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A New Business Model for Mini-Grids in Sub-Saharan
Africa
African Utility WeekCape Town, South Africa
May 13, 2015
Michael S. AshfordWinrock International
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Overview
• Why mini grids are valuable.• What is the potential size.• What are the financials of mini grids.• What are some of the signals that it is real.• How can donors be most effective.• Concluding remarks.
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Why Prioritize Mini-Grids?
“More than 30 countries in Sub-Saharan Africa suffer from
systematic generation shortages. It is unrealistic to expect
these countries to make more than modest gains in
increasing electricity access by means of grid extension
until the capacity constraint is eased. Off-grid electrification
has the advantage of not being affected by this capacity
constraint.” (World Bank background paper; 2010)
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Why Mini Grid Instead of Home Systems?
“Individual devices such as solar lanterns and solar home systems (household energy) can provide more
energy access than interconnection or mini grid.”
•Mini-grids:– create more opportunities for increased economic
activity, commerce– Locally owned/governed and administered– Scalable and can be designed for interconnection
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Market Potential• Difficult to estimate – “don’t know”• But what is the willingness to pay?• 1.4b w/out access globally
– 550m of them have mobile phones• 600m in sub-Saharan Africa
– How many are off-grid and have phones?– The willingness to pay increases with quality
of service
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LCOEs for village mini-grid technologies
Technology LCOE (low USD per
kWh)
LCOE (high USD per kWh)
Solar PV-diesel $0.27 $0.77Small hydropower $0.21 $0.79Biomass gasifier $0.25 $0.60Village mini-grid (various technologies)
$0.25 $1.00
Willingness to pay $0.9 $1.20
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Nepal Example• Over 1,500 small hydro
mini grids (pre-earthquake)
• Paying $2/100w block per month
• Installed cost ~$4,000/kw• 50% capex grant; 70%
equity 30% debt (5 years at 12%)
• ~14 cents/kwh required for “reasonable return”
penstock
power house
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Early Work in Indonesia
• Palm Oil to Methane Energy– PPAs with utility with
sustained operating data to lower financial risk
• Island grids with anchor loads– PV diesel hybrid and home
energy systems
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Challenges for Mini-grids
• Regulatory uncertainty– Donors can help here
• Attractive business models for sustained development and operation– Private sector innovation (metering) and donor
participation (subsidize capital costs)• Scalability/replicability
– More innovation from private sector; growth of indigenous industries
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Interventions
• Bundle multiple individual mini-grid projects into a package of a single investment opportunity
• DFIs (AfDB, DFID, Islamic Development Bank, etc.) are exploring portfolio of projects that are at various points of need for capital and financing support
• Selective use of grants to lower total capital costs• Link SMEs with energy services based on mini grid and
DG systems. • Use “willingness to pay” for quality to drive higher tariff
than the national uniform rate• Innovative but reliable (hybrids) technologies
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Our Approach
“self-contained power generation, transmission, and distribution system that is financially and physically capable of operating independently
from the national electricity grid”- Fills the IPP gap: Unlike conventional Independent Power
Producers (IPPs), need credit-worthiness of end-users, not utility as a part of a grid system.
- More than DG or home systems: Supplies small-scale processing and productive applications beyond domestic lighting and cell phone charging to establish clear benefits of mini-grids over individual home systems.
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Optimism in the Market
• The market is showing the way• OMC with IT backing in India; anchor tenant of cell-
towers
• Caterpillar solar/diesel hybrid systems for mico grids
• SunEdison containerized solar system; modular
• Devergy micro-grids with VC backing piloted in Tanzania
• Khaya Power in Cape Town winning awards in USA
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Prioritize Financing“... And I have to say, those who are involved in this process, they continually tell us the problem is not going to be private-sector financing. The problem is going to be getting the rules right, creating the framework whereby we can build to scale rapidly.”
– President Obama, speaking on energy access, Dar es Salaam, Tanzania in 2013
