Reducing Risks and Maximising Benefits for PV ...

Reducing Risks and Maximising Benefits for PV Hybrid Mini-grid deployment: Lessons from the Asia-Pacific James Hazelton

A thesis submitted to the University of New South Wales in fulfilment of the requirements for the degree of Doctor of Philosophy

School of Photovoltaics and Renewable Energy Engineering Faculty of Engineering The University of New South Wales Sydney, Australia

May 2017

THE UNIVERSITY OF NEW SOUTH WALES Thesis/Dissertation Sheet Surname or Family name: Hazelton First name: James

Other name/s: Bruce

Abbreviation for degree as given in the University calendar: PhD School: School of Photovoltaic & Renewable Energy Engineering

Faculty: Faculty of Engineering

Title: Reducing Risks and Maximising Benefits for PV Hybrid Mini-grid deployment: Lessons from the Asia-Pacific Abstract 350 words maximum: Photovoltaic Hybrid Mini-grid Systems (PVHMS) are expected to play a key role in the United Nations’ goal to achieve universal energy access by the year 2030. Mini-grids require much larger investments than solar home systems, but are not large enough to access conventional public finance due to transaction costs and diseconomies of scale in assessing such projects. Rural electrification and renewable energy are both considered high risk propositions. Perceived risk is further increased because, despite a number of pilot PVHMS, the technology has achieved only limited deployment success and there remains a lack of data and published experience from operating projects. The aim of this thesis is to improve the understanding and management of the benefits and risks associated with PVHMS, based on experiences in the Asia-Pacific region. The thesis proposes first a preliminary risk management framework that considers intersecting spheres of Performance risk, Commercial risk and Programmatic risk. The framework is applied to two case studies of PVHMS deployment, including low penetration PV retrofits into existing diesel mini-grids in Northern Territory, Australia, as well as the high penetration PVHMS providing new energy access in Sabah, Malaysia. The research demonstrates that while energy services are being effectively delivered, there are deficiencies in monitoring and asset management capabilities that hamper the ability to effectively operate the systems and realise the intended operating cost reductions. Commercially, dependence on contractors that have minimal stake in ongoing performance presents significant exposure for operators and end users, but this could be addressed using alternative ownership structures. Programmatically, a lack of regulation and standardisation to effectively govern and control the deployment of these systems is problematic, while tariff settings make it impossible to recover costs, such that ongoing support is subject to political will. Better metrics to predict and assess the performance of PVHMS, and improvements in and verification of software modelling techniques present practical opportunities to reduce risk, and are explored in detail in the thesis. The recommendations could help optimise and improve the deployment of PVHMS, a serious alternative to traditional diesel mini-grids and central grid extension in the NT, Borneo and beyond.

Declaration relating to disposition of project thesis/dissertation I hereby grant to the University of New South Wales or its agents the right to archive and to make available my thesis or dissertation in whole or in part in the University libraries in all forms of media, now or here after known, subject to the provisions of the Copyright Act 1968. I retain all property rights, such as patent rights. I also retain the right to use in future works (such as articles or books) all or part of this thesis or dissertation. I also authorise University Microfilms to use the 350 word abstract of my thesis in Dissertation Abstracts International (this is applicable to doctoral theses only).

James Hazelton …………………………………………………………… Signature

John Rodrigues ……………………………………..……………… Witness Signature

31/08/2016 ……….…………… Date

The University recognises that there may be exceptional circumstances requiring restrictions on copying or conditions on use. Requests for restriction for a period of up to 2 years must be made in writing. Requests for a longer period of restriction may be considered in exceptional circumstances and require the approval of the Dean of Graduate Research. FOR OFFICE USE ONLY

Date of completion of requirements for Award:

COPYRIGHT STATEMENT ‘I hereby grant the University of New South Wales or its agents the right to archive and to make available my thesis or dissertation in whole or part in the University libraries in all forms of media, now or here after known, subject to the provisions of the Copyright Act 1968. I retain all proprietary rights, such as patent rights. I also retain the right to use in future works (such as articles or books) all or part of this thesis or dissertation. I also authorise University Microfilms to use the 350 word abstract of my thesis in Dissertation Abstract International (this is applicable to doctoral theses only). I have either used no substantial portions of copyright material in my thesis or I have obtained permission to use copyright material; where permission has not been granted I have applied/will apply for a partial restriction of the digital copy of my thesis or dissertation.' Signed ……………………………………….............. Date

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AUTHENTICITY STATEMENT ‘I certify that the Library deposit digital copy is a direct equivalent of the final officially approved version of my thesis. No emendation of content has occurred and if there are any minor variations in formatting, they are the result of the conversion to digital format.’ Signed ……………………………………….............. Date

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ORIGINALITY STATEMENT ‘I hereby declare that this submission is my own work and to the best of my knowledge it contains no materials previously published or written by another person, or substantial proportions of material which have been accepted for the award of any other degree or diploma at UNSW or any other educational institution, except where due acknowledgement is made in the thesis. Any contribution made to the research by others, with whom I have worked at UNSW or elsewhere, is explicitly acknowledged in the thesis. I also declare that the intellectual content of this thesis is the product of my own work, except to the extent that assistance from others in the project's design and conception or in style, presentation and linguistic expression is acknowledged.’ Signed ……………………………………….............. Date

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ABSTRACT Photovoltaic Hybrid Mini-grid Systems (PVHMS) are expected to play a key role in the United Nations’ goal to achieve universal energy access by the year 2030. Mini-grids require much larger investments than solar home systems, but are not large enough to access conventional public finance due to transaction costs and diseconomies of scale in assessing such projects. Rural electrification and renewable energy are both considered high risk propositions. Perceived risk is further increased because, despite a number of pilot PVHMS, the technology has achieved only limited deployment success and there remains a lack of data and published experience from operating projects. The aim of this thesis is to improve the understanding and management of the benefits and risks associated with PVHMS, based on experiences in the Asia-Pacific region. The thesis proposes first a preliminary risk management framework that considers intersecting spheres of Performance risk, Commercial risk and Programmatic risk. The framework is applied to two case studies of PVHMS deployment, including low penetration PV retrofits into existing diesel minigrids in Northern Territory, Australia, as well as the high penetration PVHMS providing new energy access in Sabah, Malaysia. The research demonstrates that while energy services are being effectively delivered, there are deficiencies in monitoring and asset management capabilities that hamper the ability to effectively operate the systems and realise the intended operating cost reductions. Commercially, dependence on contractors that have minimal stake in ongoing performance presents significant exposure for operators and end users, but this could be addressed using alternative ownership structures. Programmatically, a lack of regulation and standardisation to effectively govern and control the deployment of these systems is problematic, while tariff settings make it impossible to recover costs, such that ongoing support is subject to political will. Better metrics to predict and assess the performance of PVHMS, and improvements in and verification of software modelling techniques present practical opportunities to reduce risk, and are explored in detail in the thesis. The recommendations could help optimise and improve the deployment of PVHMS, a serious alternative to traditional diesel mini-grids and central grid extension in the NT, Borneo and beyond.

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PUBLICATIONS Parts of this dissertation have appeared in prior and forthcoming publications: Peer Reviewed Publications 1. Hazelton, J.B., Bruce, A.G. & Macgill, I.F. (2015). Improving Risk Management for Utility PV-Battery-Diesel Mini-grid Projects in Sabah, Malaysia. In: Asia Pacific Solar Research Conference. 2015, Brisbane, Australia: Australian Photovoltaic Institute (APVI). 2. Hazelton, J.B., Bruce, A.G & MacGill, I.F. (2014). A review of the potential benefits and risks of photovoltaic hybrid mini-grid systems. Renewable Energy 67. p. 222–229. 3. Hazelton, J.B., Bruce, A.G. & Macgill, I.F. (2014). PV Integration on Existing Diesel Mini-grids in Australia : Comparison of operational modelling and actual system performance. In: 2014 Asia-Pacific Solar Research Conference. 2014, Sydney, Australia: Australian Photovoltaics Institute (APVI). 4. Hazelton, J.B., Bruce, A.G., Macgill, I.F. & Airen, D. (2014). The Benefits and Risks Photovoltaic Hybrid Mini-grid Systems for Rural Electrification in Northern Territory, Australia. In: 7th International Conference on PV-Hybrids and Mini-grids. 2014, Bad Hersfeld, Germany: OTTI, pp. 241–246. 5. Hazelton, J.B., Bruce, A.G. & Macgill, I.F. (2013b). Assessing the Potential Benefits and Risks of Photovoltaic Mini-grid Systems. World Renewable Energy Conference 2013: International Conference on Renewable Energy for Sustainable Development and Decarbonisation. 2013, Perth, Australia Notable Presentations and Related Work 6. Hazelton, J., Bruce, A. & Macgill, I. (2015a). ACEF Deep Dive Workshop: Modelling Hybrid Renewable Micro-grids with the HOMER Software - Comparing Models and Performance for PV / Diesel Mini-grids in Northern Australia. In: Asia Clean Energy Forum. 2015, Manila, Philippines: Asian Development Bank. Available from: http://www.asiacleanenergyforum.org/agenda/deep-dive-workshops/. 7. Hazelton, J., Bruce, A. & Macgill, I. (2013a). Who shall inherit the mini grids? Examining ownership and business models for PV Hybrid Mini grids. In: 12th Pacific Science Inter-Congress: ‘Science for Human Security & Sustainable Development in the Pacific Islands & Rim’. 2013, University of the South Pacific, Laucala Bay Campus, Suva, Fiji. 8. Contributions to Alliance for Rural Electrication study: Manetsgruber, D. et al., 2015. Risk Management for Mini-grids: A new approach to guide mini-grid deployment, iv

9. Contributions to TKLN ARENA funded Handbook: P&W Corporation, 2013. Solar/Diesel Mini-grid Handbook, Darwin.

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ACKNOWLEDGEMENTS Firstly, to my supervisors, Dr. Anna Bruce and Assoc. Prof. Iain MacGill, who have supported me in every regard, provided advice when required and tolerated sometimes conflicting work and travel ambitions along the way. Anna - thank you for the thorough reviews, continual mentorship and all the critical knowledge shared (everything from research design to international development). Iain - thanks for all the help in developing this work with countless suggestions, great ideas and for lending your expertise at the most critical junctures. I feel very privileged to work in an area of such great personal interest and global importance and you have each been central to making this pursuit possible, from pre-scholarship to this submission and now taking it further… for this, I offer my deepest thanks. Both I, and the research, benefitted greatly from the wisdom of a huge range of local and technical experts and many of whom are making clean energy access a reality. The SESB and KKLW teams for their great staff and support, particularly Siti Hairani Binti Jamal who was critical for the BELB case study, as was Norzuma Goloi Chua, whose local knowledge and translation skills were invaluable. The staff at P&W, particularly for considerable insights and modelling help, Dow Airen, Phil Maker & Sara Johnston - I am greatly indebted! For TKLN also, Donna Bolton from Epuron for participating and reviewing the published works. Philippe McCracken and Muriel Watt of IT Power, for respective insight and inputs. Also thanks to Glen Summers, Long Seng To, Ben Elliston, David Hoadley for advice at various sticking points and Peter Lilienthal for a long night in Manila digging into HOMER results. I particularly would like thank Geoff Stapleton at GSES who loaned a great deal of knowledge of projects, connections and case studies throughout and was influential in formulating the topic. For my colleagues past and present at UNSW SPREE and CEEM, who have either completed or are in the throes - especially John and Simon - thanks for friendship and the comradery to the very last. At UM, Professor Saad and Hanieh Borhanazad for their contributions to publications, critical role in gaining approval for the research and providing a desk at the PEARL labs often on very little notice. It was a pleasure to work amongst the great team there. I was afforded a great deal of kindness for both strangers and friends on the travels – everything from beds, food, transport, Wi-Fi, introductions, network connections, local guiding, translating, cash, financial incentives, earnest discussion and not so earnest discussion. Perhaps a representative case was the kind staff of the KK laundromat who knowingly risked their business’ good name to cleanse my gear of bed bugs during the field work. There’s far too many to name, but many great friendships remain.

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I greatly appreciated the managers, colleagues and friends at Infigen and more recently ITP Renewables who have been flexible in time off (and time on, when money got tight). A big ‘ups to my brother and sister, Sam & Tam, as well as my inspiring uncles, Pip and Neil, for flexibility sharing a house and many good times for much of the duration. Also, the other brother and sister Ben & Brittany (and Kalani and Willow) for sharing their home as a South East Asia base. Finally, a lifetime of gratitude to my parents – John and Sandra for affording me every opportunity to get to this point, and the more critical inputs such as nutrition, shelter, interest and proof reads when each was needed most. You’re both my heroes. In dedication to my late brother, Tim Hazelton – who, when discussing the merits of undertaking a PhD, once said: “You'd have to trade off all your common sense in order to store all the new data. Who needs that?” My thanks again to all involved – it’s been a fun journey!

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TABLE OF CONTENTS Reducing Risks and Maximising Benefits for PV Hybrid Mini-grid deployment: Lessons from the Asia-Pacific .............................................................................................................................. i Abstract ........................................................................................................................................iii Publications .................................................................................................................................. iv Acknowledgements ...................................................................................................................... vi Table of Contents .......................................................................................................................viii Table of Figures ..........................................................................................................................xiii Table of Tables .......................................................................................................................... xvii Acronyms .................................................................................................................................xviii 1.

Introduction ........................................................................................................................... 1 Problem Statement......................................................................................................... 1 Aim, Research Questions and Objectives ...................................................................... 5 Key Definitions ............................................................................................................. 6 Mini-grid................................................................................................................ 6 Risk ........................................................................................................................ 6 Benefits .................................................................................................................. 7 Research Method ........................................................................................................... 7 Research Contribution of this work ............................................................................... 8 Thesis Overview .......................................................................................................... 10

2.

Context: Energy Access and Renewable Energy Mini-grids............................................... 12 Energy Access, Decentralised Solutions and Renewables .......................................... 12 Energy Access ..................................................................................................... 12 Grid Extension Vs Decentralised Solutions ........................................................ 14 Renewable Energy: Clean, Available and Increasingly Competitive .................. 16 REMGs and PVHMS: A specific case for implementation......................................... 18 Definitions and technology .................................................................................. 18 Adoption and Use ................................................................................................ 20 Ownership and Business Models for REMGs ..................................................... 21 Reviews and Existing Lessons Learned .............................................................. 24 Risk and De-risking PVHMS ...................................................................................... 27 Design and Performance Monitoring................................................................... 28 Software for PVHMS Modelling and Design ...................................................... 29 Conclusions and formulation of the Research Questions. ........................................... 29 viii

RQ1 What are the risks specific to the use of PVHMS for rural electrification, and what benefits do they provide? .................................................................................................... 31 RQ2 What are typical intended outcomes of PVHMS program deployment, and how are these outcomes typically measured? ................................................................................... 31 RQ3 What have been the reasons that PVHMS system and program performance has varied from intended? ......................................................................................................... 31 RQ4 To what extent do the results from software models used in PVHMS design vary from the operational experience? ........................................................................................ 31 RQ5 How can we reduce the uncertainty in PVHMS models in order to better inform system designers and financiers? ........................................................................................ 32 RQ6

How could PVHMS program performance be better measured and managed?...... 32

RQ7 Given that a variety of ownership and deployment models for PVHMS exist, which parties are best able to manage each risk, and which models allow such a distribution of risk? 32 RQ8 What lessons might we draw for less developed nations that are looking to deploy PVHMS? ............................................................................................................................. 32 3.

Research Methods ............................................................................................................... 33 Research Approach ..................................................................................................... 33 Literature Review........................................................................................................ 34 Development of an Analysis Framework.................................................................... 36 Field Work .......................................................................................................... 36 Case Study Approach .................................................................................................. 40 Data Analysis ...................................................................................................... 43 Reflection and Improvement on Framework .............................................................. 45 Conclusion .................................................................................................................. 45

4.

Developing a Risk Analysis Framework............................................................................. 46 Introducing Risk Concepts .......................................................................................... 46 Risk ..................................................................................................................... 47 Risk Allocation ................................................................................................... 48 Risk Analysis ...................................................................................................... 48 Risk Management ............................................................................................... 49 Development of the framework .................................................................................. 51 Identifying Risks and Benefits of PV Hybrid Mini-Grid Systems...................... 51 Existing Analytical Frameworks ......................................................................... 59 Requirement of a new framework ....................................................................... 62 Preliminary Framework for this research.................................................................... 63 Chapter Conclusion ..................................................................................................... 65

5.

Case Study: BELB Program, Sabah, Malaysia ................................................................... 66 Introduction, Electrification Status and Renewable Resource .................................... 66 Prior Research on PVHMS in Malaysia ..................................................................... 69 ix

Description of the BELB PV Hybrid Mini-grid Deployment...................................... 70 Field Work ................................................................................................................... 74 Site Visits............................................................................................................. 74 Operational Analysis & Existing Performance Measures ................................... 79 Insights from BELB end users ............................................................................. 88 Other PVHMS Deployment......................................................................................... 91 School Electrification program ............................................................................ 91 Community run programs .................................................................................... 92 Risk Analysis ............................................................................................................... 94 Performance Risk ................................................................................................ 94 Commercial Risk ................................................................................................. 96 Programmatic Risk .............................................................................................. 98 Chapter Conclusion ..................................................................................................... 99 6.

Case Study: TKLN Program, Northern Territory Australia ............................................. 100 Context, Electrification Status and Resources ........................................................... 100 Prior Research on PVHMS in Australia .................................................................... 103 Description of the TKLN Systems ............................................................................ 106 Field Work ................................................................................................................. 107 Site Visits........................................................................................................... 107 Insights from the End users ............................................................................... 110 Operational Analysis ......................................................................................... 112 Risk Analysis ............................................................................................................. 116 Performance Risks ............................................................................................. 117 Commercial Risks.............................................................................................. 119 Programmatic Risk ............................................................................................ 120 Chapter Conclusion ................................................................................................... 121

7.

Improving Design and Performance Measures for Renewable Energy Mini-grids........... 123 Role of Performance Measures.................................................................................. 123 Measures Review and Compilation ........................................................................... 124 Demand Side measures ...................................................................................... 127 Renewable Energy Resource ............................................................................. 136 System Performance .......................................................................................... 137 Commercial & Contractual ................................................................................ 147 Programmatic/Service Based ............................................................................. 149 Economic ........................................................................................................... 151 Discussion: Improving Performance Indicators. ....................................................... 153 Chapter Conclusion ................................................................................................... 154

8.

Assessing and Improving Modelling of PVHMS .............................................................. 155 x

Considering Uncertainty in Models .......................................................................... 156 PV Mini-grid Modelling ........................................................................................... 157 Demonstrating ASIM for Ti Tree ............................................................................. 160 Building a Reference Case ................................................................................ 160 Diesel Only Case............................................................................................... 161 Estimating reduced Fuel consumption .............................................................. 161 Run Hours and Operating Ranges ..................................................................... 161 ASIM Analysis – Ti Tree Alternative scenario: Additional 320kW Generator 163 Comparative Analysis: HOMER, ASIM and Actual ................................................ 164 Basic Modelling Results ................................................................................... 166 Calibrated Modelling Results............................................................................ 169 Time Sampling Results ..................................................................................... 172 Discussion ................................................................................................................. 175 Chapter Conclusion ................................................................................................... 177 9.

Synthesis: Reducing Risks and Maximising Benefits Of PVHMS ................................... 178 Synthesis of an Enhanced Risk Management Framework ........................................ 178 Table 21 - Key Findings and Recommendations: Commercial Risk ................................ 185 Table 22 - Key Findings & Recommendations: Programmatic Risk ................................ 187 Key Findings: Risk Interfaces and Influence .................................................................... 189 Limitations of the study ............................................................................................ 190

10.

Thesis Contributions, Conclusions and Future Work ................................................... 192 Key Thesis Contributions.......................................................................................... 192 RQ1 What are the risks specific to the use of PVHMS for rural electrification, and what benefits do they provide? .................................................................................................. 193 RQ2 What are typical intended outcomes of PVHMS program deployment, and how are these outcomes typically measured? ................................................................................. 194 RQ3 What have been the reasons that PVHMS system and program performance has varied from intended? ....................................................................................................... 195 RQ4 To what extent do the results from software models used in PVHMS design vary from the operational experience? ...................................................................................... 195 RQ5 How can we reduce the uncertainty in PVHMS models in order to better inform system designers and financiers? ...................................................................................... 196 RQ6

How could PVHMS program performance be better measured and managed?.... 197

RQ7 Given that a variety of ownership and deployment models for PVHMS exist, which parties are best able to manage each risk, and which models allow such a distribution of risk? 197 RQ8 What lessons might we draw for less developed nations that are looking to deploy PVHMS? ........................................................................................................................... 199 Conclusion ................................................................................................................ 200 Future Work .............................................................................................................. 201 xi

References ................................................................................................................................. 203 Appendix 2A

Standards Relating to Renewable Energy Mini-grid Systems ................... 220

Appendix 5A

Plant inventory Lists for Visited BELB systems ....................................... 223

Appendix 5B

Historical and Planned Electricity Coverage in Sabah .............................. 224

Appendix 5C

Explanation of presented operating data for a PV Hybrid minigrid system. 226

Appendix 5D

Data Cleaning for BELB Systems ............................................................. 230

Appendix 5F

Sample Stakeholder Interviews ................................................................. 235

Appendix 5G

End User Survey ........................................................................................ 241

Appendix 6A

Fuel Use AT TKLN sites ........................................................................... 243

Appendix 6B

TKLN Project Performance ....................................................................... 244

Appendix 8A

HOMER Inputs .......................................................................................... 246

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TABLE OF FIGURES

Figure 1 - Thesis structure, indicating use of the initial preliminary framework proposed and the formation of the final framework. ......................................................................................... 11 Figure 2 - Current financing and annual financing requirements by type of financier (source: ENEA 2014, using data from IEA WEO 2011) .......................................................................... 13 Figure 3 - Electrification approach required to achieve universal access by 2030 by region, as % of generation (based on IEA, UNDP, UNIDO 2010 via IRENA (2012))................................... 16 Figure 4 - Applications and Categorisations based on System Size (building upon Lilienthal (2013) and (Mauch 2009)) .......................................................................................................... 19 Figure 5 - Overview of Research Questions, Objectives and Methods Used ............................. 34 Figure 6 - Visualisation of Review Method: Papers first categorised into groups then reviewed to compile benefits/risks ............................................................................................................. 35 Figure 7 - Coverage of time series data collected before data cleaning (N.B. NT datasets were at 10-minute resolution, while Sabah datasets were at 1-minute resolution.) ............................. 40 Figure 8 - Mapping of Risk for mini-grids based on Industry Survey (Adapted from (Manetsgruber et al. 2015) .......................................................................................................... 61 Figure 9 - Formulated Preliminary Risk Analysis Framework ................................................... 64 Figure 10 - Rural Electrification Progress and Targets by Region (Source: 2000, 2005, 2010 data (Mekhilef et al. 2012); 2015*, 2020* (Economic Planning Unit 2015) where * indicates estimates; Map (Wikipedia Commons n.d.)) .............................................................................. 67 Figure 11 - Annual Average Solar Radiation (MJ/m2/day) (Mekhilef et al. 2012) .................... 69 Figure 12 - Responsibilities in BELB PV-Diesel mini-grid Program (Author compiled) .......... 72 Figure 13 - PV Hybrid Installations under the BELB program in Sabah. Sites marked with a distinct red border, indicate projects subject to later site visits and analysis (Source: Combined from SESB (2014) and Govt. Map (Malaysia Travel Guide 2015) ............................................ 73 Figure 14 - Pulau Banggi Phase 2 System. Foreground: 1MWp Photovoltaic system. Rear: Building compounds, left to right: i) Carpark/Diesel pump station, ii) Diesel Tanks, iii) Generator Room, iii) Switch room/Inverter/Battery Room, iv) & v) Staff Quarters (Photo: Author) ........................................................................................................................................ 76 Figure 15 (left) Inside Diesel Generator building & (right) Battery Room with SLA banks ..... 76 Figure 16 - Inverter room (left) & 2 x 415kV/11kVTransformers (right) with blast wall. ......... 76 xiii

Figure 17 – Block diagram showing combined AC/DC coupling configuration at Pulau Banggi. The Phase 1 solar system kept at Batu Layar is shown in the bottom right of the image and operates essentially as a distributed generation plant within the mini-grid (image: authors compilation based on site information). ...................................................................................... 77 Figure 18 - Images of the System at Tanjung Labian – clockwise from top, solar farm, diesel generators, battery room. ............................................................................................................. 78 Figure 19 - Block diagram of the system configuration in Tanjung Labian (image: author’s compilation based on site information). ...................................................................................... 78 Figure 20 - Load frequency distribution for each site. ................................................................ 80 Figure 21 - Hourly Profiles of Load and Irradiance data from Banggi and Tanjung Labian 1 ... 81 Figure 22 - System Operation at Banggi for Thursday, 31/08/2014 ........................................... 82 Figure 23 - System Operation at Tanjung Labian for Thursday, 15/05/2014.............................. 82 Figure 34 - Example of an overcast 24 hours at Banggi where the battery state of charge as measured stayed at critically low levels. ..................................................................................... 87 Figure 35 - Histograms showing Battery State of Charge as indicated by controller, over the duration of the collected data....................................................................................................... 87 Figure 36 - Battery Manufacturer guidelines on expected cycle life and depth of discharge (Source: Photographed from manufacturer’s documentation). ................................................... 88 Figure 27 - System operation with incident Solar Radiation in grey line.................................... 88 Figure 28 - Undertaking end user survey at Tanjung Labian (left) and kerosene candle used for lighting by villages in the western coast of Banggi, whose house had poles and lines connected and was awaiting the final transmission line commissioning. ..................................................... 89 Figure 29 - Some examples of business and services on mini-grid power. Left: small goods store on Pulau Banggi. Middle: Craftsman at Tanjung Labian with various power tools. Right: Maternity centre in Tanjung Labian. ........................................................................................... 89 Figure 30 - Comparison of Expenditure on electricity from connected households to nonconnected households .................................................................................................................. 90 Figure 31 - Appliances recorded as present in Households connected to the Mini-grid (MG) compared with those with personal gensets (PG) ........................................................................ 91 Figure 32 - Distribution of Risk (using an approach adapted from Prengel (2004) based upon interviews) ................................................................................................................................... 97 Figure 33 - Major Towns and Remote Communities serviced by IES (adapted from P&W Corporation 2014), with case study site location added. ........................................................... 102 Figure 34 - Image of diesel generators and solar component at Ti Tree. Evident are the panels and inverter housing, with battery and controller housed in the rear container......................... 108 Figure 35 - System Configuration at Ti Tree, with dividing line indicating commercial responsibility ............................................................................................................................. 109 xiv

Figure 36 - Kalkarindji and the power station: Top left: main road in the township with distribution infrastructure. Top right: the 4 diesel generators on site (the replacement sealed unit is visible at reared). Below: an overview of the complete generation site. ............................... 110 Figure 37 System Configuration at Kalkarindji, with dividing line indicating commercial responsibility ............................................................................................................................. 110 Figure 38 – Bore Pump Switch box and neighbouring irrigation rig at Ti Tree (Left) and the health centre at Kalkarindji. `.................................................................................................... 111 Figure 39 – Load Frequency Distributions for each site ........................................................... 113 Figure 40 – Hourly Profiles of Load and Irradiance data from Ti Tree and Kalkarindji Sites . 114 Figure 41 - Recorded data: Generation by Source at Ti Tree over 7 days (dates are 2013) ..... 115 Figure 42 - Recorded data: Generation by Source at Kalkarindji over 7 days (dates are 2014). .................................................................................................................................................. 115 Figure 43 - Combined Load Duration Curve (Vardi et al. 1977).............................................. 129 Figure 44 – LDC from Ti Tree Site .......................................................................................... 130 Figure 45 - LDC from Pulau Banggi ........................................................................................ 130 Figure 46- Load Step Change for entire Ti Tree data set .......................................................... 133 Figure 47 - Average 24hr Load profile of Tanjung Labian by successive month. ................... 134 Figure 48 - Generator Starts over 12 months at Ti Tree ........................................................... 142 Figure 49 - Gen A Measured Fuel Curve at Ti Tree ................................................................. 143 Figure 50 - Gen B Measured Fuel Curve at Ti Tree ................................................................. 143 Figure 51 - Ti Tree Generation Frequency Distribution ........................................................... 145 Figure 52 - Accuracy of Hydro Project cost Estimates vs. Actual Costs at each design phase [Source: Natural Resources Canada 1997] ............................................................................... 156 Figure 53 – Representation of performance uncertainty over life of a 20-year project ............ 157 Figure 54 – Simulated Data: Reference case, PV and Load as actual ...................................... 160 Figure 55 – Simulated Data: Scenario of No PV, same load .................................................... 161 Figure 56 – 2013 Generator Operating Ranges by hour (without and with PV) ...................... 163 Figure 57 – Simulated Data: Additional Generator D to cover minimum loads....................... 164 Figure 58 – Comparison of Generator Operation Distributions (Measured vs. Additional Gen. Simulation)................................................................................................................................ 164 Figure 59 - Comparative analysis design .................................................................................. 165 Figure 60 - Comparison of NASA SSE and 2013 Measured Irradiation .................................. 169 xv

Figure 61 – Representation of performance uncertainty over life of a 20-year project ............. 175 Figure 62 – The Final Risk Management Framework ............................................................... 179

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TABLE OF TABLES Table 1 - Risks and their mitigations, as referenced and demonstrated in the literature............. 53 Table 2 - Benefits, as referenced and demonstrated in the literature. ......................................... 57 Table 3 - Categorisation of Identified risks within the Preliminary Framework ........................ 65 Table 4 - Installed Systems, Households Served and Component Configurations (N/A indicate numbers that at the time of survey could not be confirmed by the utility) ................................. 74 Table 5 - Operational Analysis Results – Pulau Banggi (previously targeting 70% renewable energy) ........................................................................................................................................ 85 Table 6 - Operational Analysis Results – Tanjung Labian (Confirmed 70% renewable energy) 85 Table 7 - Community Micro-hydro Projects [* Indicates updated figures from prior reports, + new system since prior report] .................................................................................................... 93 Table 8 - Prior studies relevant to RE mini-grid systems in Australia...................................... 103 Table 9 – Demand Side Design and Performance Measures relevant to PVHMS and REMGs 127 Table 10 – Renewable Energy Resource Measures relevant to PVHMS ................................. 136 Table 11 – System Performance Measures relevant to PVHMS .............................................. 137 Table 12 – Contractual Measures relevant to PVHMS and REMGs ........................................ 147 Table 13 – Resource Measures relevant to PVHMS and REMGs ............................................ 149 Table 14 – Resource Measures relevant to PVHMS and REMGs ............................................ 151 Table 15 - Generator Run Times (as % of 2013 year) with and without PV at Ti Tree ........... 162 Table 16 - Comparison of Basic Model and Actual Performance ............................................ 168 Table 17 - Comparison of Calibrated Model, ASIM and Actual Performance......................... 171 Table 18 – HOMER Time series comparison ........................................................................... 173 Table 19 – ASIM Time series comparison ............................................................................... 174 Table 20 - Key Findings & Recommendations: Performance Risk .......................................... 181 Table 21 - Key Findings and Recommendations: Commercial Risk ........................................ 185 Table 22 - Key Findings & Recommendations: Programmatic Risk ........................................ 187

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ACRONYMS

ABS

Australian Bureau of Statistics

AC

Alternating Current

ACRE

Australian Cooperative Centre for Renewable Energy

AHP

Analytical Hierarchy Process

ARENA

Australian Renewable Energy Agency

ARE

Alliance for Rural Electrifcation

AS

Australian Standard

BOT

Build Operate and Transfer

CAT & CAT Projects

Centre of Appropriate Technology

CDM

Clean Development Mechanism

COP

Conference of the Parties

CY

Calendar Year

DG(s)

Diesel Generator (s)

DC

Direct Current

EPU

Economic Planning Unit (Malaysia)

ESO

Essential Services Officer (Australia)

FY

Financial Year

GHG

Green House Gases

HIO

High Impact Opportunity

HOMER

Hybrid Optimisation from Multiple Electric Renewables

ICT

Information and Communication Technologies

IEA

International Energy Agency

KK

Kota Kinabalu, the state capital of Sabah, Malaysia

KKLW

Kemajuan Luar Bandar dan Wilayah (Malaysian Ministry)

KL

Kuala Lumpur, the capital of Malaysia

LDC

Less Developed Country

LLD

Low Load Diesel

MDG

Millenium Development Goals xviii

MCDM

Multi Criteria Decision Making

MG

Mini-grid

MoEd

Ministry of Education

MoF

Ministry of Finance

O&M

Operations and Maintenance

OECD

Organisation for Economic Cooperation and Development

P&W

Power and Water Corporation (State Utility, Australia)

P-I

Probability – Impact (a type of risk analysis)

PPA

Power Purchasing Agreement

PSH

Peak Sun Hour

PT

Probability theory as used as a method of risk analysis

PV

Photovoltaic

PVHMS

PV Hybrid Mini-grid Systems

PVPS

Photovoltaic Power Systems Programme

RAR

Remote Area Renewables

RE

Renewable Energy

REMG

Renewable Energy Mini-grid

RET

Renewable Energy Target (Australia)

SDG

Sustainable Development Goals

SE

Sarawak Energy

SE4ALL

Sustainable Energy For All

SESB

Sabah Energy Sendirian Berhad,

SHS

Solar Home Systems

SOC

State of Charge

SQL

Structured Query Language

TKLN

Ti Tree, Kalkarindji and Lake Nash

TNB

Tenaga National Bernhard

UM

University Malaysia

UN

United Nations

UNSW

University of New South Wales

WEO

World Energy Outlook

xix

1. INTRODUCTION Problem Statement The provision of renewable energy based electricity access to the world’s rural poor is both a compelling and risky proposition. It is compelling because of its potential to improve livelihoods through clean, affordable energy access while reducing dependence on fossil fuels, which are often expensive, imported and polluting. It is also considered risky; due to the challenges of maintaining reliable supply and recouping high capital costs in isolated low-income markets. This is particularly the case when considering there may not be adequate capacity to develop, operate, maintain, use and pay for relatively complex technologies with high upfront capital requirements. Continuing cost reductions in renewable energy technologies along with a global consensus on the environmental catastrophe caused by continuing fossil fuel use are driving forward opportunities for an off grid energy revolution. There have been major successes with the deployment and use of small capacity technologies, such as solar lanterns and solar home systems, which have provided small amounts of electricity to serve basic needs and improve the lives of the poor. However, there remains an urgent need to demonstrate renewable energy as commercially viable in servicing larger capacity applications. In 2013, it is estimated that 1.2 billion people globally were living without access to electricity. The majority of these live in the rural areas of developing countries (IEA 2015). Low population density and the initial low per-capita demand for energy result in a very high cost per unit of energy mean it is often infeasible to extend grid connection to such places. These challenges are often exacerbated by rough terrain or insufficient supporting infrastructure. Decentralised energy solutions are an alternative for providing energy services to these rural populations. These can take the form of individual household systems such as personal diesel/petrol generators or Solar Home Systems (SHSs), or, if proximity permits, through a mini-grid, which is a standalone power system that connects multiple users and generation through a local network that autonomously manages supply and demand. A large body of literature assessing SHSs for rural electrification has found that success of these systems has been dependent not only on the quality of hardware but the technical and institutional capacity to finance, install, maintain and use the systems effectively (Lorenzo 1997; Martinot, Cabraal, et al. 2000; Martinot, Rittner, et al. 2000; Nieuwenhout et al. 2000; Campen et al. 2000; Wilkins 2002; IEA PVPS Task 3 2003; Nieuwenhout et al. 2004; Terrado et al. 2008; Foster & Briceño-Garmendia 2010). Significantly, it has been found that individual systems such as SHS 1

cannot provide sufficient power or energy for many typical productive applications 1, mainly due to small system size, low reliability due to variable solar resource availability and maintenance issues associated with their dispersed nature. Mini-grids, on the other hand, aggregate loads within a community, sometimes with multiple generation sources and storage. They are able to provide more power and energy when needed to each load, which has been described as “surplus” power supply, in contrast to the “subsistence” supply of SHSs (Frearson & Tuckwell 2013); as well as an overall improvement in reliability. The resultant potential to serve productive uses of electricity is not only critical to reducing poverty and preferable to end-users but also enables the operator to recover costs and provide a more sustainable service. In the World Energy Outlook 2011, the International Energy Agency (IEA) least cost scenario forecast that more than 40% of new energy access between 2010 and 2030 will come from mini-grids. The successful adoption of mini-grids is therefore seen as key to accelerating energy access for the world’s poor (Practical Action 2014). More recently, the UN announced the Sustainable Energy For All (SE4ALL) initiative, which ambitiously targets universal energy access and doubling the share of renewable energy in the global energy mix by the year 2030 (Sustainable Energy For All 2015). The SE4All initiative identifies clean energy mini-grids as a High Impact Opportunity (HIO) and a special task force has been created to help drive future development of this technology. Thermal generators, mostly diesel generator sets, have been the conventional choice of generation within mini-grids and retain a dominant market share (Wichert 1997; Breyer et al. 2010; Szabó et al. 2011; Breyer 2012; Navigant Research 2015). They remain popular due to existing technical capabilities, low upfront cost, and reliability which is limited only by lack of understanding of maintenance requirements and the challenges of sourcing fuel. While popular, their use is seen as problematic, since exposure to the fuel supply chain means operating costs will far exceed upfront costs over the lifetime of an electrification program, and the accompanying price risk creates additional liability for operators. For countries that do not produce their own fossil fuels, dependence on coal, gas, diesel, kerosene and petroleum presents a threat to energy security, a high cost to the economy, and also commonly to the national budget via subsidies. Furthermore, diesel combustion presents serious environmental problems by contributing to local air pollution, greenhouse gas emissions and the depletion of scarce resources. These factors have acted as drivers for more sustainable means of rural electrification including the introduction and promotion of renewable energy technologies - both on grid and off grid.

1

Productive applications go beyond improving quality of life to include service delivery and income generating activities such as provision of health, education and communication services, clean water, water pumping, agricultural post-processing, small industry, retail and other commercial services. Currently energy needs for productive use are typically satisfied by fossil fuels. (IRENA 2012; GIZ 2016) 2

While the two most common approaches for off-grid rural electrification, stand-alone PV systems and diesel mini-grids both have limitations, PV Hybrid Mini-grid Systems (PVHMS), which combine thermal and renewable technologies, provide something of a middle path whereby a number of these issues can be addressed. Comparing to a diesel only system, hybridisation reduces the fuel and maintenance costs of diesel generators by reducing loading, and when in combination with sufficient storage, can sideline the diesel component to switch on only occasionally when required, i.e. to ensure the load is met during periods of low renewable energy availability or high load. Other benefits include reduced pollution, noise and added resilience in areas where fuel supply is problematic. Comparing to renewable energy only systems such as SHS, benefits of PVHMS may include more energy delivered via an increase in system maximum capacity or longer operating hours, a reduction in total renewable/storage capacity required, and an increase in reliability of supply. PV retrofits of existing diesel mini-grids, which make use of existing infrastructure, but reduce diesel fuel consumption, provide further cost-effective opportunities for renewable energy uptake, particularly since customers of existing systems tend to have demonstrated the willingness and ability to pay. Due to the falling costs of renewable energy components, as well as improving efficiency and projected growth trends, a number of government agencies, utilities, NGOs and even some private companies have begun implementing PVHMS in the past 15 years, initially as pilot projects and now increasingly, as the least cost option. Still, much more progress on mini-grid deployment will be required to reach universal energy access by 2030 (IEA / World Bank 2015). Utilities and governments in developing countries have a limited capacity to pay for rural electrification, while available financing, including via bilateral agencies and development banks have tended to back large projects, typically grid-extension (Banerjee et al. 2014; Leopold 2016). The reasons behind this have been an historical focus on public utility orientated models as well as lower transaction costs associated with scale. The significant level of investment needed for economies of scale is harder to achieve with multiple small projects. In order to achieve rapid deployment of mini-grids in rural areas, projects need to demonstrate commercial feasibility in order to attract involvement from the conventional sources of finance for rural electrification and the commercial energy sector – both of which have traditionally considered such projects to be high risk and low return propositions. Furthermore, appropriate methods of aggregating projects will be required to attract the larger development finance that is currently going to conventional projects, including fossil fuel generators. To achieve the ambitious goals set for PVHMS deployment, public financing is also expected to continue to play an important role in de-risking investments and leveraging the private capital that will be required (IRENA 2014). For renewable energy technologies broadly, a lack of understanding and misrepresentation of perceived risks and benefits has been identified as a barrier for adoption (Waissbein et al. 2013; 3

Painuly 2001). From a project financing perspective, renewable energy projects require a greater upfront capital expenditure than fossil fuel based projects and therefore harbour greater risk2. PVHMS have different investment characteristics than conventional mini-grids, with the PV component resulting in higher up-front deployment costs, whilst lowering ongoing project costs (largely diesel fuel). PVHMS are also viewed to carry more risk due to technological complexity and limited experience with the technology compared with conventional diesel only systems (Turcotte & Sheriff 2001; Díaz et al. 2011). Furthermore, applications of the technology in remote communities in developing countries carry additional technical, institutional and economic challenges. Much of the prior research on PVHMS has involved modelling their potential to serve prospective sites and there has also been broad based knowledge sharing of lessons learned from PVHMS experiences. For example, analyses of benefits and barriers have been conducted through the IEA PVPS Task 11 international collaborative research program (Mauch 2009; Mauch 2012) and IOREC (2012). However, the analysis of barriers in the literature is broad, rather than detailed, and there has been little in the way of capturing and analysing detailed operational data and experiences. In addition, the way that benefits and risks accrue to different stakeholders has not been considered. Despite a number of pilot projects, there have been few examples of large scale programmatic development and evident gaps in the published literature detailing successful projects (Frearson & Tuckwell 2013; Bhattacharyya & Palit 2014). In order for PVHMS to achieve their market potential at the scale required to achieve the goal of modern energy access for all, investment conditions that are attractive to the private sector and financiers will be required. This will also likely require the support of government and international development funding decision makers. One necessary step in achieving the required level of confidence in the technology is improving the approach for identifying, quantifying and understanding the benefits and risks. In particular, there is a need to compare actual performance against the models and understand the sources of uncertainty and how they may be mitigated in future projects.

2

Consider a hypothetical rural electrification project with two possible solutions – a diesel generator or PV - both provided by debt financing. In the years before payback the cost of debt financing for renewables may be equivalent to the fossil fuel cost. However, if the project was to fail early (for instance due to a technical reason), then the PV would face a much heavier risk consequence as it would still need to pay back the large CAPEX borrowed, while for a fossil fuel system the fuel cost would disappear along with the service provision. 4

Aim, Research Questions and Objectives The aim of this thesis is to improve the understanding and management of the benefits and risks associated with PV Hybrid mini-grid systems based on experiences in the Asia-Pacific region. The specific research questions addressed in the thesis are as follows: 1) What are the risks specific to the use of PVHMS for rural electrification, and what benefits do they provide? 2) What are typical intended outcomes of PVHMS program deployment, and how are these outcomes typically measured? 3) What have been the reasons that PVHMS system and program performance has varied from intended? 4) To what extent do the results from software models used in PVHMS design vary from the operational experience? 5) How can we reduce the uncertainty in PVHMS models in order to better inform system designers and financiers? 6) How could PVHMS program performance be better measured and managed? 7) Given that a variety of ownership and deployment models for PVHMS exist, which parties are best able to manage each risk, and which models allow such a distribution of risk? 8) What lessons might we draw for less developed nations that are looking to deploy PVHMS? To achieve this, the objectives of the thesis are to: i)

Identify and describe the risks and benefits of PVHMS deployment.

ii) Explore cases of programmatic PVHMS deployment in the Asia-Pacific region, in order to analyse performance measures, operational experience and the risk proposition associated with the technology’s use. iii) Consider the adequacy of existing performance measures and modelling software, identify opportunities for and propose improvements based on operational experiences from (ii). iv) Recommend ways to mitigate risk and better manage uncertainty in both the ongoing operations of existing programs and expected future project development. While the work presents findings from global literature and refers to other work, two PVHMS programs are used as the core empirical work. These programs are utility owned and operated schemes in the state of Sabah, Malaysia and the Northern Territory (NT), Australia.

5

Key Definitions While concepts are discussed in greater detail in Chapters 1 (background and technology context) and 2 (risk context), important definitions are given now to clarify the aim and scope of the research.

Mini-grid The term ‘mini-grid’ refers to a local, standalone power network that autonomously manages supply and demand. The technical scope of this thesis is limited firstly by application – i.e. systems that are being used primarily for multi-user, residential rural electrification. Secondly, in terms of generation technology, while mini-grids can be powered by a range of sources, the focus of this work is on mini-grids employing photovoltaics and diesel generation in combination. Nevertheless, many of the insights of this work apply to renewable energy mini-grids more broadly including, in some cases, diesel-only mini-grids. While a range of terms are used for minigrids based on power capacity range (e.g. nano-grid < pico-grid < micro-grid3), this work is relevant to systems that range from several kW to multi-MW, and includes analysis of data from systems ranging from the smallest of 90kW to around 3MW of system capacity. This scope targets large power capacity systems as these deliver the most desirable service to a consumer (surplus 24-hour electricity). While more limited hours of access and smaller capacity systems are important in bridging the energy access gaps targeted by SE4All, information on such systems is hard to attain. This is because monitoring and data logging capabilities for smaller system sizes is rare due to these functions being expensive relative to the overall system costs. Throughout this thesis, three specific terms will be used – mini-grids, renewable energy mini-grids (REMGs), and PV Hybrid Mini-grid Systems (PVHMS). Each is defined as a subset of the former, and the latter two are distinctly defined by existence of generation sources within the system.

Risk In line with general usage, risk can be defined as “an undesirable implication of uncertainty” (Chapman & Cooper, 1983). In this work, however, we define risk to be uncertainty that impacts PVHMS program outcomes in either a positive or negative way. The consideration of risk is vital part of any decision making, and increasingly society has sought to understand the occurrence and consequence of risks, in the hope of being able to better manage uncertainty. Inclusion of positive impacts may seem at odds with the common understanding of risk but is done so deliberately to represent uncertainty in its fullest sense. In order explore in detail the risks 3

These terms are often used interchangeably, but sometimes distinctly defined (e.g. Sawin 2013). To limit confusion, the term ‘mini-grid’ was used to align with term used in the SE4ALL initiative, as well as the long running European Conference on PV Hybrids and Mini-grids. Other broad terms that might be used interchangeably include Remote Area Power Systems (RAPS), and terms can also be based on generation source as Hybrid Energy System (HES) and Integrated Renewable Energy System (IRES) (Wichert 1997) 6

associated with the projects, a conceptual framework based on this definition is developed and described in Chapter 4.

Benefits Benefits are defined for the purpose of this thesis as advantages gained through the use of PVHMS relative to other electrification options. Benefits accrue and are seen differently depending on the role and responsibilities of the party considering them. For example, in the case of rural electrification, while governments might focus on the social and economic benefits of new energy services, potential financiers and developers might seek technical demonstration. It is useful to consider benefits and risks together, as one may influence the perception of the other. For example, if the benefits of a particular choice are seen to increase then this will often increase the risk appetite of the decision maker.

Research Method In order to consider the research questions, the initial step was to formulate a preliminary risk analysis framework. This was based on a review of PVHMS literature, as well as frameworks previously developed for energy and rural electrification analysis. The preliminary framework was then applied across two case studies, both involving programmatic PVHMS deployment in the Asia-Pacific region. In Sabah, Malaysia, the case study focuses in detail on two PV hybrid systems in Sabah, government funded, greenfield4 sites that were jointly developed and then run by the state utility Sabah Energy Sdn Bhd5 (SESB). In Australia the work examines the Ti Tree, Kalkarindji and Lake Nash (TKLN) sites which began operation in 2013, and were instigated under a novel Power Purchasing Agreement (PPA). The TKLN projects are in essence renewable energy retrofits into existing diesel mini-grids. The case studies include stakeholder interviews, end user surveys, operational data collection and analysis, and modelling using the HOMER (Homer Energy 2014) and ASIM (Power and Water Corporation n.d.) software tools. The case study research also reflects on other mini-grid programs active in each region. Synthesising evidence from the case studies, the thesis then expands the analysis into two particular areas of interest that emerge in relation to better understanding and managing risk and uncertainty. First, guidelines for the improved use of performance indicators are proposed then applied to the data sets gathered from the case studies, demonstrating how they can be used to reduce risk and maximise benefits. Second, PVHMS models are evaluated by comparing modelled operation to actual operation, and analysing the impact of assumptions on final

4 5

Greenfield refers to sites where there is previously no equivalent energy access available to residents. Sendirian Berhad, translates to “Private Limited” and equivalent to the use of “Incorporated” in English 7

performance. On the basis of the case study learnings and analyses, the risk analysis framework is then enhanced and used to synthesise the findings of the research. The research method is described in greater detail in Chapter 2.

Research Contribution of this work There are currently very few published studies that provide detailed PVHMS operational data analysis or incorporate a broad set of experiences from multiple stakeholders. Furthermore, despite the importance of understanding and managing uncertainty to decision making, there are currently few published examples of the application of formal risk analysis frameworks to rural electrification programs, and none were found applied to the context of PV mini-grids. This is despite the significant growth of PVHMS expected in order to meet electrification and renewable energy targets. The framework developed in this thesis can be used to better understand and compare different PVHMS implementation strategies, in particular how risk allocation might affect project outcomes. Many prior studies have used computer modelling software to predict operation and performance of PVHMS (e.g. predicting the potential for fuel savings at new or retrofitted sites) but there has been little research undertaken to assess the validity of these models. This thesis provides insights for better understanding and reducing the uncertainty in PVHMS models, and therefore mitigating the risk in projects, based on detailed comparison of the output of the models with operational experiences at existing sites. Despite relative high national electrification levels, the two case study countries covered by this thesis are of particular interest, as they are at the forefront of REMG deployment - having demonstrated the political will to support the implementation, as well as sufficient technical capacity to operate the systems and collect data. The specific projects investigated sit outside of international donor driven models, and therefore facilitate an objective assessment of the commerciality of the projects, as well as the policy and institutional structures needed to successfully deliver programs. Both countries have also expressed the intention to, and started work on, further deployment of PVHMS, moving beyond the pilot plant phase. The findings of the study, including operational experiences and analysis of the impact and distribution of risk will therefore be of significant interest to stakeholders in the host nations, as well as those in other countries considering PVHMS as part of their electrification strategy. The framework developed in this thesis, along with the insights from the literature review and case studies contribute to an improved understanding of where uncertainty typically occurs in PVHMS projects and programs, as well as the impact and distribution of risk in different implementation models. 8

It is hoped that the insights for improved modelling and performance metrics put forward in this thesis can assist a range of stakeholders to make better decisions in relation to design and operation of PVHMS. It is anticipated that this work can also assist future planners and policymakers to select implementation models and design programs that minimise and appropriately distribute risk. Insights from this work have already been contributed to the Alliance for Rural Electrification’s report on Risk Management in Mini-grids.

9

Thesis Overview The thesis contains 10 chapters. A visual layout of the structure and flow is presented overleaf in Figure 1. -

Chapter 2 provides the context of the energy access challenge, the role of decentralised renewable energy in meeting this need, and a summary of previous research on minigrids and PVHMS. Within this contextual backdrop, the research questions are identified and discussed in more detail.

-

Chapter 3 outlines the methodology used to answer the research questions, including information about the case study method, detailed descriptions of the data and sources used in the analysis and how the risk analysis framework was applied.

-

Chapter 4 introduces the preliminary framework. It provides a detailed introduction to the concept of risk and its importance for renewable energy and rural electrification. It then provides results from a review of risks and benefits identified from existing published PVHMS work. On the basis of existing frameworks used for rural electrification and broader energy system analysis, as well as the the insights from the review, a preliminary framework is developed.

-

Chapter 5 introduces the first case study of government and utility systems in the state of Sabah, Malaysia. It provides the contextual background, a description of the history and deployment of these systems, operational analysis of the sites in relation to the program’s performance measures, end user survey results and lessons learnt from undertaking the project.

-

Chapter 6 presents the second case study, comprising the Ti Tree, Kalkarindji and Lake Nash (TKLN) systems in Northern Territory (NT), Australia. It follows an the same structure as that described above for Chapter 5.

-

Chapter 7 presents and applies a range of improved operational performance indicators that are identified as useful in managing and reporting risks and benefits. Both existing and newly developed indicators are applied to a range of operational data from the two sets of case studies.

-

Chapter 8 introduces a new open source PV/Diesel minigrid modelling tool, ASIM and undertakes a comparative analysis with HOMER using a range of assumptions. It compares modelled performace to actual results for a TKLN site, highlighting the uncertainty at different stges of modelling and with the use of different time series.

-

Chapter 9 synthesises the findings from Chapters 5-8 and on this basis, reflects on and refines the preliminary framework presented in Chapter 4. 10

-

Chapter 10 recommends areas for future work and summarises the contribution of the research, before concluding the thesis.

Figure 1 - Thesis structure, indicating use of the initial preliminary framework proposed and the formation of the final framework.

11

2. CONTEXT: ENERGY ACCESS AND RENEWABLE ENERGY MINIGRIDS

This chapter introduces the context for the research and is composed of three sections. Section 2.1 introduces the energy access challenge and its significance for broader development. It then discusses the options available for electricity supply, the potential for decentralised approaches and specifically the driving factors for decentralised renewable energy. This section also provides an initial assessment of risk in terms of energy access and RE technology. Section 2.2 then responds to the current international focus on renewable energy mini-grids. It reviews existing research and major studies, including an overview of market opportunity, the forecasted growth, technical configurations, ownership models, operational experiences and lessons learnt to date. Section 2.3 describes the need to de-risk mini-grids, and the role improved monitoring and modelling can play towards this end. Finally, Section 2.4 identifies the areas requiring more research and establishes where the contribution of this work will be made. The chapter concludes by formulating each research question in detail.

Energy Access, Decentralised Solutions and Renewables Energy Access Energy plays a critical role in improving lives and reducing poverty. There is a well-established link between access to modern energy services and increased living standards, along with opportunities for economic development (see for instance: Ramani & Heijndermans 2003; Pachauri & Spreng 2004; Bhattacharyya 2006; OECD/IEA 2010; Practical Action 2014). Globally however, there remains a significant proportion of the population without energy access6. The most recent estimates are of 1.2 billion people lacking access to electricity7, and a further 2.7 billion without access to clean cooking (IEA 2015). These people are predominately

6

The term energy access is used broadly. In the SE4All tracking framework, indicators of ‘measuring universal access to modern energy’ are defined to be: i) an electricity connection and ii) primary reliance on non-solid fuels (IEA / World Bank 2015). This and similar definitions such as those used by the IEA are seen to be problematic for a host of reasons detailed by Pachauri & Spreng (2011) and Bhattacharyya (2012)

7

The IEA reports that this figure is 84 million less than the previous year, although acknowledges that many more than the 1.2 billion are suffering from an electricity supply that is of poor quality. 12

living in the rural areas of less developed countries, with 95% of those without electricity located in the Less Developed Countries (LDCs) of Asia and sub-Saharan Africa. A wide range of international development initiatives have promoted energy access. Historically, this has been within the broad context of supporting the Millennium Development Goals (MDGs), a set of eight goals that UN member states hoped to achieve by 2015 (DfID 2002). The recent formation of the Sustainable Development Goals (SDGs) replaces the MDGs and heralds a new era of global development ambitions, with a total of 17 goals and 169 targets (UN 2016). Importantly for this work, goal number 7 is to ‘ensure access to affordable, reliable, sustainable and modern energy for all’. This ambitiously targets universal access to affordable, reliable and modern energy services by the year 2030. Additionally, the goal aims to ‘improve substantially’ the contribution of renewable energy and double the energy efficiency. It is noteworthy also that energy will play a critical enabling role in the other 16 SDGs (Thilakasiri 2015). This includes SDG number 1: ‘End poverty in all its forms everywhere’. Further policy developments include the Sustainable Energy For All (SE4ALL) campaign as a flagship initiative to leverage UN/World bank leadership. Funding towards energy access projects comes from governments, international development banks, bilateral development agencies and the private sector. Figure 2 shows the necessary step change in financing requirements between the current situation, forecast business as usual, and universal access scenarios. The significant difference highlights the high level of ambition in the targets. There is agreement that if these are to be delivered, there needs to be a fundamental change in the way energy programs are financed and delivered (Leopold 2016; ENEA 2014). Some optimism may be drawn from the IFC (Bardouille 2012) which points out the poor currently spend $37 billion on poor-quality energy solutions to meet their lighting and cooking needs, and the ability to supply better services at a much lower cost presents a market opportunity.

Figure 2 - Current financing and annual financing requirements by type of financier (source: ENEA 2014, using data from IEA WEO 2011) 13

Grid Extension Vs Decentralised Solutions To better understand how universal modern energy access might be achieved, we must consider the options available to provide energy access. Here we focus specifically on access to electricity services8. The conventional approach to provide electricity is through grid extension. This involves the expansion of national or urban electricity networks by adding transmission infrastructure. More people can then be connected to the central grid and centralised generation capacity can be added to meet increasing demand. Much of the progress in delivering rural electrification has been made in recent decades through such grid extensions (Cook 2011). ESMAP (2000b) provide a breakdown of costs and summarise best practices in this regard, highlighting that while grid extension is a well understood approach there remains opportunity for increased efficiency and improvement to existing practices. Generally speaking, those people that remain unconnected to electricity grids are in locations that are very difficult to serve through extension. This may be because of rugged terrain (such as the mountains and jungle Malaysian Borneo), extreme isolation (the sparse populations in central and northern Australia), and separation by significant bodies of water (often the case in South East Asian island nations such as Indonesia and the Philippines). Grid extension to these areas is simply too expensive, often loads are too small, and the user base too few and dispersed for projects to ever recover the costs. It is also the case in several countries in sub-Saharan Africa, that LDCs suffer from an absence of a centralised grid to begin with. Additionally, those that are on the fringe of grid can sometimes have poor services due to inadequate supporting infrastructure. Just because people do not have electricity, it does not mean there is no demand for it. In fact, quite the opposite is true. It has been shown repeatedly that people living without adequate electricity services want power and are willing to pay for it (ESMAP 2002; IEA PVPS Task 9 2003; World Bank 2008). The inability of central grid extension to provide energy services to poor and dispersed customers in remote and rural areas has been a driver for the adoption of decentralised approaches. The potential impact of decentralised generation on the provision of rural electrification has been likened to the revolutionary impact of wireless and mobile technology on telecommunications services in developing countries (Poulin 2012). Large networks of ‘land-line’ poles and wires used to connect centralised telecommunications service providers to their customers begin to look redundant as nimbler cellular networks overcome geographical challenges quickly and at low cost, in order to meet demand where and when it is needed. This is seen as a highly attractive

8

Electricity services is just one part of energy access requirements – lack of fuels for cooking and transport also contribute to energy poverty. 14

prospect, potentially allowing people in LDCs to leap frog the traditional technology paths followed by the developed world. Distributed approaches to electricity service provision, which includes stand-alone systems and mini-grids, just like wireless communications, provide opportunities for new technology and new markets (Wollny 2012). For remote rural communities, this could mean electricity access where it would otherwise be economically or technically unfeasible, or would have taken decades to achieve (ESMAP 2000a). As Wilkins (2002) points out, decentralised approaches may also be more efficient, since electrification is optimally driven by demand rather than supply. This avoids unnecessary overinvestment in infrastructure and incentivises energy efficiency and demand side management. If distributed rural electrification programs can be designed and implemented effectively, additional benefits for communities could include more reliable energy services, a lower cost service - driven by demand, rather than supply, with potential added benefits of local economic development, jobs and training (Wilkins 2002; Lovins 2002). Solar Home Systems (SHS) and solar lanterns are two examples of commercially viable standalone approaches for mobilising and providing energy services to rural and remote users. A large body of literature assessing rural electrification has found that success of these standalone systems has been dependent not only on the quality of hardware but the technical and institutional capacity to finance, install, maintain and use the systems effectively (Lorenzo 1997; Martinot, Cabraal, et al. 2000; Martinot, Rittner, et al. 2000; Nieuwenhout et al. 2000; Campen et al. 2000; Wilkins 2002; IEA PVPS Task 3 2003; Nieuwenhout et al. 2004; Terrado et al. 2008; Urmee et al. 2009; Foster & Briceño-Garmendia 2010). Significantly, it has also been found that individual systems such as SHS cannot provide sufficient power or energy for many typical productive applications9, due to small system size, as well as low reliability due to variable solar resource availability and maintenance issues associated with their dispersed nature. Being at a larger scale, mini-grids may offer an alternative solution to overcome these limitations. Mini-grids act to aggregate loads within a community, sometimes with multiple generation sources and storage; and are therefore potentially able to provide more power and energy when needed to each load, which has been described as “surplus” power supply, in contrast to the “subsistence” supply of a solar home system (Frearson & Tuckwell 2013). Typically, they are also easier to maintain and service than many small systems, and can result in an overall improvement in reliability. The increased capacity to serve productive uses of energy can meaningfully improve livelihoods, as well as improve the economic and financial viability of

9

Productive applications go beyond improving quality of life to include service delivery and income generating activities such as provision of health, education and communication services, clean water, water pumping, agricultural post-processing, small industry, retail and other commercial services (Cabraal et al. 2005) 15

rural electrification in general (Brew-Hammond & Kemausuor 2009; Bhattacharyya 2006; Bhattacharyya 2012). Mini-grids are by no means a new technology – small diesel mini-grids have long been used as stop gap measures before grid connections (Nayar 1995), as well as for remote industrial applications such as mine sites. What is beginning to change is the economics of mini-grid generation, non-diesel alternatives and storage options, as well as improvements to the way services are monitored, controlled and paid for (Schnitzer et al. 2014).

Figure 3 - Electrification approach required to achieve universal access by 2030 by region, as % of generation (based on IEA, UNDP, UNIDO 2010 via IRENA (2012))

The potential of mini-grids to serve productive uses of electricity is both preferable to end-users and critical to reducing poverty. In the World Energy Outlook (WEO) 2011, the International Energy Agency (IEA) least cost scenario forecast that more than 40% of new energy access between 2010 and 2030 will come from mini-grids, as evident in Figure 3. The successful adoption of mini-grids is therefore seen as key to accelerating energy access for the world’s poor (Practical Action 2014). The UN SE4ALL initiative identifies mini-grids as a high impact opportunity (HIO) and has created a special task force to help drive future development. Minigrids will have an important role to play in energy provision for communities that are too remote to be connected to the main grid, but whose energy service needs are beyond the capabilities of individual solar home systems, and where there is an opportunity to aggregate equipment, skills and financial resources across multiple energy users and usage types.

Renewable Energy: Clean, Available and Increasingly Competitive One important development for decentralised energy - both on-grid and off-grid - has been the emergence of mature cost-effective RE technologies. Such technologies include hydro, wind power, biofuels, solar thermal and PV, which allow power generation and consumption independent of conventional transmission infrastructure and fuel supply chains. From a technological standpoint, they could be deployed to any remote community with a suitable water, wind, biomass and solar resource. Two major drivers for the development and increased uptake of RE have been policy incentives adoption and cost reductions. The recent COP talks in Paris signalled global consensus on the 16

urgency of the climate change abatement task and the need for policy change to affect this (C2ES 2015). Since energy is the largest contributor to global greenhouse gas (GHG) emissions, an array of policy initiatives to improve and support the uptake of RE technology have been implemented around the world. These include such mechanisms as emissions trading agreements, the Clean Development Mechanism (CDM) and national RE targets. For countries that do not produce their own fossil fuels, dependence on coal, gas, diesel, kerosene and petroleum also presents a threat to energy security, a high cost to the economy, and also commonly to the national budget via subsidies; providing further motivation for policies that encourage RE deployment. The second major driver is falling costs for RE. As the IEA states in the most recent World Energy Outlook (2015), ‘policy preferences for lower carbon energy options are reinforced by trends in costs, as oil and gas gradually become more expensive to extract while the costs of renewables and of more efficient end-use technologies continue to fall.’ While this can be said for each RE technology - wind, hydro and solar thermal all continue to advance - none have achieved the same rate of cost reduction as solar PV. Reductions in PV module prices to date, as well as future projections based on the historical learning curve are clearly demonstrated comparing the past module prices and projection to 2035 based on learning curves (IEA 2014). The driving forces behind these impressive results are not simply improved efficiency of the PV cells, but significant progress in manufacturing techniques and improved capabilities to reduce cost across the entire supply chain (Bruce 2007; Green 2016). The technology has emerged as a mainstream industry in a very short period of time. It also presents distinct advantages over wind and hydropower due to widespread resource availability, relatively simple componentry and lack of moving parts. The forecast volumes, via economies of scale are expected to reduce technical barriers, market barriers and capacity barriers (as the technology becomes mainstream and there is more familiarity with the technology); and to lead to improved quality and efficiency with respect to product manufacturing, system design and deployment. Further deployment of large scale solar projects will therefore result in technology improvements that also benefit smaller applications. PV is generally more appropriate than wind in most remote mini-grid applications, since it is generally available at a lower cost (wind turbines become less cost effective as they become smaller), and the wind resource is spatially more variable and more difficult to estimate for long term energy assessment (Arribas & Cruz 2010). Important enablers for PV and other renewable energy technologies in off-grid applications have been improvements in battery storage and energy efficiency. Storage is important due to the nondispatchable nature of most renewable energy requiring storage of the energy until it is needed by the end users. Energy efficiency has also been key to providing affordable energy services using relatively expensive generation technologies. The huge success of PV lanterns, for instance, 17

would not have been possible without considerable improvement to efficient lighting technology. Cost reductions in these areas are continuing and will continue to work in combination with RE to strengthen the case for decentralised energy solutions that meet the needs of end users, particularly in off-grid applications. Amid these developments, and despite the environmental benefits of RE relative to conventional fossil fuels, there are still many barriers to RE implementation, and deployment has not as yet met expectations. These barriers present risks to project success that need to be appreciated and appropriately managed in order for the technology to succeed. Barriers are both regional and global, across a broad spectrum of political, regulatory, legal, financial and market issues (see for instantance Painuly 2001; Reddy & Painuly 2004; Beck & Martinot 2004; Urmee et al. 2009; Blechinger 2015). The next section in this chapter will identify the role for RE mini-grids, and specifically PVHMS, in providing energy access; and the following section will discuss specific barriers and lessons learnt from the implementation of the technology, before making the case for a better understanding and management of risk to improve the implementation of PVHMS.

REMGs and PVHMS: A specific case for implementation Definitions and technology Throughout the broader scope of mini-grid literature there is a great variety of systems, applications and nomenclature. It is often stated that the difficulty in defining a mini-grid - or micro-grid, or pico-grid (the terms are often interchangeable10) - stems from the diversity of available configurations and variety of applications (Mauch 2010; Schnitzer et al. 2014). Systems can be grid-connected or autonomous, contain a single connection point of generation or multiple locally distributed sources, and vary in size from a few kW to multi-MW. The specific application or purpose of a mini-grid can also vary widely from military bases (Newell 2010), remote mine sites (Australian Renewable Energy Agency 2015), village manufacturing / agro-processing (ESIAfrica n.d.), tourism applications, and rural electrification providing DC lighting only applications (Debajit & Sangeeta 2015). For the purposes of this research, a mini-grid is defined as a local, standalone power network that autonomously manages supply and demand. Furthermore, to emphasis the energy access scope, the mini-grids considered serve in some part for multi-user, residential rural electrification – although applicable lessons are also drawn from other published applications. By definition, a REMG is a subset of mini-grids and can combine multiple technology types (at least one being renewable energy) of power generation to provide an energy service. Similarly, PVHMS are a 10

Previous literature on Malaysian mini-grids often call these systems Standalone or Hybrid Systems, both of which are accurate descriptors, however the term renewable energy mini-grid is used here to better align with the SE4ALL HIO and current international research practice (Various 2014; Mauch n.d.). 18

further subset of REMGs whereby generation is derived in whole or part by PV, systems may or may not have conventional liquid fuel back up, other renewables or battery storage. PVHMS are the focus of this work due to the advantages and future prospects of PV technology, stated in section 2.1.3. In the case studies considered in this thesis, all systems incorporate PV, battery storage and diesel generators. To provide perspective of where mini-grids fit relative to other rural electrification choices, Figure 4 below is expanded from work from Lilienthal and Mauch, along with additional background from SHS research (IEA-PVPS T9:02 2003). While not prescriptive, it is useful to consider system capacity, user type, implementation method and ownership types that typically apply to village and island mini-grids. It should be noted that the categories of ownership model and implementation method are provided as a guide of the most common approach for applications of different size, but ownership models can vary across systems of all scales.

Figure 4 - Applications and Categorisations based on System Size (building upon Lilienthal (2013) and (Mauch 2009))

Small systems between