Ruhr Economic Papers

Ruhr Economic Papers #781

Rural Electrification through Mini-Grids: Challenges Ahead

by Jörg Peters, Maximiliane Sievert and Michael Toman

RWI, 12/2018, 9 S./p., 8 Euro, ISBN 978-3-86788-909-4 DOI: 10.4419/86788909

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Abstract

Recent debates on how to provide electricity to the roughly one billion still unconnected
people in developing countries have identified mini-grids as a promising way forward.
High upfront costs of transmission lines are avoided, and unlike home-scale solar,
mini-grids can provide sufficient electricity for productive uses. This note outlines the
challenges the mini-grid sector faces to achieve that potential. To date, few examples
of sustainably working mini-grid programs exist. We identify regulatory issues, low
electricity demand in rural areas, high payment default rates and over-optimistic
demand projections as among the key challenges. Business models that account for
high transaction costs in rural areas and are based on realistic demand forecasts could
considerably increase the commercial viability of village grids.

JEL-Classification: H54, O13, O21, Q48

Keywords: Public infrastructure; rural electrification; energy planning systems

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