Mini-grids are approaching profitability



The minigrid space continues to attract a lot of attention from development partners in Africa. According to the Africa Solar Industry Association (AFSIA), mini-grids can actually turn a profit, so there’s no doubt that commercial finance players will eventually jump on the bandwagon.

However, the challenge with SHS is that they are often too small to power larger devices, especially ones that can help users generate revenue. And this is exactly where the minigrid plays its role. According to the World Bank, mini-grids could eventually provide electricity to 380 million Africans. The World Bank is the institution that supports the minigrid.

But mini-grids face a major problem: without significant subsidies, they are rarely economically viable. In fact, building a mini-grid is expensive because it involves solar and storage devices as well as the distribution network. These high costs are then met by the villagers’ low average consumption because they only need very little power (for example, just a few light bulbs) or because their purchasing power does not allow them to buy a lot of electricity.

With a best-case cost per connection of around $500 and an average revenue per user (ARPU) of $2 per month, it would indeed take 20 years for investors to recoup their costs. This is why commercial investors have been shying away from mini-grids, but things may change.

PUE appliances

Recent announcements by companies such as Husk Power and Engie Energy Access have shown that some investors have made a profit on some of their mini-grids in Nigeria and Uganda. The secret ingredient in making this possible is based on increasing electricity consumption by supporting the development of commercial and small-scale industrial activities.

This is mainly done by making available “productive use of energy” (PUE). Small businesses and craftsmen have had the opportunity to acquire (mostly on credit) equipment based on electricity instead of diesel. This has created a virtuous circle of lower operating costs, higher profits, greater purchasing power and increased economic activity, ultimately benefiting mini-online businesses.

As such, PUE equipment and solutions such as e-mobile can indeed be seen as a true enabler of mini-grid across Africa. There are already dozens of different PUE devices on the market that are completely off-grid or connected to the network. In some cases, they allow end users to multiply their profits and unlock economic development in rural areas.

These solutions have the potential to change the situation in Africa and will certainly attract a lot of attention from investors and development partners in the coming years. In an attempt to shed more light on the possibilities of PUE, AFSIA will publish its first PUE catalog at the end of April to show the scope and impact of solutions already available in the market.

More coming

Many mini-grids are already in operation, and more are on the way. But many more are in development, and others have been announced recently. Undoubtedly, with this new development regarding profitability, we may soon see an explosion of such projects finally being funded and built.

Here’s a non-exhaustive list of project announcements and developments from just the past few weeks:

  • In the Democratic Republic of Congo, Nuru has secured $1.5 million to expand mini-grids in Goma and build new ones in Kindu and Bunia. In Bukavu, Bboxx has launched a pilot installation to bring electricity to telecom operator Orange and more than 600 households, with the local GoShop handling the design, procurement and construction. Bboxx and Orange plan to deploy 24 more of their telecom-anchored networks to provide electricity connections to 150,000 people within two years.
  • WeLight has raised $20 million from EDFI ElectriFI, the European Investment Bank and Triodos to build mini-grids in Madagascar. This comes in addition to the previous $30 million previously raised to power 120 villages.
  • In East Africa, the World Bank has launched 136 mini-grids in Kenya. This is a welcome move for mini-grid companies that started operating in Kenya several years ago, but have since gone through a lot of uncertainty and challenging politics in the country.
  • In Sierra Leone, AFSIA member InfraCo is refining its collaboration with minigrid veteran PowerGen to pilot a new financing model and further increase the amount of minigrids in the country.
  • And in Nigeria, the current poster child for mini-grids in Africa, several initiatives are being run simultaneously. The Rural Electrification Agency (REA), which benefits from one of the World Bank’s largest support programs, has announced that it will develop 51 new mini-grids in addition to the 12 built in the first call for the REF program. Nairobi-based financial services company CrossBoundary Energy Access announced that it will finance and own the Nigerian mini-grids planned by Engie Energy Access over the next four years. This $60 million investment is set to provide more than 150,000 power points and is backed by performance-based financing from the World Bank, which was previously reported to offer $350 per new user.

Husk Power aims to expand the six mini-grids it has installed in Nigeria’s Nasarawa state to more than 100 such networks in 2023 and 500 by 2026.

The minigrid space continues to attract a lot of attention from development partners. But with the recent demonstration that mini-grids can actually turn a profit, there is no doubt that commercial finance players are jumping on the bandwagon eager to make an impact in Africa and turn a profit.

David is a passionate writer and researcher who specializes in solar energy. He has a strong background in engineering and environmental science, which gives him a deep understanding of the science behind solar power and its benefits. David writes about the latest developments in solar technology and provides practical advice for homeowners and businesses who are interested in switching to solar.

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