State-funded hybrid diesel projects better money savers

Diesel-renewable energy hybrid

Solar-diesel hybrid power projects under state financing offer significant economic benefits in power generation compared with solely-diesel projects. It is the finding of a study undertaken by the Frankfurt School UNEP Collaborating Centre for Climate and Sustainable Energy Finance.

The study was conducted initially at projects across eight countries — Las Terrenas, Dominican Republic; Bequia, St. Vincent; Basse Santa Su, Gambia; Busuanga Island, The Philippines; Puerto Leguizamo, Colombia; Mango, Togo; Hola, Kenya; and Nusa Penida, Indonesia. Later the number was reduced to seven dropping the project in Mango, Togo.

One of the key findings of the study was that the levelised cost of electricity (LCOE) of a hybrid project was far lower than LCOE from a diesel-only project if capital expenditure, operational expenditure, and fuel cost alone were considered.

Graph diesel solar hybrid projects
Source: Frankfurt School – UNEP Collaborating Centre for Climate and Sustainable Energy Finance, 2015. Renewable energy in hybrid mini grids and isolated grids

Hybrid projects reduce fuel costs by approximately 30 percent, which offsets the relatively higher capital expenditure they incur. The cost advantage is heightened if carbon costs are also considered, the study says.

And, although hybrid projects require longer repayment periods owing to higher capital intensity, they can bring LCOE down if they can be financed at return expectations of about 5 percent flat.

In places that depend exclusively on diesel-powered regional, isolated grids — mini grids — electricity generation costs can be reduced by hybridising these grids with photovoltaic or other renewable power sources, the study concludes.

It says, though, that financing costs of projects depended on their ownership structure. Significant cost reductions were possible for state-owned utilities whereas financing by IPPs led to insignificant or even negative savings, the study adds.

Tornsten Becker, the co-author of the study, explains: “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.”

Ajith Kumar S