Mini-Grids for the Sustainable Electrification of Rural Areas in Sub-Saharan Africa: Assessing the Potential of KeyMaker Models
Abstract
:1. Introduction
2. Literature Review
2.1. Identified Business Models in the Mini-Grid Sector
2.2. The KeyMaker Model (KMM)
2.3. Financial Assessment and Validation Approaches of Mini-Grid Projects
3. Material and Methods
3.1. Development of Base-Case Scenarios
3.2. Development of KeyMaker Model-Coupled Mini-Grid Systems
4. Results
4.1. Analysis of KeyMaker Model (KMM) Value Chains
4.2. Technical Design of Base-Case vs. Second-Round Mini-Grids
4.3. Financial Analysis of Base-Case vs. Second-Round Mini-Grids
4.4. Sensitivity Analyses
5. Discussion
6. Conclusions and Outlook
- High grant requirement levels across all base-case scenarios: Across the first round of simulations (without the KMM), the four MG systems proved to require high grant finance shares between 82% and 99% of total initial capital expenditures (see Figure 5). Our sensitivity analyses underpinned this finding, as none of the first-round MGs simulations throughout reached grant requirement levels below 53%, a case that took place only at a very optimistic electricity tariff of 0.83 USD/kWh (see Figure A5 in Appendix B).
- Potential of KMM to reduce grant requirement levels through two channels: Firstly, net annual profits from the agro-processing KMM business substantially improve the annual cash flows of the MG project. Secondly, the load implied by the KMM’s agro-processing machinery contributes to an increase in the annual electricity sold by the MG. Our analysis verifies that the increase in electricity revenues implied by the KMM load more than off-sets the increase in required initial capital investments to up-scale the MG power generation assets, since both the grant requirements and LCoEs of the second-round simulations across the four villages have significantly decreased in relation to their respective base-case scenarios, as outlined in Figure 4 and Figure 5.
- Relevance to apply well-selected KMMs: Although the KMMs based on palm oil, cassava flour and maize starch processing improve the economics of the MGs, only the cocoa butter/powder business proved to effectively free some of the simulated MGs from external subsidies in the cases (see Figure A5, Figure A9 and Figure A11 in Appendix B).
- Benefit of prioritizing electrical energy intensive KMMs: From the perspective of the MG operator, and unlike initially expected, more electrical energy intensive KMMs impact more positively the overall MG business in relation to KMMs that are not as electricity-intensive. We showed that, due to the positive effect of additional electricity loads, the grant requirement levels of even those second-round simulations having close to zero KMM net profits (see Figure A9 in Appendix B), still proved to be lower than the grant requirements of the respective first-round simulations for the four villages, as outlined in Figure 5.
Author Contributions
Funding
Conflicts of Interest
Nomenclature
Abbreviations | |
AC | Alternating current |
DC | Direct current |
i | Interest rate |
IRR | Internal rate of return |
KMM | KeyMaker Model |
MG | Mini-grid |
MIRR | Modified IRR |
Indices | |
d | Demand |
s | Supply |
t, T | Time |
NPC | Net present cost |
NPV | Net present value |
O&M | Operation & maintenance |
OPEX | Operational expenditures |
SDG | Sustainable development goal |
WACC | Weighted average cost of capital |
n, N | Number of components |
x | MG system component |
Formula Symbols | |
CC | Capital investment |
CS | Capacity shortage |
CO&M | O&M costs |
CF | Cost of fuel |
Ci | Expenditures in interests |
CGrid | Cost for the distribution grid |
CRep | Replacement costs |
EE | Excess electricity |
h | Hours |
L | KMM plant load |
P | Power |
RS | Revenues from salvage value |
y | Installed capacity |
Z | Customer connection |
Appendix A. Background Information
Types of Consumers | 1. Itamapako, Ogun State | 2. Mambe, Niger State | 3. Anwain, Edo State | 4. Apapa South, Oyo State |
---|---|---|---|---|
Low-income households | 0.81 | 0.7 | 0.45 | 0.67 |
Mid-income households | 1.44 | 1.25 | 0.99 | 1.08 |
High-income households | 2.07 | 1.77 | 1.99 | 2.99 |
Health centers | 16.34 | |||
Schools | 9.44 | |||
Commercial customers (1-phase power supply) | 15.43 | |||
Productive customers (3-phase power supply) | 24.88 |
Cost Category | Capital Investment (USD/kW) | O&M (USD/kW) | Replacement Costs (USD/kW) | Lifetime (years) |
---|---|---|---|---|
Power Generation Assets | ||||
PV panels and mounting | 493 | 9 | 493 | 25 |
Lead acid battery [49] | 149 USD/kWh | 21 | 137 | 20 (6879 kWh throughput) |
Genset | 354 | 13.8 | 354 | 20,000 h |
Inverter/Converter | 505 | 10 | 505 | 10 |
Charge Controller | 220 | 4.4 | 220 | 25 |
Power Distribution Assets | ||||
Distribution grid (incl. cabling, poles and installation) | 14.98 USD/meter of cabling. 25 m of cabling/customer [50] | 2% of capital investment | Same as capital investment | 20 |
Customer connections | 14 USD/connection | - | Same as capital investment | 12 |
Powerhouse [77] | ||||
Assumed to account for 7% of total initial capital expenditures | ||||
Auxiliary costs (including wiring, breakers and protection) [77] | ||||
Assumed to account for 3% of total initial capital expenditures | ||||
Soft costs (project development, logistics, site-visits, customs duties and taxes) [77] | ||||
Assumed to account for 20% of total initial capital expenditures, taking into account project development costs of USD 645/kW. |
Prioritized KMM | KMM Operational Days a Week | Operational Months a Year | Operational Days a Year | Yearly Electricity Consumption by KMM (kWh) |
---|---|---|---|---|
Cocoa butter/powder | 7 | 5 | 150 | 46,110 |
Cassava flour | 7 | 10 | 300 | 1296 |
Pap/Maize starch | 7 | 10 | 300 | 8820 |
Palm oil | 5 | 12 | 240 | 3072 |
Palm Oil | Maize Starch (pap) | Cassava Flour | Cocoa Butter/Powder | |
---|---|---|---|---|
Crop national market size (million USD) | 1005 [78] | 6000 [65] | 8028 [59,79,80] | 698 [81] |
National market size (tons) | 1.9 million [78] | 12.1 million [82] | 45 million [83] | 488 thousand [84] |
Average market price in Nigeria (USD/kg) | 1.56 | 1.46 [66] (assumed 70% of stated price for rural markets) | 0.56 [80,85] | 7.5 (butter) 5.5 (powder) [86] |
KMM net profit margin (%) | 21% | 13% | 11% | 21% |
Harvesting season [56] | November–March | Throughout all year | October–August | November–June |
Yield (tone/ha/year) | Unimproved seed: 0.75–0.13 Improved seed: 0.38–0.45 [87] | 1–5 [88] | 11.7 [79] | 0.35–1.5 [84] |
Geographical production of crop [56] | South, South-East | Country-wide, focus in Center and North | South and central Nigeria | South-West |
Import taxes/duties [89] | 10% + 25% levy | 10% | 20% | Prohibition of import |
Value chain stage of relevance | Crude palm oil production | Pap/ogi processing, animal feed, maize storage | Cassava flour, gari, animal feed, bioethanol. | Bean drying not profitable. Potential in cocoa butter/powder processing. |
Investment required in machinery per output capacity (USD) | 21,316 (capacity of 2000 litres/day) [90] | 35,222 (capacity of 3 MT/day) [91] | 37,855 (capacity of 3 MT/day) [92] | 37,977 (capacity of 100 kg cocoa bean/hour) [92] |
NG1 | Sokoto millet, cowpeas, groundnuts, and livestock | |
NG2 | Kano-Katsina Sahelian: millet, sorghum, sesame, and livestock | |
NG3 | Kano-Katsina sudanian: sorghum, maize, rice, and groundnuts | |
NG4 | North-east Sahelian: millet, sesame, cowpeas, and livestock | |
NG5 | Borno-Yobe-Bauchi millet, cowpeas, groundnuts, and sesame | |
NG6 | Sokoto-Rima-Kano riverine flood plain rice and fishing | |
NG7 | Komadugu-Yobe irrigated peppers with rice, millet, and vegetables | |
NG8 | Lake Chad fishing, maize, wheat, cowpeas, and vegetables | |
NG9 | Chad Basin: masakwa flood-recession sorghum and wheat | |
NG10 | Hadeija-Nguru wetlands: mixed cereals, vegetables, and fishing | |
NG11 | North-west sorghum, maize, soybeans, and rice | |
NG12 | North-west sorghum, maize and cotton with cross-border trade | |
NG13 | North-west and central maize dominant, sorghum, sweet potatoes, and cowpeas | |
NG14 | Central sorghum, maize, groundnuts, cowpeas, and sesame | |
NG15 | North-east maize dominant with rice, cowpeas, soybeans, and groundnuts | |
NG16 | High plateau Irish potatoes, maize, acha (Digitaria), and livestock | |
NG17 | Lower plateau rice, sorghum, and cattle | |
NG18 | Ginger and turmeric with maize, sorghum, yams, and acha (Digitaria) | |
NG19 | Benue river sugar cane, rice, and sugar estate labor | |
NG20 | Central yams and maize belt, with cassava, rice, and soybeans | |
NG21 | Niger and Benue rivers flood plain rice with maize, vegetables, and livestock | |
NG22 | Cassava dominant with maize, yams, and tree-crops | |
NG23 | Citrus fruits with tubers, cereals, soybeans, and groundnuts | |
NG24 | Cocoa dominant with oil palm, cereals, and tubers | |
NG25 | Mambila highland: cattle, maize, Irish potatoes, tea, coffee, and kola nut | |
NG26 | Cross river cocoa with oil palm, tubers, rice, and plantain | |
NG27 | South-east rice dominant with cassava, yams, and oil palm | |
NG28 | South-west cocoa with oil palm, tubers, and cereals | |
NG29 | South-west rice, cassava, and cattle with cross border trade | |
NG30 | Cashews with oil palm, tubers, and maize | |
NG31 | Lagos Peri-urban: fishing, poultry, piggeries, market gardening, and coconuts | |
NG32 | Coastal strip and Niger Delta: fishing, cassava, plantain, oil palm, and rubber | |
NG33 | South-east cassava, cereals, oil palm with extensive off-farm work and trade | |
NG34 | North-east cattle, small ruminants, food crops with cross-border livestock trade | |
NG35 | Niger-Benue rivers fishing and food crops |
Appendix B. Graphical Illustrations of the Sensitivity Analyses
Assuming 20% Decrease in Price | Original Price | Assuming 5% Increase in Price | |
---|---|---|---|
Itamapako (palm oil) | 4.7 | 14.5 | 16.9 |
Mambe (maize starch/ogi) | 311 | 10.5 | 13 |
Anwain (cassava flour) | 0 | 3.3 | 4.4 |
Apapa (cocoa butter/powder) | 17 | 38 | 43.2 |
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Author (Year) [Reference] | Business Model | Concept Explanation |
---|---|---|
Bhattacharyya (2014) [10] | Micro-lighting utility | Small-scale systems that connect customers to a power generation unit through a distribution grid for the purpose of providing lighting services. |
Lighting-plus systems | Extends micro-utility principle to power heavier loads and commercial customers. | |
Anchor load-based | Focus on a relatively heavy productive load (telecommunications tower, industrial facility, etc.) that ensures a baseload throughout the year to the system operator. | |
Safdar (2017) [11] | ABC Model | Extends “anchor load-based” model to significantly focus as well on smaller-scale business customers (kiosks, cafes, community centres, etc.) and household customers. |
Franchise Model | Overall expenditures of MG system are split between franchiser, who manages the portfolio of MGs, and franchisee, who owns and operates single MG systems. The model allows the franchiser to reduce overhead costs/MG, and the franchisee to reduce total expenditures by outsourcing overhead costs. | |
Clustering approach | Reducing project development, construction, O&M and overhead costs per MG by developing a portfolio of systems within a single region. | |
EEP Africa (2018) [4] | Container model | Aims at reducing project development and construction costs by standardizing small-scale AC MG systems in containers, ready to be easily deployed. |
Gaudchau et al. (2013) [12] | Phase concept | Developed by KAÏTO Energie, a MG system is developed in phases with the aim of reducing risk by initially focusing on DC appliances and later extending to heavier AC loads. A first phase is based on the installation of small-scale solar systems to well-selected commercial clients. A second phase follows to connect larger customers who contribute financially to their interconnection. Once the willingness and ability to pay is proved within a community, the system is extended to connect households. |
Micro Power Economy | Developed by INENSUS GmbH and based on the split-asset model, the private MG developer owns and operates the power generation assets, and the distribution grid is kept under village ownership. The split-asset nature of the model ensures an alignment in the willingness by all involved stakeholders to make the project work. Furthermore, electricity is purchased in advance in “blocks” (right to consume a certain amount of power during a certain timespan), rather than on a fixed amount of kWh. | |
Muceka et al. (2018) [13] and Groh et al. (2015) [14] | Hybrid Swarm Electrification | This business model essentially follows a very similar principle to the “phase concept”, but the focus is initially set on interconnecting household customers that allow for the trading of surplus electricity and eventually extending the system to other loads. However, the overall system structure differs to that of a MG in the sense that the power generation assets are not centrally located for the entire community, but rather decentralized among the power costumers. |
Lovin et al. (2019) [15] | Appliance financing | Currently being tested by the MG Innovation Lab, the system developer and operator provides access to household appliances through credit financing lines, aiming to increase overall MG electricity consumption. |
Graber et al. (2018) [16] | Under the grid systems | Based on the deployment of MGs for customers that are within reach and connected to the existing distribution grid, but due to frequent power outages live in a state of energy poverty. The location of these potential MGs could allow to share costs of the systems’ distribution grid among the MG operator and the regional public utilities. |
Kyriakarakos et al. (2020) [17] | Energy-Food Nexus | Based on switching the priority order of rural electrification loads in which, instead of having agricultural-based productive customers complement central household loads of the mini-grid, the agricultural-based productive load (e.g., maize flour mill) is the central load, the excess electricity of which is used to electrify household loads. In this concept, the role of an agricultural cooperative becomes central (instead of that of the mini-grid developer), the latter of which becomes a sub-contractor of the former. Cross-subsidization between the cooperative’s-run mill and household customers plays a fundamental role as well. |
A. Haney et al. (2019) [18] | Integrated Developer | Extends the role of the mini-grid developer to an agricultural service provider. The mini-grid operator uses its own electricity to power installations such as ice-making freezers, fish cooling storage rooms, mills, etc. The business model would be placed between traditional micro-utilities and the KeyMaker Model discussed in this paper. |
Fuentes-Cortés and Ponce-Ortega (2017) [19] Winklmaier and Bazan Santos (2018) [20] Aresti, Barclay et al. (2019) [21] | Energy-Water Nexus Energy-Water-Food Nexus | Based on the integrated supply via off-grid systems of energy, water and food services. The concept is based on the strong overlap as well as reinforcing dynamics between energy, water and food as vectors to positively transform quality of life in off-grid rural areas. To the extent that the “Food” component is focused not only on the provision of services but on the actual implementation of food processing initiatives aiming at increasing the quality of the processed products and reducing the transport cost of these to the final consumers, the Energy-Food Nexus model would share an overlap with the KMM. However, the Energy-Water Nexus model would differ from the KMM in the sense that no qualitative improvement nor transport cost reduction is achieved by the locally processed (treated) water in relation to water treatment plants in urban areas. |
Crop Processing Type | Mass of Processed Product Obtained from 1 kg of Raw/Fresh Crop (kg) | References |
---|---|---|
Palm oil | 0.28 | [70] |
Maize starch/ogi | 0.68 | [71] |
Cassava flour | 0.2 | [72] |
Cocoa butter/powder | 1.25 kg of cocoa bean yields 0.5 kg butter and 0.5 kg powder | [73] |
Selected Villages and KeyMaker Models | ||||
---|---|---|---|---|
Itamapako | Mambe | Anwain | Apapa | |
KMM value chain | Palm oil | Maize starch/pap | Cassava flour | Cocoa butter/cocoa powder |
Annual net profits (after taxes) (USD) | 14,500 | 10,500 | 3300 | 38,000 |
Net operating margins | 21% | 13% | 11% | 21% |
Itamapako—Palm Oil | Mambe—Maize Starch/Pap | Anwain—Cassava Flour | Apapa—Cocoa Butter/Powder |
---|---|---|---|
1.27 kW | 2.94 kW | 0.43 kW | 30.74 kW |
Parameter | Assessed Values |
---|---|
Diesel price (USD/litre) | 0.46/0.56/0.66/0.76/0.86 |
Mini-grid tariffs (USD/kWh) | 0.33/0.56/0.83 |
Cost of capital (%) | 5/7.5/10/12.5/15 |
Project IRR requirements (%) | 12/20/28 |
KMM product market price (% increase/decrease) | 20% decrease/5% increase |
Mini-grid capital and O&M cost reductions | 2030 scenario |
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Cabanero, A.; Nolting, L.; Praktiknjo, A. Mini-Grids for the Sustainable Electrification of Rural Areas in Sub-Saharan Africa: Assessing the Potential of KeyMaker Models. Energies 2020, 13, 6350. https://doi.org/10.3390/en13236350
Cabanero A, Nolting L, Praktiknjo A. Mini-Grids for the Sustainable Electrification of Rural Areas in Sub-Saharan Africa: Assessing the Potential of KeyMaker Models. Energies. 2020; 13(23):6350. https://doi.org/10.3390/en13236350
Chicago/Turabian StyleCabanero, Andrea, Lars Nolting, and Aaron Praktiknjo. 2020. "Mini-Grids for the Sustainable Electrification of Rural Areas in Sub-Saharan Africa: Assessing the Potential of KeyMaker Models" Energies 13, no. 23: 6350. https://doi.org/10.3390/en13236350