Increasing access to energy services in rural areas - REEEP ...

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SUSTAINABLE ENERGY REGULATION AND POLICYMAKING TRAINING MANUAL page 10.62 Figure I. Diagram showing steps in the development of rural electrification criteria Process for rural electrification plan National development plan priority areas Identification of priority national development areas as per national development plan Criteria and outputs Districts and specific sites prioritized for economic development and investment List of priority economic projects and map of development nodes for the country First pass technology assessment Allocate settlements in each region to: • Grid extension • Mini-grid/generation options • Stand-alone Based on analysis of most cost effective technologies for each region Indicative technology map of the country Project identification Identify potentially viable projects based mainly on financial criteria Project boundaries to cover development areas, and expanded to outlying areas to assess feasibility Country map of indicative viable projects Project prioritization Rank projects in order of “economic” priority for electrification Country map of prioritized projects Modify for regional equity Modify technical prioritization for other considerations Adjust ranking based on other criteria Rural Electrification Plan Coupled with an assessment of potential electricity demand from institutional data (locations of health centres, schools, businesses, trading centres etc) and population data, as well as socio-economic profiles, a provisional assessment of the most cost-effective electrification means will be identified.
MODULE 10: INCREASING ACCESS TO ENERGY SERVICES IN RURAL AREAS page 10.63 The main outputs of the technology assessment and costing will give generalized life-cycle costings for energy supply for typical installations (e.g. grid-connection, mini-grids, standalone diesel, stand-alone solar power). At this stage, the costing should be unsubsidised, representing the whole life costs of electricity supply. Step 3: Project identification, clustering & financial pre-feasibility Proposed projects may be initially ranked according to the number of benefits points they may accrue. A potential project with a large number of benefit points would be seen to provide greater overall benefits than one with far less accrued. However, it is vital for the sustainability of rural electrification that projects are financially viable in the long-term. The identification of potentially viable projects will be based mainly on financial criteria and will follow the process shown in figure II. The scale of projects for viable operation can also be defined by a minimum number of benefit points. Step 4: Project prioritization Packaging of projects into rural electrification priorities is a more detailed process with detailed project pre-feasibility analysis. Projects must meet certain minimum criteria. Theoretically, there are many potential criteria for project prioritization. For example: • Numbers of connections anticipated; • Average capital cost per connection made for each line (already disproved as a suitable criteria, but still widely used); • Financial viability – Financial Internal Rate of Return (FIRR); • Subsidy required to make “line” affordable (or essentially, FIRR); • Economic Internal Rate of Return (EIRR) (complex if done for each project). Prioritization may be done on individual grid line extensions, parts of lines, or even on clusters and groups of lines, as well as on mini-grid systems. A simplified three-step project prioritisation approach is summarized below: 1. The life cycle cost of the project is determined (i.e., the total project cost over a given time period, e.g. 20 years). This includes both capital expenditure (Capex) and operational expenditure (Opex). The net present value 2 of the total subsidy 3 required to make the project profitable is then determined: typically this would mean an internal rate of return of not less than 20 per cent for the equity invested. In the case of diesel-based systems the subsidy may be a substantial operational subsidy over the system life. 2 The NPV is defined as the total of the project in today’s terms including future capital replacement costs. 3 It may be appropriate to use the NPV of the total project cost.
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