While subsidies have helped ensure the expansion of national power grid systems around the world, using public money to finance solar mini-grids is less established—a situation that needs to change in sub-Saharan Africa, investors urge, where 573 million people still live without electric power.
Drawing on analysis by the International Energy Association (IEA), 12 energy and impact investors with more than US$2 billion under management and about 100 mini-grids built or in development say the self-sufficient grids have “immense potential”—especially in the sub-Saharan region, where more than half the population still lacks access to electricity, reports the Thomson Reuters Foundation.
But full private financing to build and operate the mini-grids has proven elusive, said Nico Tyabji, director of strategic partnerships with SunFunder, a company which provides debt financing for solar enterprises. Because “demand for power can take time to develop in rural areas, where most customers are less affluent than in urban areas,” subsidies are critical “to bridge the gap between mini-grids being built and revenues starting to come in,” he explained
The mini-grid connections cost far less than conventional hook-ups, the investor group observed, citing a McKinsey report which placed “benchmark costs” at just $1,000 per connection, compared to $2,300 for national grids.
The investors also cited the IEA’s finding that “to achieve universal electrification—a global goal by 2030—mini-grids would be the cheapest technology to connect 290 million people.”
They also noted that “new technology and business models are improving the economics of rural electrification, meaning the need for subsidies would decline as costs decrease.”
Pilot tests of subsidies to help mini-grid developers in Africa weather the dry spells between installation and revenue are under way, Tyabji told Thomson Reuters. They include a $75-million effort in Nigeria, involving the World Bank and the state electrical agency.