Take-aways from 15 years of GIZ support in mini-grid market development.
Over the last 15 years, Deutsche Gesellschaft für Internationale Zusammenarbeit (GIZ) has trialed, adjusted and refined approaches to providing technical assistance (TA) to governments interested in rural electrification with mini-grids. This report uses the wealth of experience gathered by various GIZ mini-grid programs and derives some essential lessons leading the way towards a new understanding of the role and aim of mini-grid TA.
Successful mini-grid TA overcomes the dilemma of expectations between governments and mini-grid companies. Governments typically want to see successful pilots readily deployed in their own country, plus potential financing for large-scale mini-grid roll-outs lined up before they take the effort of adjusting the policy and regulatory framework. In contrast, private mini-grid companies want to see an enabling policy framework in place before they start investing.
The TA provider brings the “loose ends” together through the promotion of successful mini-grid pilots, rural electrification and energy access planning, the development of mini-grid regulation in cooperation with the government, capacity building with the public sector as well as the private sector, the development of country specific tender mechanisms, the acquisition of funding for large-scale mini-grid roll-out and the promotion of productive use of electricity and new business model development. GIZ project managers report that embedding a mini-grid expert into the government partner’s organization has facilitated communication and capacity building, while various units and external experts address the many aspects of project preparation and implementation. On the private sector’s side, hands-on support for pilot implementation (system design, financial modelling, capital acquisition, etc.) is usually more welcome than theoretical training sessions.
The TA provider’s main challenge is to coordinate all relevant stakeholders including Ministries, Departments and Agencies (MDA), parliament, private sector, academia and civil society, towards finding a national consensus on the degree of government funding channeled into mini-grids vs. mini-grid tariffs charged to electricity customers and institutionalizing implementation instruments. While a complete national consensus is usually impossible to achieve, getting as close as possible to this national consensus requires comprehensive coordination efforts, as well as the use of technically clear language in explaining state-of-the-art delivery models and regulatory concepts. Usually, the delivery model and related regulatory concept selected for implementation is also a direct derivative of the discussion on the national consensus level. “The devil is in the detail”, and this is where GIZ’s long-term on-site presence, intercultural competence, institutional relations and long-term mini-grid TA experience has proved to play out especially well. Mini-grid TA providers must understand that they have succeeded once the mini-grid market thrives without them and their service is no longer required. This can be achieved best through thorough front-to-end planning, whereby the endgame of mini-grid TA is the hand-over of all market coordination tasks to a group of organizations managing the large-scale roll-out of mini-grids. These are usually government entities in cooperation with a development bank. In the past, this hand-over has often not worked as fluently as possible. In some cases, TA provider and development bank have found each other in competition for the same government staff resources in the implementation of projects on both ends. In other cases, development banks find frameworks have been developed in a manner unsuitable for large-scale investment, ignoring the fact that TA without the lever of large-scale financing which only development banks bring along, makes governments much less motivated to adapt and thus success is much harder to achieve.
When mini-grid TA providers are aware of development banks’ conditions to start a mini-grid roll-out program and financiers give a clear indication to the government that once these frameworks are in place, access to large-scale finance shall be available, both conflicts above can be resolved. In this manner, mini-grid TA providers have a clear aim to work towards, and development banks find perfect starting conditions once they enter the mini-grid space in a country. It is critical for the health of a renewable energy market that primary stakeholders are aligned, sending one clear message to the private sector, and for this, intense cooperation between government, TA providers and development banks is necessary.
The most fundamental condition for a mini-grid roll-out is the financial sustainability of mini-grids. Innovations improving the financial sustainability of mini-grids are evolving with support from mini-grid TA. So-called Fourth Generation business models use mini-grids as a starting point to generate additional revenues beyond electricity sales to village customers. While larger financing windows are coming online in an effort to accelerate off-grid electrification, mini-grid TA is now tasked to identify and implement Fourth Generation mini-grid business models in cooperation with mini-grid operators. In addition, new methods of electricity demand projection based on household Average Revenue Per Customer evaluations will probably soon help reduce the highest risk for profitability in mini-grids, the demand or volume risk. If TA can also overcome the mistrust between private sector and governments, leading to the private sector not embracing regulation, the basis for a successful and flourishing mini-grid sector is set.
Excerpt from: A Renewable Energy Mini-Grid Technical Assistance Guide, GIZ, 2020, p. 5/6