New study: Hybridising electricity grids with solar PV saves costs, especially benefits state-owned utilities

Diesel/PV hybridisation financed on the balance-sheet of a state-owned utility could achieve significant cost reductions, the study finds
Diesel/PV hybridisation financed on the balance-sheet of a state-owned utility could achieve significant cost reductions, the study finds

The Frankfurt School – UNEP Collaborating Centre for Climate & Sustainable Energy Finance has published a new study on economic benefits of hybridising diesel-powered electricity grids with solar photovoltaics (PV).

In areas distant from main power grids, regional isolated grids – often referred to as mini-grids – are often the main source of electricity to industry and households. Power generation usually relies on diesel fuel, often imported over long distances. Yet generating costs can be reduced by hybridising these grids with PV or other renewable power sources.

On the basis of seven case studies in as many countries, this study finds that financing costs for a hybridisation project can be a major driver of electricity generation costs. Amongst other things, financing costs largely depend on the ownership structure of the power plant.


Significant cost reductions for state-owned utilities; insignificant or even negative savings for IPPs

“Relatively low ‘public sector’ return expectations can be assumed if the project is financed on the balance-sheet of a state-owned utility, and on concessional debt terms. In this case, hybridisation could achieve significant cost reductions at all seven sites” says Torsten Becker, co- author of the study.

However, assuming private sector return expectation – as possibly occurring if the hybrid is realised by an independent power producer (IPP) under a project finance structure – cost savings at six of seven sites would be insignificant or even negative.

Consequently, as Frankfurt School’s President Udo Steffens points out: “The analysis contributes to the very topical discussions on the affordability of climate change mitigation, and the challenges in crowding-in the private sector. It is part of our endeavour to advocate green energy without neglecting market realities and real economic costs.”

Diesel-powered grids can be hybridised using different types of system integration technologies and renewable energy sources. This analysis compares diesel plants to a “100-percent-peak PV penetration” hybrid technology, with which existing diesel generators can be switched off during peak availability of solar radiation. The focus on this technology, however, is illustrative only, and does not imply its general advantage compared to other hybrid technologies (likewise, solar PV was selected as only one of several options for hybridisation).


The full Study is accessible online: “Renewable Energy in Hybrid Mini-Grids and Isolated Grids: Economic Benefits and Business Cases”.


FS-UNEP Centre


2015-05-31 | Courtesy: FS-UNEP Centre | © Heindl Server GmbH

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