Rethinking Minigrid Design: Capturing Savings Through Capacity Utilization

Distributed minigrids are an increasingly attractive approach across sub-Saharan Africa for providing power to rural and underserved communities (as we explain here and here). As with any electricity system, the financial viability of a minigrid depends on capacity utilization, the extent to which the installed capacity of the system is used by paying customers. But many minigrid projects to date have suffered from low capacity utilization—matching minigrid capacity with customer load can be a major challenge because of limited data and the need to balance reliability with anticipated load growth. Rocky Mountain Institute’s (RMI’s) Minigrids in the Money report discusses six levers to rapidly lower minigrid costs by 60 percent—enhancing capacity utilization is a key component of this approach.

We see three high-priority pathways to improving minigrid capacity utilization: (1) rightsize minigrid systems through better data, (2) increase flexibility by using a modular approach to minigrid capacity, and (3) implement demand stimulation and load management programs. Each of these pathways reduces the levelized cost of electricity (LCOE) from the systems and improves affordability for customers, and can be implemented by developers or incorporated into funding programs by financiers and development partners. Over the next several months, RMI will focus research into each of these pathways to codify the opportunities and how to capture them.

1. Rightsize minigrid systems through better data

Matching minigrid system capacity with customer load in a community is one of the first steps in project development. This sounds straightforward, but accurately assessing energy demand in rural off-grid communities can be challenging; this is evident from the mismatch between projected and actual load in some operational minigrids. Inaccurately sized systems are largely driven by the absence of reliable data on customer power use, which makes it difficult to predict consumption patterns and future load growth. RMI has seen this challenge firsthand when visiting rural communities to estimate load, where customer surveys are the typical tool for identifying appliance ownership and usage, but are prone to enthusiastic overestimates of load leading to oversized systems.

Rightsizing is about learning from experience to more effectively match minigrid capacity to realistic load. This avoids excess project costs, which in turn lowers customer tariffs and improves system profitability. Compared with a system oversized by a factor of five, which we have seen more than once, a minigrid closely matched to load can cut LCOE by 70 percent. To better size systems, minigrid developers and researchers can learn from past experience to collect data that better predicts demand, and then aggregate and evaluate data trends. For example, data such as current energy spending or agricultural output could prove to be a more reliable predictor of load. Aggregating that predictive data alongside operational data can then enable analysis to understand underlying drivers and inform system-sizing based on trends in similar communities.

Photo: RMI conducting a customer survey in Araromi-Ososun community in Ogun State, Nigeria

Some stakeholders are already putting this approach into practice. For example, Odyssey Energy has developed a platform to help project developers quickly collect and analyze both survey and operational data, allowing for easy comparison of expectations with outcomes. By continuing to focus on collecting and learning from data, the industry can further improve system utilization and affordability. RMI is working with a number of stakeholders in 2019 to implement robust data monitoring and evaluation and analyze the resulting data to develop practical approaches to rightsizing minigrid systems.

2. Increase flexibility by using a modular approach to minigrid capacity

Many existing minigrids are initially oversized relative to the communities they serve with the expectation that load will grow, but it can take several years for demand to catch up to supply. In the meantime, those idle kilowatts of capacity provided by a system’s solar photovoltaic (PV) modules and batteries represent either an unrecovered cost to the developer or an increased tariff to customers. This has been driven in part by challenges in system-sizing (as noted above), but can be compounded by capacity- or connection-based subsidy programs that do not inherently incentivize starting small and growing.

An antidote to this trend is to take a modular approach to system design—installing capacity that more closely matches expected initial system load, while planning for expansion as demand grows over time. Followers of RMI know that we have long been proponents of smaller and more-modular power system designs—among many other benefits, they reduce the risk of installing excess capacity and allow for more efficient deployment of limited capital. In a minigrid context, this can be as simple as designing the system to allow the addition of new series of PV modules and batteries over time. It could also mean utilizing designs of predetermined, standardized capacity or containerized, preassembled solutions. Preliminary RMI analysis, which we plan to share later in 2019, finds that a modular approach can lower a minigrid’s LCOE by 20 percent in some situations. Developers and investors can learn from existing projects to test modular approaches to minigrid design and establish new best practices. And, if the costs of containerized solutions are low enough, such solutions may even allow faster scaling than that achievable with minigrids assembled on-site, as seen with ITT and Tata Power’s plan to build 1,500 additional containerized minigrids in rural India.

3. Implement demand-stimulation and load-management programs

Focusing on the electricity demand side offers an opportunity to further improve capacity utilization. Demand stimulation and load management can nudge customers to increase and shift electricity use at times of peak solar generation while minimizing evening consumption, decreasing the average cost of energy.

The ideal minigrid customer base includes productive users of electricity that consume significant energy for operations like milling or irrigation in which load peaks during the day when solar generation is plentiful. But that demand does not always show up on day one of a minigrid’s operation, and productive demand doesn’t always have a daytime peak. To address the latter challenge, time-of-use pricing can be used to shift consumption patterns toward less-expensive daytime use. Meanwhile, demand stimulation programs are a critical tool to help customers use minigrid electricity, such as by ensuring they have access to productive use equipment. Our analysis shows effective load management can lower minigrid LCOE by 13 percent. Unfortunately, most energy access programs have historically focused on supply, rather than demand-side efforts.

Despite the lack of programmatic support, rural customers are eager to retrofit existing appliances with electric motors and acquire new electric equipment. For example, Ahmeed Adeseun, who owns a local steel construction business in New Ibaragun, Ogun state, Nigeria, told us, “I would like to buy additional welding machines and expand my business.” But like Ahmeed, customers across sub-Saharan Africa are constrained by the up-front cost of equipment, the availability of equipment, and other challenges. Continued work is needed, but pilot programs have demonstrated the ability and willingness of customers to participate when conditions are right, appliances are being tested, and more and more minigrid developers are incorporating demand stimulation into their projects. Our report Closing the Circuit provides a set of actions that stakeholders can take to expand productive use-demand stimulation efforts.

Whether by using data to rightsize systems, opting for a modular design, or stimulating demand, optimizing capacity utilization strongly impacts the cost of a minigrid. These strategies are a critical part of the cost-reduction pathways outlined in Minigrids in the Money that can guide the industry toward enormous increases in affordability and market potential. However, the advancement of these solutions is contingent on proactive research and analysis and will require dedicated industry support. Over the coming months, RMI will continue to publish findings from our work with partners to test and demonstrate these strategies, which can help unlock the potential for minigrids to expand electricity access and local economic development in sub-Saharan Africa and around the world.