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close this bookRural Energy and Development: Improving Energy Supply for Two Billion People (WB, 1996, 132 p.)
close this folderChapter four - Options for rural electrification
View the document(introduction...)
View the documentProgress to date
View the documentPricing and financial policies
View the documentCost-effectiveness and the choice of alternatives
View the documentCosts of grid supplies
View the documentReducing initial investment costs by using appropriate design standards
View the documentMicro-grids supplied by diesel generators
View the documentElectricity supplies from renewable energy sources
View the documentRegulatory and price reforms, unbundling, and privatization
View the documentImplication for rural electrification
View the documentApproaches

Electricity supplies from renewable energy sources

The cost estimates in table 4.5 are fairly typical of small diesel plants. They also show why energy from solar. wind, and micro-hydro schemes has become attractive in regions where the solar insolation wine” regime, or hydro resources are suitable. A report by the former Office of Technology Assessment of the U.S. Congress (OTA 1992) found that the all-inclusive unit costs of electricity were as low as US¢ 12 per kWh for micro-hydro. depending on the site. US¢45 per kWh for PVs. and US¢25 per kWh for small wind sets (the costs of the latter two technologies have declined significantly since). Electricity for local distribution can also be generated from such fuels as biogas or biomass. depending on local availability of resources (see box 3.2 on the case of Pura).

Table 4.4 The Effects of Line Length and Consumption Levels on the Costs of Rural Electrification (costs in U.S. cents doer kWh)

Cost component

Unit costs


Generation and Transmission


3 - 4


2 - 3

Transmission & subtransmission reinforcement


Subtotal (rounded)


Medium-voltage extension and low-voltage distribution

3 km spur title, 20 households



3 km spur line. 50 households



I km spur line. 20 households



I km spur line. 50 households



High-density rural loads



n.a. Not applicable

a Totals include the generation and transmission costs shown ill the upper rows plus the extension and distribution costs shown for each of the five cases of line length and load density Assumptions: Medium-voltage lilies. US$10.000 per kilometer low voltage distribution US$5.000 per kilometer. US$40 per kilovolt ampere for simple pole-top distribution transformers, consumption levels of 35 kWh per month per household: 20 meters of low-voltage circuit per house: 10 percent discount rate: twenty-five year lifetime for circuits. fifteen years for transformers. The above figures are adjusted for the higher losses experienced ill serving rural energy demands. Source: Arun Sanghvi personal communication.

Table 4.5 The Costs of Small Diesel Supply Systems in Pakistan and Yemen

System elements



Number of consumers




25 kWh

25 kWh

Size of generator

20 kW

20 kW

Investment cost


US$ 14,250

(including network and civil works)

Fuel cost per liter

$ 0.17

$ 0.-22

Electricity costs



Source: Meunier (1993, cited in Folley (1995).

Micro-hydropower can be one of the cheapest options for providing electricity to rural areas that are too far away from the grid to be connected to it, and can sometimes also supply the grid. This is certainly true where local capacity to manufacture turbines exists, as in China and India. In India. a program to finance micro-hydro systems privately will both serve local demand and feed into the central grid system.

Another aspect of micro-hydro is the care needed when selecting a site, given the possible variation in stream flows during the year and from river to river. Costs vary significantly. depending on the site and the terrain. In Nepal. for example, some 25 percent of total costs for a micro-hydro project can be for transportation of equipment and materials alone. but are much lower in less mountainous regions. However, if all elements of the project cycle adopted a low-cost approach. even in Nepal the costs of extending the grid to small consumers could be as low as US$ 150 per consumer. One important aspect of such approaches is the participation of the local community, which reduces costs enhances consumer satisfaction, and helps to provide a financially viable investment. Box 4.3 provides an example of an innovative and successful micro-hydro development effort in Peru, at a village center distant from the national electricity grid.

The development of micro-grids, whatever their primary source of energy. requires a significant level of community consensus and support regarding such factors as billing, service, and organization. Local participation is a key ingredient in the design of such isolated systems. in their implementation, and in their day-to-day operation. This is self evident in the case of small local systems that are the result of local self-help or private initiative. However, even isolated systems put in place by a national program are more efficient if they enlist the cooperation of local consumers. Central grid systems also benefit from local participation in rural distribution. In Bangladesh, for example locally managed rural electric cooperatives are responsible for distributing power that they purchase from the grid or generate locally. Their record of billing, collection, losses. and maintenance is significantly better than that of the main power utility in charge of urban distribution.

Developments in new renewable energy technologies have greatly expanded the options for supplying electricity in rural areas (see chapter 5 for a more complete discussion). Consider developments in solar PV technologies, for example. Barely twenty years ago. at the time of writing the Bank's previous policy paper on rural electrification, costs were several hundred thousand dollars per kilowatt, conversion efficiencies were low, and the only applications were in aerospace and in specialized switching circuits. Today PV systems are providing electricity economically to rural areas of developing countries for domestic lighting and appliances. vaccine refrigeration for health clinics, village water pumps. telephones. irrigation pumping, street lighting. and schools. In areas tar from the grid or where delivering conventional fuels is difficult. renewables are often the least-cost options. Significant markets for PVs are thriving in rural areas of developing countries - in Kenya, for example (box 4.4).


One constraint to the wider use of small-energy technology is access to capital. Many financiers see microhydro schemes as high risk, and are therefore reluctant to make funds available. This reluctance stems from the frequent lack of adequate support for training, operation. and management of schemes by borrowers.

In Peru in 1993, the Intermediate Technology Development Group (ITDG) and the Inter-American Development Bank established a rotating fund to make loans of up to US$30,000 available to rural communities and rural enterprises for micro-hydro schemes. The interest rate is 8 percent per year, and the payback period is five years.

The first scheme to be installed under the program supplies electricity to the village of Chn, fifty miles from the national grid. Chn has a population of 540 people in 120 families. In addition, nineteen other small settlements or hamlets in the area use Chalas their main center for services.

The initiative for the micro-hydro scheme came from the village council and a local NGO that was working with local farmers. The funding for the scheme came from four sources: a loan from the credit program, a grant from the local NGO, the resources of the village council, and the labor of every family in Chalwho agreed to contribute a set amount of time to construct the channel, install the pipe, and build the powerhouse (the community provided a total of 4,318 per son-days of labor). The ITDG supervised construction and provided technical and management training.

The capacity of the Chalmicrohydro scheme is 25 kW and the capital cost was US$82,700. Direct connections have been provided to eighty families to date, with most remaining households expected to connect in the future. A further 617 families from surrounding communities are indirect beneficiaries of the scheme as they now have access to improved health and education facilities, battery charging, agro-processing, and workshop and communication services and also benefit from public lighting in the village.

An elected committee that is independent of the village council manages the schemes and is responsible for overseeing operation and maintenance; collecting tariffs; promoting safe and efficient use of the energy; and managing the introduction of new uses, such as workshop equipment. At present, the power from the plant is priced at US¢9 per kWh, although this will increase to cover the costs of generation and to provide a reserve fund for repairs and replacements. Conversely, as demand increases, the costs of generation will fall, providing the opportunity to reduce tariffs.

The credit program aims to install around twelve schemes. The program has already attracted considerable interest among local communities and enterprises, government bodies, and international agencies.

Source: Courtesy of Stephen Fisher, ITDG, personal communication (1996).

Cost-efficient use of renewable energy technologies in rural areas can be encouraged by educating people about the possibilities and by providing training in how to install and maintain the technologies. Electricity distribution companies also need to be encouraged to consider the costs and benefits of the solar alternative to grid supplies to meet small loads and provide supplementary power on the longer distribution networks. The World Bank Group's Solar Initiative. launched in 1994, is identifying such opportunities (see chapter 7).