Mini-grids: Africa’s new tool to improve energy access, empower livelihoods
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Mini-grids: Africa’s new tool to improve energy access, empower livelihoods
Subject: Science and Technology
Context:
- 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.
Africa Mini-grids Program (AMP):
- It was launched by the Rural Electrification Agency in 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.
- Through its plan to support mini-grid deployment in Africa, AMP has recognised the following areas of operation:
- national-level discussions for recognising the best means of establishing mini-grids in the region,
- efficient utilisation of energy and iii) digitising mini-grids.
Advantages of Africa Mini-grids Program (AMP):
- AMP will follow a country-based approach, thereby increasing South-South / Triangular collaboration prospects.
- The global environmental benefit arising from AMP for a lifetime is estimated to be 74,200 tonnes CO2e.
Mini-grids:
- 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.
Components of a mini-grid:
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 mini-grids | 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 management | 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 availability | 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 creditworthiness | 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 |