Part 1: Opportunities for Stakeholders in 2015 – SE4ALL and clean energy mini-grids
Recently, the EEC sat down with Dean Cooper, Energy Finance Programme Manager at the United Nations Environment Programme (UNEP), to discuss 2015 projects and opportunities for individuals and organisations to get involved with UNEP’s work in developing countries.
European Energy Centre (EEC): What are the upcoming opportunities for stakeholders investing in clean energy projects in 2015?
Dean Cooper, United Nations UNEP: There are a wide range of opportunities for stakeholders – in many ways, there are more opportunities than resources available to meet them all – and our challenge is to focus on the areas where we think we can have the greatest impact.
One such opportunity relates to the UN Secretary General’s Sustainable Energy for All (SE4All) initiative, which now extends for a decade from 2014-2024. SE4All has three main goals and corresponding targets linked to each of these: ensure universal energy access, double the use of renewable energy and double the rate of energy efficiency. One activity that we have been developing for some time, and has a big impact on all three of these areas, is clean energy mini-grids. Consequently, we have adopted this as a focus project at the energy branch of the UN’s Environment Programme (UNEP).
EEC: How did clean energy mini-grids become a focus of your work at UNEP?
Dean Cooper: There are still 1.4 billion people worldwide in rural areas who don’t have access to electricity. We know that 60% of people in Africa in rural areas are in this situation and in Asia, for example, there are thousands of inhabited islands in places like the Philippines and Indonesia where they don’t have direct access to any main grid structures for electricity. Perhaps the most significant report on this issue was the 2011 World Energy Outlook from the International Energy Agency. The report concluded that the most cost-efficient way to connect people who currently don’t have electricity in rural areas will be via mini-grids. In fact, the report states that mini-grids should be looking to provide 40% of new capacity by 2030. This statement has attracted a lot of attention and made a large impact on many stakeholders who were looking at different areas in which to invest. In fact, the issue of clean energy mini-grids has been an important part of our programme development work for the last three years: for example, the topic of mini-grids was one of the focus areas of the Global Round Tables which were organised by the European Energy Centre and UNEP in March 2013. A key attraction of these clean energy mini-grids is the link to SE4ALL and its three main goals of improving energy access, the use of renewable energy and energy efficiency.
EEC: Please can you tell us more about the project?
Dean Cooper: We decided to try and demonstrate to stakeholders how clean energy mini-grids can be commercially viable, even in rural areas. Obviously one concern of any new initiative is that there is a lot of public money which can be invested into these areas but as soon as the money runs out, these programmes collapse or cannot be continued with local resources. Our aim is to show that the operation of these mini-grids can be a commercially viable prospect, by demonstrating business models that show long-term sustainability of the projects. This will in turn create interest for private sector investment because we will have shown that there can be an acceptable rate of return on that investment. We aim to demonstrate how the private sector can take up this opportunity – using local resources and building local capacity - so that these remote areas can maintain some form of mini-grid operation in the long-term.
We have divided our activity into two stages. First of all, we have been looking at what we’re calling “Brownfield” sites (remote areas with mini-grids which are currently diesel-powered). The reason we started on the brownfield sites is due to the infrastructure already in place: we felt that the risks perceived by potential investors would therefore be lower. By infrastructure I mean the poles and wires which are already set up, but most importantly the market which is already educated i.e. the community is already aware of the need to pay for electricity and the benefits of doing so. Of course, our ultimate objective remains with the remote areas which don’t have any connection to a grid and where people are simply not aware of the value of electricity connections and are not used to paying for it on a regular basis.
EEC: What have been the outcomes of this work and what has been learnt?
Dean Cooper: The brownfield assessment was started about 18 months ago together with our collaborating centre, the Frankfurt School of Financial Management. Six countries were selected (two in Africa, Asia and Latin America) and we looked at the business model and at the prospects for each. We are about to publish the final report which does show how clean energy mini-grids can be commercial prospects. Importantly, while not as clear cut as we were initially anticipating, it shows that there is a good business case which can be built upon and transferred to other locations without any existing structures at all i.e. at “Greenfield” sites.
One of the key needs in terms of the preparation for any investment into a Greenfield site is to look at the source of initial financing. Increasingly it looks as though there is a need for some sort of public sector funding injection in order to initiate the activity. Initially this was a bit of a concern as we were aiming to show mini-grids as a commercial prospect for the private sector; however it became clear when liaising with other stakeholders that mini-grids are delivering a basic customer service and local governments really need to have some responsibility for that. So a very good case has been made for local governments to provide some support initially for these projects on the basis that they will then attract private sector investment. This will ensure that the long-term operation and maintenance of the mini-grid structures will be fully sustainable. Therefore, there is a clear need for public and private sector partnerships in order to enter, develop and then expand this market.
EEC: How can private sector investment be encouraged in this area and what are the key factors to consider?
Dean Cooper: When looking to attract private sector investment, it is not just about funds available: local conditions need to be in place which reduce the risks for the investor. If there is uncertainty regarding the local environment or the structures this will mean greater risk for investors – making it more likely that they will look to support projects elsewhere. One of the key issues is the need for a stable framework as far as regulations, policies and legal structures are concerned. Additionally, the technology has to match the needs in these locations, local resources need to be used and the local conditions understood in order to advance such projects. Local understanding and local capacity-building is critical and forms part of the preparations that need to be undertaken for investment.
I think perhaps one of the other big needs, in terms of getting involved effectively in these areas, is not to come in as a top-down operation: the key factor here is that we must involve the target communities and look at the priorities from their point of view. For example, we always talk about how to provide electricity for 24 hours a day, because that is what we are used to. We are often told that the cost of the last 10% is equal to the cost of the first 90% in terms of the amount of time that the electricity can be available. So then we have to reverse the question and ask ourselves, is it necessary to have a 100%, 24/7 connection? Is this a requirement of the local target market? I don’t have an answer to that but in order to understand this concept we need to involve and consult with the market i.e. the local communities that we are trying to address.
EEC: You mentioned the technology that is currently available - What technology will be used for the mini-grids?
Dean Cooper: From a technology perspective, we have to look at the types of fuel that are available locally, and how best a mini-grid can be powered – this often means that hybrid mini-grid structures are best. The target countries often have a good solar power supply; but the sun doesn’t shine for all the time that we want to supply electricity so therefore we need to look at either back-up options or other energy sources to make the hybrids. Batteries are often the most expensive part of a renewable energy mini-grid system, so they are not necessarily the best way to go. Bio-energy does appear to have a lot of potential, which could be used as a back-up source for when Solar PV is not available, or if there is no wind or hydro power source available locally. But considering bio-energy raises the issue of the energy-food-water nexus: if you are using land available for growing crops that feed the community, it might not be appropriate to use this land for crops that feed energy production. To address this, there are good examples of activities where waste production of agriculture can be used to provide energy as well. This can create a win-win situation all round, both by getting rid of the waste and using this for energy.