Powering the periphery: the transformation of emerging economies (Part 1/2)

1. Introduction: the energy access imperative

Even though the 21st century is characterised by fast technical development and growing global connectivity, a sizable section of the population still does not have access to dependable energy, a basic necessity. A clear reminder of the ongoing energy disparity is the International Energy Agency's (IEA) forecast that 775 million people worldwide did not have access to electricity in 2022. Developing nations are disproportionately impacted by this discrepancy, especially those in Sub-Saharan Africa and portions of Southeast Asia, where grid infrastructure is frequently insufficient, unstable, or non-existent.

This energy poverty has far-reaching effects on healthcare, education, economic growth, and general quality of life. Companies find it difficult to run effectively, which restricts the ability to create jobs and diversify the economy. The provision of basic services by hospitals and schools is difficult, which impedes the development of human capital. Inefficient and harmful energy sources, such as wood for cooking and paraffin for lighting, are used by households, which leads to deforestation and indoor air pollution.

Conventional methods of solving this problem, which mostly involved expanding centralised grids, have shown themselves to be unreliable, costly, and slow, particularly in isolated or difficult-to-reach places. Decentralised, off-grid solutions driven by renewable energy sources require a paradigm shift.

1.1 High cost grid extension vs. cost-effective off-grid solutions

Finding the best way to achieve universal energy access requires a thorough financial comparison of off-grid technologies vs expanding the conventional electrical infrastructure. Despite being the default strategy for a long time, grid extension is becoming less and less economically viable in many emerging nations, especially in rural and isolated areas.

1.2 The costs of grid extension

Extending the centralized grid involves significant capital expenditures (CAPEX) and operational expenditures (OPEX):

• Transmission lines: Electricity must travel great distances from power plants to substations via high-voltage transmission lines. Costs can range from hundreds of thousands to millions of dollars per kilometre, depending on the topography, voltage level, and distance. High-voltage lines (over 132 kV) could cost more than $200,000 per kilometre, whereas medium-voltage lines (11–33 kV) typically cost between $15,000 and $50,000 per km, according to a 2019 World Bank analysis.
• Substations: Voltage must be stepped down by substations before it can be distributed to customers. These include costly equipment like as switchgear and transformers.
• Distribution networks: Individual homes and businesses must be connected to the grid via low-voltage distribution lines. Population density has a substantial impact on these expenses; per-connection prices are much greater in sparsely populated places.
• Land acquisition and rights-of-way: Particularly in places that are environmentally sensitive or heavily inhabited, securing land and rights-of-way for transmission and distribution lines can be difficult and expensive.
• Maintenance and operation: The total cost is increased by ongoing grid infrastructure operation and maintenance, including as repairs, vegetation control, and grid management.
• System Losses: The amount of electricity that reaches consumers is decreased by transmission and distribution losses brought on by line resistance and other inefficiencies, which raises the effective cost of supplied energy. In a lot of developing nations, these losses can surpass 20%.

1.3 Quantifying the cost disadvantage

Numerous reports and research have shown how expensive grid extension is in developing nations, especially in rural areas:

• International Energy Agency (IEA): The "World Energy Outlook" from the IEA frequently emphasises how expensive grid extension is in Sub-Saharan Africa and some regions of Asia, pointing out that off-grid options are frequently the most economical way to serve isolated populations. According to its 2022 forecast, off-grid technologies are the least expensive way for 55% of individuals to get electricity.
• World Bank: According to the World Bank's in-depth analysis of the economics of rural electrification, grid extension can be substantially more costly than off-grid options, particularly in cases where there is a low population density and a significant distance to the current grid. According to a 2018 World Bank research, a solar home system might offer basic electrical access for a fraction of the price of connecting a household to the grid in rural Sub-Saharan Africa, which could cost anywhere from $1,500 to $2,500.
• IRENA (International Renewable Energy Agency): Off-grid alternatives are becoming more competitive with grid extension as IRENA's statistics on renewable energy costs show that solar PV and other renewable technologies are becoming less expensive. The levelized cost of electricity (LCOE) from off-grid solar PV systems was frequently less than the cost of grid extension in many rural locations, according to IRENA's 2021 study on off-grid renewable energy.

1.4 Factors favouring off-grid cost-effectiveness

Several factors contribute to the increasing cost-effectiveness of off-grid solutions compared to grid extension:

• Declining renewable energy costs: The dramatic decline in the cost of solar PV panels, batteries, and other renewable energy components has significantly reduced the CAPEX of off-grid systems. 
• Avoided fuel costs. Grid extension, in many instances, implies fossil fuel usage. Off-grid energy removes that cost.
• Reduced system losses: Off-grid systems generate electricity locally, minimizing transmission and distribution losses.
• Modular and scalable: Off-grid systems can be sized to meet the specific needs of individual households or communities, avoiding over-investment in infrastructure.
• Faster deployment: Off-grid systems can be deployed much faster than grid extension, providing immediate access to electricity.
• Avoided transmission and distribution costs: Off-grid systems eliminate the need for expensive transmission and distribution infrastructure, reducing both CAPEX and OPEX.

1.5 Illustrative example: rural electrification in sub-saharan Africa

Imagine a typical situation where 100 families in a distant village in Sub-Saharan Africa are electrified. The village is 50 kilometres from the closest grid substation.

• Grid extension cost:
  • Medium-voltage transmission line (50 km at $30,000/km): $1,500,000
  • Substation and distribution network: $500,000
  • Household connections (100 at $500/connection): $50,000
  • Total Estimated Cost: $2,050,000, or $20,500 per household
• Off-grid solar home system cost:
  • Solar home system (100 at $500/system): $50,000
  • Total estimated cost: $50,000, or $500 per household

The substantial cost benefit of off-grid solutions in this situation is amply illustrated by this condensed example. Off-grid solutions are frequently the most economical approach to give power access in rural and remote parts of poor countries, while real costs can vary based on particular circumstances.

1.6 Off-grid as a bridge to the grid

It's also critical to acknowledge that mini-grids, in particular, have the potential to develop into grid-connected systems. In order to minimise the expenditures of redundant infrastructure and to convert the initial "off-grid" investment into a "pre-electrification" investment, it may make sense to connect a developed mini-grid to a spreading national grid as demand and population rise. This system, if planned correctly can be a boon to “bootstrap” a country’s energy needs with much lower initial outlay. 

1.7 Off-grid as a cost-effective energy transition medium

The overwhelming body of evidence points to the conclusion that, when it comes to supplying electricity access in developing nations, especially in rural and isolated areas, off-grid energy solutions—especially those driven by renewable energy sources and made possible by PPAs—are frequently more affordable than grid extension. Off-grid systems are an essential instrument for speeding up the energy transition and attaining universal energy access because of their economic advantage, quicker implementation time, lower environmental impact, and scalability. The economic argument for off-grid alternatives will only get stronger as long as costs continue to drop and technology keeps improving.

2. The rise of off-grid energy: a paradigm shift

Off-grid energy systems provide a strong substitute for the drawbacks of centralised grids. These systems are usually powered by biomass generators, mini-hydro installations, small-scale wind turbines, or solar photovoltaic (PV) panels. Because these systems produce electricity locally, they do not require vast transmission and distribution networks, which are frequently expensive and prone to outages.

Key advantages of off-grid energy:

• Accessibility: Remote and underserved places where grid extension is not practical due to economic or geographic constraints can be reached by off-grid solutions.
• Cost-effectiveness: Off-grid solutions are becoming more competitive due to the sharp drop in the cost of renewable energy technologies, especially solar PV. In remote locations, they frequently offer a lower levelized cost of electricity (LCOE) than grid expansion. According to IRENA, between 2010 and 2021, the global weighted-average LCOE of solar PV decreased by 88%.
• Resilience: Large-scale outages brought on by natural disasters or malfunctions in the core grid are less likely to affect decentralised systems.
• Environmental sustainability: Using renewable energy sources helps mitigate climate change by lowering greenhouse gas emissions.
• Scalability: Off-grid solutions provide flexibility and adaptability since they may be readily scaled up or down to meet fluctuating energy demands.

3. Containerized biofuel technologies: bridging the gap

Biofuels provide a dispatchable and dependable power source that can supplement solar and wind energy, which are erratic and dependent on weather. Large-scale, centralised facilities are frequently needed for traditional biofuel production. But the industry is undergoing a revolution because to the development of containerised biofuel technologies, which are making it more widely available and flexible for off-grid uses.

3.1 What are containerized biofuel technologies?

Containerised biofuel systems are modular, pre-engineered systems that fit within typical shipping containers. These facilities include every piece of machinery required to produce biofuel, from processing feedstock to purifying gasoline and producing electricity. They provide a number of benefits:

• Mobility and rapid deployment: Containerised systems reduce installation time and expenses by being easily deployed and transported to remote areas.
• Scalability: If more production capacity is required, several containers can be joined together. This give businesses better ability to adapt to changing requirements and grow.
• Flexibility: Depending on what is available locally, these systems can be modified to handle a range of biomass feedstocks (such as algae, jatropha, agricultural leftovers, or special energy crops).
• Standardization: Pre-engineered designs lower operating complexity and simplify maintenance. It can also contribute to reduced costs due to enhanced economies of scale. 
• Cost-effectiveness: Compared to conventional biofuel facilities, containerisation lowers both upfront capital expenditures (CAPEX) and operating expenditures (OPEX).

3.2 Types of containerized biofuel technologies

• Biodiesel production: Biodiesel is created by transesterifying vegetable or animal lipids with alcohol, usually methanol or ethanol.
• Biogas production: Biogas, a combination of methane and carbon dioxide, is created by the anaerobic digestion of organic matter and can be used as a cooking fuel or to generate electricity.
• Gasification: Syngas, a mixture of hydrogen, carbon monoxide, and other gases, is produced by thermally converting biomass such that it can power a generator.
• Pyrolysis: Biochar, syngas, and bio-oil are produced by thermally breaking down biomass without oxygen. Bio-oil can be used to generate electricity or further processed into fuels for transportation.

3.3 Examples of containerized biofuel solutions

• B-box by Biolectric (Belgium): uses small-scale anaerobic digesters for on-farm biogas production.
• GreenBox by Green Fuels Research (UK): offers containerized biodiesel production units.
• Aether Future (Singapore): pioneering the use of biofuel technology production and energy production for off-grid and microgrid energy production to support existing urban grids or expand grid networks of developing countries pivoting towards Green Energy. 
• Several Chinese and Indian companies are manufacturing containerized biogas and gasification systems for rural electrification.

4. Power purchase agreements (PPAs): the financial linchpin

A sustainable financial model is essential to the success of off-grid energy projects, regardless of whether they are driven by solar, wind, biofuels, or a combination of these sources. PPAs, or power purchase agreements, are essential to accomplishing this.

4.1 what is a PPA?

An independent power producer (IPP) and a power user (such as a community, business, utility, or individual household) enter into a long-term agreement known as a PPA. The off-grid energy system is created, owned, and run by the IPP, and the consumer commits to buying the power produced for a certain price for a predetermined amount of time (usually 10–25 years).

4.2 Benefits of PPAs for off-grid energy

• Revenue certainty for IPPs: The IPP's investment is de-risked by the PPA's guaranteed revenue stream, which facilitates obtaining bank or investor funding.
• Price stability for consumers: PPAs shield customers from fluctuating fossil fuel prices by offering stable power pricing.
• Reduced upfront costs for consumers: Access to power is more economical because consumers usually do not have to pay for the energy system's initial capital cost.
• Improved project bankability: PPAs draw investment from the private sector by proving the off-grid projects' financial feasibility.
• Long-term sustainability: PPAs' extended duration guarantees the energy system's continuous upkeep and functioning.

4.3 Types of PPAs

• Physical PPA: Through a dedicated connection, the IPP provides the customer with direct electricity delivery.
• Virtual PPA: The consumer receives credits on their electricity bill equal to the amount of power generated by the IPP's project, and the IPP sells electricity to the grid. There are fewer off-grid applications for this model.
• Mini-Grid PPA: A PPA made especially for mini-grids that serve several customers in a certain area.

5. Focus on ASEAN: powering Indonesia's archipelago

With differing degrees of electrification and grid dependability, the Association of Southeast Asian Nations (ASEAN) offers a wide variety of energy environments. Providing universal energy access presents special issues for Indonesia, the largest archipelago nation in the area.

5.1 Indonesia's energy landscape

• Vast archipelago: With more than 17,000 islands, grid extension is a logistical and financial nightmare in Indonesia.
• Uneven electrification: Even while general rates of electrification have increased, there are still notable differences between urban and rural areas, especially in the eastern islands. According to the IEA, in 2021, 1.2 million people will still be without power.
• Fossil fuel dependence: Indonesia contributes to greenhouse gas emissions by generating a large portion of its electricity from fossil fuels.
• Renewable energy potential: Renewable energy sources such as solar, wind, geothermal, hydro, and biomass are widely available in the nation.
• Access to vast range of agri-waste: The vast agrarian economy in Indonesia represents a unique opportunity to harness agri-waste for energy production and biofuels.

5.2 Off-grid solutions and PPAs in Indonesia

Indonesia has acknowledged the potential of PPAs and off-grid options to help with its energy problems. The government has put in place a number of programs to increase access to power and encourage the use of renewable energy:

• "Sumba Iconic Island" initiative: With the use of PPAs, this ambitious project intends to use a combination of solar, wind, hydro, and biomass electricity to generate all of the island of Sumba's energy by 2025. More than 17 MW of generating capacity was installed, according to the IRENA 2023 report.
• Rooftop solar PV program: Through net metering programs that allow excess electricity to be supplied back into the grid, the government promotes the installation of rooftop solar PV systems for both homes and businesses.
• Mini-grid development: The government is encouraging the construction of mini-grids in isolated locations that are fuelled by renewable energy sources, frequently through PPAs and public-private partnerships.
• Feed-in tariffs (FITs): FITs encourage investment in off-grid projects by offering guaranteed pricing for power produced from renewable sources.
• Biofuel mandates: A market for locally generated biofuels has been created by Indonesia's implementation of regulations requiring the blending of biofuels with fossil fuels.

5.3 Containerized biofuels: a game-changer for Indonesia

Indonesia's archipelagic terrain makes containerised biofuel technology especially appropriate. They can be sent to isolated islands to make use of biomass resources that are readily available there, like:

• Palm Oil Mill Effluent (POME): POME, a by-product of the manufacture of palm oil, can be anaerobically digested to produce biogas.
• Coconut husks and shells: Gasification or pyrolysis are two possible uses for these agricultural wastes.
• Rice husks: A readily available feedstock for gasification or combustion.
• Jatropha: A crop of non-food oilseeds that can be produced on marginal land and used to make biodiesel.
• Algae: The tropical environment and long coastline of Indonesia make it the perfect place to grow algae for the production of biofuels.

6. Focus on Africa: powering a continent's development

The world's biggest obstacles to energy availability are found on the African continent. The world's lowest electrification rate is found in Sub-Saharan Africa, where hundreds of millions of people lack access to dependable electricity.

6.1 Africa's energy deficit

• Low electrification rates: As per IEA data for 2022, only 48% of the Sub-Saharan African population had access to electricity.
• Unreliable grids: Frequent power outages and voltage changes are typical, even in places with grid connections.
• Dependence on traditional biomass: Many homes cook with firewood and charcoal, which contributes to indoor air pollution and deforestation. Such societal costs in health and loss of work hours are often undocumented.
• High cost of grid extension: The cost of extending the grid to isolated rural locations is frequently unaffordable due to distance and varying geographies. 

6.2 Off-grid solutions and PPAs in Africa

Off-grid energy solutions are becoming more and more popular in Africa thanks to creative business models and the falling cost of renewable energy technologies. In order to draw in private sector investment, PPAs are essential.

• Solar Home Systems (SHSs): SHSs supply basic electricity for small appliances, phone charging, and illumination. They usually consist of a solar panel, battery, and charge controller. Low-income households can now purchase SHSs thanks to pay-as-you-go (PAYG) methods made possible by mobile money platforms.
• Mini-grids: Larger villages and companies are receiving electricity from mini-grids that are powered by solar, wind, hydro, or biomass.
• Productive Use of Energy (PUE): Small-scale manufacturing, agricultural processing, and other revenue-generating operations are powered by off-grid electricity, which promotes economic growth.

6.3 Containerized biofuels: addressing Africa's unique needs

Containerized biofuel technologies offer several advantages for the African context:

• Utilization of agricultural residues: Africa produces a large number of agricultural residues, such as rice husks, cassava peels, and maize cobs, which can be utilised as feedstocks for biofuels, minimising waste and adding value.
• Job creation: In rural areas, the production of biofuel, especially in the fields of biomass collection, processing, and distribution, can generate local jobs.
• Energy security: Energy security is improved and price volatility is decreased by lowering dependency on imported fossil fuels.
• Decentralized power generation: Deploying containerised systems in remote locations eliminates the need for centralised infrastructure.

6.4 Case studies in Africa

• Zola Electric (formerly Off-Grid Electric): In a number of African nations, Zola Electric has installed solar home systems under PPA arrangements, giving hundreds of thousands of households access to reasonably priced electricity. More than 1.5 million consumers have benefited from their power.
• PowerGen Renewable Energy: Using a mix of solar energy, battery storage, and occasionally diesel engines, PowerGen creates and runs mini-grids in Tanzania, Kenya, and other African nations.
• BBOXX: BBOXX uses a vertically integrated business strategy that combines production, distribution, and financing to offer PAYG solar household systems and mini-grids in a number of African nations.
• Rwanda: Schools and homes received solar systems through the Light to Learn initiative.

More to come on Part 2 of the aricle! illuminem Voices is a democratic space presenting the thoughts and opinions of leading Sustainability & Energy writers, their opinions do not necessarily represent those of illuminem.