15.1 Introduction

Access to electricity is indispensable for the development of any society. The role of electricity is important for productive and economic activities, as well as for the overall health and well-being of communities (Chaurey and Kandpal, 2010). However, most of the rural areas in Nepal are sparsely populated, isolated, and remote in terms of accessibility. The electricity market in poor rural areas is characterized by a low access rate and low load factors (Haanyika, 2008; Mainali, 2011). This rural characteristic increases the unit delivery cost of electricity (Banerjee, 2006).

In the past, electrification had been perceived as the responsibility of a government utility (Ilskog and Kjellström, 2008), and grid extension has remained one of the most common pathways for rural electrification. However, we have learned from our experience that the extension of the grid line may not meet the immediate needs of electricity access for billions of rural people in developing regions. There is a need for innovation in off-grid renewable energy technologies that can be disseminated in rural areas in a cost-effective way, attracting new investment from the private sector and deregulation of energy markets (IEA, 2008).

Off-grid and on-grid options are normally promoted in parallel when pursuing rural electrification in Nepal. Proper resource assessment and analysis of the cost-efficiency of the options at hand is important for making the right choice.

The Alternative Energy Promotion Center (AEPC), an apex government body for the promotion of renewable energy, used to execute various donor-supported, off-grid, rural electrification programs in Nepal. Recently, all those programs have been merged under a single program: National Rural and Renewable Energy Programme (NRREP). Micro hydro and solar technologies are the current choices in Nepal because of the provision of a government subsidy and a well-defined market structure (Mainali and Silveira, 2012). On-grid electrification is developed by the Nepal Electricity Authority (NEA), the national utility accountable for generation, transmission, and distribution of electricity. The Community Rural Electrification Department (CRED) has been established under NEA to perform community-based rural electrification. In addition, there are some independent power producers (IPPs) involved in power generation that is then sold to NEA.

This study presents solar photovoltaics (PV) as an alternative for rural electrification, considering off-grid solar PV for individual households and solar mini-grids for electrifying the rural community, and comparing them with grid extension and with conventional diesel generator for a specific case study in the Kyangshing village of the Sindhupalchowk district in Nepal. Levelized cost of electricity (LCOE) production with these various alternatives is compared, and the most cost-effective option is suggested for meeting all the electricity demand in the village. The business model and operational and management model for supplying electricity in the village are discussed in this chapter.

Following this introduction, Section 15.2 presents the socioeconomic information of the Kyangshing village. Section 15.3 highlights existing energy consumption patterns and the potential electricity demand of the village. The methodology adopted in this study and the data source are presented in Section 15.4. Various technological options for providing electricity access and their specific component sizing are discussed in Section 15.5. Section 15.6 presents the LCOE of various technological options, along with the sensitivity analysis for some of the crucial input assumptions. The possible business model and operation and management model for supplying electricity access in the village is discussed in Sections 15.7 and 15.8. Final conclusions are drawn in Section 15.9. This study serves as a feasibility study and helps the community and government agencies like AEPC to better appreciate the costs behind different technological options and to choose the appropriate technological option for the village. The study also provides the basic business model and operational and management model to implement such a project in a sustainable way.

15.2 Site Description

The case study taken is from Kyangshing village, situated in Gumba VDC of the Sindhupalchowk district. It takes around 8 h by walking from the nearest road head, Kartike. The village has 48 households, with one commune hall, a Buddhist monastery, and a primary school. The main occupation of this village is agriculture. The total population of Kyangshing village is about 235, with an almost equal share of male (49%) and female (51%). The place is sunny every month, except for a few days of winter. The village is located at the south face, giving longer sunny days throughout the year. The annual average solar insolation in Nepal varies from 3.5–7.0 kWh/m²/day (Schillings et al., 2004), and the estimated number of days with sunshine in a year is 300 days (WECS, 2010).

The village is about 30 km from the national grid and the extension in the near future. So, a solar PV-based system is one of the potential options for rural electrification. The study team has interacted with the local people to identify existing energy use patterns, future demands, and trends.

Literacy in the village is poor. A large segment of the population (i.e., 177 out of 235 people) is illiterate. None of the population has attended university. Agriculture is the main occupation of the surveyed area. Around 4% of the population has gone to the gulf countries for employment, and the rest of the people are involved in agricultural farming and livestock rearing as their main occupation. This village only has access to primary school, with no direct access to education for secondary school and university, no post office for communication, and no proper market for shopping for daily needs and agricultural products (Figure 15.1).

15.3 Existing Energy Consumption Patterns and Potential Electricity Demand

The choice of energy largely depends on the available energy resources, disposable income, education level, type/size of household, and so on (Mainali et al., 2012). Firewood, which is normally collected from the community forest, is the most widely used energy resource in the village for cooking and heating purposes. The use of modern energy sources like kerosene, liquefied petroleum gas (LPG), and biogas are negligible.

For lighting purposes, most families in the village use “Tuki” powered by dry cell batteries. About 15% of the families use solar home systems (SHS) with 100% financial support from the local government (village development committee). However, most of these systems are not performing well, mainly due to poor maintenance.

It has been observed that families with kids in school have more lighting demands. Based on the survey data, demands for lighting, various appliances, and other potential end uses are estimated. The probable and potential demands of various appliances like radios, TVs, mobile chargers, and others as well as productive end uses like a grinder and cyber center have been investigated for the village.

For the lighting load, it is estimated that 48 households will use an average of four lamps in each household, with an average power of 7 W. Only about 60% of the households are assumed to have TV at their houses in the near future; hence, the demand of 80 W TV each is estimated for 30 HH. Four vaccine refrigerators of 70 W each are expected to run for 24 h a day for the existing health post. The electricity demand of the school and monastery is also included. Income-generating activities like running a grinder and cyber center are also included in the design so that the project not only meets basic needs, but also supports productive end uses. Table 15.1 shows the lighting demand, various appliances, and productive end uses expected to run, along with the hours of operation and energy required.

15.4 Methods and Data Source

This chapter presents different possible options for providing electricity access using solar technology (i.e., off-grid solar PV for individual households and solar mini-grids for electrifying the rural community) and compares them with grid extension. The system sizing and cost estimations for the mini-grid option are made to meet two demand conditions: household-only electricity demand, and household demand along with productive end use demand of Kyangshing village.

Data are sourced from the field survey conducted by the AEPC. The cost parameters are based on the recent market price.

LCOE is used to quantify and compare the monetary value of electricity produced from various generation technical alternatives irrespective of type, scale of production operation, investment, or life span (Mainali and Silveira, 2013). Levelized cost is the discounted average cost per kWh of useful electrical energy produced by the system over the life of the technology, which can be expressed as

$\mathrm{LCOE}=\frac{C_{\mathrm{c}}+C_{\mathrm{o}\mathrm{m}}+C_{\mathrm{r}}+C_{\mathrm{f}}}{E_{\mathrm{i}}}$

Life-cycle costs are compared instead of simple capital costs. Such lifetime costs are basically the discounted costs of the project incurred each year and summed over the life span of the project. These costs comprise capital cost (C_c), operation and maintenance cost (C_om), replacement cost (C_r), and fuel cost (C_f). The procedures for estimating such costs have been discussed in Mainali and Silveira (2013) and Nguyen (2007). The input assumptions highly influence the estimated LCOE. Thus, it is important to have a clear understanding and transparent assumptions for accuracy. We further carry out some sensitivity analysis to reflect the uncertainty associated with the various parameters, namely, capital cost and life span of the energy storage system (in the case of a solar PV system), and rise in fuel price (in the case of fossil-based technology).

15.5 Technology Selection and Component Sizing

In this section, different technological options for providing electricity access and their specific component sizing are discussed. The households can be supplied with individual SHS, with an average size of 40 Wp. SHS basically consist of solar PV modules, a bank of battery, and charge controller, and deliver direct current (DC) output. So, household loads (i.e., compact fluorescent lamps (CFLs), TVs, and small radios) can be served by such systems.

Households in the whole village can also be served with a solar PV mini-grid. Appropriate component sizing for solar PV mini-grid systems is important to ensure reliable operation.

Power generation may vary depending on the size of PV modules. The capacity/size of PV modules should be sufficient to meet daily energy demand as well as system losses that may arise due to different efficiencies of the various components. First, the total wattage hours (WHs) that need to be served per day is estimated depending on the load demand. Then, to estimate the total WH to be supplied by the panel, this WH is increased by 30% to capture various system losses. To determine the sizing of the PV modules, the total peak watts required to be produced should be known. The peak watt (Wp) produced depends on watt hours/day to be supplied and local climatic conditions (mainly determined by sunshine hours and solar irradiation). This can be considered taking the “panel generation factor,” which is different for each location. We do not have a site-specific factor, so the panel generation factor for Nepal (4.15) has been used in this case study.

A deep-cycle battery bank has been recommended for the solar PV system, as these batteries are capable of discharging up to low energy level and rapid recharging frequently for years. When selecting the size of the battery, the capacity should be large enough to store sufficient energy to operate the load demands at night and on cloudy days. The battery backup system should be able to store the required energy in such cases. For reliable and consistent supply of energy during rainy or cloudy days, the battery system should be designed with some autonomy. Battery loss of 85%, depth of discharge (DoD) of 0.6, and two days of autonomy have been assumed in these estimations. Use of deep-cycle solar tubular batteries is suggested for added compatibility with the solar PV and electrical load system.

Inverters are used for generating alternating current (AC) outputs. The size of the inverter should be sufficiently higher than the total watts of appliances, and should consider the inverter efficiency. Specifically, the inverter must be large enough to handle the total amount of watts that will be used at one time (total peak load) in the system when it is operated in stand-alone mode. The inverter must have the same nominal voltage as the battery. The inverter size has been chosen 30% larger than the total watts of the appliance. If the appliance is a motor or compressor, then the size of the inverter should be as high as 3 times the capacity of those appliances. It has been assumed that the huller and grinder will be operated in the daytime, when there is no other major load in the system. For end uses with critical health and communication devices, pure sine wave solar inverters are preferred. The sizing of the solar charge controller is determined by the number of solar PV modules connected in parallel in the array and the short circuit current of those PV modules. The system voltage rating shall be matched with the battery bank voltage in the case of the pulse-width modulated (PWM) charge controller. However, if the selected charge controller is of maximum power point tracking (MPPT) type, the solar PV array voltage will be adjusted by the MPPT controller itself to synchronize the voltage.

In this study, three different situations have been analyzed: (i) household lighting load only (supplying with SHS), (ii) household lighting and other appliances, and (iii) household and other productive end use in the village. Mini-grid solar PV has been proposed for meeting the demand of the latter two cases. For all three cases, total capacity of the proposed mini-grid system and daily energy demand have been estimated.

i. ***Only household lighting—23.18 kWh/day

ii. Household lighting and other appliances—31.09 kWh/day

iii. All loads with productive end use—55.09 kWh/day

Similarly, optimal size of solar PV modules, storage capacity of the battery, and capacity of the charge controller and inverter were identified as per the demand forecasted in various cases. The technical specifications and component sizing for the isolated PV system and mini-grid solar systems, considering different load demands, are tabulated in Table 15.2.

15.7 Business Model for Mini-Grid Solar PV System

Most often, government investments and public budgets are insufficient to expand modern energy access in rural areas in a sustainable manner. Therefore, mobilizing all available financial resources and creating innovative business models is crucial for the expansion of local energy access in the developing world (Sovacool, 2013a). Realizing the importance of the market mechanism and the success of privatization efforts in various countries has suddenly increased interest in the public-private partnership (PPP) concept (Jamali, 2004). Public–private partnerships have been widely used as a mechanism where unique characteristics of both private and public sectors are utilized for efficient service delivery and for developing the infrastructure projects. In such partnerships, responsibilities, investments, risks, as well as rewards are shared among partners (Sovacool, 2013b).

Doing business with the poor can involve substantial business risk. To address the problems associated with doing business with the bottom section of the economic pyramid, an innovative PPP approach has been emerging in recent years, engaging governments as well as private companies, microfinance institutions, multilateral development banks/agencies, and nonprofit organizations (including nongovernmental organizations (NGOs)) in expanding access to energy services (Felsinger, 2010). A pro-poor PPP, denoted by the abbreviation “5P,” has evolved to explicitly target the provision of services to poor rural communities. The main feature of the 5P business model is that it just does not view the poor as consumers who receive benefits, but also considers the poor as partners in business ventures. Pro-poor PPPs are one of the best mechanisms to supplement and overcome government budgetary constraints for widening access to energy services, especially to the poor, as this can allocate project risks between the public and private sector (Sovacool, 2013a). This model can be used for the implementation of a solar mini-grid.

Proposed partnership modality for the 5P business model:

• A special purpose vehicle (SPV) company shall be formed to own the projects, with joint ownership by a private company, the local community, and an NGO. This will allow the SPV to make highly leveraged or speculative investments, without exposing the entire stakeholder (i.e., private company, community, and the NGO) to any financial risk.

• The NGO shall be in the ownership structure of the 5P project, with major roles of social mobilization and facilitation between the local community and the private company.

• The SPV should also be eligible for the government grant. However, the government grant shall not exceed 50% of the total project cost.

• The bank finance should cover at least 15% of the project installation cost as a loan. The bank loan shall be secured against the projected cash flow of the project and project assets, and there should be buyback guarantee from the equipment supplier in case of project failure.

• The project partners are expected to continue their collaboration throughout the estimated project life span.

15.8 Operational and Management Model for the Solar Mini-Grid System

Though the operation and management aspects of a project are important, they are often given less attention. Formation of a project management committee is the most essential part for the sustainability of such a project. Active participation of local community members on such a management committee is a must. A well-managed project with a strong institutional aspect can overcome any challenges with much less difficulty compared to those with a weak institutional aspect. Components like regular monitoring, transparency, systematic record keeping, logbook maintenance, and effective community mobilization are crucial for sustainable management. At least one operator and one project manager/account keeper have been proposed for the smooth operation of the power plant. The operator needs to be given some specific training on plant operation and basic repair and maintenance, while the manager/account keeper should be trained for plant management, tariff collection and follow-up, customer relations, and more.

15.9 Conclusion

This study specifically presents solar PV as an alternative for rural electrification, considering off-grid solar PV for individual households and solar mini-grids for electrifying rural communities, and compares them with grid extension and supplying through a DG for a specific case study in the Kyangshing village of the Sindhupalchowk district. Potential load has been estimated based on survey data obtained from AEPC Nepal. LCOE has been estimated to compare the cost-effectiveness of these options.

The analysis has shown that SHS (individual household system) have the lowest LCOE (0.645 USD/kWh) among various options considered; however, under such cases, the uses of electricity are limited to lighting and some other small applications. For meeting the different productive end uses, the solar mini-grid option looks most cost-effective (LCOE: 0.750 USD/kWh). The LCOE can be as high as 0.867 USD/kWh for grid line extension and 0.869 USD/kWh for the DG option. Sensitivity analysis has also shown that the assumed cost parameters and life span of the energy storage system (battery system) are crucial in determining the LCOE for the solar PV mini-grid system.

In contrast to a normal rural setup, the settlements in this particular village are dense, with short distance among the households. Also, almost all of these households are south facing in the orientation favoring solar mini-grid electrification. Community property like the roof of the school building, which is centrally located in the village, can be used for solar panel installation. A small separate room can be constructed for the energy storage system (battery bank and other equipment). The micro-hydro option has not been taken into consideration, as there is no technically feasible site nearby to fulfill the village demand. Grid extension and a DG were not the most cost-effective options compared to the solar mini-grid. Therefore, the solar mini-grid option seems the most cost-effective, meeting all kinds of demand in the village. Financing such schemes is a real challenge, especially in the rural parts of the country where most of the population is financially poor. A special purpose vehicle (SPV) company under the 5P business model has been proposed for this project, so as to reach the poorer section of the people. Likewise, an effective operational and maintenance model is necessary to ensure sustainable operation of the project. The operator needs to be given some specific training on plant operation and basic repair and maintenance training, and account keeping and project management training for the plant manager will help the sustainable operation and management of the project.