A techno-economic optimization of decentralized renewable energy systems: Trade-off between financial viability and affordability-A case study of rural India

Ensuring financial viability for a decentralized renewable energy project and still setting tariffs within the affordability of the users in remote areas with low income is a major challenge. Many decentralized rural electrification projects suffer from financial shortage during operation partly due to lack of tariff revenue. However, if tariff is set beyond reasonable level, it would limit the number of beneficiaries of the project. This study proposes, by taking tariff level as a parameter, a design method that seeks balance between financial viability and affordability. Through the proposed method, relationship among design parameters such as tariff, number of consumers, system cost, revenue projection, degree of cost recovery, and required government subsidy, are identified in a quantitative manner. The design method is further demonstrated by its application to a sample project site in India. As a result, the optimal tariff level is identified in terms of the degree of cost recovery. However, taking into consideration affordability, another option of lower tariff is also possible as far as government subsidy is available to cover shortfalls. Policy makers need to decide tariff setting which would resolve the trade-off to the extent possible by taking into account availability of government subsidy. (C) 2014 International Energy Initiative. Published by Elsevier Inc. All rights reserved.