“Tropicalisation” of Feed-in Tariffs: a custom-made support scheme for hybrid PV/diesel systems in isolated regions

Abstract

The interest and actions towards introducing renewables for off-grid regions has increased due to their ostensible cost-effectiveness, eco-friendliness and quality services provided. Nevertheless, in many isolated areas diesel generators appear as a common option, confirming that there is a need for financial support mechanisms that aid the introduction of renewables due to their higher initial investment costs. This paper proposes a so-called ‘tropicalisation’ of the Feed-in Tariff scheme to promote the introduction of hybrid systems in isolated communities based on the idea of awarding for each kWh produced by renewable energies a premium value during a guaranteed period of time. The proposed Renewable Energy Premium Tariff (RPT) scheme is an alternative mechanism to the usual initial investment donation for off-grid energy development projects by recognising the production of renewable electricity and opting for a long-term sustainability of the projects. Ecuador presents ideal conditions to study the introduction of such a ‘tropicalised’ scheme since a Feed-in Law including off-grid projects was established in 2002 and since there are governmental and local efforts for the introduction of renewable hybrids in isolated regions. Modelling of the introduction of photovoltaics (PVs) into diesel systems for several mini-grids located in isolated regions of Ecuador has been performed, and included a detailed financial analysis for optimisation of RPT values and a comparison with existing stand-alone diesel systems. The results show the cost-effectiveness of PV/diesel hybrids over diesel gensets, taking into account present and future diesel prices. To obtain long-term sustainability of the project, the RPT values are set at 0.70–1.20$ kWh covering the operability of the whole system for 20 years, where the renewable fraction should have the largest share in the hybrid system. The proposed mechanism is expected to aid the introduction of renewable technologies to bring solutions and sustainable energy options to final users of off-grid isolated regions.