Energy and Environment Partnership Trust Fund (EEP Africa) has financed 43 minigrid projects in 10 countries in Southern and Eastern Africa. Their recently published report Opportunities and Challenges in the Mini-grid Sector in Africa draws lessons from the EEP Africa portfolio and explains that infrastructure financing and regulatory environments are the main ‘make-or-break’ contributors to mini-grid bankability. Here we highlight key findings from the report:

Mini-grids in the EEP Africa portfolio are not only generating high-quality AC grid power, providing 24/7 electricity services, but also creating jobs and boosting local economy:

• Most mini-grids in the EEP Africa portfolio focus on providing 220-240V AC grid power, which allows for the use of large income-generating appliances such as refrigeration.(28)
• The EEP Africa portfolio demonstrates that mini-grids can transform rural villages into local business hubs. Mini-grids spur local economy when its load centers around anchor clients of agro-processing or social facilities such as school or hospital.(21,35)
• The 19 stand-alone mini-grids in the portfolio led to the creation of 685 direct jobs due to the commissioning of the projects, mostly youths and women.(21)
• These 19 stand-alone mini-grids, also accounted for 5,821 new connections (averaging 306 connections per project).(21)
• Results of EEP Africa’s portfolio show that a rural household can save up to EUR93 per year by connecting to a mini-grid

Mini-grids’ business models continue to improve with demand load profile management and operation optimization.

• To reach financial sustainability, most mini-grid developers are focusing on productive use of energy – such as providing energy efficient appliances or forming local business hubs – as a means to increase demand and generate sufficient revenue.(32)
• The most financially sustainable mini-grids use an “ABC” strategy: first, identify and negotiate an agreement with an anchor load client(often in agro-processing);then identify, or help develop, small local businesses; and only last target domestic consumers.(33)
• Smart metering, remote asset monitoring and pay-as-you-go technology platforms have significantly improved mini-grid operational efficiency.(29)

Regulatory risks, including licensing, permitting and integration n in to national electrification plans, makeup the biggest challenge for the success of mini-grid.

• The time required to apply for required concessions, licenses and environmental approvals is substantial and has often delayed project development.(25)
• In order to spur private investment, countries need to have clear and transparent guidelines for mini-grids to be connected to the national grid and compensated accordingly.(25)
• National tariff frame works are often not cost reflective, and therefore create a challenge for mini-grid developers to align their tariff structure with national standards. (23)
• Among the 15 countries in which EEP Africa is active, Tanzania is the leading country in terms of policy environment for mini-grid developers, followed by Uganda and Rwanda.(22)

Mini-grids require significant infrastructure investments but the availability and cost of private capital represent the main viability gap in project finances

• On average, EEP Africa financed just under 40% of each mini-grid project budget. The remaining budget is co-financed with grants, subsidies, equity or loans.(18)
• Public or donor capital such as Results Based Financing in Tanzania or low-interest loan facility in Rwanda can reduce mini-grid capital cost and be leveraged to attract private capital.(31,34)
• The continuous improvement of mini-grid cost structure presents an opportunity for financiers. The EEP Africa portfolio found that per connection cost of a mini-grid can be as low as EUR200-300 (USD230 to USD350) with scale and simplified regulatory process.(31)

Based on the experience of the portfolio, EEP Africa makes key recommendations to stakeholders:

• Governments: Mini-grids, as a key solution to achieve universal energy access, have to be integrated into national rural electrification plans, including tariff mechanisms and subsidy schemes.
• Investors: Public and donor capital is a low-cost leverage to mobilize private resources.
• Mini-grid developers: The most successful mini-grid developers focus on anchor clients. Demand load profile management is key to mini-grid financial sustainability

Infrastructure financing and regulatory environments are the make-or-break contributors to mini-grid bankability.

• Governments play a key role. Including mini-grids as part of national electrification plans can be the least-cost solution to achieve universal energy access.
• Clear permitting and licensing processes reduce cost for mini-grids developers.
• Public and donor capital such as results based financing and low-interest loan facilities can mobilize private resource to spur mini-grid development.

Source: Powerforall

               EEP Africa

You may also find and read the full report here>>>

Ethiopia plans to increase the electricity access coverage 35% of which to come from off grid technology solutions.  We find this excerpts from Powerforall as an invaluable input to the players in the sector and shared it as is.