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Economics of Energy & Environmental Policy
Volume 11, Number 1

Symposium on "Decentral Electrification, Network Interconnection, and Local Power Markets"

Conceptual and Institutional Prerequisites for Guiding Equitable Progress Towards Universal Rural Electrification

Setu Pelz, Elina Brutschin, and Shonali Pachauri

DOI: 10.5547/2160-5890.11.1.spel
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Rural electrification is a means not an end, explicitly or implicitly aimed at improving the socio-economic conditions and living standards of those living in rural areas. Yet, most policies and programs aimed at rural electrification solely target and are evaluated on extending connections, with mixed results. In this article, we argue that next generation electrification policy formulation must consider the following elements: (1) measurement of distinct multi-dimensional supply attributes at higher regional granularity, (2) considerations of local institutional capacity constraints and (3) independent evaluation mechanisms. We draw these arguments from both qualitative and quantitative analyses of longitudinal country-level rural electrification datasets, sub-national cross-sectional datasets and three specific flagship rural electrification schemes. Our results indicate that aggregate connection rates mask inadequate supply quality and geographic disparity in infrastructure provision. Exploring potential mechanism for these differences, we find that rural electrification policy outcomes are modified by the local institutional capacity, which we proxy using an indicator for the quality of government distinct from local economic characteristics. Case studies of flagship rural electrification schemes in Brazil, India and Morocco provide further insight into potential mechanisms, finding similarities in center-led efforts combined with regulatory controls and the integration of targeted pro-poor subsidies and decentralized electrification technologies.

Sustainable and Socially Resilient Minigrid Franchise Model for an Urban Informal Settlement in Kenya

Serena N. Patel, Isa L. Ferrall, Byrones Khaingad, and Daniel M. Kammen

DOI: 10.5547/2160-5890.11.1.spat
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Kibera is a large informal settlement, in Nairobi, Kenya where electricity access is presently expensive, intermittent, and dirty. The context of Kibera also speaks to larger global dynamics of rapid urbanization, the creation of an urban poor, the transitory experience of informal settlements, and the role of non-governmental actors; each of which provides challenges to traditional sustainable urban planning. This research explores the opportunity for environmentally sustainable and socially resilient development in Kibera through a mixture of simulation and field-based assessment of a hybrid minigrid for a community empowerment facility—the Kibera Town Centre (KTC). Following the installation of one of the area's first grid-tied solar-battery systems in 2018 and a national policy change in 2019, the future operation and potential expansion of KTC's energy system affords an opportunity to examine the feasibility of a 'franchise minigrid' model to power community loads including schools and small businesses. Using the HOMER Pro minigrid simulation tool, we find that the levelized cost of energy will decrease by 60% with optimal minigrid expansion, thereby achieving costs less expensive than the prevailing utility rates. We then propose a novel, community-empowering, and profitable 'minigrid franchise' business model that can provide supplemental income and employment to neighboring businesses and homes. This research uniquely combines primary data, simulation, policy opportunity analysis, and business models in collaboration with the community to contribute to literature enabling electricity access for informal settlements and informing the context of sustainable and resilient development for the urban poor.

Residential Welfare-Loss from Electricity Supply Interruptions in South Africa: Cost-Benefit Analysis of Distributed Energy Resource Subsidy Programs

Roberto V. Toto

DOI: 10.5547/2160-5890.11.1.rtot
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This paper uses market data on income, electricity price, and electricity demand to estimate residential welfare loss caused by electricity supply interruptions in South Africa. The welfare-loss estimation (or "willingness-to-pay") uses cross-sectional data from 16,851 South African households. A two-part (probit and OLS) estimation method is used to model price and income elasticities, and a log-linear function models the marginal effect of electricity shortages. Household welfare loss is derived from an indirect utility function showing the difference in utility between shortage and non-shortage conditions. The welfare loss is compared to the costs and benefits of investing in distributed energy resources (DERs) to determine whether household solar PV units are a worthwhile investment for households suffering outages. The net benefit of investing in DERs is found under varying conditions of government subsidy to show whether household DERs is also a worthwhile societal investment. The study finds that (1) lower-income households are disproportionately affected by interruptions in electricity, as measured by WTP per dollar of income; (2) households may eliminate WTP by investing in DERs with a at least a 40% government subsidy; and (3) government policies to reduce welfare-loss caused by electricity interruptions should focus on the bottom-two income deciles in order to return the greatest reduction in WTP per dollar spent in subsidies. These findings imply that for every dollar policy-makers in South Africa spend on residential DERS subsidies, recipient households gain more than a dollar of economic benefit. Recipient households, in turn, would have greater resources and capacity for economic engagement, providing a twin benefit to both households and the South African economy.

Socio-technical Inertia: Understanding the Barriers to Distributed Generation in Pakistan

Naila Saleh and Paul Upham

DOI: 10.5547/2160-5890.11.1.nsal
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In a bid to promote renewable energy, Pakistan issued net-metering regulations in 2015 that allowed for on-site solar and wind generation. However, five years on, overall growth in Distributed Generation (DG) remains insignificant. Here we investigate the reasons why, focusing on solar prosumage and exploring the key barriers and challenges in the existing socio-technical regime. The paper draws on document analysis; the views of key stakeholders including distributed solar PV adopters; end-users who have not yet adopted solar prosumage; the electricity distribution companies who are primary intermediaries responsible for implementing the regulations and connecting the end-users to the grid; commercial banks financing solar PV; and relevant authorities. We identify the obstacles to solar prosumage as including: difficulties in acquiring finance (especially in the case of smaller systems); under-facilitation of net-metering by electricity distribution companies, including an absence of Fee for Service models such as third-party investors; an awareness gap (especially on net-metering facility); and fragmented governance and regulations. We conclude that to succeed in the context of prevailing conditions, realistic implementation action plans based on the alignment of institutional coordination and cooperation, finance, and business model solutions, mandated and backed by significant national and regional policy level support, remain critical.

Analytics on Pricing Signals in Peer-to-Peer Solar Microgrids in Bangladesh

Sebastian Groh, Eshrat Waris, Annette Werth, and Christian Zürpel

DOI: 10.5547/2160-5890.11.1.sgro
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Solar microgrids enabling peer-to-peer energy exchange among off-grid households are poised to contribute to electrifying rural areas in the Global South. This novel approach provides underserved communities with affordable, green and reliable energy access, capable of powering higher-tier consumer as well as productive-use appliances. To ensure these microgrids can be run sustainably, this paper seeks to provide some initial answers on how to improve on the prevailing static pricing approach. Piloting variations in the buy and sell prices for electricity in several solar microgrids in rural Bangladesh, we find that making electricity much cheaper did not lead to observable shifts in customer behavior. Rendering feeding into the microgrid much more lucrative for prosumers, customers who sell electricity to as well as purchase it from the microgrid, produced inconclusive results. Anecdotal evidence of consumption smoothing in a microgrid with decreased buy-prices and of increased pick-up by customers with many appliances points to potential benefits from adjusting buy prices to daily and seasonal supply peaks and troughs. Failure of increased sell-prices to induce more prosumer energy feed-in may furthermore motivate new thinking on current passive trading regimes, which give preference to matching geographically close supply and demand and thus disadvantage individual prosumers.

Prosumer Empowerment through Community Power Purchase Agreements: A Market Design for Swarm Grids

Raluca Dumitrescu, Alexandra Lüth, Jens Weibezahn, and Sebastian Groh

DOI: 10.5547/2160-5890.11.1.rdum
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In this paper, we are proposing a policy innovation for both a more sustainable and a more inclusive electrification strategy, particularly for improved energy access in the Global South: combining the extension of national grids whilst taking advantage of existing decentralized renewable energy infrastructure allowing their collective feed-in to the national grid. We are introducing community power purchase agreements as a regulatory instrument for compensating and incentivizing the actors active at the intersection of the two infrastructures (prosumer, grid operator, state utility). We use both a mixed complementarity and a linear model for analyzing the concept in a case study of Pirgacha village, Bangladesh, in which a cluster of solar home system prosumers are interconnected into a renewable energy swarm grid. We determine the energy infrastructure cost components and their split among the actors. The results demonstrate a series of co-benefits: (a) the prosumer is monetarily rewarded for the utilization of her assets and for electricity trading with no additional infrastructure investment; (b) if the state utility takes over the investment costs with the interconnection infrastructure and outsources the integrated grid operations and maintenance to the private sector, the otherwise high grid expansion costs can be saved and repurposed in other infrastructure investments; (c) the operations of the decentralized renewable energy company are no longer threatened by the grid expansion and it can become an Integrated Grid Operator.

Cost Efficiency Evaluation of Thermal Power Plants in Bangladesh Using a Two-Stage DEA Model

Shahriar Ahmed Chowdhury, Shakila Aziz, and Muhammad Bellal Hossan

DOI: 10.5547/2160-5890.11.1.scho
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The power sector in Bangladesh is based on fossil fuel based electricity generation. The recent increase in generation capacity in the country has been through the addition of power plants using higher cost imported fossil fuels, which have increased the overall cost of electricity. In this study, we aim to compare the cost efficiencies of thermal power plants in Bangladesh in order to identify sources of inefficiencies. We use data envelopment analysis, followed by Tobit regression. We separately analyze two samples comprising 30 baseload plants and 91 peaking plants for the financial year 2019–2020. We find that base load plants have higher efficiencies in general, and have lower slacks in input factors, compared to peaking plants. Fuel costs and fixed costs have the highest slacks whereas operations and maintenance costs and installed capacity have low slacks. It is also shown that the type of fuel in the power plant is the most important determinant of its cost efficiency, among both base load and peaking plants. The ownership of the plant or the technology has no significant effect. These findings have policy implications for the future expansion of the power sector and replacement of inefficient power plants in the energy transition process.


Global Electrification of Light-duty Vehicles: Impacts of Economics and Climate Policy

Sergey Paltsev, Abbas Ghandi, Jennifer Morris, and Henry Chen

DOI: 10.5547/2160-5890.11.1.spal
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We explore potential impacts of global decarbonization on trends in light-duty vehicle (LDV) fleets from 2020-2050. Using an economy-wide multi-region multi-sector model, we project that the global EV fleet will grow from 5 million vehicles in 2018 to about 95–105 million EVs by 2030, and 585–823 million EVs by 2050. At this level of market penetration, EVs would constitute one-third to one-half of the overall LDV fleet by 2050 in different scenarios. China, USA, and Europe remain the largest markets in our study timeframe, but EVs are projected to grow in all regions reducing oil use and emissions. EVs play a role in reducing oil use, but a more substantial reduction in oil consumption comes from economy-wide carbon pricing. Absent more aggressive efforts to reduce carbon emissions, global oil consumption is not radically reduced in the next several decades because of increased demand from other sectors, such as for heavy-duty transport and non-fuel uses. Overall, we find that EVs, along with more efficient ICEVs, represent a viable opportunity among a set of options for reducing global carbon emissions at a manageable cost.

Relative Cost-Effectiveness of Electricity and Transportation Policies as a Means to Reduce CO2 Emissions in the United States: A Multi-Model Assessment

Bryan K. Mignone, Matthew Binsted, Maxwell Brown, Darek Imadi, Haewon McJeon, Matthew Mowers, Sharon Showalter, Daniel C. Steinberg, and Frances Wood

DOI: 10.5547/2160-5890.11.1.bmig
View Abstract

Two common energy policy instruments in the United States are tax incentives and technology standards. Although these instruments have been shown to be less cost-effective as a means to reduce CO2 emissions than direct emissions pricing mechanisms, it can be challenging to compare the CO2 emissions reduction costs of such policies across sectors, given the wide range in estimates for any given policy and inconsistencies in how such estimates are constructed across studies. This study addresses this analytical gap by simultaneously comparing the cost-effectiveness of policies across the electricity and transportation sectors using three publicly available US energy system models (EM-NEMS, ReEDS, and GCAM-USA). Four policies are explicitly compared: wind and solar tax credits, a renewable portfolio standard (RPS), a renewable fuel standard (RFS), and an electric vehicle (EV) tax credit. An economy-wide carbon tax is used as a benchmark for cost-effectiveness. Results from this study confirm prior insights about the cost-effectiveness of economy-wide carbon pricing relative to sectoral instruments but also reveal several novel insights about particular sectoral policies. Specifically, this study finds that (1) current electricity tax incentives provide uneven support for wind and solar technologies, (2) despite known inefficiencies, renewable energy policies in the electricity sector are less expensive than earlier estimates due to technology advancement and changes in market conditions, (3) within transportation, an expanded RFS with increasing advanced biofuel targets is more cost-effective than an EV tax credit extension under plausible assumptions, (4) EV incentives lead to a rebound in conventional vehicle fuel economy that further erodes cost-effectiveness, and (5) the change in policy costs over time is not known a priori, but the relative cost ordering among these policies does not depend on the timeframe of analysis. These results are largely robust to the underlying modeling framework, increasing the confidence with which they can be applied to climate policy evaluation.

Book Reviews

Book Reviews

Transactive Energy in California. A platform for 100 percent clean energy and electrification, by Stephen Barrager and Edward Cazalet - Book Review by: Jean-Michel Glachant

Engendering the Energy Transition, edited by Joy Clancy, Gül Özerol, Nthabiseng Mohlakoana, Mariëlle Feenstra and Lillian Sol Cueva - Book Review by: Swetha Ravi Kumar Bhagwat

Survival Governance: Energy and Climate in the Chinese Century, by Peter Drahos - Book Review by: Xu Yi-Chong

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