Providing a jolt of support to power the minigrid market

Indian Prime Minister Narendra Modi and United States President Barack Obama announced Tuesday two new initiatives mobilizing up to $1.4 billion to finance India’s commitment to universal energy access.

Minigrids are renewable energy-based electricity generators that serve a set of consumers. They make up a major part of Modi’s promise to provide electricity to all Indians by 2019. Many have asked whether minigrids could be the next big opportunity beyond the grid. And with this influx of capital, Modi is well-positioned to put that question to the test as he looks to power the more than 18,000 villages that currently lack electricity.

Because there are far less sustainable ways for India to meet its ambitious targets, part of the pathway to the global goal of universal access to electricity by 2030, the stakes are high and the world is watching.

“We believe that these remote areas which have been left out cannot be serviced with the regular grid,” Tarun Kapoor, joint secretary of India’s Ministry of New and Renewable Energy, said last week at EnergyAccessX, an event that took place in San Francisco as part of the annual Clean Energy Ministerial. He asked the audience to provide feedback on a draft national policy outlining how microgrids and minigrids can provide cost effective off-grid energy. “We will have a model of grid connected microgrids,” he said.

As the policy acknowledges, while the world has seen tremendous growth of solar home systems in the developing world, barriers continue to stall the expansion of minigrids.

“When you look at the actual experience with minigrids, it’s not just not as good as the potential, but many have massively underachieved,” said Dan Kammen, a professor at the University of California, Berkeley and a U.S. Science Envoy.

Minigrids are a more obvious fit for areas where the concentration of homes and businesses is too far to connect to the existing grid but large enough to provide economies of scale. So it is harder for the minigrid sector to take off in countries with less population density, let alone less regulatory support, than India. Technological improvements and cost reductions have helped minigrids overcome some of the barriers they once faced, but development banks and aid donors play a key role in catalyzing the growth of the minigrid industry.

Scattered across the tables at EnergyAccessX were booklets from Sierra Club and Oil Change International giving international public finance a big red F for distributed clean energy access. The recommendations for multilateral development banks included increasing funding for off-grid and minigrid clean energy projects and moving beyond pilot projects to incorporate off-grid and minigrid lending into core energy portfolios.

Minigrids raise challenges that more traditional development donor investment practices are not always well adapted to confront, said Justin Guay, climate program officer at the David and Lucille Packard Foundation in San Francisco. This is due in part to a disconnect between the expertise and incentives of most development bank staff, who tend to focus on extensive due diligence for a small number of large projects, and the new opportunities to reach energy impoverished customers, which require numerous smaller investments with higher risk. 

“Development funding agencies can’t really go out and fund a hundred $1 million dollar rural electrification projects. The paperwork is massive, there’s a vetting process for all constituents, and they want traceability in terms of where all dollars are going and what payback is going to be,” Fluidic Energy CEO Steve Scharnhorst told Devex. The International Finance Corp., the World Bank’s venture capital arm, has invested in his clean energy company, which is leveraging its metal and air batteries to store electricity in renewable energy minigrids in emerging markets.“If you can bring scale through a minigrid and do 100 villages or 500 villages and make it a consolidated financial effort where the agencies are vetting a half dozen partners for a large investment, it makes it easier to get done.”

The Global Facility on Mini-Grids aims to remove the barriers constraining the expansion of low cost, clean energy minigrids in emerging markets, Malcolm Cosgrove-Davies, global lead for energy access at the World Bank, told Devex.

The group will host an event focused on minigrids in Nairobi, Kenya, later this month to evaluate successful minigrid projects. It will evaluate successful minigrid projects to understand what has worked from technology to policy to finance. Case studies might include the Infrastructure Development Company Limited program in Bangladesh, which has been called the most successful off-grid program in the world. Events such as these represent one way the global development community can rally market actors around a common vision and build momentum for minigrid market growth, said Kristina Skierka, campaign director of Power for All, a key organizer of EnergyAccessX.

For these success stories to scale in Africa, minigrids must rely on champions who can mobilize the money needed to bridge the market imperfections.

“I’m becoming increasingly obsessed with minigrids,” said Andrew Herscowitz, coordinator for the United States government’s Power Africa initiative. He said it is incumbent on donors and governments to give minigrids a chance to be a part of the solution beyond India. “We have to try,” he said.

Herscowitz named two partners in Beyond the Grid, a Power Africa sub-initiative, as examples of companies that are demonstrating points of commercial viability across multiple places on the African continent. He mentioned Powerhive, which partners with utilities and independent power producers to provide microgrid electricity, and Virunga Power, which develops, invests in, and operates rural distribution grids.

In Tanzania, Devergy, which deploys minigrid systems for low income people in rural villages, is partnering with Simusolar, which provides and finances energy efficient appliances, to test out a combined offering of microgrid and off-grid systems. Michael Kuntz, the San Francisco-based co-founder of Simusolar, said this effort will serve as a case study for how the two approaches are complementary rather than competitive.

Similarly, he hopes the Indian government will provide data as it implements its micro-grid and minigrid policy. Its success will depend on the details, from how the system is designed and presented, to how incentives from stakeholders are aligned, to how the product life cycle is managed, Kuntz said.

Read more international development news online, and subscribe to The Development Newswire to receive the latest from the world’s leading donors and decision-makers — emailed to you FREE every business day.