Energy Strategy Reviews (Jul 2025)
Economic evaluation of decentralised energy sources for power generation
Abstract
The poor economic status particularly in the developing countries has resulted in limited income, scarcity of investment funds, while at the same time regulations governing project financing remain a challenge for the electricity sector. This study investigates the economic sustainability of different sources of energy to provide critical information to planners and policy makers seeking to develop an energy mix that guarantees clean and affordable electricity. Clean, efficient and affordable electricity directly and indirectly supports almost all the sustainable development goals as a vital physical input and enabler. Decentralized energy (DE), and distributed energy systems constitute power generation and storage close to the point of power need or consumption, and may or may not be connected to the distributed network. This reduces the transmission and distribution costs but leads to growth in use of local energy resources, which is an important strategy in the global sustainable energy transition. In terms of investment in clean energy, the financing for clean energy is a major concern for developing countries who play host for the close to 80 % of the global population targeting in SDP 7 targets. Therefore, economic sustainability of the energy transition is of critical importance. Decentralized generation provide numerous economic opportunities besides increasing access to clean energy for remote and off grid communities. This paper aims to develop the understanding of the relative economic value of the various energy options available for decentralized generation. The study compares the economic impacts of energy sources to help in identifying energy sources that will leave the highest positive economic impacts and limited financial cost. The findings of this study are valuable to energy and generation planners and policy makers in policy formulation and development a cost effective energy mixes. Clean, renewable, and affordable energy is a requirement for improved social, economic, and environmental health, which leads to sustainable modern energy and electricity services. The global concerns over greenhouse gas emissions and climate change as well as the need to electrify close to 750 million people with no access to reliable electricity are the main drivers of the current interest in decentralized generation. This generation offers multiple benefits like wider exploitation of local energy resources, reduced transmission and distribution costs as well as losses, higher power system resilience, higher efficiency, and democratisation of the electricity sector. However, high upfront costs and electricity costs can make decentralise generation financially unattractive to consumers and investors. The assimilation of low-cost and highly available low carbon energy sources will contribute to the attainment of the sustainable development goals particularly goal number 1 (SDG1) on poverty alleviation and goal number 7 on access to modern clean energy resources (SDG 7). The economic considerations for different decentralized energy sources was undertaken based on job creation potential, price of energy resources, levelized coat of power, demonstrate the relative economic competitiveness of energy options for decentralized power systems. The study showed that the noncombustible renewables are freely supplied by nature and hence have the lowest operation costs. By having the lowest levelized cost of power compared with fossil fuels, the renewable are more cost competitive on lifecycle basis, additionally renewables led by solar energy have the highest job creation potential. The fossil fuel sources have higher flexibility indicators like lowest ramp time and minimum run time making them ideal source of stabilizing power together with hydropower in the energy mix. Truly sustainable plans in decentralized generation should be based on real local based conditions where credible and site-specific data and information is available as opposed to the use of globalised data adopted in this study. Therefore, the findings of this study ought to be subjected to further review based on local data and realities of specific locations and countries for more reliable and accurate planning. This study demonstrated that distributed and decentralized generation is a power tool for the realisation of all the sustainable development especially in developing countries.
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