According to the World Bank Collection of Development Indicator (2016) 65% of the people in Africa have no access to clean reliable and affordable energy. Over the years, this has undermined economic growth and sustainable development. In Sub-Saharan Africa, access to affordable and reliable energy services is fundamental to reducing poverty, improving health, increasing productivity, enhancing competitiveness and promoting economic growth.

Over time, the grid extension has been the major means for rural development, however progress has remained slow due to high cost of grid extension to remote areas and limited utility/state budget for electrification. The International Energy Agency (IEA) (2011) estimates that mini-grid is the best solution for providing electricity to 45% of the rural population without access to electricity. Mini-Grids can utilize locally available energy resources such as wind, solar, biomass and hydro. As using locally available energy sources has the advantage of low running cost, greater energy security and lower environmental pollution. Deploying mini-grids systems also has greater welfare impacts than home base electrical systems because of its ability to power larger loads, thus can produce electricity for both domestic use as well as local businesses. As a result, they have a positive impact on the local economy and contribute for sustainable development and if appropriately designed can allow for demand growth for the future

A common barrier to mini-grid market growth is investor viewing the market as being too risky, therefore gaining access to project financing is rare and the market rate debt is expensive (RMI press release 2017). In a research conducted by the African Renewable Energy Access Program (AFREA), a World Bank Trust Fund Grant Program funded by the Kingdom of the Netherlands, stated that out of 39 countries studied, only Seychelles and Ugandan were fully recovering their operational and capital cost. In only 19 country did the cash collected by utilities cover operational cost; just 4 of these countries were also covering half or more of capital cost, based on new replacement values of current asset. such large funding gaps prevent power sector from delivering reliable electricity to existing customers, let alone expand supply to new consumers at an optimal pace.

The obvious solution is to employ cost effective tariff, but most mini-grids today are deployed to electrified off grid rural community (Tier 2-4) which have limited customer base, poor consumer mix (Absence or limited share of commercial consumers), sporadic income (seasonal cash flow, purchasing power of not more than $1500 per year, low population density), dispersed (population especially in sub-Saharan Africa) physical remoteness and limited access to skills and human capital increase investment risk.  One need a proper design and business model to have a good return on investment.  However the issue of an enabling environment is now  a story of the past as favorable policies has been enacted.  Nigeria, for example is currently at the forefront of mini-grid development in the sub-Saharan Africa. The NERC mini-grid regulation in Nigeria is one of those policies that has ensured the ease of doing business for mini-grid deployments. During 2017 learning event: Upscaling Mini Grids for Low Cost and Timely Access to Electricity Services in Abuja, Nigeria. It was clearly stated that Nigeria market is ready and ripe for renewables thus providing an enabling environment. Workshop, seminars, conferences have been organized to train and create awareness on the latest technology and optimal system designs methodology. The Public Private Partnership (PPP) is employed to ensure sustainability of mini-grids funded through a mix of grants, debt and equity. Appliance financing projects has also been established to spike energy demands in these communities where appliance (such as TV, radio. Milling machines etc.)  are leased to households.

It amazing to know that despite these innovative strategies and policies, these challenges still persist in some mini-grids. The question here is” What criteria does developers and investors need to consider when deploying a mini-grid”

  • We need to understand that different communities will have different response when mini-grid is deployed, its right to assume access to energy will optimally lead to socioeconomic growth and development and so it is recommended that systems be oversized to accommodate for such anticipated increase. But what happens when these community employ energy efficiency which reduces demand?
  • Even as most community will welcome the appliance financing projects, communities where they can barely afford to pay for power when tariff are subsidies will definitely not be able to pay for the leased appliance and the corresponding increase cost.
  • Community located strategically, let’s say in a conference area, or where the largest market is located has a higher tendency to grow.
  • It is unrealistic to assume all customers will be connected with in the first year (there could be exceptions)
  • System designs need to be done perfectly. Most rural community has a large number of households without appliances or wiring, and most time developers make estimation, and when this mini-grid are deployed it takes a long while before all household buy appliances and get connected. Most of the machines used for commercial activities in these communities are fuel powered and retriofitting is nit cost effective.

To ensure sustainability and high return in investment, system need to be undersized and installed in stages this will result to higher efficiency, lower power times and lower capex.  Load shading can also be employed, power distributed to commercial users during the day and households at night, which is suited for most rural communities especially agrarian communities because they go to work or farms during the day. Fiscal policies also need to be made flexible to suit such installations, where funding can be assessable anytime its needed to upscale the mini-grid.  Such funding models will be characterized by:

  • Developers propose a design based on feasibility studies and load audit.
  • Fund for total is disbursed and
  • Developers deploy mini-grids in stages knowing they have access to funds to upscale anytime the need arises with little or no due proccess.

 

What other strategies do you think can be employed? please leave a comment.

 

Umar Josiah Danbaba

Renewable Energy Expert

Email: josiah@paccpolicy.org