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A mini-grid is a self-contained power system or an integrated local generating and distribution system with an installed capacity of less than 1MW that can serve multiple end customers while remaining independent of the national grid. A mini-grid can provide reliable and affordable electricity in remote areas where population density is insufficient to justify connecting the community to the national grid, and it represents a viable and cost-effective solution for electrifying African communities through a decentralized energy system.

With the correct governmental backing, solar mini-grids are poised to play a vital role in achieving universal electricity access. Africa must be resurrected. Mini-grids are a critical component in achieving universal, long-term power access in Africa. Mini-Grids (MGs) address the needs of communities that are too far away from the grid to be economically linked in the near to medium term, yet densely inhabited enough to benefit from power supply economies of scale compared to individual home systems. Mini-grids are the most cost-effective alternative, with the potential to supply up to 290 million people in Africa by 2030. In order to achieve universal power access in Africa, 150,000 small grids would be required, and an estimated 111 million households will be connected to mini-grids by 2030 in Sub-Saharan African countries.

Grid extensions and solar home systems may provide electricity to 102 million and 25 million households, respectively. These figures are based on a least-cost methodology, which selects technologies that give electricity access at the lowest possible cost to end-users. Decentralized energy solutions such as mini-grids and off-grid solar home systems can be used to supply electricity to consumers faster and at a lower cost in rural areas and remote islands where grid extension is prohibitive. In short, mini-grids have great potential for helping the black continents achieve Sustainable Development Goal 7 (SDG7) by 2030 in a cost-effective manner. However, the mini-grid market is yet to achieve a tipping point at which it can expand without subsidized support. This is not unconnected to the following key challenges that the mini-grid sector must overcome to achieve greater scale.

Need for regulations to protect mini-grid asset cash flows

Few governments in nations where rural electrification is desperately needed have legislation that explicitly safeguards mini-grid owners. Many nations, for example, lack legislation to protect isolated mini-grids when the main grid comes. Without such rules, the state may expropriate mini-grid assets for little or no money, leaving them stranded. In an ideal policy and regulatory environment, mini-grid owners would be assured that, in the event of grid arrival, they would have a variety of options, including compensation and functioning alongside the main grid (e.g., Nigeria).

Solving customers’ ability to pay

Second, rural mini-grid operators offer electricity to clients who are often low-income and have limited financial resources. Because many of these customers rely on agriculture for a living, power demand from them might be restricted and unpredictable. Weather factors, seasonality, and agricultural yields all have an impact on these customers’ capacity to pay their bills. Revenue collection is jeopardized by such unpredictable income streams. When the power demand profile matches the PV generation curve, solar hybrid mini-grids operate better economically. Mini-grid developers are increasingly looking for sites with ‘productive-use’ customers (i.e. commercial and industrial), and they’re coming up with new financial models to encourage them to use more electricity.

Overcoming small project sizes

Rural mini-grids typically range in size from 10 to 100 kW. Larger transactions allow private financiers to amortize transaction-related costs over larger amounts of capital (and, in many cases, earn larger fees). As a result, many people are reluctant to put in the time and effort required to complete due diligence and give funding for projects that may only require USD 1 million or less. In Tanzania, a transaction was completed in 2019 to finance a portfolio of mini-grids with a combined capacity of 1MW. A portfolio approach would make financing more appealing to commercial project finance investors while also distributing risks.

Financing and Profitability

Finally, because constructing a small grid is costly, payback periods are likely to be lengthy in African situations where people and companies have little financial resources. Commercial finance of every small grid venture is related to the difficulty of profitability. Banks are rarely interested in projects with low-profit margins and long payback times.

In order to expand significantly with private money, the mini-grid sector must address all of these challenges. Governments, financial institutions, and developers are among the key stakeholder groups with the potential to address those challenges in a concerted manner, which includes creating an enabling policy and regulatory environment for private investment, measuring demand and designing an appropriate technical response, the limited business acumen of potential mini-grid developers, theft, and risk mitigation including local currency depreciation, developing productive use clients and ensuring reliable revenue. “Mini-grids bridge the gap between expensive grid extension projects and low-power options like solar household systems,” according to the researchers. Importantly, the market is transitioning from government-funded projects to viable commercial models.

Mini-grids could provide a cost-effective alternative for providing energy to around 7 million households in Nigeria, according to the organization. With a functional mini-grid regulatory environment and relatively high rural power demand, the country is reasonably progressing in its mini-grid development. According to the World Bank, mini-grids have a cumulative investment potential of over $10 billion by 2030, but to grow nationwide, initiatives to release loan funding, particularly in local currency, are required.

The Democratic Republic of the Congo, too, has potential, according to the workshop attendees. There is a huge unconnected population in the country that might be supplied by mini-grids, resulting in a possible investment of $12.5 billion that could reach around 8 million households. However, the panelists agreed that a lack of safety, government capability, and financial tools must be addressed in order to encourage further private sector participation.

The Mini-Grid Sustainability Program’s goal is to help investors scale up their investments in commercially viable MG projects by implementing a variety of interventions to strengthen the enabling environment. The Energy Project Africa (EPA) aims to eliminate or minimize regional market obstacles and build the ecosystem for the creation of a viable MGs industry in Sub-Saharan Africa, contributing significantly to the goals of universal access to modern energy by 2030. With information on rules and regulations, we undertake country-specific mini-grid market opportunity analyses. We’re also putting together a pan-African mini-grid database containing MG market data.

EPA provides advisory/Help Desk services to developers. An MGs toolkit procurement with a complete range of knowledge products and tutorials for the MGs developers – is available through the EPA help desk. We have expanded to include country-specific pages, links to partner websites, and technical assistance to public sector policymakers. The MGS MDP is developing a best-practice guide for stimulating the productive use of MGs. In Nigeria, the mini-grid sector is rapidly growing, and a number of businesses are exhibiting interest since it offers fairly favorable returns on investment. Any investor, however, should always arm themselves with appropriate competent guidance from a variety of professionals. This is why we have stepped in to help communities and businesses build up a microgrid for reliable electricity. Obtaining professional guidance from the EPA on the feasibility assessment is therefore critical in this situation because mini-grid operations are now governed by a regulatory framework.

When constructing the distribution system, the EPA takes into account the end-user system, including meters. The key variables in choosing metering technologies are tariff collection and the business aspects of the mini-grid project. The payment system is chosen by the EPA during one of several stages of the design process. The Environmental Protection Agency (EPA) normally designs metering and payment systems before the technical systems. The EPA ensures that the end-user system can accommodate loads and tariffs while also taking into account the cultural context and user preferences in the area. With large-scale solar power projects likely to be delayed by high-level red tape, enlisting the help of the Environmental Protection Agency to establish mini-grids for businesses and local communities is a realistic solution.

E.P.A. (Energy Projects Africa) through her Energy audits and feasibility solution, helps stakeholders make data-driven decisions in the clean energy space via real-time quantitative research and feasibility studies. If you need a partner with hands-on local expertise in the renewable energy space or any of our bespoke solutions/services, kindly visit Mail to learn more.


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