A new scheme for the promotion of renewable energies in developing countries: the renewable energy regulated purchase tariff

Abstract

The main aim of this policy-support document is to attract policy-makers attention in renewable energies deployment, offering to energy and development stakeholders an alternative subsidy-scheme to support electrification in a village-scale mini-grid based on the good performance of the renewable electricity generation. Market support mechanisms are required to stimulate the deployment of most renewable energy technologies becoming already competitive with existing energy technology options for off-grid areas. Historically the promotion of renewable energy technologies (RET) in isolated areas has involved international donors or government subsidising the initial capacity investment. Instead, in Europe the renewable electricity generation support scheme, the Feed-in Tariff (FiT), has been a successful mechanism to increase the deployment of renewables in the country's electricity grid. The basis of the FiT mechanism involve the obligation on the part of an electricity utility to purchase electricity generated by renewable energy producers at a tariff determined by public authorities and guaranteed for a specific period. This study provides a comprehensive evaluation of a locally-adapted variation of the FiT scheme, the Renewable Energy Regulated Purchase Tariff (RPT) that pays for renewable electricity generated, to encourage the production of renewable electricity in mini-grids in Developing Countries. The proposed financing scheme has been designed to provide a cost-effective scheme and to achieve different purposes such as to provide sustainable and affordable electricity to local users from remote areas in developing countries, to make renewable energy projects attractive to policy-makers. Although capital costs of renewable energy projects are much higher than a conventional genset, the fact to have low operation and maintenance costs together with the support of the RPT financial scheme, helps to offset the large capital costs associated with RET. The determination of an optimal set-up of the business model among various conditions plays an important role in the implementation of the RPT financial mechanism. In order to identify under which renewable electricity purchase values make the renewable energy mini-grid most financially viable, a cost-benefit analysis is carried out calculating the net present value (NPV) and Internal Rate of Return (IRR) for each of the renewable electricity purchase values (€RPT from 0.1 €/kWh to 0.6€/kWh), using the cost and revenue streams over a 20-year period. The cost-benefit analysis determines the minimum renewable electricity purchase values that make the project financially viable (an NPV above zero). However, higher renewable electricity purchase values are generally more viable, delivering the best value for money over the period.