Energy for Sustainable Development 50 (2019) 139–152

Contents lists available at ScienceDirect

Energy for Sustainable Development

Cost allocation for rural electrification using game theory: A case of

distributed generation in rural India
Giorgio Bonamini a,⁎, Emanuela Colombo b, Natividad Llorca c, Joaquin Sanchez-Soriano c
a
Delos Service S.r.l., via San Clemente 1, Milano, 20122, Italy
b
Sustainable Energy System Analysis and Modelling (SESAM), Department of Energy, Politecnico di Milano, via Lambruschini 4, Milano, 20156, Italy
c
Operations Research Center (CIO), University Miguel Hernandez of Elche, Avda de la Universidad s/n, Elche, 03202, Spain

a r t i c l e i n f o a b s t r a c t

Article history: This paper deals with an economic aspect of distributed generation systems which rural energy cooperatives may
Received 5 June 2018 mainly support, since they can effectively coordinate the different stakeholders within an energy access initiative.
Revised 28 January 2019 Members of a rural energy cooperative would share the costs of deploying a distributed generation system, so
Accepted 30 January 2019
that each of them can benefit from it. To minimise the overall investment cost, such a cooperative must consider
Available online 24 April 2019
both technical sizing and cost allocation among its members. For the latter, an important issue to take into account
Keywords:
is the so-called willingness-to-pay. For obtaining the design of the distributed generation system we propose to use
Rural electrification facility location covering (FALCO) models. The solution of the FALCO model provides both the structure of the distrib-
Distributed generation uted generation system and the investment cost to be covered by the members of the cooperative. We take advan-
Fair cost allocation tage of the structure of the primal and dual optimal solutions of the FALCO model to endogenously determine the
Cooperative game theory minimum and maximum willingness-to-pay of the cooperative members and then to apply rationing techniques to
Rationing problems obtain the final allocation of costs to each member. Thus, our approach optimises the generator locations and min-
Primal-dual approach imises the total system cost, while assigning to each member at least her minimum willingness-to-pay. From our
point of view, this method may help the beneficiaries to accept the investment cost allocation. Finally, a case
study based on real data from a rural village in Maharashtra, where a group of farmers wanting to buy and share
an energy system to pump water for irrigating their fields, is used to illustrate the working of the proposed cost al-
location methodology.
© 2019 International Energy Initiative. Published by Elsevier Inc. All rights reserved.

1. Introduction
Electric power helps in providing basic needs such as access to clean
water and food supply, and allow development of better health-care or
industrial activities (Mandelli, Barbieri, Mereu, & Colombo, 2016;
Schillebeeckx, Parikh, Bansal, & George, 2012). The International Energy
Agency forecasts that, in 2030, of all the people without connection to
electricity, about 900 million will live in rural areas — mostly in Sub-Sa-
haran Africa and South Asia (IEA and World Bank, 2015).
Since rural electrification remains a capital-intensive activity – more
expensive than urban (Liming, 2009) – and both the public sector and
the donor community seem to fall short on financial resources
(Williams, Jaramillo, Taneja, & Ustun, 2015), the private sector remains
as the only one able to finance such infrastructure projects (Williams et
al., 2015). However, due to their remote location, many rural areas that
⁎ Corresponding author.
E-mail address: giorgio.bonamini@gmail.com (G. Bonamini).
are already served by the national grid, suffer unreliable power supply,
such as blackouts or low voltage occurrences.
A possible alternative is distributed generation solutions, defined as
an electric power generation source that is connected directly to the dis-
tribution network or on the customer side of the meter (Pepermans,
Driesen, Haeseldonckx, Belmans, & D'haeseleer, 2005). Distributed gen-
eration solutions, such as micro-grids or solar home systems, reduce the
costs of connecting a customer to the grid (Pepermans et al., 2005), cost
less than grid expansion and do not depend on the distance from the
grid (Narula, Nagai, & Pachauri, 2012). Even though the cost of
implementing distributed generation solutions can still be high in
rural areas (Blenkinsopp, Coles, & Kirwan, 2013), a study on rural
micro-grids in India (Graber, Narayanan, Alfaro, & Palit, 2018) points
out that, though electricity from micro-grids have higher costs than reg-
ulated grid tariffs, even resources constrained consumers are willing to
pay more for the micro-grid service.
To avoid the high risks related to economic returns and the limited co-
ordination with local community hinder distributed generation invest-
ments (Mah, Wu, Ip, & Hills, 2013), Yadoo (2012) proposes a hybrid
business model for micro-grid development. On the one hand, a private
company that provides the hardware, on the other hand, a local energy

https://doi.org/10.1016/j.esd.2019.01.007
0973-0826/© 2019 International Energy Initiative. Published by Elsevier Inc. All rights reserved.
140 G. Bonamini et al. / Energy for Sustainable Development 50 (2019) 139–152
cooperative that buys the electricity and distributes it to the final benefi-
ciaries. Therefore, rural energy cooperatives can represent part of the
solution and bring access to energy services (Yadoo & Cruickshank,
2010). This would be a bottom-up approach, according to Tenenbaum,
Greacen, Siyambalapitiya, and Knuckles (2014), to the problem of rural
electrification.
Distributed generation planning, in principle, is similar to expanding
the transmission grid including new generation capacity. Expanding the
power grid may involve different agents, all with their own interests.
Therefore, finding the minimum cost for the system may end up
disregarding someone's interests. In situations of either new transmission
lines or new generation capacity, it is common to apply solution concepts
typical of cost allocation problems for sharing the investment costs (Evans,
Zolezzi, & Rudnick, 2003). A cost allocation problem arises when the cost of
a joint project must be “fairly” shared among its participants (Otten, 1993).
This paper contributes to seeking an appropriate solution to the cost
allocation problem in distributed generation solutions combining opti-
misation models and rationing techniques. In particular, the proposed
methodology consists of the three following steps:
1) An optimisation model is posed to obtain the power off- (micro-)
grid design which minimises the total investment cost.
2) Based on the above optimisation model the minimum and maximum
willingness to pay of the stakeholders are endogenously determined.
3) Taking into account the optimal investment cost, the minimum and
maximum willingness to pay of the stakeholders, a rationing method
is applied to determine the cost allocation of the investment.
There are many different models with which to analyse energy sys-
tems (Hall & Buckley, 2016) and, in particular, there are also different
approaches to the problem of cost allocation (see, for instance, PJM
(2010) for a survey on Transmission Cost Allocation). However, we
focus on the particular cost allocation problem of the investment in
the deployment of a distributed generation solution in rural areas, and
other situations with similar features.
Game Theory has proved to be a useful tool to deal with this kind of
situations and other engineering problems (Sánchez-Soriano, 2013).
Thus, a cost allocation problem could be approached as a cooperative
game for sharing costs (Lemaire, 1984). For this reason, in the literature
we find cooperative game theory solution concepts applied to the
power sector. A well-known solution concept, the Shapley Value
(Shapley, 1953), was used for the first time by Gately (1974) to find a
fair cost allocation among three Indian states that benefited from an
inter-state electricity transmission network. Also the Aumann-Shapley
Value (Aumann & Shapley, 1968) and the nucleolus (Schmeidler, 1969)
constitute common alternatives to the Shapley Value, as in Junqueira et
al. (2007) and Songhuai, Xinghua, Lu, and Hui (2006), respectively. How-
ever, to obtain the final allocation the above mentioned methods need
the joint cost of all coalitions (Curiel, Pederzoli, & Tijs, 1986).
Another way to interpret a cost allocation problem is as a loss (or tax-
ation) problem (Moulin, 2002; Young, 1988), where a group of agents
with their responsibilities (or claims) must pay for a joint loss. Solving
a cost allocation problem consists of sharing the total cost among the
participants of the joint project using a rationing method (Moulin &
Shenker, 1994).1 In a study of new transnational transmission lines in
Northern Europe, Nylund (2014) reduces the computational complexity
of sharing the investment cost using the Talmud and the proportional
rule, two rationing rules that embody both fairness and computational
simplicity, typical of bankruptcy problem rules (Aumann & Maschler,
1985; O'Neill, 1982). Kim, Kinoshita, Lim, and Kim (2010), also, used
bankruptcy problems to manage the operation of a multi-agent micro-
1
Standard rationing methods with their common applications can be found in several
surveys: Moulin (2002) and Thomson (2003, 2013, 2015).
grid. In their work, the authors compared different rationing rules to
deal with a problem of load-shedding.
Pulido, Sánchez-Soriano, and Llorca (2002) proposed a refinement
of rationing problems – generalized later by Pulido, Borm, Hendrickx,
Llorca, and Sánchez-Soriano (2008), Timoner and Izquierdo (2016)
and Giménez-Gómez, Osório, and Peris (2016) – assigning to each
agent her reference plus the allocation related to the standard rationing
problem with the remaining joint cost. The advantage of considering ex-
ante inequalities brings to a fairer cost distribution.
Based on the last approaches we have developed our own proposal
adding some improvement. Compared with Kim et al. (2010), our work
tackles a problem of distributed generation planning, focusing on allocat-
ing costs and not load. Being different to the approach proposed by
Nylund (2014), we set out explicitly how we compute the joint cost and
include the possibility of using references, which represent the maximum
and minimum willingness to pay of the agents involved.
Willingness to pay (WTP) for a product corresponds to the maximum
price that can be charged without reducing the individual's welfare and
utilization of the product (Dossani & Ranganathan, 2004). It includes
both financial and technical aspects of the user (Hong, Abe, Baclay, &
Arciaga, 2015). Therefore, assessing the users' WTP is crucial to guaran-
tee the system's good operation and maintenance.
Qualitative inquiries, like how much a user is willing to pay for a given
service or system, were included in questionnaires used to assess the
users' WTP for a Solar Home System in Uttar Pradesh, India
(Urpelainen & Yoon, 2015) and Alumar Island, Philippines (Hong et
al., 2015), respectively. An alternative approach was the choice experi-
ment, used by Graber et al. (2018) to match the electricity need with
an electricity plan. Even though these methods can measure the users'
WTP, they miss grasping the link between the price a user is willing to
pay with obtaining a service and its real cost.
For techno-economic purposes a more quantitative measure of WTP
could be preferred. For example, Bose and Shukla (2001) relate the
user's WTP for the service with the cost of the system – therefore its
size – that should provide such service. For the purpose of this study
the WTP for the electricity system corresponds to the financial support
a user could request to purchase the system.
Our proposal differs from others in the literature in that we combine
three different methodologies. We use a bottom-up method based on
an optimisation model, in particular a facility location covering (FALCO)
problem, together with a willingness to pay approach and a rationing
technique. As far as we know, this approach that combines these three
methodologies is novel and covers a gap in the cost allocation problem
in energy systems literature.
In general, bottom-up models focus on energy and technology issues,
which can include cost, ignoring consumer preferences (Hall & Buckley,
2016). In our context, this means that this approach may fail to convince
stakeholders to invest in an off-grid system as a distributed generation so-
lution for them. For this reason, in the proposed method, in addition to
using a bottom-up approach based on a FALCO model, we introduce the
use of WTP of stakeholders. But instead of determining this by any of
the usual methods (Breidert, Hahsler, & Reutterer, 2006), we endoge-
nously determine the WTPs from the optimisation model itself to relate
the WTP with the best possible solution to the problem of obtaining an
off-grid system. In this sense, stakeholders may be convinced of their con-
tributions to the investment in the off-grid system. In particular, we ob-
tain two different WTPs, one very optimistic relaxing some of the
technical constraints of the FALCO model (minimum WTP), and another
more realistic from the FALCO model as is (maximum WTP). Finally, for
stakeholders to accept the final allocation of investment costs between
them, we apply a known rationing rule. These rules have good properties
related to fairness (Thomson, 2003, 2013, 2015) and are easy to apply and
to understand. Furthermore, if the final cost of the investment deviates
from what was determined by the FALCO optimisation model due to hid-
den costs or unexpected problems in the deployment, this methodology
would continue to be valid; since the rationing rules would be applied
 G. Bonamini et al. / Energy for Sustainable Development 50 (2019) 139–152
in the same way, with the only change of the total investment cost to be
shared.
Regarding the FALCO model, we use a stylized model that is suffi-
cient to illustrate the proposed methodology for the allocation of costs
of investment in distributed generation solutions in rural areas. But
more elaborate models can be used that include a better treatment of
the load, such as load-profile based sizing procedures (Bilal, Sambou,
Ndiaye, Kébé, & Ndongo, 2013; Chuan & Ukil, 2015; Mandelli, Brivio,
Colombo, & Merlo, 2016), the use of batteries for energy storage
(Meunier et al., 2015) or the possibility of hybrid power generation sys-
tems (Diaf, Diaf, Belhamel, Haddadi, & Louche, 2007; Luna-Rubio, Trajo-
Perea, Vargas-Vazquez, & Rios-Moreno, 2012). In all those cases what
would change in the problem would be the values of the minimum
and maximum willingness to pay, but the methodology would remain
the same. In this sense, the proposed methodology would be flexible
and adaptable to different situations and technologies.
Therefore, the contributions of this paper are the following:
1) A new methodology for cost allocation of the investment in local en-
ergy mini and micro distributed generation systems. This approach
can be effective and tailored to the context when the deployment of
such a system takes into consideration technical sizing, geographical
distribution and optimisation as well as cost allocation among the
beneficiaries.
2) Minimising the cost of distributed generation is not sufficient to as-
sure that local stakeholders will be willing to pay the investment
needed and effectively coordinate in an energy access initiative.
For this reason, our model makes it possible to minimise the invest-
ment cost of a system and, in parallel, sharing it among the users. De-
fining fair allocations among the users will help towards better
planning of distributed generation solutions and contribute to assure
willingness to pay by users.
With regard to practical implications, on the one hand, this study
would like to support bottom-up development which is locally promoted
and co-invested, so to counterbalance the poor interest of the private sec-
tor, typical of rural electrification (Ahlborg & Hammar, 2014). Our meth-
odology links the “engineering design” with the “institutional design”,
mentioned by Kaundinya, Balachandra, and Ravindranath (2009), since
the former is more focused on the optimisation of the technical perfor-
mance, and the latter focuses on the social acceptance of the project.
On the other hand, a consideration which, now, is quite the rule of the
thumb: one should not expect that low loss of load probability and elec-
tricity availability in around the clock is important. Possibly, it is not.
The village electrification usually starts with Diesel generator operating
4 h a day. Photovoltaic (PV) generator plus batteries looks like a good
first step, which can then be followed by biogas genset, and only later
by hydro, if available.
The rest of the paper is organised as follows. In the Methodology sec-
tion we explain how to allocate the investment cost of distributed gen-
eration solutions using the users' minimum willingness to pay for the
power system, related to its cost. In order to do this, we pose a facility
location covering (FALCO) model which provides the best distributed
generation configuration to electrify a rural area, given that each user
could buy a stand-alone system or users could also decide to unite either
in small groups or in one big group, and purchase one power system to-
gether. In the Section 3 section we present a case study to illustrate how
the proposed methodology works and show its salient features. In the
case study, a group of farmers relies on poor quality power supplied
by the national grid to irrigate the fields. To avoid the risk of a scarce
harvest, the famers are willing to share a PV generator to power their
own irrigation system. Given the technological choice, PV system in
this case, the users can know the configuration of the system and how
they will share the overall costs. In the Section 4 section we discuss
the results of the case study. The final section reports the conclusions
141
and policy implications. In Appendix A, the mathematical results
supporting our approach are shown.
2. A methodology for investment cost allocation
In this paper, as in Silva Herran and Nakata (2012), we take the per-
spective of a rural energy cooperative that seeks to provide electricity to
its members: both minimising the total system costs and identifying the
individual quotas associated with each user. For this purpose, we con-
sider that they have made the decision of deploying a distributed gener-
ation solution and all users actively participate in setting up the new
system, agreeing to sign a contract of energy usage – including power
and time of usage. In order to design the distributed generation solution,
they need to know some relevant data such as technical requirements
associated with the power generation and transmission, topographical
conditions of the piece of land where the deployment of the off-grid sys-
tem will be carried out, the power demands of the members of the co-
operative, and the costs of all necessary structural elements to be
installed or built.
Considering all these data, a linear facility location covering (FALCO)
problem is modelled, whose optimal solution provides the design of the
system, i.e. where and how many power generators must be installed to-
gether with the transmission lines connecting the users to the power gen-
erators; and the minimal investment cost to deploy the energy system. On
the other hand, following the ideas on duality and cooperative games in
Owen (1975) and Bjørndal and Jörnsten (2009) for production problems,
Goemans and Skutella (2004) for facility location problems and Carnes
and Shmoys (2014) for covering problems, we consider the dual optimal
solution of the FALCO problem and the dual optimal solution of a FALCO
problem with less technical constraints as references on what the mem-
bers of the cooperative should objectively contribute to financing the sys-
tem. These two references are called the maximum and minimum
willingness to pay, respectively. Therefore, from the FALCO model we ob-
tain three outputs: the minimal investment cost, the design of the system
and the maximum and minimum WTP.
Finally, in order to share the investment cost allocation among the
users of the system, we take as inputs the minimal investment cost,
which must be distributed among the users, and the maximum and
minimum WTP of each user. These inputs allow us to define a rationing
problem (Moulin, 2002; Thomson, 2015; Young, 1988), which can be
solved using the approaches in Pulido et al. (2002, 2008), Timoner and
Izquierdo (2016) or Giménez-Gómez et al. (2016), depending on the
particular structure of the rationing problem arising from the data.
In synthesis, Fig. 1 shows the approach we propose to allocate invest-
ment costs among stakeholders in distributed generation solutions in
rural areas.
2.1. The FALCO model
In order to write the mathematical model of the facility location cov-
ering problem, we need the following parameters and variables:
N set of cooperative members or users
i a particular member or user
di peak power demand in kW of user i
F set of possible locations where to install a power generator
j a possible location in F
fj cost in $/kW of installing a power generator in location j
kmax
j maximum installable capacity in kW in location j
cij cost in $/kW of connecting user i to a power generator in j
^j
y power in kW to be installed in j
^xij maximum transmissible power in kW through link ij
^i
u dual variable associated with the peak power demand of user i
^j
v dual variable associated with the installed power in j
w^j dual variable associated with the maximum installable capac-
ity in j.
142 G. Bonamini et al. / Energy for Sustainable Development 50 (2019) 139–152

Input Data Output Data

•Technical •Opmal
requirements Cooperave
( ) Investment
•Topograhical FALCO (= ) RATIONING
•Off-grid system PROBLEM Final Shares
condions ( ) MODEL
•Power demands design ( , ) eq. (20)
( )
eq. (7)-(12) •Maximum ( = ) & ( , , )
•Costs of the minimum ( = )
elements to be WTP
installed or built
( )( )

Fig. 1. Proposed investment cost allocation methodology.

The mathematical program of the facility location covering (FALCO) solutions, this means we can further simplify the computation of the op-
problem is as follows: timal solution.
Solving the FALCO model, we obtain the first two outputs: the mini-
X mum investment cost for the deployment of a distributed generation sys-
^ FLP ðNÞ ¼ min
C ^ j þ ∑i∈N ∑ j∈ F cij ^xij
f jy ð1Þ
^ ;^
y x
j∈ F tem, C^ FLP ðNÞ, and its design, ðy
^ ; ^x Þ. The third output is obtained by
j ij
duality and simplifying the FALCO model as explained below.
The FALCO dual program is given as follows:
s:t: : ∑ j∈ F ^
xij ≥di ; ∀i∈N ð2Þ

^ D ðNÞ ¼ max ∑ di u
i∈N ^ i −∑ j∈ F k j
max
C ^j
w ð7Þ
^ j ≥∑i∈N ^
y xij ; ∀j∈F ð3Þ ^ ;v^;w
u ^

^ j ≤kmax
y ; ∀j∈F ð4Þ s:t: : ^ i −v
u ^ j ≤cij ; ∀i∈N; ∀j∈F ð8Þ
j

v ^ j ≤ f j ; ∀j∈F
^ j −w ð9Þ
^ j ≥0; ∀ j∈ F
y ð5Þ

^ i ≥0; ∀i∈N
u ð10Þ
^xij ≥0; ∀i∈N; ∀j∈ F: ð6Þ

^ j ≥0; ∀j∈ F
v ð11Þ
Condition (1) means that both generation and distribution costs are
minimised, optimising simultaneously the power to be installed in each
^ j ≥0; ∀j∈ F:
w ð12Þ
candidate location and the maximum power transmissible through
each link. Constraints (2) establish that the peak demands of all cooper-
ative members must be covered by the system. Constraints (3) indicate Condition (7) highlights the fact that the optimal solution of the
that the installed power in each candidate location must be enough to FALCO dual program comprehends two components: the users' finan-
cover the simultaneous peak demands of all agents connected to it. Con- cial support (∑i∈N di u ^ i ) and the saturation capacity discount (or pen-
straints (4) establish that the installed power in each candidate location max
alty) (∑ j∈ F k j w ^ j ). The saturation capacity discount means that if a
cannot exceed the maximum installable capacity in that location. Fi-
generator j has reached its maximum installable capacity the related
nally, constraints (5) and (6) show the nature of the decision variables. ^ j , will be positive – and null otherwise.
dual variable, w
Some technical remarks about the FALCO model are the following. On
0 Now we focus on the optimal solution of the FALCO dual program.
the one hand, f j s may represent the associated costs with different ^ i ; v
^j ; w
^ j Þ is an optimal solution of
On the one hand, we have that if ðu
power generation technologies and also kmax′ s may represent maximum
^ i ; ^v0j ¼ f j þ w
^ j ; w
^ j Þ is also an optimal
j
the FALCO dual program, then ðu
installable capacities for different power generation technologies. There-
fore, this model is flexible enough to consider hybrid off-grid systems as solution (see Lemma 1 in Mathematical results and proofs). This implies
no more than to duplicate each location and consider different costs and that constraints (8) and (9) can be simplified by changing them for sim-
installable capacities. On the other hand, a better treatment of the load, ply u^ i −w
^ j ≤ f j þ cij ; ∀i∈N; ∀j∈ F . On the other hand, by comparing
such as load-profile based sizing procedure, could have been used instead condition (1) with condition (7), and taking into account the Strong Du-
of the simpler idea of peak demands used in this paper. However, in the ality Theorem, we have that the following condition holds:
context of this analysis, the users' load profiles would be similar, because
all of them would be farmers whose interest would be the irrigation of ^ FLP ðNÞ≤∑ di u 
C i∈N ^ i : ð13Þ
their lands, so that the proposed approach of energy consumption is rea-
sonably adequate. In addition, by considering other treatment of the load,
the proposed methodology would remain the same. Likewise, other tech- Therefore, if each cooperative member i contributes with the
nical constraints can be added to the model such as battery storage, but ^ i , the cost of the investment in the deployment of the off-
amount di u
for the purpose of this paper, it has not been considered necessary to grid system would be covered, even by excess. Thus, those amounts
add elements that complicate the analysis, since it would not introduce can be considered the maximum WTP of the users.
significant changes in the methodology for the allocation of investment However, it is also interesting to determine how much the minimum
costs in a distributed generation system proposed in this paper. would be that each member would be willing to pay to deploy a distrib-
Finally, the computational effort for solving the FALCO program is uted generation solution to satisfy her electric power needs. For this, we
low since this type of linear problems is solvable in polynomial time consider a FALCO model without constraints (4) (Un-FALCO model),
with high convergence rates to the optimal solutions (Karmarkar, which implies that the optimal solution that would be obtained would
1984). In addition, constraints (2) and (3) will be active for optimal be cheaper than the initial one and, therefore, more optimistic or
 G. Bonamini et al. / Energy for Sustainable Development 50 (2019) 139–152 143

Fig. 2. Terrain map with the transmission lines (in red) and roads (in yellow) near the village.

favourable regarding the investment cost of the distributed generation considered as the users' minimum WTP to obtain the distributed gener-
solution, i.e. the best case. ation solution.
For the latter purpose, we only need to consider the Un-FALCO dual In this case, an interesting fact is that these users' minimum WTP can
program, which is given as follows: be obtained without calculations since it is possible to prove that ui ¼

min ðf j þ cij Þ; ∀i∈N (see Lemma 2 and Theorem 3 in Mathematical

C D ðNÞ ¼ max ∑i∈N di ui ð14Þ j∈ F
u;v
results and proofs). Note that each ui ¼ min ðf j þ cij Þ represents the
j∈ F
cheapest cost for that user to be served by the distributed generation
s:t: : ui −v j ≤cij ; ∀i∈N; ∀j∈F ð15Þ
solution.
Therefore, the third output from the FALCO model is that we have
v j ≤ f j ; ∀j∈F ð16Þ endogenously obtained two references, the maximum and minimum
WTP, in order to know what cooperative members would be willing
to contribute financially to deploy a distributed generation solution to
ui ≥0; ∀i∈N ð17Þ
provide them with electric power.

v j ≥0; ∀j∈F ð18Þ

Condition (14) can be interpreted as the maximal financial support
users are willing to give to have their demand satisfied. In this sense,
and taking into account that the Un-FALCO model gives us the best
case in terms of investment costs, the quantities (diui∗) could be
2.2. The rationing problem
Now we address the problem of allocating the minimal invest-
^ FLP ðNÞ, to deploy the distributed generation
ment necessary, I ¼ C
system obtained from the application of the FALCO model, taking

Table 1
Declared power by each user.

User #1 #2 #3 #4 #5 #6 #7 #8 #9 #10 #11 #12 #13 #14 #15

Declared power (kW) 3 3 3 3 5 8 7,5 22,5 7,5 15 10 8 8 20 18

144 G. Bonamini et al. / Energy for Sustainable Development 50 (2019) 139–152

Fig. 3. Location of each farmer's plot, demand point and possible location for the candidate generator.

^ i ; ∀i∈N
Note that if other relations different from Eq. (19) and U i ≤ U
into account the minimum WTP, U = (Ui = diui∗,∀i ∈ N), and the maxi-
mum WTP, U ^ ¼ ðU
^ i ¼ di u
^ i ; ∀i∈NÞ, of the users. Since we have that were satisfied, then we could use other rationing approaches such as
those described in Pulido et al. (2008), Timoner and Izquierdo (2016)
and Giménez-Gómez et al. (2016) among others. In any case, the pro-
^ i;
∑i∈N U i ≤I ≤∑i∈N U ð19Þ posed methodology in this paper for allocating investment costs in the de-
ployment of a distributed generation solution would remain the same.
^ i ; ∀i∈N (see Theorem 5 in Mathematical results and proofs), we
and U i ≤ U A final remark on the rationing problem of the proposed investment
deal with a rationing situation as described in Pulido et al. (2002), the so- cost allocation methodology is the following. Note that the pair ðI; UÞ^ is a
called CERO-rationing problems. Therefore, as in Pulido et al. (2002), we rationing problem as described in Basics on rationing problems. How-
can define a CERO-rationing problem with a triple ðI; U; UÞ ^ . Using a ever, this rationing problem does not include information on the mini-
^ we can determine the final share for each
CERO-rationing rule RðI; U; UÞ mum that each user of the system would fairly and reasonably be
user i, Ri. CERO-rationing rules have the following structure expected to contribute to finance the joint electrification project. Thus,
we introduce the reference of the minimum WTP, U, as an element
    that shows the system's users the minimum contribution each of
^ ¼ U i þ r i I−∑ U i ; U−U
Ri I; U; U ^ ; ð20Þ
i∈N them should make in their best case. This reference of the minimum
WTP would introduce a relevant aspect in the solution to the problem
where r is a rationing rule for (standard) rationing problems (see Basics of investment cost allocation, providing a fairer allocation of costs and
on rationing problems for a basics on rationing problems). In Eq. (20), thereby ensuring acceptability of the distributed generation solution
we observe that we first allocate part of the cooperative investment by the beneficiaries. In this sense, it seems reasonable, to take this ele-
assigning to each user i her minimum WTP, viz. her reference. Then, we ment as a relevant point when allocating the necessary investment
ration the remaining investment, I − U, according to the remaining costs to carry out the joint electrification project.
^
claims, U−U, ^
using a rationing rule, rðI−U; U−UÞ. CERO-rationing rules
3. Case study: a cooperative investment for distributed generation in
(Eq. (20)) verify two relevant conditions:
rural India
(a) full investment coverage,
(b) and each final share stays between the minimum and maximum In order to illustrate the proposed methodology for investment cost
WTP. allocation in distributed generation solutions, we consider a situation

Table 2
Plot size across the generators locations.

Location #1 #2 #3 #4 #5 #6 #7 #8 #9 #10 #11 #12 #13 #14 #15

Plot size (ha) 1,05 1,17 1,20 1,32 1,13 1,29 1,33 1,34 0,36 1,80 2,55 0,88 0,66 1,36 1,48
 G. Bonamini et al. / Energy for Sustainable Development 50 (2019) 139–152 145

Table 3
Distance (in m) between each user and candidate generator. Underlined the shortest distance for each user.

lij [m] Candidate generator (j)

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15

User (i) 1 152 121 46 120 131 282 315 295 256 378 459 337 647 157 321
2 165 92 216 290 240 121 150 166 353 484 604 357 653 278 449
3 297 268 107 138 244 416 417 365 138 240 312 274 565 250 369
4 336 328 162 127 255 490 508 464 210 270 273 364 637 245 315
5 81 139 170 161 33 292 377 393 399 513 560 486 796 62 220
6 203 133 254 331 282 104 107 134 372 502 631 358 644 321 491
7 420 356 465 548 505 229 117 154 511 627 789 424 629 545 714
8 436 362 422 510 500 294 166 105 410 514 688 300 494 536 708
9 353 301 186 248 330 412 376 303 61 192 333 155 453 347 482
10 535 513 348 334 461 660 647 578 226 164 67 370 553 452 502
11 675 637 486 498 619 758 713 628 285 155 161 357 421 618 689
12 503 430 389 467 519 458 359 262 245 305 494 87 283 545 699
13 833 760 714 785 849 764 646 556 526 511 683 385 130 873 1020
14 197 245 192 127 96 407 483 485 402 496 502 520 824 57 121
15 381 413 293 206 276 583 639 619 416 463 397 567 841 242 176

Table 4
Employed technology and associated costs.

Technology Power = ηPV × AvgPR Investment cost Operation-and-maintenance costs (20 years) Link costs Land cost
2a b b b
Stand-alone solar PV 75 W/m 6000 $/kW 2400 $/kW 5000 $/km 30 $/kWc
a
degli Uberti et al. (2010).
b
Nerini et al. (2016).
c
Hernandez-Moro & Martinez-Duart (2013).

related to rural electrification for agricultural purposes, such as irriga-
tion, which is related to sustainable development (Bhattacharyya,
2012; Tenenbaum et al., 2014). In the particular case of irrigation,
power quality conditions are relevant to obtain an energy-efficient irri-
gation system (Kimmich, 2013). Therefore, at first glance it seems easy
to convince farmers to implement distributed generation solutions.
However, there is still a relevant aspect to be taken into account,
which is the financing and profitability of such solutions. For this reason,
it is important to know either what the farmers' WTP is (Dossani &
Ranganathan, 2004) or to use the problem itself to determine the
farmers' WTP as done in the proposed methodology in this paper.
We study the particular case of the village of Katgaon, a rural Indian
town with 7800 inhabitants (see Fortiguerra and Moroni (2014) for de-
tails on design of a pilot project for irrigation in the village of Katgaon), sit-
uated in the state of Maharashtra (N 17° 48′ 24.474″ E 76° 1′ 7.459″) at
about 20 km far from the national transmission line (see map in Fig. 2).
In Katgaon, farming related activities represent the main source of in-
come: 70% of locals work in agriculture. The highly unreliable or, in
some cases, absent electric power supply reduces the possibility to irrigate
the land properly. We analyse the case of an energy cooperative that
wants to supply electricity, for irrigation purposes, to a group of farmers.
Solar electrification works with low barrier, since it is scalable, while
the hydro based grid electrification confronts huge barrier of having to
do all at once. As we can see from Africa (Ahlborg & Hammar, 2014;
Tenenbaum et al., 2014), electrification has been mainly taken over by
photovoltaic. Even when hydro is built, it never reaches poor population
due to cost of distribution that is just not viable. That is why solar elec-
trification is much more viable, as bottom up. Once the demand has
built up, the hydro could become a viable balancing technology, if avail-
able. Therefore, we assume the local cooperative wishes to establish a
system with PV panels to guarantee farmer's electricity needs. The tech-
nology selection derives from the strong presence of the solar resource,
and scarcity of other renewable resources, the minor operation and
maintenance costs (Nerini et al., 2016), and the government incentives
in using solar powered systems in agriculture (Blenkinsopp et al., 2013;
Hufbauer, Meléndez-Ortiz, & Samans, 2016). Regarding the favourable
climatic conditions, it should be noted that annual averaged insolation
incident on a horizontal surface is 5.36 kWh/m2/day (NASA Center,
2017), with a monthly average availability of solar radiation between
4 and 7 kWh/m2/day, and the lowest availability of solar radiation cor-
responds to the monsoon season (June–September) (Fortiguerra &
Moroni, 2014). For power demand for irrigation, the latter is not a prob-
lem because during the monsoon season it is well-known that there is
frequent rainfall. Therefore, there are climatic, economic and political
reasons to justify the choice of an off-grid solar PV system for a rural
area like Katgaon.
On the other hand, regarding the system layout and the solar PV
technology,2 Mohanty and Muneer (2014) note that “…While convention-
ally straightforward designs were used to set up off-grid PV-based systems in
many areas for a wide range of applications, it is now possible to adopt a
smart design approach for the off-grid stand-alone solar PV system. A range
of off-grid system configurations are possible, from the more straightforward
design to the relatively complex, depending upon power and energy require-
ments, electrical properties of the load, as well as on site specificity, and avail-
able energy resources. The overall goal of the off-grid system design should be
such that it can give maximum efficiency, reliability and flexibility of the sys-
tem at an affordable price…” Therefore, in this sense, a distributed gener-
ation solution based on solar PV technology in a rural area like Katgaon
is perfectly adequate.
3.1. Data from the field
For each potential user, we know: electric pump nominal power and
location. Each famer declared its peak power, displayed in Table 1. The
users with high-power demand (i.e. #8, #14, #15) own and might use si-
multaneously more pumps – we assume no peak-shaving to consider the
worst-case scenario. This assumption implies that the final power
installed in the system will be oversized most of the time. However, we
understand that this is not a negative aspect because new users could
be connected in the future or even part of the generated energy could
be allocated to other uses that benefit the community. In addition, this
oversizing would guarantee that all users get the energy they need at all
times, in general. Table 1 shows the declared power needs of each user.
For each candidate generator, we need to know: one possible loca-
tion and maximum land size earmarked for installing the power
2
A brief description of the three basic PV systems, i.e. stand-alone, grid connected- and
hybrid-systems, can be found in Mohanty and Muneer (2014).
146 G. Bonamini et al. / Energy for Sustainable Development 50 (2019) 139–152

25 Table 6
Final shares (in k$).
20 User Final shares (k$)

CERO-CEL CERO-CEA CERO-TAL CERO-PROP

15
1 26,12 26,32 26,11 26,25
kW

g11 2 26,29 26,48 26,28 26,41

10 3 25,90 26,10 25,93 26,06
g10 4 25,84 26,03 25,92 26,01
5 5 43,95 44,15 43,94 44,00
6 70,50 70,70 70,49 70,49
7 66,58 66,78 66,57 66,53
0 8 198,80 197,20 198,78 198,38
u1 u2 u3 u4 u5 u6 u7 u8 u9 u10 u11 u12 u13 u14 u15 9 64,85 65,05 64,84 64,96
Users 10 128,53 128,53 128,53 128,53
11 86,15 86,19 86,17 86,18
12 69,67 69,87 69,66 69,73
Fig. 4. Power supplied by the generators to each user (kW).
13 70,54 70,74 70,53 70,53
generator. To this end, each farmer declares one location on his plot for 14 175,80 175,21 175,78 175,49
15 157,20 157,39 157,18 157,17
installing a power generator. From the map (Fig. 3), we can notice each
user location and each candidate generator. The numbering relates to
both the demand and the generator to the farmer's land.
includes both investment and 20 years of operation-and-maintenance
Since a solar generator occupies part of the fields, the constraints on
costs (Rodríguez Ortega, Pérez-Arriaga, Abbad, & González, 2008; Sen
the capacity depend upon the available plot sizes (Table 2). To compute
& Bhattacharyya, 2014), respectively 6000 $/kW and 2400 $/kW of the
the maximum capacity that can be established in each plot, we convert
former (Nerini et al., 2016). Of course, other different technologies
the maximum available area in power capacity using specific nominal
could be used even hybrid systems. However, we consider that for the
peak power of the PV panel (ηPV) and the PV panel average performance
purpose of illustrating the proposed methodology for the distribution
ratio (Eq. (21)).
of costs among the beneficiaries (farmers) in a distributed generation
max       solution, only one power generation technology is sufficient.
kj kW p ¼ PlotSize j m2  Availability j ½%  ηPV kW p =m2 Each component size depends on the panel peak power. We con-
 AvgPR½%; ð21Þ sider the PV panel rated power equivalent to the peak power multiplied
by an average performance ratio of 75% (degli Uberti et al., 2010).
where in brackets the used units are shown and In this case study, the land loss cost is due to impediments related to
the installed solar panels. As per the value associated with the unculti-
- PlotSizej represents the size of the plot of the j-th farmer,
vated land we used 30 $/kW (Hernandez-Moro & Martinez-Duart, 2013).
- Availabilityj represents the land share available for installing a generator,
- ηPV represents the nominal peak power of the PV panel specific to the
3.2.2. Connection links: data and cost
surface,
The link cost depends linearly from the distance to be covered by the
- AvgPR indicates the average performance ratio, that is the amount of the
cable and the power to be distributed (see How to relate cable cost to
net output energy of the PV system, compared with the theoretical one
the distributed power?). We used 5000 $/km (Nerini et al., 2016),
in input for its working period (degli Uberti, Faranda, & Leva, 2010).
while Table 3 shows the distances between users and candidate gener-
ators, Table 4 summarises the technology to be employed and the asso-
3.2. Costs for generator and links
ciated costs with the system.
A final remark on the technology and costs of the distributed solu-
3.2.1. Specific cost for generator
tion is that if other power generation technologies (even hybrid sys-
The cost factor (fj) comprises two main components: one related to
tems) were used and other costs considered, then it is obvious that
the technology (ftech
j ) and one related to the land loss (fland
j ). The former
the final structure of the distribution grid could be completely different.
is equal for all candidate locations, since the technology is the same.
For this reason, in order to analyse which final solution is the best, dif-
We consider a stand-alone solar PV system with a nominal peak
ferent scenarios and technologies should be considered as done in
power of ηPV = 100 W/m2. The system specific cost (i.e. 8400 $/kW)

Table 5 Table 7
Minimum and maximum willingness to pay (WTP) for each user. Additional shares.

User WTP (k$) Remaining claim (%) User Additional share (% final share)

Minimum WTP Maximum WTP (Max − min) / max CERO-CEL CERO-CEA CERO-TAL CERO-PROP

1 25,7 26,3 2% 1 1,7% 2,4% 1,7% 2,2%

2 25,7 26,5 3% 2 2,1% 2,8% 2,0% 2,5%
3 25,8 26,1 1% 3 0,5% 1,2% 0,6% 1,1%
4 25,8 26,0 1% 4 0,1% 0,9% 0,4% 0,8%
5 42,8 44,1 3% 5 2,7% 3,2% 2,7% 2,8%
6 68,7 70,7 3% 6 2,5% 2,8% 2,5% 2,5%
7 64,5 66,8 3% 7 3,2% 3,5% 3,2% 3,1%
8 193,3 199,0 3% 8 2,8% 2,0% 2,8% 2,6%
9 64,2 65,0 1% 9 0,9% 1,2% 0,9% 1,1%
10 128,5 128,5 0% 10 0,0% 0,0% 0,0% 0,0%
11 86,2 86,2 0% 11 0,0% 0,0% 0,0% 0,0%
12 68,6 69,9 2% 12 1,5% 1,8% 1,5% 1,6%
13 68,8 70,7 3% 13 2,4% 2,7% 2,4% 2,4%
14 171,3 176,0 3% 14 2,6% 2,2% 2,6% 2,4%
15 155,3 157,4 1% 15 1,2% 1,3% 1,2% 1,2%
 G. Bonamini et al. / Energy for Sustainable Development 50 (2019) 139–152 147

Table 8
Plots where generators are located and installed power (kW), for each scenario.

Demand and cost variaons with respect to the base assumpons

Plot minimum size with
generator
respect to (wrt) the 85% 90% 95% 100%* 105% 110% 115%
locaon
base assumpons
g10 68 68 68 68 68 68 68
100%*
g11 53 60 67 74 81 88 95
g10 59 63 66 68 68 68 68
95% g11 13 14 14 18 25 32 40
g15 48 51 54 56 56 56 56
g10 50 53 56 59 63 68 68
g11 13 14 14 15 16 17 21
90%
g14 42 45 47 50 51 51 51
g15 15 16 17 18 19 20 23
*Base assumpons: demand as in table 1, costs as in table 4, plot min. size 1.5 ha
For any given plot minimum size (100%, 95%, 90%), color shading highlights the relative installed power wrt the generators considered in the scenario: darker red means higher power,
lighter red means lower power.

Fortiguerra and Moroni (2014). Then, the results obtained from these
scenarios and technologies, together with their advantages and disad-
vantages, have to be shown to the beneficiaries. Once the famers have
chosen a solution, the economic contribution of each farmer to cover
the total cost of the distributed generation solution chosen would be de-
termined by using the proposed methodology.
4. Results and discussion
We assume that only the land with N1.5 ha can accommodate any
generator up to 5% of the plot: only location #10 and #11, in this case.
The reason for this assumption is that it does not seem to be reasonable
to reduce the cultivable area of those farmers who own small pieces of
land. The results of the FALCO problem applied to the case study with
the data described in the Section 3 unveil the structure of the distribu-
tion grid, showing which users are sharing a generator. In Fig. 4 the
amount of power each generator supplies to each user according to
the solution obtained by application of the FALCO problem is shown.
The total cost for the system equals 1237 k$, while the total minimum
and maximum WTP result in 1215 k$ and 1239 k$, respectively. In Table 5
the different values for each user are shown. Note that in this case study
the differences between the minimum and maximum WTP are quite
small but, in general, this is not. In fact, it is not difficult to find examples
in which these differences are greater. These differences between the min-
imum and maximum WTP will depend on both the technological and the
topographical conditions, since these conditions have a decisive influence
on the installation and construction costs of the off-grid system and, there-
fore, in the solutions for the FALCO and Un-FALCO models. Therefore, the
results obtained for a small problem cannot in general be up-scaled to a
bigger one, i.e. each problem has its own features and peculiarities.
Table 6 displays the final shares obtained through different CERO-ra-
tioning rules. Each final share reflects proportionally each user demand.
In the case under study, the range between the total minimum and the
total maximum WTP resulted being small (see Table 5). Since the total
cost almost equals the maximum WTP, to apply different CERO-
rationing rules makes almost no difference among the final shares of
the same user.
Nevertheless, depending on the chosen rule we will go more in fa-
vour of either smaller users or larger users. Table 7 displays the portion
related with the additional contribution, after distributing the refer-
ences (minimum WTP). Notice that the landowners hosting a generator
shall add nothing. Overall the small users appear advantaged with the
CERO-CEL and the CERO-TALMUD (see the The rationing problem sec-
tion and Basics on rationing problems for a better understanding of
the rationing rules used in this case study).
4.1. Sensitivity analysis
One main assumption is that only the plots bigger than 1.5 ha could
host a generator, therefore we reduced this number, by both 5% and
10%, to find out how results would change, both in terms of system con-
figuration and in terms of cost allocation. We included also the two
main FALCO inputs in this sensitivity analysis, that are the costs and
the demand. The demand vector and the costs associated with genera-
tors and links were multiplied by a factor varying between 0.85% and
1.15%, with steps of 0.05%.
Table 8 shows how the main change is the number of generators and
their locations. Reducing the limit for the plot size so to host a generator,
increased the number of plots that could host generators. Therefore, in-
stead of only 2 possible generators (in plot 10 and 11), in the cases
where the “plot size limit” is reduced by 5% and 10%, we obtain a config-
uration with 3 and 4 generators, respectively. Moreover, for each plot
minimum size the differences in installed power basically grow with
the demand. In Table 8, each configuration is shown as a heat map
that shows as the installed power grows with the demand.
Table 9 illustrates how the total cost for the system grows both with
the plot minimum size and with the demand and the component costs.
The range of the total cost for the 21 scenarios considered goes from 886
to 1636 k€. The variation of the total cost with respect to the base as-
sumptions is approximately twice the variation of the demands and

Table 9
Total cost (k€) for each scenario.

Demand and cost variaons with respect to the base assumpons

Plot minimum size wrt the
85% 90% 95% 100%* 105% 110% 115%
base assumpons
100%* 893 1002 1116 1237 1364 1497 1636
95% 888 996 1109 1229 1355 1488 1626
90% 886 994 1107 1227 1352 1484 1622
*Base assumpons: demand as in table 1, costs as in table 4, plot min. size 1.5 ha
For any given plot minimum size (100%, 95%, 90%), color shading highlights the relative total cost for each scenario: darker red means higher power, lighter red means lower power.
148 G. Bonamini et al. / Energy for Sustainable Development 50 (2019) 139–152

Table 10
Average percentage variation (and range of percentage variation) between minWTP and maxWTP.

Demand and cost variaons with respect to the base assumpons

Plot
minimum
size wrt the
85% 90% 95% 100%* 105% 110% 115%
base
assumpon
s
1,76% 1,92% 1,92% 2,02% 2,16% 2,18% 2,18%
100%* (0,00 - (0,00 - (0,00 - (0,00 - (0,00 - (0,00 - (0,00 -
3,18%) 3,43%) 3,43%) 3,59%) 3,88%) 3,94%) 3,94%)
1,31% 1,31% 1,31% 1,38% 1,38% 1,70% 1,96%
95% (0,00 - (0,00 - (0,00 - (0,00 - (0,00 - (0,00 - (0,00 -
3,14%) 3,14%) 3,14%) 3,18%) 3,18%) 3,59%) 3,94%)
0,97% 0,97% 0,97% 0,97% 1,04% 1,15% 1,16%
90% (0,00 - (0,00 - (0,00 - (0,00 - (0,00 - (0,00 - (0,00 -
2,63%) 2,63%) 2,63%) 2,63%) 2,79%) 3,03%) 3,03%)
*Base assumpons: demand as in table 1, costs as in table 4, plot min. size 1.5 ha

For any given plot minimum size (100%, 95%, 90%), color shading highlights the relative average percentage variation between minWTP and maxWTP: darker red means higher power,
lighter red means lower power.

costs for each plot minimum size. Finally, the fewer the plots available
for installing generators, the harder it gets to minimise the total cost.
Table 10 shows how the results are related with the increases ob-
served for the total cost of the system (Table 9). The range of the average
percentage variation goes from 0,97% to 2,18%. The maximum variation
between minWTP and maxWTP is 3,94%. In general, we see that the
more plots are available, the less is the difference between the mini-
mum WTP and the maximum WTP.
In Table 11 the minimum additional payment is not included be-
cause equals 0% in all cases. Among all the values in Table 11 the differ-
ence results being quite small, the range goes from 2,59% to 3,94%, i.e.
the difference is 1,35%. In this particular case study, there is a relatively
small difference between which rationing rule is chosen.
5. Conclusions and policy implications
5.1. Conclusions
We introduce a new methodology whose objective is to overcome
the cost barrier to promote distributed generation solutions that can
contribute to sustainable development and improve the quality of en-
ergy services in rural areas. Since defining a cost-recovery methodology
is crucial for financial sustainability of rural energy systems, minimising
the cost of the energy system, assessing users' WTP together with ra-
tioning techniques could help in this direction. Therefore, the proposed
methodology combines three common techniques in different contexts
in the literature: bottom-up approach based on optimisation models
(FALCO model), WTP and rationing techniques. From our point of
view, this contributes to integrate three important elements, engineer-
ing development (bottom-up model), economic self-interest of individ-
uals (willingness-to-pay), and fairness in the allocation of investment
costs (rationing techniques), in order to deal with the problem of in-
vestment cost allocation in distributed generation solutions.
Regarding the FALCO model, additional technical elements, such as
batteries or load profile, could be considered but the methodology,
based on the idea of integrating three different techniques, would be the
same. In any case, further research can be undertaken by using more com-
plex and detailed bottom-up models based on optimisation problems.
In the particular case of the WTP for electricity, many studies focus
on domestic users, neglecting the non-domestic ones that depend
more on electricity for their economic development, we believe that
there is a need for an approach to rural energy systems sizing that can
embrace both domestic and non-domestic usage. This study is only re-
lated to income generating activities, which here have been decoupled
from the household activities. But no less interesting is the fact that
we measure the (minimum and maximum) WTP endogenously from
a bottom-up model, the FALCO model, which is used to determine the
minimum investment cost and the optimal structure of the off-grid sys-
tem. Thus, the WTP is directly related to the size and structure of the
problem. Therefore, we can conclude that the proposed methodology
is appropriate for the allocation of investment cost of distribution gener-
ation solutions in rural areas and similar, complements existing
methods, and enriches the available literature. Furthermore, a case
study has been used to illustrate how this methodology works in a sim-
ple and transparent way for the beneficiaries.

Table 11
The maximum additional payment (%) with respect to the minWTP.

Plot minimum size wrt Demand and cost variaons with respect to the base assumpons
Raoning rule
the base assumpons 85% 90% 95% 100%* 105% 110% 115%
CEL 3,15% 3,21% 3,22% 3,28% 3,39% 3,43% 3,45%
CEA 3,18% 3,43% 3,43% 3,59% 3,88% 3,94% 3,94%
100%*
TAL 3,15% 3,21% 3,22% 3,26% 3,34% 3,38% 3,41%
PROP 3,14% 3,16% 3,17% 3,20% 3,27% 3,31% 3,33%
CEL 3,14% 3,14% 3,14% 3,10% 3,10% 3,03% 2,99%
CEA 3,14% 3,14% 3,14% 3,18% 3,18% 2,87% 3,07%
95%
TAL 3,14% 3,14% 3,14% 3,10% 3,10% 2,95% 2,88%
PROP 3,14% 3,14% 3,14% 3,03% 3,03% 2,72% 2,59%
CEL 2,63% 2,63% 2,63% 2,63% 2,71% 2,82% 2,81%
CEA 2,63% 2,63% 2,63% 2,63% 2,79% 3,03% 3,03%
90%
TAL 2,63% 2,63% 2,63% 2,63% 2,71% 2,81% 2,80%
PROP 2,63% 2,63% 2,63% 2,63% 2,64% 2,65% 2,64%
*Base assumptions: demand as in table 1, costs as in table 4, plot min. size 1.5 ha. For any given plot minimum size (100%, 95%, 90%), color shading highlights the relative maximum ad-
ditional payment with respect ti the minWTP: darker red means higher power, lighter red means lower power.
 G. Bonamini et al. / Energy for Sustainable Development 50 (2019) 139–152 149

5.2. Policy implications
In 2016, the United Nations established seventeen Sustainable De-
velopment Goals for 2030. In the seventh goal (SDG7), “Ensure access
to affordable, reliable, sustainable and modern energy for all” (United
Nations Economic and Social Council, 2016), energy is addressed as
“crucial for achieving almost all of the Sustainable Development
Goals”. Rural electrification in developing countries represents one of
the biggest issues that needs to be solved to attain the SDG7 by 2030.
But despite the international attention, the number of those affected
by the problem may not decrease fast enough in the next decades. A
simple case of Yadoo's model (Yadoo & Cruickshank, 2010) for distrib-
uted generation through cooperatives, could be: the cooperative's
members buy a system that produces electricity for their own needs.
The cooperative must share the electricity supply costs among its mem-
bers, therefore they should be all willing to pay for the system. What can
turn out to be hard to know is in what proportion they should share
such investment. The vast majority of village grids have failed because
maintenance and replacement investments are not ensured (Ahlborg
& Hammar, 2014), but as Ostrom says cooperatives may succeed
(Bauwens, Gotchev, & Holstenkamp, 2016; Ostrom, 1999; Ostrom,
Gardner, & Walker, 1994). There are many examples in literature
about cooperatives that were reported as successful (Sagebiel, Müller,
& Rommel, 2014; Viardot, 2013; Yadoo & Cruickshank, 2010).
The proposed methodology is a fair and uncomplicated way to allo-
cate the cost of distributed generation solutions in rural areas that guar-
antees the recovery of the optimal system total cost. A local energy
mini- or micro-enterprise with a shared-ownership model can take ad-
vantage of the fact that each customer, who expects reliable electric ser-
vice, will also be a co-producer, who seeks to minimise his expenses
while maximising his benefits (Sauter & Watson, 2007). Paying for the
service is the requirement for developing remote areas and starting
from an objective cost allocation can allow energy micro-enterprises
to rely on a better benchmark to plan a rural electrification initiative.
The model proposed can support cooperative investments (Nylund &
Egerer, 2013) and a fair cost allocation could help a local energy mini-
or micro-enterprise in defining fair tariffs and can give some insight
for the many Rural Energy Agencies (or equivalent authorities) institu-
tionally in charge of rural electrification in developing countries.
The fact that willingness to pay is endogenous and objective, di-
rectly related to the size of the grid and the users ‘electrical energy
needs, together with the users’ ability to pay (Bose & Shukla,
2001), the latter should be investigated further in the future, can
help governments design better incentive and subsidy policies to,
on the one hand, promote both electrification and sustainable devel-
opment of rural and similar areas; and, on the other hand, encourage
and facilitate entrepreneurial initiatives in rural areas to speed up ac-
cess to electricity along with its economic viability to maintain the
new power generation structures over time, including also the initia-
tives of small rural groups.
Acknowledgments
First of all, the authors thank two anonymous referees for their help-
ful comments and suggestions to improve the contents of the paper.
This research was funded by a PhD Studentship from the Mathematics
Department of Politecnico di Milano. Additional funding was provided
by the Operations Research Centre of University Miguel Hernandez of
Elche and by UNESCO Chair in Energy for Sustainable Development of
Politecnico di Milano. Furthermore, Natividad Llorca and Joaquín
Sánchez-Soriano acknowledge financial support from the Ministerio
de Economía y Competitividad (MINECO) of Spain and FEDER funds un-
der project MTM2014-54199-P and from Fundación Séneca de la Región
de Murcia through grant 19320/PI/14.

Appendix A

Mathematical results and proofs

    0  
^i ; ^
Lemma 1. If ðu ^ j Þ is an optimal solution of the FALCO dual problem, then ðu
vj; w ^i ; v
^j ¼ f j þ w
^ j; w
^ j Þ is also optimal solution.
 0  0    
^i ; v
Proof of Lemma 1. First ðu ^ j; w
^ j Þ is a feasible solution. It is obvious that ^v j ≥ v
^ j , therefore it is straightforward that ðu
^i ; v
^j; w
^ j Þ is a feasible solution.
D0 D D
^ ðNÞ ¼ C
Likewise, C ^ ðNÞ, because variables v ^ ðNÞ.
^ j do not affect C ■

Lemma 2. We can consider optimal solutions of the dual of the Un-FALCO problem with vj∗ = fj, ∀ j ∈ F.

Proof of Lemma 2. Based on the Complementary Slackness Theorem and the Strong Duality Theorem, we draw the Cost Efficiency Conditions
(CECs) – each condition represents the equilibrium between marginal cost and marginal benefit.
 
xij t ij ¼ 0⇔xij ui −vj −cij ¼ 0

 
yj t j ¼ 0⇔yj vj −f j

 
si ui ¼ 0⇔ ∑ j∈ F xij −di ui ¼ 0

 
sj vj ¼ 0⇔ yj −∑i∈N xij vj ¼ 0

C FLP ðNÞ ¼ C D ðNÞ

where (xij∗, yj∗,si∗, sj∗) is the vector of optimal values for the decision variables and slacks variables of the Un-FALCO problem, and (ui∗, vj∗, tij∗, tj∗) is the
vector of optimal values for the decision variables and slacks variables of the Un-FALCO dual problem.
By the CECs, if yj∗ ≠ 0, then vj∗ = fj. But if yj∗ = 0, then vj∗ − fj ≤ 0. Nevertheless, if we take vj∗ = fj, it does not affect the objective function of the Un-
FALCO dual problem. Therefore, both values will be the same. ■

Theorem 3. The optimal solution of the Un-FALCO dual problem is given by ui ¼ min ðf j þ cij Þ; ∀i∈N and vj∗ = fj, ∀ j ∈ F.
j∈ F
150 G. Bonamini et al. / Energy for Sustainable Development 50 (2019) 139–152

Proof of Theorem 3. By Lemma 2 and since the value ui ¼ min ðf j þ cij Þ corresponds to the upper bound of ui, the result holds. ■
j∈ F

Lemma 4. If ^ i ; ^
ðu

^ j Þ
vj; w is an optimal solution, then ∀i ∈ N ∃ ji ∈ F such that ^ i −w
u ^ j ¼ f ji þ ci ji .
i

Proof of Lemma 4. Let us suppose by contradiction that there is an i0 such that ^ i −w

^ j
¼ f j þ ci0 j ∀ j∈ F.
u 0

Let ϵ j ¼ ðf j þ ci0 j Þ−ðu ^ i −w ^ j ÞN0 by hypothesis. Now we take ϵ0 ¼ min fϵ j g and consider the following solution:
0
j∈ F
 
0 ^
u if i≠i 0 
^
ui ¼ ^  i 0 ^ ^
and w j ¼ w j .
ui0 þ ε0 if i ¼ i0
First, this is a feasible solution. Indeed, it is obvious for all constraints not involving i0. Now for constraints involving i0, since ϵ0 ≤ ϵj ∀ j ∈ F, we have
^ 0i −w
u ^ 0j ¼ u
^ i þ ϵ0 −w ^ 0j ≤ f j þ ci0 j .
0 0

Now ϵ0 is achieved for some j0 ∈ F, therefore for j0 we have that u ^ i −w ^ j ¼ f j þ ci0 j0 . Therefore, it is a feasible solution.
0 0 0

Finally, we have that

0
^ i −∑ j∈ F k j
∑i∈N di u
max
w ^ i þ di0 ε0 −∑ j∈ F kmax
^ j 0 ¼ ∑i∈N di u ^ D ðN Þ þ di ε0 NC
^ j ¼ C
w ^ D ðNÞ;
j 0

 
^i ; w
which is a contradiction with the optimality of ðu ^ j Þ. ■

Theorem 5.

^ i ≥ui ∀i∈N:
u

 
^i ¼ w
Proof of Theorem 5. By Lemma 4, we have that ∀i ∈ N there is a ji such that u ^ j þ f j þ ci ji . Furthermore, f j þ ci ji ≥ min f f j þ cij g. Therefore,
i i i
j∈ F
^ j ≥0, we have that u
since w ^ i ≥ w
^ j þ min ff j þ cij g.
i i j∈ F
 
^i ≥ w
By Theorem 3, we know that ui ¼ min ðf j þ cij Þ, thereby we have that u ^ j þ ui ≥ui . ■
j∈ F

Basics on rationing problems

A rationing problem is a pair (E,c), where E ∈ ℝ and c ∈ ℝ + N represent the joint cost and the vector of claims, respectively. ci ≥ 0 stands for the
claim of each i-th participant – the group of participants is N – and the sum of the claims (∑i∈Nci) is at least equal to the joint cost. A rationing
rule allows to share the joint cost E among the N participants. Some common rationing rules are (Thomson, 2003, 2013, 2015):
- The proportional PROPi(E,c) = ciλ where λ is chosen so that ∑i∈Nciλ = E,
- The constrained equal awards (CEA) (in the case of cost allocation a more descriptive name would be constrained equal contribution) CEAi(E,c) =
min {ci,λ} where λ is chosen so that ∑i∈N min {ci, λ} = E,
- The constrained equal losses (CEL) (in the case of cost allocation more descriptive name would be constrained equal savings) CELi(E, c) = max {0,ci
− λ} where λ is chosen so that ∑i∈N max {0,ci − λ} = E,

∑i∈N c2i ≥E⇒TALi ðE; cÞ ¼ minfc2i ; λg where λ is chosen so that ∑i∈N minfc2i ; λg ¼ E
- and the Talmud .
∑i∈N c2i ≤E⇒TALi ðE; cÞ ¼ ci − minfc2i ; λg where λ is chosen so that ∑i∈N ðci − minfc2i ; λgÞ ¼ E

It is easy to see that only for the proportional rule if λ is non-zero, the final shares are all non-zero; while, for the other rules, final shares depend on
the value of the claims. Being in a loss problem, the CEL favours the smaller claimants as opposed to the CEA; the Talmud stays in between.

How to relate cable cost to the distributed power?

The cost of a link is Cij, which is mainly depending on the length of the cable, while knowing the power to be transmitted it is possible to change
the cable type.
We need evaluate our link cost with a linear relation with the transmitted power, like Cij = cijxij. Since the cost of the link depends also on its
length, we express it as: Cij = cdistlij + cpowerxij. Where
• cdist is the cost specific to the distance, in $/km
• lij is the distance between the i-th user and the j-th location, in km
• cpower ≈ 0 is the cost specific to the transmitted power, in $/kW.

The latter allows only to include the power in the expression. To obtain a reasonable value – for the context – of the link cost in the form such that
cij = xij/Cij, we could calculate the cost of the link for the average demand, as if it were transmitted by the generic ij-th link.

cdist lij cdist lij

cij averageðdi Þ ¼ cdist lij þ cpower averageðdi Þ⇒cij ¼ þ cpower ≃
averageðdi Þ averageðdi Þ

Strong assumption of our model is that the cost of a link grows linearly with the transmitted power.
On the total cost, the connections weight should result very low and so negligible in the total system cost; but, the relative difference among con-
nection costs become crucial when defining the structure of the distribution system – who should be connected to what.
 G. Bonamini et al. / Energy for Sustainable Development 50 (2019) 139–152
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