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

Abstract

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