At first glance, the prospect for micro-grids in Africa looks promising. We ourselves presented a very positive case in our microgrid report last year. The International Energy Agency (IEA) estimates that as many as 220 million sub-Saharan Africans will gain access to electricity through micro-grids by 2040. This translates into a deployment of 100,000 – 200,000 systems or a market opportunity upwards of $1bn. A pretty clear call to arms for the business community, it seems.
However, the private sector is still finding it difficult to scale profitable microgrid solutions. There are different reasons for this. First of all, business models are still being experimented with to overcome customer-related challenges, some of which can seem counterintuitive. It turns out that many consumers prefer individual solar home systems, which come at a higher cost of power, but offer a sense of ownership and flexibility for the user. They constitute personal wealth and can be moved when needed. Additionally, these home solar systems often provide enough energy for the household and there is no demand for a higher capacity, unless there is an increase in rural business activity. In other words, micro-grids are often just overkill. Finally, microgrids have all the offtake risks of infrastructure projects. If customers don’t pay their bills, there is little the operator can do.
Apart from this, microgrid operators face a policy challenge: Some countries want the price for off-grid electricity to match that of — often heavily subsidized — on-grid power as a matter of principle (equality). Yet these prices are too low to cover the costs of a microgrid system. As a result, even in places where operators are allowed to charge higher prices, customer subscription is sometimes poor because prices are perceived as being too expensive.
While there is no question about the positive impact microgrids can have in spurring economic development in rural areas, the sector is currently in a tight spot — caught between high installation costs and lower than expected customer acceptance, missing acknowledgment from policy makers and competition from subsidized utility companies.
Having said that, the case for microgrids is steadily becoming more attractive. New technologies, such as satellite imagery and data analytics, allow for quicker and cheaper site identification and system layouts, reducing the cost of business development. Remote sensing, communication and controls, which still expensive, can reduce the operational cost. Crucial hardware cost, such as that of batteries, is continuously falling. And ever more governments which understand that microgrids are a cost-effective option for meeting electrification goals are crafting useful regulations (especially concerning future grid connections). The market is still dominated by hardy impact entrepreneurs, but more and more straight-forward businesses are observing it closely.
Dr. Tobias Engelmeier is an entrepreneur, author and advisor. He founded the company TFE Consulting (link) and works on new energy and digitalization in Africa, Asia and Europe. He’s a regular contributor to CleanTechnica and The Beam.