Technology Diversification in Renewable Mini-Grid Portfolios

Gianfranco Gianfrate () and Eflamm Gueguen ()
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Gianfranco Gianfrate: EDHEC Business School
Eflamm Gueguen: EDHEC Business School

Chapter 16 in The Handbook of Energy Policy, 2023, pp 461-481 from Springer

Abstract: 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.

Keywords: Energy decentralization; Mini grids; Rural electrification; Renewable policy; Portfolio optimization; Risk-adjusted returns (search for similar items in EconPapers)
Date: 2023
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Persistent link: https://EconPapers.repec.org/RePEc:spr:sprchp:978-981-19-6778-8_21

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DOI: 10.1007/978-981-19-6778-8_21

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