Page 33 - Oasys South Asia Research Project - Towards Scaling Up of Electricity Access
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Mini-grid-based Electrification as a Possible Solution 27
A number of commercial factors influence the financial viability of any mini-grid
project. These include: capital cost of the project, capital structure, cost of capital,
operating costs, tariff or charges, and collection efficiency. The financial attractiveness
also depends on the price of alternative energies, availability of bankable contracts,
credit worthiness of the project proponents, and the rate of plant utilization. For a given
capital investment, the tariff will reduce as the capacity utilization rate improves and or
the cost of capital is reasonably low. Similarly, the project proponent has an improved
chance of securing debt funding if the project can enter into a selling contract with
an anchor load, where the buyer is credible, thereby making the contract bankable.
These factors are also influenced by commercial motives of the project proponents.
For example, a private investor will look for cost recovering tariff or charges, whereas
public sector entities with social motives are likely to charge a subsidized rate. The
capital grant or subsidy funding from the government may be available for all players
to encourage off-grid electrification through renewable energies. The project design,
technology choice and cost management by any project developer contribute to the
financial health of a project. Practically no fuel-related costs for solar PV, mini-hydro or
wind power projects reduce their operating expenses whereas biomass-based projects
or fossil-fuel based projects incur significant recurring expenses to ensure fuel supply.
3.1 Insights from the Field-level Study of Off-grid Electrification Projects
Mishra and Sarangi (2011) carried out a project-level analysis to understand the
basic conditions that have largely shaped local grid-based off-grid project viability
on a sustained basis. They found that the operational viability of off-grid projects is
largely determined by policy support, social acceptance in the form of community
participation, linkages with income-generating opportunities, and technological
appropriateness. It was found that in 62.5 per cent of cases, there exists some kind of
policy support to promote and develop off-grid energy development in the concerned
state. This percentage figure goes up to 67 per cent if we consider only those projects
which are currently operational; more interestingly, nearly 60 per cent of the projects
currently non- or partially operational seem to have suffered because of lack of
policy support.
The interactions with project developers revealed the critical role of policy
support in determining the success of a project. The consensus is that macro-economic
policy declaration must be strengthened and local mechanisms for continuous
monitoring as well as accountability frameworks must be put in place, specifically for
government owned and operated projects. These interactions further revealed that
regulatory uncertainty and vacuum stifles the growth of off-grid projects and that the
current paradigm of ad hoc and piecemeal dispensation to regulation produces sub-
optimal outcomes in terms of resource use efficiency. Moreover, local level policies
A number of commercial factors influence the financial viability of any mini-grid
project. These include: capital cost of the project, capital structure, cost of capital,
operating costs, tariff or charges, and collection efficiency. The financial attractiveness
also depends on the price of alternative energies, availability of bankable contracts,
credit worthiness of the project proponents, and the rate of plant utilization. For a given
capital investment, the tariff will reduce as the capacity utilization rate improves and or
the cost of capital is reasonably low. Similarly, the project proponent has an improved
chance of securing debt funding if the project can enter into a selling contract with
an anchor load, where the buyer is credible, thereby making the contract bankable.
These factors are also influenced by commercial motives of the project proponents.
For example, a private investor will look for cost recovering tariff or charges, whereas
public sector entities with social motives are likely to charge a subsidized rate. The
capital grant or subsidy funding from the government may be available for all players
to encourage off-grid electrification through renewable energies. The project design,
technology choice and cost management by any project developer contribute to the
financial health of a project. Practically no fuel-related costs for solar PV, mini-hydro or
wind power projects reduce their operating expenses whereas biomass-based projects
or fossil-fuel based projects incur significant recurring expenses to ensure fuel supply.
3.1 Insights from the Field-level Study of Off-grid Electrification Projects
Mishra and Sarangi (2011) carried out a project-level analysis to understand the
basic conditions that have largely shaped local grid-based off-grid project viability
on a sustained basis. They found that the operational viability of off-grid projects is
largely determined by policy support, social acceptance in the form of community
participation, linkages with income-generating opportunities, and technological
appropriateness. It was found that in 62.5 per cent of cases, there exists some kind of
policy support to promote and develop off-grid energy development in the concerned
state. This percentage figure goes up to 67 per cent if we consider only those projects
which are currently operational; more interestingly, nearly 60 per cent of the projects
currently non- or partially operational seem to have suffered because of lack of
policy support.
The interactions with project developers revealed the critical role of policy
support in determining the success of a project. The consensus is that macro-economic
policy declaration must be strengthened and local mechanisms for continuous
monitoring as well as accountability frameworks must be put in place, specifically for
government owned and operated projects. These interactions further revealed that
regulatory uncertainty and vacuum stifles the growth of off-grid projects and that the
current paradigm of ad hoc and piecemeal dispensation to regulation produces sub-
optimal outcomes in terms of resource use efficiency. Moreover, local level policies
