ELECTRIFYING PROMISE - MAXING OUT ON THE POTENTIAL OF MINI-GRIDS IN AFRICA
As the tide turns in the fight against COVID-19 and vaccines begin to be rolled out, the mood of the world seems imbued with a hopeful vigour. It bears thinking how remarkable the world’s efforts against the novel virus has been. In this spirit, more and more people are turning to other challenges with a newfound sense of enthusiasm and trust in our ability to find solutions. Among the major issues concerning the entire continent of Africa remains sourcing electricity. In the modern age electricity should not be a luxury. The lack of electricity is a serious issue across the entire global south, yet the deficit is most visible in Africa. Sub-Saharan Africa accounted for 68 per cent of the global access deficit in 2017. According to studies conducted by the World Bank, 90 per cent of those without access to electricity will be concentrated in Africa.
The most promising solution can be found in the mini-grid. The mini-grid is a simple, effective way of electrifying buildings. Powered by an energy source, such as a solar panel or diesel, and combined with a battery and local distribution system, mini-grids are of particular use in supplying electricity to areas peripheral to the main grid. The potential of the mini-grid this decade is significant, particularly given the continually decreasing costs of renewable energy and the improvement in battery storage technology. The World Bank studies suggest that a mere $220 billion is all that is needed power 490 million people to around 210,000 mini-grids over the next ten years.
The prospect of a rapidly proliferating mini-grid industry also augurs well for investment opportunities. An estimated 68% of mini-grids across the global south are powered by solar energy or a hybrid model. Economic analyses published by BloombergNEF places the cost of electricity per kWh for solar or hybrid model mini-grids to be between $0.49 and $0.68. Mini-grids therefore offer an exciting opportunity for investment as this decade is set to be the epoch where sustainable, renewable energy overtake non-renewable energy in terms of innovation and affordability. Already the evidence indicates the use of solar PV modules in mini-grids renders them more financially viable than their diesel alternatives. Mini-grids are already relatively cheap to build with research estimating the net cost for a 80W Solar powered mini-grid to cost around $1, 174 replaced twice every twenty years. Furthermore, being durable together with sourcing its power renewably, means that they are likely to be safe financial investments – a contrast from the volatility associated with oil.
Private and public partnerships are likely to continue to be the main model for spurring investment and infrastructure development. Uganda, Kenya, Nigeria, Tanzania and Ghana are amongst some of the countries with successful mini-grid infrastructure development. Key to their success has been establishing supportive regulatory framework and policies to stimulate mini-grid initiatives. These are crucial factors in overcoming the principal challenges; difficulty securing permits; lack of local currency to finance the projects; financial instruments to empower private participation; government capacity. The other significant issue to confront is the geographical context that accompanies the electricity deficit. Rural areas often have a reduced financial and human capital which translates into being unable to muster demand or pay for mini-grids. Tackling these issues will be necessary in order to sustain the momentum of building mini-grids.
Emerging from successful initiatives, there are strategies that help achieve financial sustainability. Increasing demand and generating sufficient turnover has been managed by focusing the routing of mini-grid powered electricity to energy efficient appliances, as well as forming partnerships at the local business level. Underpinning this is an ‘ABC’ strategy which first sees the identification and negotiation with a main Anchor client, then help develop small local Businesses and finally target domestic Consumers. Hinging the strategy on an initial B2B basis with a load client first helps secure a sound customer base from which to attract private investment. Another crucial factor is situating the investment and initiatives around mini-grids within a long-term strategy. Highly skilled and trained teams with local expertise and community knowledge are important ingredients in building for the long-term. There is every reason to integrate diversity goals within mini-grids initiatives, as well as promoting the industry as a bright employment opportunity.
The immediate future of mini-grids on the African continent is encouraging. Senegal and Nigeria are set to be the largest market for this industry with the two countries accounting for half of the 4,000 planned mini-grids on the continent. The potential goes beyond the mere objective of rural electrification. Cheap, durable and sustainable, the product alone is set to excite investors looking for opportunities. Mini-grids also offer the chance to build communities, not only by providing a stable source of power but also in offering employment opportunities which in turn can meet diversity objectives. For the African continent, the future is bright with promise.