Integrating Energy Demand and Ability to Pay in the Design of Decentralised Energy Supply : A Case Study in Rural Nepal

Abstract: Access to electricity is essential for socioeconomic growth, especially in developing countries. However, over 1.1 billion people still do not have access to modern sources of energy. This is particularly prevalent in rural or remote areas, where renewable off-grid solutions and particularly minigrids seem the most cost-effective solution to deliver longterm energy solutions. Comprehensively forecasting energy demand in these areas and designing the most optimal solution requires a thorough feasibility design process. A literature review of project development tasks revealed that a research gap regarding how the household’s ability to pay relates with the project’s cost exists. This frequently leads to viability gaps, which demand costly and time-consuming manual adaptations to the project’s design. The goal of the study was to adapt household’s ability to pay and energy demand assessment at early stages of minigrid design so as to avoid these adaptations at later stages. Rural Nepal was chosen as a case study, and an extensive energy household survey based on multidimensional energy access parameters developed by the Reiner Lemoine Institute was used. The data employed was collected from 9 different rural municipalities from Province Number 1 and Province number 7, with a total of 3600 surveyed households. Households were clustered into three wealth groups, using socioeconomic variables such as education, financial status, owned and desired electrical appliances and willingness to pay. The construction of a stochastic load modeller using R allowed translating the energy needs of each wealth groups into load profiles. The most common energy services for the different clusters are lighting and communication for group 1, plus entertainment and space cooling for group 2, plus occasional thermal loads or base loads (fridge) for group 3. A cost estimator was built through a linear regression to obtain an overall project cost estimation based on the customer distribution. In parallel, household estimated-energy-expenditures were determined by allocating a literature-accepted percentage of their total annual expenditures over the entire project lifetime. This value was averaged for each municipality and wealth group, and a community’s minigrid economic potential was determined using the municipality’s average customer distribution as a reference. By using this and the cost estimator, it is possible to quantify a potential viability gap based on the customer distribution. An automated adaptation tool was designed in R to obtain the most similar feasible customer distribution when a viability gap is encountered. This is done by fixing the economic potential and using the customer distribution and its associated cost as a variable. Results show that in all but one municipality, providing households with basic energy services is viable, while an average grant of 75 USD per type 2 household and 515 USD per type 3 household for the entire project life-time is required. Additionally, only three municipalities suggest a feasible average customer distribution, while the rest required adaptation. However, a significant regional heterogeneity exists, suggesting that location-specific policies are required to optimise the effects of subsidies. The study also shows that while the demand for higher energy services exists in rural Nepal, there is a significant lack of available income that impedes this supply, and policy makers and energy planners should work to bridge this gap in order to foster socioeconomic development.