06/01/2015

Frankfurt School of Finance & Management

Hybridising electricity grids with solar photovoltaic (PV) saves costs - New FS UNEP Study

The Frankfurt School – UNEP Collaborating Centre for Climate & Sustainable Energy Finance has published a new study about economic benefits of hybridising diesel-powered electricity grids with solar photovoltaic (PV). In areas distant from main power grids, regional isolated grids – often referred to as mini-grids – are often the main source of electricity to industry and households. Power generation usually relies on diesel fuel, often imported over long distances. Yet generating costs can be reduced by hybridising these grids with PV or other renewable power sources.

On the basis of seven case studies in as many countries, this study finds that financing costs for a hybridisation project can be a major driver of electricity generation costs. Amongst other things, financing costs largely depend on the ownership structure of the power plant. “Relatively low ‘public sector’ return expectations can be assumed if the project is financed on the balance-sheet of a state-owned utility, and on concessional debt terms. In this case, hybridisation could achieve significant cost reductions at all seven sites” says Torsten Becker, co-author of the study. However, assuming private sector return expectation – as possibly occurring if the hybrid is realised by an independent power producer (IPP) under a project finance structure – cost savings at six of seven sites would be insignificant or even negative. Consequently, as Frankfurt School’s President Udo Steffens points out: “The analysis contributes to the very topical discussions on the affordability of climate change mitigation, and the challenges in crowding-in the private sector. It is part of our endeavour to advocate green energy without neglecting market realities and real economic costs.”

Diesel-powered grids can be hybridised using different types of system-integration technologies and renewable energy sources. This analysis compares diesel plants to a ‘100-percent-peak PV penetration’ hybrid technology, with which existing diesel generators can be switched off during peak availability of solar radiation. The focus on this technology, however, is illustrative only, and does not imply its general advantage compared to other hybrid technologies (likewise, solar PV was selected as only one of several options for hybridisation).

Find the full Study online: “Renewable Energy in Hybrid Mini-Grids and Isolated Grids: Economic Benefits and Business Cases”. Call for comments: The FS-UNEP Centre welcomes any feedback on the approach and results of this analysis. In particular, providers of other technologies are invited to get in touch with the Centre for a possible follow-up analysis of alternative hybrid solutions.

The Frankfurt School – UNEP Collaborating Centre for Climate & Sustainable Energy Finance is a strategic cooperation between Frankfurt School of Finance & Management and the United Nations Environment Programme (UNEP). It is committed to facilitating the necessary structural change of energy supply and use around the globe by helping to catalyse private sector capital flows towards investments in sustainable energy, climate change mitigation and adaptation. The hybrid study was furthermore supported by the International Renewable Energy Agency (IRENA) and Siemens AG.

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