Lecture 5

The fifth lecture was held on 7th February and it was lectured by M. M. Rahman. The topic of the lecture was Financing Rural Energy Systems.

The main subject discussed on the lecture was economics of distributed generation in developing countries. Today new energy systems in these conditions are usually based on renewable energy technologies, for example on wind power or photovoltaic (PV). The weakness of these technologies is the capital cost, which can be very high compared to income level of local people. However the costs during operation are very low and so levelised costs of electricity during the lifetime can be competitive.

An important part of feasibility studies for new energy systems are cost estimations. There are several different factors that affect the costs of energy produced. First it is important to notice that costs in renewable energy systems are very much site dependent. For example electricity generation of wind turbines and PVs depends a lot on the site. Also there can be differences in the investment costs and in operating costs between the locations. Finally, incentives from Government can vary in different countries and so affect the cost of electricity.

Another topic on the lecture was UMAEC’s target that everyone will have access to electricity by 2030. Today 1.4 bn people are without access to electricity. Most of them are from Sub-Saharan Africa and South Asia. For example in Sub-Saharan Africa only about 30 % of people have access to electricity and in rural areas the number is as low as 14 %. According to UMAEC, in 2030 1,2 bn people will still be without electricity if electrification is not accelerated with certain policy.

An interesting question will be financing if access to electricity is provided for everyone in every continent. It will cost $36 billion extra every year until 2030 and to finance that is not easy even if it is only 3 % of all global energy investments. The problem is that the investments are supposed to take place in world’s poorest countries which have huge lack of capital. And even if the capital is found somehow, there will be another problem: how the investments are paid back if local people can’t afford to buy the electricity for sufficient price for the producer. It would have been nice addition to the lecture content if some points had been presented about how in the real world all the money is found for these investments.

Personally I am little bit skeptical about finding annually $36 billion extra for next 20 years. I think it is very hard to make all these investments without financial help from developed countries. However many developed countries are struggling with their budget deficits so some big extra financial aid for electrification seems to be very unlikely. A good thing is that in the end the bill of electrification may be significantly lower than presented because technology is developing very fast. For example in 2008 the market price of solar modules was about 4.5 $/W. In the early February 2011 it was only 1.6 $/W.