Energy demand must increase in rural Africa to make mini-grids work

NAIROBI — Ensuring electricity reaches hard-to-access areas across the African continent is key to Sustainable Development Goal 7, which seeks to ensure affordable and clean energy access for all. But many mini-grid project developers find that when they connect last-mile populations with electricity — a highly capital-intensive enterprise — there is not enough demand for energy to justify the investment, according to panelists at the Future Energy East Africa conference this week in Nairobi. “Just delivering energy is not enough. You can't deliver energy and expect that ... people will know what to do with power they've never had before.” --— Rebekah Shirley, chief research officer, Power for All Mini-grids are decentralized, small-scale energy units that generate electricity through various inputs — such as solar or wind — and supply it to a localized grid, usually in places that don’t make commercial sense for the national electrical utilities to serve, explained Rita Nkatha Laibuta, supervision consultant at the Green Mini Grid Facility Kenya. While the price of a mini-grid ranging by size, one that serves about 200 homes might cost about $100,000 to install, she said. “Domestic users, historically in Africa, are not great consumers. On average domestic users consume about 5 to 10 kilowatt hours a month, which is basically nothing,” said Abishek Bharadwaj, chief technology officer of Equatorial Power, a Uganda-based company that specializes in off-grid solutions. “Assuming the tariff was regulated at 40 cents, that would be about $2 per consumer for an asset that is worth $100,000.” Among those with access to electricity globally, energy consumption in sub-Saharan Africa is the lowest in the world. Rural users primarily use it for lighting, charging their phones and playing radios, according to Patrick Tonui, East Africa regional representative at the Global Off-Grid Lighting Association. “Just delivering energy is not enough. You can't deliver energy and expect that ... people will know what to do with power they've never had before,” said Rebekah Shirley, chief research officer at Power for All, a global network of organizations focused on universal energy access. “There's a real conversation happening now around rural consumption,” she said. Key to solving this, according to the panelists, is increasing the “productive use” of energy — or creating income-generating opportunities that will increase energy demand. This could include encouraging ice production or the use of milling machines. Fishermen in rural areas, for example, often sell their fish quickly and cheaply because, without electricity, they have no way to store them, Nkatha Laibuta said. Bharadwaj explained that these continuous, predictable uses of energy — or “anchor loads,” as the industry calls them — can make the mini-grids commercially viable, essentially subsidizing the energy for residents in the surrounding communities. As a result, many in the industry are now prioritizing work to couple the installation of mini-grids in remote areas with efforts to enhance productive use of energy, in order to make the systems sustainable. The Green Mini Grid Facility Kenya is one such project. Funded by the United Kingdom and European Union, and implemented by the French Development Agency, it has provided about $5.5 million in grants to 50 mini-grid projects in Kenya that provide about 10,000 connections. In its second phase, it plans to allocate another $4.3 million in grants. It then provides toolkits to help communities identify which productive use activities make sense for them. It is also working with a local commercial bank to create a financing scheme that is a mix of a loan guarantee fund and asset financing, Nkatha Laibuta said. “These business ‘productive use’ activities are very high risk. We are talking about communities that are probably unbanked and don’t have access to financing any other way. The idea is to provide a guarantee for this financing coming from the commercial bank. And in this way, we hope we will be able to stimulate the demand for access to the finance and demand for these productive use activities within communities,” she said. Equatorial Power is also working on a pilot project in Lolwe Island in Uganda, which will include a mini-grid accompanied by a “mini industrial park” that includes water purification machines, ice manufacturing and fish drying machines to increase energy demand.