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Technology Diversification in Renewable Mini-Grid Portfolios

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The Handbook of Energy Policy

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.

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Authors and Affiliations

  1. EDHEC Business School, Nice, France

    Gianfranco Gianfrate & Eflamm Gueguen

Authors
  1. Gianfranco Gianfrate
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  2. Eflamm Gueguen
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Correspondence to Gianfranco Gianfrate .

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Editors and Affiliations

  1. Tokai University, Hiratsuka, Kanagawa, Japan

    Farhad Taghizadeh-Hesary

  2. Research Institute of Economics and Management, Southwestern University of Finance and Economics, Chengdu, China

    Dayong Zhang

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Gianfrate, G., Gueguen, E. (2022). Technology Diversification in Renewable Mini-Grid Portfolios. In: Taghizadeh-Hesary, F., Zhang, D. (eds) The Handbook of Energy Policy. Springer, Singapore. https://doi.org/10.1007/978-981-16-9680-0_21-1

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  • DOI: https://doi.org/10.1007/978-981-16-9680-0_21-1

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