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Decentralized Energy Market Assessment Report

Access to electricity remains an issue in Myanmar with an estimated 58% of the population, approximately 30 million people, not connected to the main power grid

In 2015, the Government of Myanmar formulated the National Electrification Plan (NEP), an ambitious program structured around 5 phases aiming to reach 100% grid electrification by 2030 — in the NEP, mini-grids played a limited role as interim electrification solutions covering 0.7 million people or 2% of the off-grid population

Based on global benchmarks, implementation of the 2015 NEP roadmap appears very challenging — instead it is expected that grid electrification will take considerable time and investment

In this context, mini-grids could play a pivotal role as a “grid 2.0” distributed solution bringing electricity to off-grid areas while expansion of the main grid progresses

Mini-grids cost per connection is on average approximately 40% lower than main grid expansion

Mini-grids have substantial development impact as they can support demand from business users (productive loads)

If “grid-ready” mini-grids are developed, they can be easily integrated once the main grid arrives. Mini-grids generation and energy storage assets can be leveraged as small-scale distributed generation and energy storage systems, and distribution assets can be utilised to ensure last-mile connections to households and businesses in villages

Thus mini-grids support a bottom-up “grid 2.0” solution that can accelerate electrification while expansion of the main grid is carried out

However, grid-ready mini-grids are still expensive  and  require subsidy support. In addition, absence of a comprehensive regulatory framework and of a clear transition mechanism in case of grid arrival, pose risks for mini-grid projects close to the main grids

  • Currently, mini-grids serving residential and local businesses are financially viable from private developers’ perspective only if investment subsidies are provided
  • Mini-grids are not regulated under a licensing system and no compensation and/or transition mechanisms exist in case of grid arrival. Hence, only remote sites under Phase 4 and 5 of the NEP with low likelihood of grid arrival are targeted by private developers for mini-grid investment

Thus, with the current subsidy budget availability and without any regulatory changes, the size of the potential market is expected to remain limited to approximately 230 mini-grids by 2025, covering 110,000 people or 0.3% of the off-grid population, and growing to 590 mini-grids by 2030, covering 531,000 people or 2.3 % of the off-grid population

  • By 2025 only mini-grids under the investment subsidy scheme are financially viable. With the current level of budget available for investment subsidies, approximately 230 mini-grids can be developed
  • By 2030, as equipment costs decrease, mini-grids beyond the investment subsidy scheme are expected to become financially viable in favourable locations. However, in the absence of regulatory reform, investible sites are limited to villages in the phase 4 and 5 of NEP resulting in a total potential market of 590 mini-grids

 

Instead, scenario analysis shows that  implementation  of  five combined measures could trigger in the short term a potential market of up to 2,300 mini-grids covering approximately 2 million people or 6.4% of the off-grid population:

  1. Increase power demand from businesses through demand-side support measures
  2. Decrease private developers’ hurdle return rate by facilitating access to finance and de-risking mini-grids
  3. Enable investment in mini-grids in villages under Phase 3 of NEP in addition to those under Phase 4 and 5 by de-risking grid arrival
  4. Increase the number of mini-grid projects by increasing available budget for investment subsidies to generate sufficient scale in the market
  5. Enable economies of scale through larger scale developers or by pooling resources across developers

 

With the five measures above and thanks to equipment cost reduction and technology improvement, the potential market is projected to increase to ~8,000 mini-grids by 2025 and then double to more than 16,000 mini- grids by 2030

Roll-out of all 2,300 mini-grids viable in 2020 would require a USD 537 million investment. In the longer term, if the market fulfills its potential, USD 1.8 billion investment would be required to implement all viable mini-grids

Table 1. Summary view of potential market projections by scenario

Decentralized Energy Market Myanmar

Based on these findings, a comprehensive framework of initiatives structured around 3 pillars and enablers is recommended

  • Pillar 1: promote de-risking and access to finance to increase investible sites and decrease hurdle return rate for private developers. Recommended actions include introduction of a comprehensive regulatory framework to de-risk grid arrival, measures to de-risk cash flows such as revenue guarantees and measures to support access to finance such as two-step loans schemes
  • Pillar 2: support growth of demand, focusing on productive loads through direct subsidies of electricity prices, or through micro-finance of electrically powered machinery and technical assistance
  • Pillar 3: support generation of economies of scale through pooling of key development and procurement processes, and supporting growth of sizeable private developers
  • Enabling initiatives include extension and optimization of the current subsidy scheme and cost reductions, initiatives to increase community involvement, to develop and share best practices and capacity-building initiatives to train the required workforce

 

In addition to triggering a large potential market covering millions of off- grid households, these measures could result in an increase of GDP by up to 233 million USD and create 48,300 jobs

Mini-grids can accelerate socio-economic development in Myanmar  in three ways: direct economic impact, indirect economic impact and social impact

Most of the economic benefits of mini-grid projects would be derived indirectly from the impact of electrification on businesses; this reinforces the importance of productive loads not only in ensuring the viability of mini-grids, but also in supporting development impact through GDP growth and job creation.

Source: Rockefeller Foundation

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