This Day of Light we learn three lessons from CIF’s experience in funding green mini-grids, with $170 million invested in 16 projects, 13 countries, and counting.
“I think electricity is a human right. To me, getting electricity to people is mission one, two and three,” said World Bank President Ajay Banga during an energy access discussion at the 2024 Spring Meetings in Washington, DC. “No economy can grow in the dark. No economy can industrialize in the dark. No economy can be competitive in the dark,” opined Akinwumi Adesina, President of the African Development Bank Group (AfDB).
May 16 marks the International Day of Light – an opportunity to underscore how climate finance can contribute to SDG7 and clean energy access in developing countries.
CIF and our multilateral development bank partners have identified mini-grids – providing renewable electricity to localized customers - as part of the solution, mobilizing together $708 million since 2013. But, to meet our energy access goals, we must accelerate. Experts believe $127 billion in mini-grids investments are needed through 2030. This would give 430 million people – or twice the population of Nigeria - electricity access for the very first time, dramatically improving the energy access gap.
Today, we share three lessons we have learned from our investments in mini-grids through CIF’s Scaling Up Renewable Energy Program (SREP) and Clean Technology Fund (CTF) cofinanced with our multilateral development bank partners.
1. Find the Sweet Spot
To support mini-grid market development, projects must strike a balance between the local nature of mini-grids and the need for economies of scale. Unless there are enough villages and households for mini-grids to service, the infrastructure may not be financially sustainable.
For instance, in Ghana, AfDB found the right balance in the Lake Volta Oti region. Instead of installing five different low voltage systems to serve five communities situated on the same island, they designed a medium voltage system. In addition to providing economies of scale, the medium-voltage mini-grid system can service bigger loads - including for water processing, irrigation and food processing equipment - and operations and maintenance activities can be centralized.
In Mali, to reach the appropriate scale, the World Bank grouped multiple mini-grid sites into batches to tender for contracts with joint ventures of international and local operators.
In Tanzania, IFC’s mini-grid project was cost effective in high density areas beyond grid reach. But individual solar systems were determined to be better suited for more sparsely populated villages and areas the grid is likely to reach soon. In addition, the project strengthened mini-grid market development by equipping developers with information to target their investments. An info-hub was created to serve as an online one-stop-shop for project developers and financial institutions, with guidance on policies and regulations, technical standards and specifications, financing and support options, and a roster of potential partners for match making.
2. Think Affordability
The financial viability of mini-grids is closely linked to their affordability for consumers. CIF funded projects offered tailored solutions to ensure reasonable tariffs.
In the Maldives, a project implemented by the Asian Development Bank (ADB) improved the affordability of electricity for consumers while also reducing the subsidy burden on the government by replacing inefficient diesel-based power with hybrid systems.
Similarly, in Liberia, costs were reduced by the World Bank thanks to the elimination of diesel-powered generators that ran at a loss – the systems now rely on solar, and the use of import tariff waivers for technical components. Affordability and flexibility also improved for consumers, with fee-for-services arrangements and deferred payments.
In Nepal, micro-hydro mini-grids were found to be more than two to three times more cost effective than diesel and solar home systems. Another economic analysis produced by the InterAmerican Development Bank (IDB) in Honduras found the cost of solar mini-grids to be less than half of the cost of the diesel solution.
3. Design for the Long-Term with Private Sector Partnerships
To ensure the financial and operational sustainability of mini-grids over the longer term, public-private partnerships can play an instrumental role. These should be tailored to the local context.
In Nepal, the government plans to transition mini-grids from informal user committees to formal companies. Honduras will contract local firms for the long-term operations and maintenance of domestic solar systems.
In Lesotho, smart mini-grids were deployed, with prepaid metering and smart meter systems helping to collect revenues and enhance bankability. The country also spelled out long-term options for communities in areas served by a mini-grid. For example, if, in the future, the main grid reaches the community, licensees have the option to stay put with the mini-grid, receive compensation, or become small energy producers that sell and/or purchase electricity from the grid.
“Providing access to clean, affordable energy is critical to mitigating climate change while also improving the lives of millions of people around the world,” explains Jimmy Pannett, CIF’s Co-lead, Renewable Energy Integration Program. “Mini-grids are a crucial building block – and we are excited to continue working with our partners to learn and invest together.”