1. “To grid or not to grid: that is the question”
MIL-HGT /DF
“To grid or not to grid: that is the question”
Energy Days 2012
Document type
February 23, 2012
CONFIDENTIAL AND PROPRIETARY
Any use of this material without specific permission of McKinsey & Company is strictly prohibited

2. MIL-HGT /DF
1.5 Billion people without access to electricity and 2.9 Billion without access to modern energy services
SOURCE: NASA; WEO 2009 (IEA); team analysis
McKinsey & Company | 1

3. “Off-grid or not to off-grid”: a question about trade-offs
MIL-HGT /DF
CONCEPTUAL
High
Maximizes economies of scale in generation
Demand density
(function of population density and consumption per capita)
Grid
Micro-grid
Off-grid
Compatibility if integration is a future possibility
Economically rational choice
Low
Near
Far
Distance to grid
(directly drives cost)
SOURCE: Team analysis

4. Off-grid (renewable) presents attractive characteristics
MIL-HGT /DF 1 A
Off-grid is the best alternative to lack of supply
Lack of supply brings costs incomparably higher than any type of generation and unacceptable social burdens
Off-grid renewables 10-20% cheaper than diesel engines
Off-grid generation is already today a highly interesting option, with selectively competitive price, deployable in large scale in limited time and with limited complexity
SOURCE: Team analysis

5. Off-grid is the best alternative to lack of supply
MIL-HGT /DF
Off-grid is the best alternative to lack of supply
USD/kWh
Estimated cost from lack of supply
Cost of electricity generation
5-25
2-5
Range accounting for technologies and local specificities
Highly dependent on fuel and CO2 costs
0.12
Developed countriesDeveloped countries
Developing countriesDeveloping countries
Diesel
RES
Gas
Coal
SOURCE: World Bank; team analysis

6. Off-grid (renewable) presents attractive characteristics
MIL-HGT /DF 1 A
Off-grid is the best alternative to lack of supply
Lack of supply brings costs incomparably higher than any type of generation and unacceptable social burdens
Off-grid renewables 10-20% cheaper than diesel engines
Off-grid generation is already today a highly interesting option, with selectively competitive price, deployable in large scale in limited time and with limited complexity B
RES reaching grid parity with more untapped potential
Cost of renewables decreased by 75% since 2008, with further 11% p.a. expected until 2015
Grid parity achievable with availability >15-20%, if system costs properly accounted for (i.e. no/low tariff subsidies)
SOURCE: Team analysis

7. Renewables cost reduction opens unprecedented opportunities
MIL-HGT /DF 1B
PV module spot market prices
USD/Wp, monthly
Impact on PV generation cost
USD/MWh
-12% p.a.
2008
2009
2010
2011
Jan ‘12
Industrial scale operations
Leap-frogging other technologies, still with vast scope for improvements
Demand increasingly based on commercial fundamentals
Transformational scale and scope in generation, equipment manufacturing and as an investment area
2000
2005
2011
2015
SOURCE: SolarServer; pvXchange; PVinsights; McKinsey Global Solar Initiative

8. As costs are reduced, ever more markets are “in the money”1B
MIL-HGT /DF
Total power sector
size 2010 1;
TWh
/Year
Residential segment example
Countries/Locations
Annual solar generation
where solar is potentially
2000
weighted solar yield
is economically viable
option
2001 -
Average power price for households (2010) ,
USD/kWh
2007
0.40
2008
West Africa (
diesel) 5 :
~1 USD/kWh
0.35
2009
Denmark
Full installation cost
0.30
Germany
of solar
cells 2 ,
2010
USD/Watt peak; (Year)
California (tier 3)
Italy
0.25 6
Sweden
Netherlands
2011
Spain
5 (~2009)
0.20 UK
India (peak rate) 4
Japan
New York
Mali (residential)
4 (~2010)
Finland
0.15
Greece
California (base)
German subsidy schemes
support learning curve, building
competitiveness of solar; Less
thoughtful schemes in higher
solar yield countries skews the
installed base towards moderate
yield countries
France
3 (~2011)
Australia
Canada
0.10
Texas
S. Africa 2
0.05
S. Korea
China
India 1
700
800
900
1,000
1,100
1,200
1,300
1,400
1,500
1,600
1,700
1,800
1,900
Specific annual solar energy
yield 3 ,
kWh/
kWp 1
Electricity consumption of residential, services, agriculture; 2
Cost to generate power with solar cells corresponding to solar i
ntensity, using the following
assumptions: 5% cost of finance, 30 yr lifetime, 0.3% degradatio
n, fixed
O&M
1% of full installation cost, 33% income tax; 3
Amount generated by a south -
facing 1
kWp
module in 1 year
(a function of solar intensity); 4
Only 2008 data available. Peak rate refers to rate without artif
icial cap imposed to close the peak power deficit
filled by diesel generated power; 5
Small -
scale, off -
grid diesel
SOURCE: Enerdata; EIA; PV Watts; SERC; India Central Electricity Authority; Utility publications;
McKinsey Global Solar Initiative
McKinsey & Company | 4

9. Off-grid (renewable) presents attractive characteristics
MIL-HGT /DF 1 A
Off-grid is the best alternative to lack of supply
Lack of supply brings costs incomparably higher than any type of generation and unacceptable social burdens
Off-grid renewables 10-20% cheaper than diesel engines
Off-grid generation is already today a highly interesting option, with selectively competitive price, deployable in large scale in limited time and with limited complexity B
RES reaching grid parity with more untapped potential
Cost of renewables decreased by 75% since 2008, with further 11% p.a. expected until 2015
Grid parity achievable with availability >15-20%, if system costs properly accounted for (i.e. no/low tariff subsidies) C
Large scale reachable with limited complexity
EU countries have deployed 1+ GW of RES per year
Emerging markets often under estimate costs and complexity of deploying efficient fossil technologies (e.g. grid connection, construction delays, cost of crises…)
SOURCE: Team analysis

10. Large scale achievable with limited complexity
MIL-HGT /DF
Large scale achievable with limited complexity
Large additions of renewables are possible
GW years, average
Emerging markets often face issues with fossil capacity
Wind
Solar PV
Under-estimating execution challenge (e.g. in Asia and Africa strong delays in coal generation projects)
Over estimating cost benefits of fossil fuels (i.e. target availability and execution costs)
Struggling to ensure security of supply (i.e. mainly gas)
5,8
5,1
vs.
3,1
2,1 US
Spain
Italy
Germany
SOURCE: Global Data

11. Off-grid deployment faces several constraining factors
MIL-HGT /DF 2
Limited consideration vs. centralized capacity (e.g. RES 1% of Africa and ME installed capacity)
Low access to financing (sub-scale for private and for international donors, above scale for public and local communities)
Low relevancy
Limited viability of stand-alone solutions vs. integrated RES/ back-up capacity/ storage/demand management
Standardization for scalability and compatibility with grid extension
Off-grid limits
Building and renewing local skills (installation, O&M)
Supply chain (spare parts)
Governance of deployment (central vs. regional vs. communities)
Technology integration and
scalability
Need for local enabling
SOURCE: Team analysis

12. Relevancy – Limited perceived impact and investment opportunity
MIL-HGT /DF 2
ROUGH ESTIMATE OUTSIDE-IN
Average capacity for a single project
Size of the investment - South East Asian country
MW per project
USD billion per year
100-1,000
5-7
1-10
Off-grid
On-grid
Electrification/ Off-grid
Grid investments (G-T-D)
Off-grid projects are perceived as low priority to address capacity gaps and support economic growth…
… and the investment opportunity is limited to attract sizable investors

13. 3
MIL-HGT /DF
Thought starters for our discussion
What innovative financing (matching profile of front-loaded needs, available resources and L/T potential)? 1
Which role for private vs. public? 2
Can local specificities be addressed creating attractive size and scalability? 3
Can an efficient roll-out model be defined for local skill gaps, policies...? 4