(2 MB) Unlocking Africa’s Mini-Grid Market: Guidelines Summary
(1 MB) Libération du potentiel du marché africain des mini-réseaux électriques : Rapport final
This study will assist African Union member states to create an enabling environment for private sector engagement for the deployment and implementation of mini-grids to improve electricity access and rural productivity.
The development of infrastructure in Africa is an integral part of the African Union (AU) Agenda 2063. The Agenda aims to achieve inclusive socioeconomic development, which requires adequate electricity infrastructure at the continental, regional, national, and local levels, including rural areas. Electricity is a prerequisite for economic development, and it improves social infrastructure such as health, education, and financial services.
Sixty percent of Africans live in rural areas, and only about five percent have access to modern electricity services. The lack of service is primarily caused by sparse settlements, low economic activity, and distance to an existing grid and low population density.
African policies have focused on expanding grids in rural, peri-urban, and urban areas, with an emphasis on increasing national electricity grid coverage. As renewable energy generation technologies become more affordable and efficient, mini-grids offer a viable alternative to grid expansion. They can bring electricity to millions living in rural and remote settlements with concentrated populations, while standalone solar home systems can be used to serve areas with dispersed inhabitants.
Private sector companies are increasingly investing in mini-grids in Africa’s rural areas, bringing innovative technology and financing solutions, dynamic business operating tools, and energy demand stimulation to improve their revenues and grow local economies. However, mini-grids face more challenges than their larger national utility counterparts. Some of these barriers stem from an imbalance in subsidy allocation, government mandates for tariff parity between off-grid and on-grid power consumers, and lack of a supportive regulatory environment for mini-grid project developers.
This study, Unlocking Africa’s Mini-Grid Market, was funded by Power Africa, through USAID’s Scaling Up Renewable Energy (SURE) project and builds on the mini-grid work of the African Union Commission’s Department of Infrastructure and Energy (AUC/DIE) and the European Commission (EC). It assesses current mini-grid policies, regulations, and implementation strategies of ten countries across Africa (Democratic Republic of Congo, Ethiopia, Kenya, Morocco, Nigeria, Rwanda, Senegal, Tanzania, Tunisia, and Zambia), as well as Cambodia and India. It also examines challenges, implementation successes and failures, and lessons learned. The study’s objective is to complement the AUC/DIE work by developing guidelines for policymakers and regulators around the following key themes.
Off-Grid Policy, Strategy, and Licensing
Many countries lack a rural electrification plan that includes specific targets for mini-grid deployment and detailed data to identify electrification needs and inform the location of mini-grid sites. This segment analyzes the process for allocating mini-grid service territories, obtaining licensing or authorization for mini-grids, and mini-grid service territories versus national grid extension plans. It also provides lessons learned and best-practice guidelines on mini-grid licensing.
Business and Financing Models
Research shows that mini-grid projects are often not economically viable without government subsidies. However, the sustainability and effectiveness of existing subsidy designs present an ongoing challenge for governments and the private sector. This study assesses business and financing models for mini-grid infrastructure development and highlights the success factors.
Mini-Grid Interconnection Terms
Grid codes in most countries are designed for compliance of large-scale utility power plants interconnecting with the grid at a point of supply; they make little accommodation for smaller mini-grids that distribute power to customers behind their point of supply and have low consumption, making it unprofitable for private mini-grid developers and operators to comply with current grid code requirements.
This segment describes existing technical and regulatory options for interconnection when the national grid reaches a mini-grid service territory. It provides guidelines on the terms to be applied when interconnecting the national grid and a mini-grid. Included in mini-grid regulations, the interconnection terms provide clarity to mini-grid developers and guide their investment strategy, including the choice of equipment type and the business model to be employed.
Compensation Mechanisms
Private companies in the mini-grid sector experience uncertainty over how they will be compensated when the national grid is expanded into their service territory before they have recouped their investment. It is a significant risk for investors and must be scrutinized during the due diligence of mini-grid projects. This segment provides guidelines for national mini-grid regulations and case studies that examine the methods used in ten countries to articulate the primary considerations for compensation.
Gender Inclusivity
Although men remain overrepresented in the power sector, women make important contributions in management and technical positions, including leading mini-grid companies with innovative business models in the countries examined in this segment. However, women-led companies throughout Africa face greater barriers in accessing opportunities, including financing. This segment explores best practices in gender mainstreaming policies and strategies relevant to the mini-grid sector.
Tariff Calculation
While tariffs are the core revenue-generating stream for mini-grids, developers often face uncertainty because tariff regulations do not clearly guarantee cost recovery. In addition, without clear regulatory frameworks, customers are not protected and are vulnerable to high electricity tariffs. This study, provided as a separate report and conducted by the National Association of Regulatory Utility Commissioners (NARUC), is an examination of the various mini-grid tariff methodologies used across the continent. It offers best practices and trends, as well as comparisons of different methods, with the objective of providing recommendations to inform the development of future tariff methodologies in Africa.