A Quantitative Analysis Of Different Tariff Designs For Mini-grids

Abstract

To this date roughly 1 billion people lack the access to electricity, most of these people are living in rural areas of the developing countries. Reaching these rural areas with traditional grid-extension is often difficult and not a cost-effective solution for rural electrification due to large geographical distances. Instead of traditional grid extension it is expected that isolated small-scale grids (mini-grids) will play an important role in accelerating rural electrification. In order for mini-grids to actually play an important role in accelerating rural electrification it is necessary to solve the economic challenge of mini-grids. The economic challenge of mini-grids is related with the low income of the rural population. Most rural dwellers are not able to pay the electricity tariff of mini-grids. Resulting in that mini-grids are not economically sustainable due to insufficient revenues to cover the operational expenses. This thesis is set out to improve the economic sustainability of mini-grids by designing seven tariff types and quantitatively analyse which tariff design is the most affordable tariff design for a mini-grid. Three types of mini-grids are created based on a literature review on existing experience with mini-grids and elements that affect the economic sustainability of mini-grids. Mini-grid 1 has only residential user types, Mini-grid 2 has a mix of residential and commercial/governmental users and Mini-grid 3 has a mix of residential, commercial/governmental and industrial users. The tariffs which are designed for this thesis are; the Energy Tariff, Capacity Tariff, Fixed & Variable Tariff, Fixed & Variable Tariff CT, Block Tariff, Block Tariff CT and Time of use Tariff. A model (RETEP Tariff) is created for this thesis which calculates the Levelized Cost of Electricity (LCoE) per mini-grid, tariff rates per tariff design and the Cost of Electricity (CoE) for the end users. The tariff design which has the lowest CoE across all user types of a mini-grid is identified as the most affordable tariff design for a mini-grid. The results show that Mini-grid 3 has the lowest LCoE and lowest CoE for its users followed by Mini-grid 2 and then Mini-grid 1. With the most affordable tariff design for Mini-grid 1 being; the Fixed & Variable Tariff, Fixed & Variable Tariff CT and The Block Tariff CT. For Mini-grid 2 and 3 show the results that the Fixed & Variable Tariff is the most affordable tariff design.