This document discusses challenges and opportunities around universal access to electricity, particularly in developing countries. It explores the tension between centralized grid connections versus decentralized off-grid solutions in serving remote, rural communities. While lack of regulation allows for more electrification opportunities, it can also result in non-standard technologies and monopolistic behavior. The document suggests regulation could incentivize grid-compatible, renewable microgrid solutions to ensure sustainable access. Specifically, it proposes compensating entrepreneurs if grids connect and using subsidies to make tariffs affordable, recognizing universal access as a new regulatory frontier.

1. RENEWABLE ENERGY & INNOVATION TOWARDS
SUSTAINABLE ENERGY FOR ALL
Workshop. Milan, June 17, 2015
Electric systems & the growth of
renewable generation
Ignacio J. Pérez-Arriaga
CEEPR, MIT
Instituto de Investigación Tecnológica (IIT), Comillas University

2. 2
The major current uncertainty
about the future of the power
sector relates to the
competition & collaboration
between the centralized an
decentralized paradigms

3. 3
In the EU & the US…

4. Policy Game Changers: The Energy
Union
“…we have to move away from an
economy driven by fossil fuels, an
economy where energy is based on a
centralized, supply-side approach
and which relies on old technologies
and outdated business models. We
have to empower consumers
through providing them with
information, choice and through
creating flexibility to manage
demand as well as supply.”
4

5. New York REV
“…distributed energy resources
will become integral tools in the
planning, management and
operation of the electric system.
The system values of distributed
resources will be monetized in a
market, placing DER on a
competitive par with centralized
options.”
5

6. The presence of distributed energy resources
“Small and medium-size installations of less than 30
kV have dominated Germany's solar expansion in
recent years, so that 70 percent to total PV capacity
is now connected to the low-voltage grid. "In some
low-voltage grids," they say, "the installed PV
capacity can even exceed the peak load by a factor of
ten.”
IEEE's Power and Energy Magazine (March-April, 2013, devoted to solar energy)
Fraunhoffer ISE
Solar generation in California hit a new daily record of 6,078
MW on May 31. 2015, according to the state's grid operator,
besting the previous record set just two weeks before.

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Let’s focus on another aspect
of the centralized vs.
decentralized struggle:
The off-grid vs. on-grid
dilemma in the provision of
electricity access in
developing countries

8. 8
In the mountains of
Cajamarca in Peru…

9. Isolated rural community in Cajamarca (Peru). Example of dispersed population.
Source: Julio Eisman. Acciona Foundation. Peru Microenergia.

10. Isolated rural community in Cajamarca (Peru). Example of dispersed population.
Electrified by Peru Microenergia. Acciona Foundation.

11. Isolated rural community in Cajamarca (Peru). Example of dispersed population.
Electrified by Peru Microenergia. Acciona Foundation.

12. Isolated rural community in Cajamarca
(Peru). Example of dispersed population.
Electrified by Peru Microenergia.
Acciona Foundation.

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Could we figure out a regulatory
approach (technical, social, financial,
environmentally sound) that makes
sense to provide electricity access
under these conditions?

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In a village of the state
of Uttar Pradesh (India)
…

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A single PV panel & battery for the entire village…
Uttar Pradesh, India, July 2014

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… using the trees as support for the cables…

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… and not far away from the existing power grid

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How come the village is poorly
electrified by an independent &
unregulated entrepreneur
company, instead of being
connected to the nearby grid?

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In the village of Karambi,
district of Mutete, in
Rwanda…

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… and not far away from the existing power gridKarambi village on the top of a hill

21. … and not far away from the existing power gridThe health center

22. … and not far away from the existing power gridThe secondary school

23. … and not far away from the existing power gridWater reservoir

24. … and not far away from the existing power gridCommunity center

25. … and not far away from the existing power gridPrimary school

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How to make the case that the
electrification of the school & the
surrounding area is an attractive
business model for potential
investors?
And for all villages with a school
in Rwanda (global 22% electrification)?

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Three major gaps regarding universal
energy access
Equity, ambition &
opportunity

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The three gaps in energy access
 The equity gap (the ethical dimension)
“It is shameful & unacceptable that today today billions of
people lack access to the most basic energy services”
(International Energy Agency, WEO, Nov-2010)
 The opportunity gap (the business dimension)
“There is another way to look at the challenge: energy
access as an opportunity for business”
(“From gap to opportunity”, International Finance Corporation)
 The ambition gap (the technical dimension)
“The world’s poor need more than a token supply of
electricity. The goal should be to provide the power
necessary to boost productivity and raise living standards”
(Morgan Bazilian, Roger Pielke, 2013)

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What does it mean to have
“access to electricity”?

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The meaning of “access”
 To be “connected” to the main grid? To allow bare
minimum consumption? As much electricity as
similar people with access? As much as you can
afford? How about productive & community uses?
 A grid connection may seem like the ideal, but in
reality, the grid may not provide very many
hours of service per day
− In the District of Bihar in India, households only received 1.3
hours of service per day in bad months, and 6.3 hours in
good months.
 Off-grid systems, like solar home systems and
micro-grids, can provide more predictable
electricity supply, but typically only a few hours

31. Example: Electrification planning results
for the district of Vaishali (Bihar, India; 400,000
households)

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33. 33

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Is there an “opportunity
gap”?
And how to make it effective

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Understanding the utility
function
 The demand-price curve describes the response of
demand to price
Consumers are willing to pay a high price for the
most essential electricity services

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This electricity supply is not subsidized
Uttar Pradesh, India, July 2014

37. At the very basic level of consumption, lack of
access may have a strong financial component

38. Addressable market for modern energy
products and services
Source: IFC, “From gap to opportunity: Business models for scaling up energy access”, May 2012. Figure A.1

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Off-grid facilities are being deployed
in many developing countries outside
the scope of regulation
Should off-grid power
supply be regulated?

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Should off-grid power supply be
regulated?
NO, because the lack of regulation provides
more opportunities for electrification &
entrepreneurs may come up with new ideas
to reduce costs & to improve service

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Should off-grid power supply be
regulated?
YES, because the lack of regulation with
result in chaos in the multiplicity of
technologies, abuse of monopolistic power &
poor quality of the facilities

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Should off-grid power supply be
regulated?
 Consequences of lack of regulation
− Non-standard & non-grid compatible technologies
➜Investor is exposed to risk of grid connection
➜Pressure to recover investment costs ASAP
➜Wasted assets if grid connection happens
➜Local (renewable?) generation will be replaced by
centralized generation mix
− Possibility of monopolistic behavior &/or poor quality
of service
− May lock-in limited supply technology  permanent
poverty condition

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How could regulation help?
 Unregulated off-grid electrification helps people &,
also, cannot be fully avoided, beyond general
safety standards
− For instance, new technologies (solar power kits)
allow the provision of electricity to become just a
house appliance
 But regulation can create incentives to deploy
grid-compatible off-grid solutions in those
places where the grid may arrive
− Otherwise, those mostly renewable-based assets
will be replaced by a coal-dominated generation mix

44. Share of electricity generation by source &
selected regions (New policies scenario)
Source: IEA WEO 2014

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Grid-compatible microgrids
How could regulation help?
 Establish minimum technical requirements for
grid compatibility
− If grid connection eventually happens, the entrepreneur
will be compensated for the cost of the grid & will
become an independent generator
 Entrepreneur will be paid a regulated efficient cost
− Consumers would pay an affordable tariff (e.g. same
social tariff as those grid-connected)
− The difference with respect of the actual cost of supply
will be covered by a subsidy, which could be obtained
from a levy in all the remaining tariffs or other means

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Universal electricity access
is the new frontier of
regulation of the power
sector!!!

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Thank you for your attention