Report reveals minigrid benefits for Africa

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Minigrid electricity developer industry association, the Africa Minigrids Developers Association (Amda), on August 13 launched its ‘Benchmarking Africa’s Minigrids’ report, which finds that minigrids outperform utilities in terms of affordability, with average installed costs of $733 a connection.

The report measures industry performance through a comprehensive collection of data across 12 countries and 28 companies.

The report, produced in collaboration with Economic Consulting Associates (ECA) and Odyssey Energy Solutions, covers a ten-year period and focuses on metrics such as installed and operating costs, financing, quality of service and regulatory approval times.

Amda says the report provides a previously absent methodology and transparency to track the fast-evolving minigrid sector.

Download Africa Minigrids Developers Association’s ‘Benchmarking Africa’s Minigrids’ report (6.94 MB)

It reveals that minigrids are significantly less expensive in rural areas than national utilities, which at the lowest are $1 500 a connection.

Amda notes that national utility connections are often thousands of dollars more costly than minigrid connections. As such, the association says minigrids save governments money that could be used to support communities in other ways, or to lower the minigrid kilowatt-hour price for minigrid consumers.

Taking these factors into account, Amda, through its report, recommends that there should be mainstream support for minigrids in national energy policies and budgets.

According to Amda, the report provides the most comprehensive analysis on minigrid financing, economics, regulation, service quality and impact available to date, and also offers key insights into the barriers facing the sector and what can be done to overcome them.

Another key finding of the report is that the installed costs of minigrids have dropped more than 60% since 2015, and that the minigrid sector is quickly maturing, with operational, installation and capital costs decreasing as projects scale up.

In this regard, Amda recommends that there be an​ increase in public support to the private sector to lower minigrid costs further and accelerate private investment into energy access minigrids.

According to the report, minigrids also offer better service than a central grid​, as it finds that minigrid service levels average 99.1% from the generation source. “This is much higher than utilities, which for example in Zambia is only 72%,” says Amda.

As such, the organisation recommends the full incorporation of service quality as a metric in national electrification planning, and that governments leverage minigrids to ensure reliable and quality electricity supply to rural communities.

However, the report notes that regulations are stunting minigrid sector growth​.

In this regard, the report reveals that energy regulations have historically been designed for small numbers of large projects, not a large number of small projects such as minigrids. This has resulted in average approval times per site for minigrids of more than 52 weeks. According to Amda, this, if left unchanged, will not enable Africa to achieve universal energy access on an acceptable timescale. ​

To overcome this, Amda recommends the digitalisation, modernisation and otherwise streamlining of regulatory compliance and permitting using twenty-first-century technologies to facilitate bulk minigrid project approval in a more timely fashion.

Further, the report also finds that grid customer revenues are low, as evidenced by the fact that just like historical rural electrification efforts globally, and rural electrification through national utilities in Africa currently, minigrid average revenues per user are under $5 across all customer categories on the continent, including households and small businesses.

To address this, Amda recommends increasing efforts to economically empower minigrid customers and to increase demand by focusing on productive use applications.

Lastly, the report reveals that public funding is key to unlocking private capital​, showing that access to concessional finance is directly linked to radical increases in access to additional private capital for minigrid developers, and to increases in connection numbers. To further this, Amda recommends greatly increasing the size, reliability and geographic scope of public financial support.

Amda CEO Aaron Leopold says the minigrid sector in Africa is beginning to scale up, and that means the beginning of a potentially transformational moment for rural African communities.

However, he says this should take place with fair and effective financial, commercial and policy solutions in place for the sector to continue on its current trajectory.

“It is now clearer than ever that the sector is maturing, with costs dropping and service improving as investment increases. It is therefore fundamental for developers, donors and national governments to work together to continue to scale up the minigrid sector, while at the same time empowering customers to increase productive energy use that can bring economic benefits to rural communities,” says Leopold.

Only then, he says, can a financially viable and sustainable operating environment for minigrid companies be achieved.