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Technology Diversification in Renewable Mini-Grid Portfolios

In: The Handbook of Energy Policy

Author

Listed:
  • Gianfranco Gianfrate

    (EDHEC Business School)

  • Eflamm Gueguen

    (EDHEC Business School)

Abstract

More than 90% of the world population has access to electricity in 2018, but many rural areas are still lagging. Mini grids can help electrifying isolated regions and rural areas before a structural widening of national grid systems becomes viable. Capital from private investors is key to scale up the development of mini grids. However, unattractive risk-return profiles, small investment tickets, and lack of adequate financing instruments are stalling the necessary investments. Aggregating mini-grid projects could attract more private financing by making the investment ticket more palatable, and by reducing the risk and therefore the cost of capital. We explore whether technological diversification in mini-grids portfolios can improve the risk-return profiles for investors. We apply a Markowitz portfolio optimization approach and show that, given certain conditions, technological diversification can improve the risk-return profile of mini-grid portfolios, thus making the investments more attractive to potential funders. Policymaking should address the conditions that facilitate diversification allowing the enhancement of risk-adjusted investment returns.

Suggested Citation

  • Gianfranco Gianfrate & Eflamm Gueguen, 2023. "Technology Diversification in Renewable Mini-Grid Portfolios," Springer Books, in: Farhad Taghizadeh-Hesary & Dayong Zhang (ed.), The Handbook of Energy Policy, chapter 16, pages 461-481, Springer.
    • Handle: RePEc:spr:sprchp:978-981-19-6778-8_21
    DOI: 10.1007/978-981-19-6778-8_21
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