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  • Aug 01, 2016

Clean energy mini-grids: once a holy grail are now a reality

CIF Action 

I first became familiar with clean energy mini-grids about nine years ago, when I was working in India on solutions to expand access to modern energy to the hundreds of millions of Indians who didn’t have it. At the time, mini-grids were kind of a holy grail – hugely promising, but still illusory.

Mini-grids can provide electricity for productive and community uses like powering a sewing machine, cold storage, or a community health clinic, and thus can deliver economic and development benefits that other solutions like off-grid lighting and solar home systems cannot. 

Everyone was looking for the breakthrough that would yield a commercially viable business model for the wide scale deployment of mini-grids, but no one had yet managed to find it.

Fast forward nine years and the dialogue and action on clean energy mini-grids has changed. This was abundantly clear from the action learning event on Upscaling Mini-grids for Least Cost and Timely Access to Electricity Services that the Climate Investment Funds (CIF) and the Energy Sector Management Assistance Program (ESMAP) jointly organized in Nairobi, Kenya in late May.

So what exactly has changed? For starters, there was tremendous energy and a buzz in the air among the 200 participants ranging from entrepreneurs to funders to energy sector regulators who came together in Nairobi. The participants – who represented 29 countries, including 19 countries in Africa – brought with them a wealth of experience and know-how, passion and perseverance, an eagerness to share and learn from others, and a commitment to applying these lessons to improve the markets for mini-grids in their countries.

A big difference today from nine years ago is that all of these practitioners have on the ground implementation experience, which shifts the dialogue from the abstract to the real.

Technological innovation has also brought about big changes. Metering software and mobile payment systems enable mini-grid customers to consume electricity on a pay-as-you-go basis, as we saw during a field visit to a solar-powered mini-grid serving the rural community of Entasopia, Kenya, a bumpy four hour drive from Nairobi.

A restaurant owner paid a weekly fixed tariff for a reliable supply of electricity to provide lights and entertainment for his customers, while a mother of two young children purchased electricity through her phone in affordable increments to power her household.

This combination of technology provides flexibility and ease to customers, while vastly improving the efficiency of maintenance and payment collection for system operators.

Two-thirds of the world’s poor live in villages which are typically too far from the grid to be feasibly reached via grid extension; this is particularly true in sub-Saharan Africa, where a majority of the population is expected to be in rural areas for the foreseeable future. In Kenya, for example, 10% of the population (in the North) is not connected to the grid (around 4.5 million people). In such cases (and where population density is not too low), decentralized mini-grids—smaller independent grids that are (at least initially) not connected to the main grid—offer more practical alternatives

The availability of finance for mini-grids has also improved, although access to finance remains an obstacle for mini-grid development. The CIF’s Scaling up Renewable Energy Program in Low Income Countries (SREP) is one of the biggest global funders of mini-grids, with approximately $140 million in concessional loans and grants allocated to projects implemented by the SREP’s partner multilateral development banks (MDBs) in 14 countries, including Cambodia, whose Investment Plan was recently endorsed.

SREP support for mini-grids in Africa is particularly significant with about SREP $90 million supporting nearly every MDB-implemented mini-grid investment in Sub-Saharan Africa. During a lively breakout session on access to finance, participants underscored the ongoing need for well-targeted concessional finance given that the mini-grids sector as a whole is not yet ready for commercial finance.

Concessional finance can be a catalyst in expanding the deployment of mini-grids by absorbing risks that the market will not yet bear and providing technical assistance, for example for capacity building for financial institutions to familiarize them with mini-grids transactions. At the same time, practitioners urged both providers and recipients of concessional finance to be disciplined in the use of these funds to avoid crowding out potential private sector investors, who are now beginning to take interest in the sector.

To be sure, barriers still remain for realizing the full potential of clean energy mini-grids to provide electricity to many of the 1.2 billion people in the world who still lack it. But it is clear that great progress has been made in the last nine years. And with continued support from the CIF, ESMAP and the committed practitioners who are building mini-grids markets, it’s clear that mini-grids will power a bright future ahead.