Photo credit: Nuru
For many years, mini-grids (MGs) have been considered as one of the best solutions for rural electrification in Africa, next to Solar Home Systems (SHS). However, over the past decade, rural electrification has been dominated by SHS (Solar Home Systems) as they have progressively entered rural homes across continent by providing them with the most basic needs of lighting, small appliance charging, TV, fans, etc…
But the challenge with SHS is that they are often too small to power larger appliances, especially those that can help the user generate revenue (mills, large fridges, welding equipment, ice-making machines,…). And this is specifically where MGs have a role to play and it is estimated that MGs could eventually power 380 million Africans according to the World Bank, the most supportive institution with regards to MGs.
But MGs so far have been facing a major problem: without significant subsidies, they are rarely financially viable. Indeed, building a mini-grid is costly, because it involves not only the solar and storage equipment to produce electricity and make it available to the population when they need it, but also the “reticulation” or distribution network composed of poles, cables, individual meters, etc. This high cost is then confronted with low average consumption of the villagers, because they simply need very little power (only for a few light bulbs for example) or because their purchasing power does not allow them to buy much electricity. With a cost per connection of around $500 in the best case, and an ARPU (Average Revenue per User) of $2/month, it would indeed take 20 years for the investor to get a payback. No wonder commercial investors have been shying away from MGs…
But things may be about to change!
PUE, the key to building successful MGs
Recent announcements of companies like Husk Power and ENGIE Energy Access have indicated that the companies have achieved positive EBITDA (=making profit) on some of their MGs in Nigeria and Uganda.
The secret ingredient to making this possible seems to be mostly based on increasing the electricity consumption in the village through supporting the development of commercial and small industrial activity. And this is happening mainly through making Productive Use appliances available. SMEs and artisans have had a chance to acquire equipment (most often through credit) running more economically because based on electricity instead of diesel. This then created a virtuous circle of lower operating costs, more profit, more purchasing power and more economic activity, which ultimately is also to the benefit of the MG company operating in the village.
As such, PUE appliances and solutions such as e-mobility can really be seen as the true enabler of MGs across Africa. There already are dozens of different types of PUE appliances available on the market, fully off-grid or grid-connected. In some cases, they allow end-users to multiply their profits and unlock economic development in rural areas. These solutions have the potential to be game-changers for Africa and shall for sure attract a lot of attention of investors and development partners in the coming years. In an attempt to shed more light on the realm of possibilities of PUE, AFSIA will be releasing its first PUE Catalog at the end of April to show the extent and impact of those various solutions already available in the market.
Lots of MG activity to follow
There are already many MGs in operation, and many more to come.
No doubt that with this new development about profitability, we could soon see an explosion of such projects finally being financed and built.
Here is a non-exhaustive list of project announcements and developments over just the past few weeks:
- In DRC, the company Nuru has secured $1.5m to expand its existing MG in Goma and build new ones in Kindu and Bunia. Meanwhile, in Bukavu, Bboxx has launched a pilot installation set to bring electricity to telecom operator Orange and more than 600 households surrounding the telecom tower, with local business GoShop carrying out the EPC. Bboxx and Orange plan to roll out 24 more of their telecoms-anchored networks to provide electricity connections to 150,000 people within two years.
- On their side, WeLight has raised $20m from EDFI, the European Investment Bank and Triodos, to build MGs in Madagascar. This comes on top of the previous $30m raised previously to power 120 villages.
- In East Africa. The World Bank has partnered with the local government to launch 136 MGs across Kenya. This is a welcome move for the MG companies which started operations in Kenya several years ago but have since gone through high levels of uncertainty and challenging policy in the country.
- In Sierra Leone, AFSIA member InfraCo refines its collaboration with MG veteran PowerGen to pilot a new financial model and further increase the number of MGs in the country.
- And in Nigeria, the current poster child of MGs in Africa, several initiatives are being led simultaneously. REA, the Rural Electrification Agency, which benefits from one of the largest support programs of the World Bank, has announced the development of 51 additional MGs on top of the initial 12 built through the 1st call of the REF program. Nairobi-based financial services company CrossBoundary Energy Access said it would finance and own the Nigerian mini-grids being planned by French-owned ENGIE Energy Access over the next four years. That $60 million investment is set to provide more than 150,000 electricity points and is backed by results-based funding from the World Bank which has previously been reported as offering $350 per new user. On its side, Husk Power ambitions to expand the six mini-grids it has installed in Nigeria’s Nasarawa state to more than 100 such networks in 2023 and 500 by 2026.
The mini-grid space continues to attract a lot of attention from development partners. But with the recent demonstration that MGs can actually generate profit, there is no doubt that commercial finance players will jump on the bandwagon, with eagerness to make an impact in Africa and make a profit!