Short Answer
Mini-grids occupy a unique part of the energy ecosystem. They are larger than a single-family home system, but smaller than regional or national grids. Mini-grids are too expensive to be built without significant resources and planning, but are often considered to be too much of an unproven approach to be a formal part of national grid operators’ build-out strategies. Since national utilities often see mini-grids as competition to their established markets, mini-grids are frequently overlooked in efforts to improve national power systems.
Mini-grids are most successful when they have the support of the national government. Governments can mandate that mini-grids be considered part of formal energy planning processes and help support them with financial resources and incentives where required. The German development agency, Deutsche Gesellschaft für Internationale (GIZ), found in 2016 that two of the most prominent barriers to mini-grid development are best addressed by the government: (1) prevailing regulations that prioritize grid expansion over decentralized systems, and (2) tariff models that discourage private investment. Government intervention is essential to promoting mini-grid technology.
Promoting mini-grid development is easiest when it is incorporated into the following key energy policy and planning documents:
- Energy policy or rural electrification policy
- Rural electrification strategy
- Electricity act or energy law
- Electrification master plan
While most countries have national electrification plans, many of these plans may not include off-grid energy development. When mini-grids play an important role in a country’s national electrification master plan, private companies and donors are more likely to invest, communities are more likely to support projects and utilities are more likely to prioritize off-grid energy development.
To support their policies, governments also need to create an effective regulatory environment for mini-grids. Key regulatory documents are licensing procedures, tariff guidelines and grid interconnection guidelines.
India, Kenya, Mali and Tanzania have so far been the most successful in building mini-grids into their formal energy access strategies. Of these cases, Price Waterhouse Coopers reports, “Where mini-grids have been successful, their role is likely to have been clearly defined in national energy plans, and the projects themselves are rooted in funding and governance models that are sustainable and able to cover repair and maintenance costs and processes. In Kenya, for example, the Kenya Energy Regulatory Commission licensed Powerhive East Africa Ltd., making it the first private company in Kenya’s history to receive a utility concession to generate, distribute and sell electricity to the Kenyan public.” In India, from 2012 to 2016, Husk Power Systems has installed 84 mini-power plants that use rice husk waste to generate electricity in rural communities. In both nations, mini-grids were explicitly included in energy planning processes, the regulatory environment and national policies.
Further Explanation of Key Points
Planning and Policy Documents
The sections below describe how a country’s key energy planning and policy documents can incorporate and promote mini-grid development.
Energy Policy or Rural Electrification Policy
A country’s energy policy, or rural electrification policy, establishes the government’s goal for universal energy access, including specific targets and planned activities to meet those goals. The policy typically precedes an energy law or rural electricity act that establishes an institutional and legal framework. In many cases, the energy policy identifies new laws needed to achieve energy access goals. In other cases, subordinate legislation—such as regulations, rules and bylaws—provides enough support for governments to begin implementing the policy.
An energy policy can do more than lay the groundwork for future legislation. The policy can establish universal energy access goals and prioritize mini-grids and other off-grid solutions as a pathway to achieving those goals.
A country’s energy policy is often the first official document to signal a change in direction and open the way for the private sector to provide power to rural communities. In Tanzania, for example, the National Energy Policy of 2003 led to development of a framework that mobilized private investment in rural and renewable energy. Before the government issued the policy, the state-owned utility led rural electrification largely through grid extension and a dozen isolated diesel generators.Rural Electrification Strategy
A rural electrification strategy lays out a plan of action to achieve the national energy policy. Some governments combine the energy policy and rural electrification strategy into a single document. Uganda’s Rural Electrification Strategy and Plan (2013–2022) establishes a specific plan for off-grid electrification, including targets and a dedicated budget. Uganda’s 10-year strategy calls for off-grid expansion to provide 138,500 new service connections through solar home systems and mini-grids, with $8.5 million specifically dedicated for mini-grid systems.
Electricity Act or Energy Law
An electricity act, or energy law, establishes the legal and institutional framework for rural electrification in general and mini-grids in particular, usually through an act of parliament or congress. After a ministry decides that a new law is necessary to implement its rural electrification policy, the relevant department drafts a bill, shares it with the relevant cabinet committee and solicits public input. The minister tables the final bill in parliament. Once parliament passes the law, it is legally binding; the government can prosecute violators in court.
An electricity act often outlines key actors’ responsibilities in facilitating and regulating generation, transmission, transformation, distribution, supply and tariffs for urban and rural electrification. The law also directs the ministry and specific agencies to prepare additional plans and strategies as needed. For example, the Tanzania Electricity Act of 2008 directed the minister to prepare a rural electrification plan and strategies for mainland Tanzania and to update the plan periodically in consultation with Tanzania's Rural Energy Agency.
Rural Electrification Master Plan
A rural electrification master plan establishes how the government will achieve the energy access goals and targets in the energy policy. The master plan provides a roadmap to achieving specific goals and targets, often over a 10- to 20-year timeframe. The timeline should demonstrate how proposed activities will achieve the universal access targets established in the energy policy. Master plans usually integrate various approaches to enhancing energy access, establishing where the government will extend the grid and determining where it will support off-grid electrification.
Key Components of Rural Electrification Master Plan
- Spatial Data about Existing Energy Systems and Resources
- Location of national grid
- Existing and planned distribution concessions
- Locations of licensed mini-grids
- Distribution of renewable energy resources
- Demographic Data about
Un-electrified Areas- Population densities
- Average incomes
- Agricultural production
- Economic development opportunities
- Potential anchor clients for generation facilities
- Electrification Strategy
- Planned grid extensions, including locations and timeframes
- Priorities for off-grid projects, including mini-grids and household energy systems
Identifying where the grid will expand enables mini-grid developers to target their investments in off-grid and near-grid areas. The government of Namibia, for example, developed in 2007 a separate master plan for off-grid electrification that identifies areas for off-grid solutions, including mini-grids.
Governments, however, might hesitate to specify which parts of the country will receive grid-connected electricity and which will not, because consumers tend to believe that the national grid supplies more reliable, higher-quality services. To build local support for mini-grids, governments can educate communities about the high-quality energy services they can potentially provide. Supportive messaging about off-grid energy services is critical to gaining local support.
Donors can play a key role in helping governments integrate mini-grids into their national energy strategies. In particular, donors can help governments prepare the rural electrification master plan and a regulatory framework for mini-grids.
Putting it Into Practice
The following table provides examples of countries that successfully integrated mini-grids into their rural electrification strategies, as well as countries showing progress in doing so. Afghanistan, China and Nepal integrated hydropower mini-grids early in their rural electrification planning. Brazil and the Philippines have promoted mini-grids to reach un-electrified remote and island communities. As early as 2000, Mali, Senegal and Tanzania developed policy and regulatory frameworks to mobilize investments in mini-grids.
Brazil
Baseline Scenario
The Brazilian energy sector was deregulated by President Cardoso in 1996. Yet, in 2002, 27 percent of Brazil’s rural communities still lacked access to electricity. The government launched programs to electrify the most remote communities to achieve constitutionally mandated universal access.
Mini-grid Integration Approach
The Luz para Todos (Lights for All) program launched in 2003 to reach the 12 million Brazilian citizens who still lacked access to electricity. The program is working with cooperatives and concessionaires to implement off-grid programs, including mini-grids for 250,000 people in Brazil’s most remote communities.
Results
As of 2010, the program completed its first 12 solar photovoltaic (PV) mini-grid projects in Amazonia.
Cambodia
Baseline Scenario
Three decades of civil war destroyed power generation and transmission networks throughout the country. In the absence of an electrification plan, more than 600 rural electrification enterprises (REEs) operated unregulated private diesel mini-grids.
Mini-grid Integration Approach
In 2001, the Cambodian government established the Electricity Authority, which licensed private REEs as mini-grid operators. The Electricity Authority also enabled REEs to purchase energy from the utility and distribute it to customers.
Results
As of 2017, most mini-grids are operated by licensed REEs. More than 100 REEs have also become small power distributors, distributing energy purchased from the utility.
China
Baseline Scenario
In 1949, most of China’s rural areas lacked access to electricity. Unlike in many countries, China’s rural electrification efforts did not begin with grid extension. From 1949 to 1977, China primarily used decentralized, small hydropower and thermal power generation to electrify rural areas.
Mini-grid Integration Approach
China’s so-called “Walking on Two Legs” strategy was a response to the economic downturn caused by collectivization prior to the 1970s. Communes and local government managed decentralized rural electrification while the national grid served urban centers and industrial complexes. The government consolidated mini-grids into regional grids and eventually integrated them into the national grid.
Results
China achieved 61 percent electrification by 1978, but per capita electricity consumption was only 32 kWh. Over the next 20 years, market liberalization and linking regional grids with the national grid increased electrification to 97 percent and per capita consumption to 235 kWh.
Mali
Baseline Scenario
In 2001, only 1 percent of rural communities in Mali had access to electricity. The only mini-grids used diesel generators.
To increase rural electrification, Mali’s Agency for Domestic Energy and Rural Electrification (AMADER) solicited bids for large concessions to serve multisectoral electrification zones, potentially through mini-grids.
Mini-grid Integration Approach
Through a demand-driven initiative, known in English as the Spontaneous Project Application for Rural Electrification (PCASER), AMADER has provided financial and technical support to communities and private companies for mini-grid projects since 2005. Companies can apply for grants to supply isolated communities using mini-grids.
Results
AMADER’s proactive, off-grid effort increased rural electricity access to 15 percent by 2010. By 2015, the program had established more than 160 mini-grids, including about 60 privately owned systems, with an average of 500 connections each. Developers have added solar PV to 30 diesel systems.
Nepal
Baseline Scenario
In 1984, Nepal deregulated mini-grids producing less than 100 kW. By the time Nepal’s national off-grid program, the Alternative Energy Promotion Center (AEPC), opened in 1996, several hundred mini-grids were operational.
Mini-grid Integration Approach
AEPC accelerated rural electrification through a two-pronged approach: (1) community mini-grids and solar home systems; and (2) grid expansion through the national utility.
Results
AEPC installed more than 2,000 micro-hydropower mini-grids between 1996 and 2015. The grids have a combined capacity of more than 25 MW.
Philippines
Baseline Scenario
An ambitious nationwide rural electrification effort led by the National Electrification Administration (NEA), starting in the early 1970s, led to electrification cooperatives covering most of the larger rural population centers by the late 1980s. Diesel powered mini-grids became the norm in electrifying most small island communities.
Mini-grid Integration Approach
In 1988, in response to the high price of fuel, the government created the Small Island and Isolated Grids (SIIG) group within the National Power Corporation (NPC). The group was tasked with establishing a maximum electricity tariff for remote communities served by mini-grids. The Small Power Utility Group (SPUG), which took over from SIIG, generated electricity using isolated fossil fuel power plants and subsidized electricity supplied to cooperatives and local government units. This kept electricity affordable on remote island mini-grids.
Results
As of 2012, NPC-SPUG was operating more than 300 power plants with a total capacity of 283 MW, serving 233 island customers through 41 electric cooperatives and 10 local government units.
Although SPUG was increasing rural electrification, the program wasn’t financially sustainable. SPUG is inviting private-sector companies to sign power supply agreements with electric cooperatives, with incentives for using renewable energy.
Senegal
Baseline Scenario
In 2016, only 8 percent of rural Senegalese had access to electricity.
Mini-grid Integration Approach
Senegal has made rural electrification a priority with an aim to increase it from 8 percent in 2000 to 62 percent by 2022. The Ministry of Energy divided unelectrified rural areas into 11 zones and awarded concessions for electrifying them. The Senegal Agency for Rural Electricity (ASER), established in 2000, incentivizes private sector investment using the Rural Electrification Fund.
ASER provides financial support to private companies and community organizations to use mini-grids to electrify isolated communities using mini-grids.
Results
As of 2017, the Senegalese rural electrification agency is implementing 400 mini-grids with support from multilateral and development finance institutions. The German development agency GIZ is supporting another 300 projects in development.
Tanzania
Baseline Scenario
In 2005, only 59 percent of Tanzanians living in the capital had electricity, and in the rural areas, the average was between 4 percent and 10 percent. The Tanzanian government therefore established the Rural Energy Agency in 2005 to manage both grid-based and off-grid electrification.
Mini-grid Integration Approach
Tanzania’s Rural Energy Agency provides financial support to small power producers to electrify communities. Regulations and incentives encourage independent power producers to sell power to both the utility and communities.
Results
As of 2013, the Rural Energy Agency awarded 12 power purchase agreements for 50 MW of hydro, biomass and solar projects, and signed 11 letters of intent for additional projects. Most SPPs intended to supply both local consumers and Tanzania Electric Supply Company Limited, the national utility, using a feed-in-tariff.
Resources
Deshmukh, R., Carvalho J. P., Gambhir, A. (2013). Sustainable Development of Mini-grids for Energy Access: A Framework for Policy Design.
The goal of this framework is to help policymakers integrate renewable energy mini-grids into off-grid energy access programs. The report analyzes policies and programs in Brazil, Cambodia, India, Nepal, Sri Lanka and Tanzania as they apply to mini-grids.
EU Energy Initiative Partnership Dialogue Facility (2014). Mini-Grid Policy Toolkit: Policy and Business Framework for Successful Mini-Grid Roll-Outs.
This toolkit serves as a guide for designing a national policy and regulatory framework to promote mini-grid investment, with a focus on Africa.
Innovation Energie Développement (2014). National Electrification Program Prospectus: United Republic of Tanzania.
This prospectus supports Tanzania’s electrification goals by proposing a grid-based and off-grid strategy for 2013–2022. The document outlines likely investments and proposes financing mechanisms.
International Renewable Energy Agency (IRENA) (2016). Policies and Regulations for Private Sector Renewable Energy Mini-grids.
IRENA produced this report to help policymakers design enabling policy and regulatory frameworks for mini-grids. The report analyzes policies and regulations related to licensing, tariff regulation, grid arrival risks and access to financing, with examples from Bangladesh, India, Kenya, Madagascar, Malawi, Mali, Nepal, Nigeria, Rwanda, Senegal, Tanzania, Uganda and other countries worldwide.
Knuckles, J. (2015). Mali: Programs to Support Private Mini-Grids for Rural Electrification. Chapter 4 in Policies to Spur Energy Access: Volume 2: Case Studies of Public-Private Models to Finance Decentralized Electricity Access.
This case study describes activities in Mali to promote privately run mini-grids and hybridize systems powered by diesel generators. The publication is part of a collection of case studies from Bangladesh, Ethiopia, Mali, Mexico and Nepal designed to support policymakers in accelerating off-grid energy access.
Sustainable Energy for All Africa Hub (2017). Green Mini-Grid Help Desk.
This website provides complete information service for developers of green mini-grids in Africa. The website includes market reports, links to industry and financial stakeholders, instruction guides, business forms and templates and financial models.
USAID Urban Links (2019). Despite Challenges, Urban Microgrids Increase Resilience (2019).
This article, originally posted on the Chemonics International website, discusses how urban microgrids can harness underutilized sources of low-emission energy in cities—including rooftop solar, small hydro, and biogas from organic waste streams and treatment plants—and spur local economic development.