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ECOWAS Status Report

RENEWABLE ENERGY AND ENERGY EFFICIENCY STATUS REPORT 2014 | 43 Sidebar 2. Business Models for Mini-grids for Rural Electrification Mini-grids were developed as an alternative to centralised expansion of the main electricity grid, which can be economically prohibitive for remote rural locations, and may require long periods of time to materialise. There is no absolute definition of a mini-grid; they vary widely in terms of size, technology, and business model, and must be designed to fit specific social contexts, resource availability, and the quantity and quality of service intended. While most existing micro-grids are isolated systems powered by diesel generators, a growing number of systems use renewable energy sources and innovative service delivery models. In the Gambia, the Mbolo Association in Tujereng has an 8.3 kW solar-wind hybrid system installed, comprising three solar PV arrays, a wind turbine, and a fuel oil generator. The system, funded with support from GEF/UNIDO, aims to ensure a 24-hour power supply to the community association for workshop activities and to reduce fuel use.The Gambia also has a PV-diesel mini- grid operating in the village of Darsilami, which supplies power for a local health centre and water pumping; its diesel component provides less than 5% of the system’s total energy mix.The NAWEC-Kaur Hybrid PV-Gasoil Mini-Grid, currently being developed, will be state owned, with a capacity of 60 kW. Given the low-demand profiles in many rural areas, developing a working business model for a mini-grid can be difficult. Globally, there are generally three types of business models: for-profit, fully subsidised, and partially subsidised. For-profit systems cover operational costs from tariff collection, in addition to a return on their capital investment. They tend to utilise an industrial or commercial anchor client to ensure a steady level of tariff revenue and to achieve the necessary return on investment. Fully subsidised systems are usually funded by governments and charge zero or below cost-recovery tariffs, making additional subsidies necessary to fully cover operational costs. These systems tend to focus on achieving high levels of coverage with a limited amount of power capacity. Establishing a local committee or co-operative to manage, operate, and maintain the system is necessary and may require significant capacity building. Moreover, community involvement at the outset of the project is instrumental to ensuring its success. Partially subsidised systems tend to cover capital costs through subsidies and depend on tariff collection to cover the management, operational and maintenance costs; as such, they lie in between for-profit and fully subsidised models. Thus, they must focus on providing reliable service to gain and maintain the trust of the community, and in turn ensure constant tariff collection for its continued operation. While each of these business models has its own set of operational structures and best practices, no matter the model, there must be sufficient funding for ongoing management, operation and maintenance of the mini-grid system to ensure its continued operation and financial viability. Furthermore, the systems’ future sustainability and expansion can be incentivised through appropriate regulatory frameworks that allow future access to the central grid once it is extended to the rural population; financing through greenhouse gas emission abatement credits; and government guarantees on private capital to afford project developers with cheaper capital from diversified sources. Source: see endnote 139 for this section. RENEWABLE ENERGY MARKET AND INDUSTRY OVERVIEW 02

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