In this briefing we present evidence and experiences from the Energy Change Lab, a programme led by IIED and Hivos that works closely with partners in Tanzania on productive uses of energy (PUE) for community entrepreneurs.
PUE: essential for energy access
Sustainable Development Goal (SDG) 7 aims for universal access to affordable, reliable and modern energy services. To achieve this ambition, demand for electricity must meet supply when developing mini-grid systems. One promising way to stimulate demand is by promoting community PUE, which also supports a number of global goals, such as inclusive and sustained development in SDG 8 and SDG 9’s resilient infrastructure and sustainable industrialisation.
PUE are activities or services that typically use renewable energy (such as solar, biomass and hydro) that can help stimulate a local appetite for electricity in remote communities that usually express low initial demand, and can ultimately increase the socioeconomic status of local communities. Evidence points towards milling, ice making, carpentry, egg incubation and water treatment as important PUE opportunities for rural people. For instance, electric milling machines can be highly profitable for remote communities, but their use requires careful technical and economic consideration.
Governments tend to focus on central-grid expansion, but off-grid systems like mini-grids can reach remote communities that are too costly to connect to the central-grid. International Energy Agency (IEA) modelling shows that for universal access, off-grid and mini-grid systems will supply about two thirds of new electricity connections by 2030, especially for rural areas. But to reach this level of saturation, off-grid energy services must become commercially viable or be subsidised.
Off-grid developers and governments are finding that installing electricity infrastructure does not necessarily activate PUE activities. Many remote communities are unable to pay for electricity services or invest in new appliances. This leads to a gap between low demand and electricity supplied in off-grid communities, which threatens the viability of many mini-grid business models.
In this context, PUE activities are critical to improving the commercial prospects of mini-grids — they can activate demand for electricity while improving livelihoods and generating income for customers. In combination with other interventions such as targeted, short-term subsidies, this can translate into greater ability of individuals to pay for electricity, which supports energy systems that can be scaled up across remote communities.
Boost local demand with access to finance and skills for entrepreneurs
Remote communities typically start with low electricity demand, but this can be increased through PUE, which can improve livelihoods. Our work in Tanzania demonstrated several ways to achieve this:
Target the technical and business skills needed by local PUE entrepreneurs, coupled with ongoing support through mentorship and guidance. Government vocational institutes can be strong partners, adapting existing skills training material for off-grid applications. Training of trainers may be an effective tool in Tanzania. Female-only training courses — including female trainers — should be considered for women entrepreneurs.
Developers need to ensure that financing is available for customers, including microfinance, payment plans and grants for those who need financial support the most. Consider working with microfinance institutions (MFIs) that are linked to national credit guarantee schemes and concessionary loan programmes. Also build activities that target gender-specific barriers to finance. In communities without MFIs, developers have successfully offered their own payment plans.
Developers should ensure appliances and equipment are available in communities that are mini-grid compatible (especially for solar photovoltaic (PV) technology) and are highly efficient. The Efficiency for Access coalition is supporting development of highly efficient appliances. Crucially, this equipment needs to be tested in real-life conditions to ensure compatibility.
Excerpt of: Off-grid productivity: powering universal energy access (iied/Hivos, 2019).