Access to Energy in Africa: The Mini-Grids Agenda

Access to Energy in Africa: The Mini-Grids Agenda
Improving energy access across Africa is a necessary step towards inclusive economic transformation and sustainable development. How can the potential of mini-grids be harnessed to meet this challenge?

Accelerated economic development resulting in higher disposable incomes is a prerequisite for eradicating poverty in Africa. For this to be achieved, there must be more equitable allocation of resources to unlock the productive capacity of citizens. This will require support resources to be available, like access to energy, better health services and basic education. In particular, improving African populations’ access to energy is critical if the continent is to achieve the ambitious 2030 Agenda for Sustainable Development adopted by the UN in late 2015.

In July 2018 SP-E partners in Tanzania visited the a mini-grid operator called Power Corner in Longido District in Arusha. The minigrid is a crucial component of the village livelihood as majority of the residents belongs to the pastoralistic society of Maasai. The minigrid has been able to transform the economy of the village because now people are able to use energy intensive equipment as well as engage in income generating activities. There were several shops opened up due to availability of electricity in the village, they include a welding shop, tire repair as well as electricity is used to power the hotel and restaurant in the village to mention a few.

Improving energy access across Africa is a necessary step towards inclusive economic transformation and sustainable development. How can the potential of mini-grids be harnessed to meet this challenge?

Accelerated economic development resulting in higher disposable incomes is a prerequisite for eradicating poverty in Africa. For this to be achieved, there must be more equitable allocation of resources to unlock the productive capacity of citizens. This will require support resources to be available, like access to energy, better health services and basic education. In particular, improving African populations’ access to energy is critical if the continent is to achieve the ambitious 2030 Agenda for Sustainable Development adopted by the UN in late 2015.

While Sustainable Development Goal (SDG) 7 explicitly focuses on the need to “ensure access to affordable, reliable, sustainable and modern energy for all,” it is widely recognised that energy access will also play a pivotal role in the achievement of other SDGs, including those related to poverty reduction, inclusive and sustainable economic growth, resilient infrastructure and sustainable industrialisation, access to healthcare, and access to food. Energy access is one of the key enablers of economic development, contributing to the mechanisation needed to reduce inefficiency, which is one of the factors holding back growth and structural transformation across the African continent.

The level of energy access in Africa is significantly below the world average, with less than 10 percent of the population being able to access electricity in countries such as Burundi, Chad, and Malawi, among others. Based on data from 36 African countries, an Afrobarometer study found that in 2014-2015, four Africans out of ten were not connected to an electric grid, while also underlining that reliability was often very poor for those who were connected.[1] The International Energy Agency (IEA), for its part, reported in 2017 that 590 million people on the African continent remain without access to electricity, amounting to around 57 percent of the population.

Sub-Saharan Africa is rich in energy resources, in particular solar and wind, but the level of energy supply is very low. Although Africa has what it takes to produce enough energy for its population to have universal access, these resources have not been tapped. The leading factor behind this lack of supply, and thus access, is the cost of infrastructure, which is very high and is either not a government priority or governments do not have the required resources.

Developing mini-grids by fostering more private sector participation
Such a situation begs the question of what the solutions are to the low access to energy in Africa. An important part of the answer to the challenge lies in the business model for the delivery of energy. The continent is still stuck with the utility model, where government-owned utilities rule the continent. The lack of a proper business model, as well as the need for regulatory regimes that allow more private sector participation in the energy space, are the main barriers that must be addressed to increase the level of access to energy in Africa. If the right reforms are implemented, the resulting level of economic development will be unprecedented, as has been shown in other regions where access to energy has become an enabler for economic development and trade.

Most African governments have attempted to increase the level of access to energy by focusing on grid expansion, a strategy that can prove especially expensive in the context of Africa’s demographics, with insufficient attention given to mini-grids – which can be defined as “the interconnection of small, modular generation sources to low voltage alternative current distribution systems”.[2] Mini grids present, however, a promising option for increasing access to electricity across the continent while also tapping Africa’s huge potential for renewable energy. The IEA has stated that for Africa to achieve SDG 7 on sustainable energy for all, 40 percent of the new connections that will be needed will have to be through mini-grids. However, for mini-grids to thrive, there is a need for the public sector to allow for more private sector involvement, mainly through the provision of an enabling environment. This should be in the form of regulations as well as financing mechanisms.

On the regulation front, many African countries do not have an environment that is conducive to the development of mini-grids. For instance, most of the countries are still on uniform tariff regimes, which means the government controls the price of electricity, as opposed to leaving this to the free hand of the market, where the interaction of demand and supply will determine the price. This has the effect that the payback period of projects is lengthened, which can significantly reduce their attractiveness to the private sector. Moreover, licensing of mini-grids is not well defined in many jurisdictions in the continent, with the utilities having countrywide licenses, thus locking out mini-grids unless they are run by the government.

As business models are developed for mini-grids, there is a need to consider how the electricity will be used, and how the communities to be connected can benefit. In the past, governments have focused on providing electricity for lighting, which has resulted in huge investment in last-mile connectivity, a good example being Kenya. The challenge is that the productivity of the citizen is not bolstered in this way, or at least not nearly as much as it could be with a comprehensively thought-out approach. It is therefore imperative that as governments consider the mini-grids route, they pay particular attention to the productive use of electrical power. Access to energy needs to have a transformative impact and result in economic empowerment, productivity gains, and increased trade; this is how more disposable income will be delivered. For the private developers of mini-grids, this is also critical to ensuring that customers have the resources required to pay for the power supplied.

Along development partners
Despite the understanding that mini-grids will be one of the fundamental solutions to achieving universal access to electricity in Africa, there is a need to intensify efforts towards their deployment across the continent. So far, very little has been done in that regard. As the private sector has shied away, however, development partners have ventured into this sector.

They have provided grants to governments to give support for the development of business models, technical training, and the provision of technical expertise in an effort to boost the levels of energy access in Africa. The entry of development partners in the energy sector in Africa has opened up the continent for trade in regard to energy. Many of them are providing blended financing, which serves as a catalyst for the sector, hence preparing for commercial financing. For instance, one of the clients of the Kenya Climate Innovation Centre (KCIC) has received funding from the Sustainable Energy Fund for Africa – a multi-donor trust fund administered by the African Development Bank – of close to US$1 million to support the preparation of a 7.8 megawatts hydropower project in Kenya.

This is one example of how development partners are supporting the expansion of private sector involvement in mini grids. PowerGen is another KCIC alumni client that received grants from KCIC at inception to prove its concept, and various development partners and private investors are looking to invest in the company. The combined action of development partners and private investors can be instrumental in providing clean energy mini-grid projects with the necessary sustainability, thus helping African countries to achieve their nationally determined contributions under the Paris climate agreement, as well as the SDGs.

Universal access to energy in Africa can only be achieved through partnership between the government, private sector and development partners. This will involve the development of business models to accelerate the growth of the sector, the creation of an enabling environment through the development of appropriate policy and regulation, and finally access to innovative financing from both the development community and private investors.

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