Mini-grids are anything but small-scale in the energy market – and their popularity looks set to surge. The TEA programme is helping unlock their powerful potential for customers and investors alike.
Out of a total African population of 1.3 billion, 600 million still do not have access to electricity (IEA Africa Energy Outlook). Mini-grids would be the cheapest way to get electricity to over 100 million of these people compared to alternatives, according to a CrossBoundary analysis. IEA’s report SDG7: Data and Projections confirms the potential: decentralised solutions, which include mini-grids and stand-alone home systems, are the most cost-effective way to provide power to over half of the population gaining access by 2030.
Through the TEA programme, a number of activities have specifically focused on maximising the potential of mini-grids to deliver clean energy access, helping to bring the sector together to share learnings and tackle key industry challenges.
For many years, the mini-grid sector has operated without fanfare and limited attention from the outside world. This all changed with the release of Sustainable Energy for All (Se4All)’s State of the Global Mini-Grids Market Report which was funded by UK aid via TEA, the Shell Foundation and GIZ. The report published in July 2020 found that:
- 111 million households can be served by mini-grids in sub-Saharan Africa, Asia and island nations by 2030 if SDG7 (universal access to energy) is to be met;
- Under business as usual conditions, only 63 million households will be electrified via mini-grids by 2030, thereby falling short of SDG7;
- Unsupportive policy and regulation remains a huge stumbling block in many countries; and
- Only 13% of the money committed by the Mini-Grid Funders Group had been disbursed, highlighting a lack of bankable projects and the regulatory obstacles that projects face.
TEA has also helped to develop technology and business model innovations that bring about cost reductions, and facilitated investments that drive industry growth. How? Welcome to the Mini-Grid Innovation Lab.
24 developers across Kenya, Tanzania, Nigeria, Zambia, Rwanda, Uganda, and Sierra Leone are testing ten prototype innovations that are expected to reduce mini-grid CAPEX by 20%. With subsidy parity, mini-grids would then become financeable so they can be deployed at scale as shown in Figure 1, below:
Source: Appliance Financing 1.0 Innovation Insight, CrossBoundary, 2021
The developers were brought together by the Mini-Grid Innovation Lab, created by TEA partner CrossBoundary in partnership with funders – The Rockefeller Foundation, Shell Foundation and DOEN. The Lab is designed to improve the ability of mini-grids to provide African businesses and households with electricity. It works with mini-grid developers on the continent to test business model innovations, so developers can provide more power to more people, at less cost. By sharing this evidence with governments, donors, and the broader sector, and supporting developers to scale the most promising innovations, the Lab aims to bring mini-grid power to 12 million Africans.
All data the Lab gathers, over 1 million data points every day, is shared with the wider sector on an anonymized and aggregated basis to accelerate the sector’s growth. Open data and sector coordination support better decision-making in mini-grid planning, and ensure that resources are directed at rural households and businesses.
For example, the data was used to find out if appliance financing can help grow mini-grid consumption, average monthly revenue per user, and ultimately revenue and profit for mini-grid developers. ‘Innovation Insight: Appliance Financing August 2019’ initially found that, ‘mini-grid customers who purchased appliances could nearly double their consumption and total grid revenues increased by 18% after eleven months’. ‘Appliance Financing 1.0 Innovation Insight April 2021’ built on the findings of 2019 with 13 more months of consumption and revenue data. It conversely found that, ‘Offering household appliances on credit did not significantly increase mini-grid revenues’ and that income generating machinery are necessary to making mini-grid business models viable’.
Figure 2 below shows that appliance purchasers were already among the highest energy consumers prior to the launch of the prototype, but their limited income prevented them from using appliances in a way that would increase consumption. To address this issue, the Lab is scaling appliance financing programs that focus on income generating machinery.
Figure 2. Appliances did not increase consumption.
Source: ‘Appliance Financing 1.0 Innovation Insight April 2021’, CrossBoundary
Results from the Innovation Lab, as well as from the African Minigrid Developers’ Association (AMDA), feed into Odyssey, the data energy platform, (both supported through TEA), to inform investors and help scale the market. Market reports from Sustainable Energy for All (SEforALL) and AMDA have helped to validate the Lab’s innovations and create confidence among other players in the sector.
Many impact investors already recognise the potential for mini-grids and are now diversifying their portfolio. TEA partner Acumen, for example, has supported mini-grid developers such as PowerGen, which has already connected over 50,000 people to a clean electricity supply, and RVE.Sol.
As well as investing in developers, the TEA programme supports innovative companies in the mini-grid sector, including:
- Odyssey which is the de facto platform for rural electrification agencies, development finance institutions, donors, and commercial investors looking to scale results-focused financing initiatives
- Modularity Grid which is developing a low-cost O&M software solution for mini-grids
- Gommyr Power Networks which is building mini-grids in the Democratic Republic of Congo using its innovative eStreet business model that focuses on productive rather than consumptive use of energy
- Nayo Tropical mini-grid sites in Nigeria which are testing novel battery chemistries with Shell Foundation and the Faraday Institute.
Joining up the dots
Fundamental to the success of mini-grids is the public and private sector being aligned. The private sector often has a better understanding of the technology and business models that make mini-grids viable. That’s why TEA is expanding its support for cross-industry collaboration through its African Led Partnerships (ALPs), a new set of projects aiming to spark change. You can read about two of them below.
Effective tariff design is fundamental to mini-grid deployment. Through TEA, the African Forum for Utility Regulators (AFUR) and AMDA are working to develop a mini-grid tariff settlement tool that can be used across the continent by convening the public and private sectors.
Connecting rural electrification associations across Africa is also fundamental to achieving sector alignment. CLUB-ER, the African Association for Rural Electrification, is made up of 43 African national institutions in 32 African countries. With support from SouthSouthNorth, an organisation supporting climate resilience, CLUB-ER is working through TEA to further strengthen the role of public stakeholders in the mini-grid sector.
Finally, the industry knows that it can only scale quickly and close the viability gap via subsidy, most commonly through a results-based finance (RBF) programme. TEA supports SEforAll’s Universal Energy Facility (UEF), alongside Shell Foundation, The Rockefeller Foundation, Good Energies Foundation and USAID, which aims to offer RBF financing to mini-grid developers across Africa. UK aid via TEA is specifically helping the design and testing of the mini-grid verification system that will be rolled-out within the RBF programme. The UEF, currently piloted in Sierra Leone and Madagascar, and other RBF mechanisms are set to unlock significant private capital for mini-grid developers. TEA’s work will give confidence to donors and private investors that the funding is linked to pre-agreed objectives.