presents many benefits, easing access to finance and thereby accelerating the deployment of microgrids. The model is already being used for Indian and African rural electrification projects. Continued success will further make the critical anchor clients and financiers more comfortable with the model and microgrid systems in general. Their participation will drive down the cost of capital for these systems and consequently increase the microgrids’ benefits and make more projects investable. The ABC approach is still in its infancy and has the potential to drive tremendous growth for rural electrification microgrid systems.