Mini-grids: Africa’s new tool to improve energy access, empower livelihoods
Africa Mini-grids Program (AMP) is a specialised support initiative that was started to provide electricity at economies of scale, promote increased commercial investment with new growth opportunities and novel business models to some of the poorest African countries.
It was launched by the Rural Electrification Agency on September 29, 2022. The four-year project is funded by the Global Environment Facility, with support from the United Nations Development Programme (UNDP) in Nigeria.
This programme covers 21 African nations. The main aim of AMP is to focus on different low-price models, improve investments and develop financial credibility of mini-grids. It will work with countries to put policies and regulations in place to strengthen private investment, promoting a favourable environment for the mass deployment of renewable mini-grids.
The International Energy Agency’s Africa Energy Outlook 2022 forecasts the levelised cost of electricity for solar generation to be $0.049 / kWh by 2030, which would be more economical than wind or gas. This includes an incremental installed capacity of 225 MW per year using solar mini-grid from 2021 to 2030
Mini-grids are decentralised electricity-generating systems that are not in sync with the country’s national grid. Solar-based renewable mini-grids offer good prospects to improve the energy access situation in the 21 countries by providing services such as electricity to households, electrification of health and education centres and empowering local businesses to accelerate economic opportunities.
Powering through mini-grids would be the most economical way to provide electricity to nearly 265 million people in 21 countries by 2030, according to projections by UNDP. New funding of around $65 billion would be required to meet the mini-grid objective in the countries from the private sector. This opportunity would include the development of 110,000 mini-grids, powering more than 200,000 education and health centers as well as empowering more than 900,000 livelihoods.
Framework for the programme dissemination
AMP will follow a country-based approach, thereby increasing South-South / Triangular collaboration prospects. The critical areas of work for AMP are:
- A regional project organised as a Knowledge Management platform to aid and assist in the National projects of the program. The mini-grids market of Africa is also covered under the regional projects. The main tasks covered under the projects are i) knowledge kits for the public and private sectors, ii) customised technical support to countries iii) unique regional learning networks and iv) assisting in digitalising the mini-grid sector
- 21 national projects, with each of the projects having a common arrangement and comprised of the following five aspects: i) policy and regulatory, ii) business model innovation and the private sector, iii) innovative finance mechanisms for scaling up mini-grids, iv) digitalisation and knowledge management and v) monitoring and evaluation
Architecture of Africa Mini-grid Program
Source: UNDP
Energy access for sustainable development for all
Access to energy is one of the most critical enablers for the socioeconomic development of a country. Yet, more than 568 million (half the population) people in sub-Saharan Africa are deprived of electricity.
AMP envisages working towards energy access among the countries in the region to provide benefits such as improving the quality of agribusiness, health and education sectors as well as other livelihood generation activities. This will ultimately help provide socio-economic benefits to the communities living in the region.
Through its plan to support mini-grid deployment in Africa, AMP has recognised the following areas of operation: i) national-level discussions for recognising the best means of establishing mini-grids in the region, ii) efficient utilisation of energy and iii) digitising mini-grids
Share of new electricity connections and distance from grid in sub-Saharan Africa
Source: Africa Energy Outlook 2022 & Sustainable Africa Scenario (SAS)
Through the Nigeria and Eswatini projects launch, AMP is already in the implementation phase, and these projects will continue till 2027.
The 21 countries comprise 396 million people with no electricity access. The population comprises a diverse African population from Anglophone, Francophone and Lusophone countries; the small island developing states and crisis-affected countries.
Population with no access to services in Africa
Source: Africa Energy Outlook 2022
In spite of the various advantages of renewable mini-grids, several challenges are prevalent in many countries, which cause impedance to its development and its deployment on a big scale. Such problems lead to increased funding costs in terms of debts and equity, which in turn lowers the advantage of mini-grid in comparison to other sources of energy, such as diesel generators.
The necessity for higher returns, which follow the risks, develops into high energy prices. Such high energy prices require significant subsidies for the rural electrification programme.
Challenges faced in the deployment of Renewable mini-grids
|
Risk Category |
Underlying Barriers |
Description |
|
Energy Market Risk |
Market outlook |
Lack of political will and / or uncertainty regarding national / state targets for electrification and renewable energy mini-grid investment, including lack of electrification plans, rural electrification agencies / institutions and good data (geospatial) on energy demand and lowest cost technology options. |
|
Market access, competition and grid expansion |
Lack or limitations (suboptimal design, lack of capacity) in current government policy framework for minigrids including off-grid services areas; well-defined concessions (size, years, targets, bundling); compensation schemes in case of grid expansion. |
|
|
Tariffs |
Uncertainty or inflexibility in electricity tariff regulations for mini-grid developers |
|
|
Technical standards |
Lack of clarity, uncertainty and / or inconsistent government technical requirements for minigrids regarding (i) quality of service and (ii) grid integration, should it occur |
|
|
Competing subsidies |
Competition from subsidised diesel and kerosene (mostly used for lighting); negative perceptions of mini-grid tariffs due to subsidised grid-distributed electricity |
|
|
Social acceptance risk |
Unfamiliarity with |
Risk arises from lack of awareness and resistance to renewable energy and mini-grids in communities, also from resistance from incumbent businesses |
|
Hardware risk |
Availability and quality of hardware |
Lack of availability of quality hardware and national quality standards for components of mini-grids and / or the lack of institutionalisation of a mini-grid quality assurance framework. In several countries, hardware costs are also higher than expected because of the lack of a supply chain for spare parts. |
|
End-of-life waste |
Risks arising from lack of policies and planning regarding disposal of hardware, including, batteries at end-of-life of mini-grids |
|
|
Customs |
Cumbersome customs / clearing process for importing hardware, leading to delays in delivery and punitively high customs tariffs on mini-grid hardware |
|
|
Digital risk |
Networks and software |
Lack of cellular coverage in rural area for mini-grid remote monitoring and payments |
|
Labor risk |
Inadequate capacity |
Lack of a competitive labor market of educated, skilled and qualified potential employees to design, construct, operate and maintain mini-grids, leading to higher costs. hiring non-local staff and suboptimal performance |
|
Developer risk |
Project development and management capacity |
Mini-grid business developers may not have the necessary expertise and capabilities to formulate financially viable projects and operate mini-grids. Also, there is no 'one-size-fits-all' solution yet, implying that business models need to be contextualised |
|
Developer's |
Inability of developer to secure low-cost financing from investors due to lack of creditworthiness or insufficient cash flows to meet investors' return requirements |
|
|
End-user credit risk |
Lack of customer creditworthiness |
Lack of end-user credit data; customer's willingness and ability to pay and methods of payment for electricity |
|
Financing risk |
Capital scarcity |
Limited availability of long-term domestic loans,well-capitalised actors and policy incentives |
|
Limited experience with mini-grids |
Investors’ lack of familiarity with mini-grid projects and appropriate financing structures. |
|
|
Currency risk |
local currency volatility |
Currency mismatch between domestic currency revenues and hard currency financing |
|
Sovereign risk |
Various uncertainties not specific to mini-grids |
Limitations and uncertainty related to conflict, political instability, economic performance, weather events / natural disaster, legal governance, ease of doing business, crime and law enforcement, land tenure and infrastructure in the country |
Source: Global Environment Fund report
The global environmental benefit arising from AMP for a lifetime is estimated to be 74,200 tonnes CO2e. AMP is an essential part of UNDP to mobilise developers through its sustainable hub to allow an additional 500 million people access to sustainable, reliable and economical energy by 2025.