*5.1. The Interdependency of Financial—Technical—and Socio-Economic Sustainability* 5.1.1. Towards Break-Even: Optimisation Potential for PV Mini-Grids

As the operation of Mpanta MG is currently seriously financially unsustainable, a projection has been developed to model a potential improvement of the financial and operational sustainability of the system. The following projection, which can be applied to a variety of MG systems, illustrates potential energy availability trade-offs and the conjunction of technical, financial and socio-economic sustainability. Hence, the analysis presents one possible approach shown in this section to counter some of the key sustainability issues of RE MGs detected in developing countries.

Table 5 compares the current system OPEX for Mpanta to an optimized system OPEX for the current 45 kW system configuration and a 60 kW system which would utilize the current installed capacity to the full extent but would face the challenge of local energy demand and affordability to avoid under-usage. The new cost estimates are based on updated price estimations for the system components and a remodelled battery backup system. The figure illustrates that the system OPEX could be significantly reduced by more than a third under a new calculation scheme. In addition to the cost analysis of the system components, the position 'Miscellaneous' as reported by the operator needs a further assessment as it is quite high. We further note that the battery system is the largest cost item. This cost could potentially be reduced through some balancing of cost vs. benefit. The optimisation of the battery size by implementing one-day battery autonomy instead of two days. Secondly, it is assumed that one-third of the total load is being used in the daytime and therefore does not need storage. This could be achieved through an incentivisation of energy use during the day. These two measures reduce the battery size to less than one-third of the current size. Furthermore, the use of modern Li-Ion batteries can potentially be suggested, but the higher cost of this technology needs to be accounted for in relation to the advantages including a much longer life span and higher depth of discharge, which make their lifetime cost often cheaper compared to that of lead-acid batteries.

These measures reduce OPEX significantly as Table 5 suggests. However, this new configuration has some trade-offs as end-users will potentially have limited power supply during cloudy days, especially during the rainy season. These issues would have to be addressed upfront in cooperation with the community to discuss the balance of energy supply, service quality and energy tariffs. In series wiring configurations it is advisable, that each battery should have the same load status which can be achieved through conditioning the batteries. If batteries are not conditioned or at full capacity, the different battery strings do not have the same capacity and can display a significant deviation up to minus 30% or more to the full capacity, especially when they operate under challenging temperature conditions, for example in heat with no cooling system. Conditioning the batteries would require re-wiring the battery system including an option to remove single batteries from the string from time to time to fully charge and recharge that battery, understood as conditioning the battery, and then add it to the string to ensure that all batteries have the same condition. In an optimal case, the remodification of the battery system would also entail introducing temperature balancing and recording of charging/discharging of the batteries.

These optimisation measures could achieve significant OPEX reduction as shown in Table 7. A more in-depth technical and financial analysis for example through a HOMERsimulation [78] or similar software could potentially further refine the optimisation.


**Table 7.** Annual energy generated and break-even tariff estimation for Mpanta MG.

Although reduction of operating costs as illustrated for the Mpanta case might reduce the price per kWh to be paid in order to cover operation costs, the utilization of the energy produced by the mini-grid is a second key element of the financial sustainability of these systems. A closer look at the socio-economic context in relation to MG financials reveals severe disparities.

### 5.1.2. Household Income and Energy Affordability vs. Energy Tariffs

Although the equation presented in Table 5 is based on a number of assumptions, it can roughly be estimated, that based on the current number of consumers and a total annual OPEX of \$43,343 an average paymen<sup>t</sup> of monthly ZMW 437 or \$19 per connection would be necessary to cover the costs of operation which is more than half of the average reported household income in Mpanta. Translating this scenario which has been discussed as the 'energy poverty penalty' [79] to Europe in order to illustrate the financial burden for the consumer, the average UK household with an annual income of £29,900 [80] would have to spend around £1245 or \$1474 on electricity per month. In a similar translation to illustrate the relation between income and expenditure, an average UK household would have to pay around £31.8 or \$37.74 per kWh if affordability and consumption levels of MG users in rural Zambia are translated in a UK scenario.

The average monthly household income in rural areas of Zambia in 2015 was estimated at \$77 but appears to be lower according to the survey data presented earlier. This limits the disposable income of private households for electricity to \$6–7 US per month when applying an estimation of 10% of potential energy expenditures per household and month. Applying a tariff of around 0.30 \$ per kWh that would at least cover the OPEX would allow Sinda customers for example the consumption of approximately 23 kWh which is far below the projected energy consumption per month and rural customer of 49 kWh according to the Rural Electrification Master Plan of 2008 [62] and is unlikely to trigger the productive use of energy. These considerations reveal the extent to which the community context determines the technical and financial parameters of an off-grid system and that the understanding of local energy needs and demands is essential for energy system implementation [81].

A more detailed onsite assessment using household surveys could reveal the actual income situation and the potential consumption levels at the MG sites evaluated in this article as well as other locations. The identification of current barriers for customers of getting and staying connected and their actual energy needs and demands as well as opportunities for productive uses of energy based on local value chains as discussed earlier can be key to enhance the operational sustainability of MGs in three ways: First, they could provide a basis for a tariff scheme that is more adjusted to the consumer needs including options for prepaid-meters based on actual consumption or schemes that incentivize certain private and commercial user profiles in terms of volume and timing. Secondly, evaluating consumer behaviour and satisfaction could also reveal under which conditions an increase in the numbers of connections could be achieved. Thirdly, a focus on aspects of productive use in connection with innovative financing schemes for small business owners or farmers could provide the basis for economic development, income generation and enhance energy consumption in the area.

### 5.1.3. The End-User Perspective and a Community-Ecosystem Approach

The data presented previously revealed high energy-demand levels and a substantial willingness to pay for upgraded energy services among communities in Uganda and Zambia. The large majority of respondents within all consumer subgroups, including MG users in Sinda, confirmed improved living conditions in the community after electrification. Community surveys in Mpanta also revealed the positive effects of electrification on household and community level [41] as respondents in Mpanta reported positive impacts enhanced security (street lighting), better availability of medical supplies, higher levels of education and growing business opportunities as a result of MG energy access. The number of communal gatherings increased, people feel better connected and informed due to higher accessibility of TV and radio and local women emphasized that household work became much easier due to improved light sources. A significant impact on the use of traditional fuel, however, such as reduced collecting of firewood or use of charcoal has not been observed by the researchers in Mpanta [41] and Sinda.

The response patterns on negative and positive energy impacts presented are only a snapshot of different energy consumer perspectives due to the limited number of respondents in each group but they potentially indicate certain key interdependencies and trends: Low-patterns of productive energy use and energy affordability are closely interrelated but the uptake of energy and its productive use are not necessarily linked to a specific type of connection. The Zambian case illustrates, that connecting users to an MG does not automatically have a greater potential to generate income and business growth compared to SHS. The consumer perspective partially confirms the trend of financial and technical sustainability challenges for MGs as the most dominant problems but their significance varies according to the rural national context. The data also indicates that technical sustainability needs to be considered along with energy generation, transition and distribution of an energy system including the end-user connection.

Reported social tensions and the potential tendency of higher-income households being more likely to obtain a connection as indicated by the data suggests that a further increasing promotion and uptake of decentralised energy systems in rural areas needs to incorporate strategies for inclusive approaches to also reach lower-income groups in the communities to ensure that 'no-one is left behind'.

A lack of community involvement during the planning stage of the mini-grid main probably has contributed to the challenges of the Mpanta mini-grid since the actual energy needs, affordability and social barriers have not been assessed extensively. The planning and implementation process thus did not address sufficiently the potential paymen<sup>t</sup> issues or promoted a pre-paid metering system which might have been more suitable for the local economic conditions. In this light, the Mpanta situation the importance of early-stage community involvement for energy project planning which can potentially lead to a system design that meets community energy demands and better matches the income structure. The review of MG case—and feasibility studies has revealed that the socio-economic community context only finds limited consideration and is mirrored in 'top-down' energy access governance approaches and limited strategic community engagemen<sup>t</sup> for RE project development [50,54]. Consequently planning and operation of decentralised energy systems such as solar PV MGs must be based on this context and follow an interdisciplinary approach that takes into account financial, socio-economical, cultural, technical and environmental aspects, not only of the mini-grid itself—but the wider community that is expected to use the mini-grid and benefit from the provision of clean energy.

For the operational phase, tracking customer satisfaction, issues with regard to monthly payments and the evaluation of opportunities to introduce other services such as the provision of clean water, irrigation, communication or media appliances—powered by the mini-grid could potentially enhance the utilization of the electricity from the mini-grid, increase revenue and mitigate the current financial losses the system produces.

The low- and seasonal income levels create a volatile financial situation for these households which makes the paymen<sup>t</sup> of a monthly fixed fee often challenging. Although around 20 refrigerators are currently in use by businesses and households in Mpanta to cool soft drinks and produce ice blocks to preserve fish, the access to energy has not ye<sup>t</sup> generated an increased productive use that would help to utilise energy generated and stabilise cashflows of the system.

This finding correlates with the survey data shown in the previous section which indicates that electrification, either via SHS or MG does apparently not create an automatism for income increase, particularly in Zambia. This data also indicates the need for cross-national, comparative analyses of the specific socio-economic impact of electrification via SHS and MG on rural communities to filter best practices and strategic cornerstones which can enhance the income situation of rural consumers and stabilise the financial sustainability of off-grid solutions.

The socio-economic environment of rural communities in SSA establish complex demands for energy systems delivery models [41,76,82] but can also create opportunities that are substantial for the longer-term sustainability of the energy system for example with regard to the productive use of energy, modern energy cooking [83] and the local creation of local added value. The project in Mpanta demonstrates the importance of demand utilization and a steady cash flow as conditions for a sustainable mini-grid operation. As most communities in rural Zambia and other African countries face similar challenges like Mpanta village, such as the dependency on seasonal rainfalls, small-scale farming or fishing as well as limited access to productive appliances, solutions are required to strengthen community resilience and overcome seasonality in income. The provision of clean water, internet access, training, innovative and sustainable farming methods coupled with financing schemes for low energy appliances that extend the opportunities to process agricultural products to be explored at the project planning stage. The baseline of this approach is the local value chain and the evaluation of potential added-value creation [84]. These added services can add to an integrated infrastructure service concept that goes beyond the provision of electricity but sees energy [85].

### *5.2. Implications for the Scalability of Off-Grid Systems in Africa*

The literature review illustrated the substantial sustainability challenges that RE MGs face in the developing world. The in-depth evaluation of two Zambia MGs largely confirmed these challenges for the cases evaluated by providing detailed technical and financial as well as consumer-centric data which is largely missing in most case studies. The data on socio-economic community parameters and energy demands in Uganda and Zambia reveals significant challenges for the implementation of off-grid systems and contributes to the debate of the scalability of electrification efforts in SSA [86].
