What will speed up the micro-grid revolution?

Guest blog by
24 November 2015

For investors to have greater confidence in micro-grid electricity generation, more attention needs to be paid to ensuring technology operates well in rural communities.

A proper technological integration would make feasible the implementation of more micro-grids such as this one, pictured, on Chile's border with Bolivia (Photo: Boris Lopicich)

Access to energy in remote rural zones has not been an easy task for local governments to address. Low population densities, consumers below the poverty line that cannot afford their bills, and the infringement of local communities' rights due to the construction of electricity lines are just some of the obstacles that stand in the way of rural electrification.

Decentralised solar or wind power micro-grids and stand-alone systems mean these regions can now be reached and the Sustainable Energy For All goals achieved; but to be effective, policies to support access to these sources of energy must be approached in different ways, recognising technological progress in other areas.

In Tanzania, Kenya and Uganda, for example, companies such as SunFunder are implementing solar projects funded by a mix of crowdfunding and private donors. While in India SELCO Foundation has already launched its first off-grid photovoltaic plant in Mangalore

Unhappily the expansion and success of these innovations might be partially eclipsed due to regulatory and legal barriers in some regions, which make it difficult to access enough funding sources for renewable energy. This is the case in Latin America and South East Asia, as a recent report from IIED shows.

India is a perfect example of this: banking regulations that restrict foreign donations and loans for security purposes are limiting small and medium-sized enterprises (SMEs) from using resources that would otherwise be available to fund decentralised energy plants.

Restrictive regulations like these are the most critical factor affecting both funding mechanisms and trust from private sector investors, as they can increase the risks and diminish the returns on an investment. However, a way to enable an adequate regulatory environment that avoids unnecessary restrictions might be by including co-evolutionary innovations in future policies.

Co-evolutionary technological improvements

Co-evolution refers to two different processes that are inter-linked and inter-dependent. This means that sometimes developments in one field influence developments in another sector; a situation currently seen with technological improvements in telecommunications which are boosting energy access all around the globe.

For example, mobile phones need electricity in order to be charged but also help make energy services more affordable as they can be paid for in small installments just by sending a SMS to the energy utility. Since the return on investment through customer billing is a critical factor for the long-term efficiency of rural electrification, the exponential increase in the spread of mobile technology is good news for the low-carbon energy transition.

Ryan Levinson, chief executive officer of SunFunder, says: "Increasingly, the story is about how cell phones and the need for power are linked. Cell phones are significantly increasing both the demand for and the viability of solar energy in off-grid communities."

This co-evolution is triggering a process of "leapfrogging" (PDF), with sustainable technologies available to communities potentially bypassing the need for carbon, nuclear or hydro-based grids in some developing contexts. This can also help avoid future carbon emissions in the battle against climate change.

Project-level barriers and innovation strategies

There are a number of project-level barriers affecting the trust of the private sector in micro-grids that might be overcome by using these co-evolutionary technologies. Common concerns for investors include the maintenance of unreliable technologies, challenges of collecting payments from final users, grid ownership and eventually, the need for hardware and software for smart-metres."

The "mobile revolution" is improving the collection of payments and this has a direct influence on the credibility of the project presented to potential investors. Technologies such as Pay As You Go (PAYG), for example, mean that individuals no longer need to collect payments from remote villages.

PAYG can also cope with a rapidly expanding customer base, which was creating problems for the old-fashioned method, where companies collecting the money could not cope with the growing numbers. So a regulatory environment is needed that allows large numbers of people to use PAYG systems. This could eventually help lower the tariff paid by PAYG users.

However, some countries such as Bolivia are struggling to keep up with mobile and remote monitoring technologies. Although not banned by law, mobile infrastructure in remote regions is so limited that PAYG remains practically unknown.

To ensure micro-grid reliability, local communities must be willing to pay. Issues with poor maintenance, resulting from longer distances to rural communities, can be avoided by implementing new approaches to operating and maintaining plants, or even by alerting local suppliers about technical issues via SMS.

Micro-grids such as this one in Salar de Tara, Chile, are helping to achieve Sustainable Energy For All goals (Photo: Boris Lopicich)

Having a reliable service that works also stimulates the end user to pay on a weekly or monthly basis, ensuring the continued sustainability of the micro-grid.

Looking forward, improvements in technology are already helping businesses absorb a higher level of capital and meet the risk requirements of more conventional investors, expanding the funding mechanisms available for SMEs and local entrepreneurs.

In this sense, innovations in data collection are boosting energy delivery models and could be used to unlock funding opportunities within the private sector. But to have a successful technological integration, regulatory and financial environments need to be properly designed, especially those promoting the access to long-term credit. 

Consequently, the public sector's role and responsibilities to improve energy access cannot be underestimated.

What's needed now is for regulators to pay special attention to different co-existing technological improvements in the energy field to see if they can overcome project-level barriers. For remoter regions, as in Bolivia, it will be necessary to stimulate the private sector by public sector regulation aligned to ensure that technological tools are also in place.

Boris Lopicich (blopicich@bcn.cl) is legislative counsel and policy advisor on climate change, energy and environment at the National Congress of Chile, and managing director at the NGO Innovation, Development and Equity.