Private Sector Driven Business Models for Mini-Grids: Lessons from Asia – also for East Africa

Alliance for Rural Electrification (ARE)

With this publication, ARE highlights lessons learnt from 11 private sector driven clean mini-grid projects across South and South-East Asia. The purpose is to assist developers with know-how for the development of future projects and to inform investors about what to expect when considering mini-grids in their investment portfolios in this specific region.

While the case studies exhibit diversity in their approach to mini-grid development, ARE has four recommendations, which if followed properly will drive the mini-grid industry further towards scale and long-term sustainability.

Further explore innovative approaches to increase the uptake of productive appliances

PROBLEM

Two of the main risks in clean energy mini-grid projects are lack of payments from end-users and the demand risk, typically related to either low demand and uptake from households or wrongly forecasted demand and hence a mismatch between supply and demand. Moreover, local industries and businesses might be hesitant to connect to the mini-grid at first.

To address these risks, developers across South and South-East Asia link the generation of electricity with productive uses of renewable energy. Productive uses include agricultural machinery, local shops, rice hullers, welding machines and other income generating activities. Some developers also opted for anchor-business-community business models to lower payment risks.

While productive uses of renewable energy have been widely recognised as a core element to the sustainability of mini-grid business models, estimating demand remains a cumbersome process, which can be potentially be optimised.

Moreover, financing options to empower end-users to purchase productive and energy efficient appliances (e.g. via micro-loans) while considering how to best promote local entrepreneurship (e.g. via entrepreneurship training at the village level) need to be further explored.

RECOMMENDATION

Further map out the potential of different productive uses in various regions of South- and South-East Asia, including productive and energy efficient appliances (both AC and DC), as well as income generation from coupling energy access with other sectors, such as agriculture, fishery, refrigeration and digital services.

For project developers, it is recommended to start the community engagement process from the earliest stage of the project to understand what productive uses can be connected. Conduct additional studies on which types of financing and capacity building are effective at the end-user level to increase the uptake of productive appliances (e.g. micro-loans, entrepreneurial training to local community groups).

Leverage digital and disruptive technologies

PROBLEM

Payment risks, demand, technology and operational risks still pose challenges for mini-grid developers. By leveraging digital solutions, such as remote monitoring, smart meters and mobile money, developers are recognising the potential of digitalisation to lower risks. Digital solutions can be leveraged to manage demand, to remotely monitor grids lowering operations and maintenance costs and to collect payments online via mobile applications, lowering payment risks. For example, Mlinda Foundation estimates that installing remote monitoring has led to a yearly OPEX reduction per mini-grid of USD 2,400. New digital technologies such as the Internet of Things (IoT), artificial intelligence (AI) and blockchain will need more exploration to understand the full potential to lower risks of mini-grid projects.

RECOMMENDATIONS

In Sub-Saharan Africa, off-grid developers (especially in the solar home system sector) have had great success in partnering with mobile money companies (such as M-Pesa in Kenya). With partnerships between the mini-grid sector and the telecom sector in South-East Asia focusing on the wider spread use of mobile money, as well as mapping of demand via mobile phone coverage maps, further gains in terms of better quality and cost reductions can be made.

Moreover, additional research or funding for innovative projects will help explore the potential of the newest digital technologies and their role in optimising mini-grid site selection, system design processes, O&M and payment models.

Develop public-private partnerships (PPP)

PROBLEM

The political and financial risk of grid arrival remains among the key risks for mini-grid developers and investors. Given the often extremely low (subsidised) tariffs offered by national utilities, grid extensions are often detrimental to mini-grid project economics. Especially in areas, where grid extension is a risk, the mini-grid industry will require long-term cooperation between the public and private sectors.

Additionally, public-private partnerships help to enable access to different types of capital, which could help finance more projects on the ground (e.g. money from climate financing).

RECOMMENDATIONS

As is the case in some projects showcased in this publication (see for example case on Mandalay Yoma’s mini-grid in Dee Doke South, Myanmar and Clean Power Indonesia in Mentawai, Indonesia), public-private partnerships can be leveraged to increase the financial sustainability and to lower the risk of projects, while securing utility or government buy-in in projects.

The mini-grid sector in South and South-East Asia especially needs public-private cooperation across countries to coordinate efforts of governments and development finance institutions, which typically run parallel support programmes. Inspiration can, for example, be found in the Energy Access Workstream of the Africa-EU Energy Partnership (AEEP) led by ARE, which served as a cross-country public-private partnership focusing on training, policy dialogues and research.

Cultivate additional community-private partnerships (CPP)

PROBLEM

Social acceptance risks (community dissatisfaction) constitute another type of risk of mini-grid projects, which can hinder project deployment. For example, local customers might be sceptical towards electricity supply from a mini-grid because of its higher tariffs than a subsidsed national grid. Additionally, customers might have the prejudice that private companies will not protect end-users, but only operate mini-grids to maximise profits. By working with communities at all stages of projects, including pre-project planning and post-commissioning engagement and job creation, the sustainability of projects and impact on local development can be maximised.

RECOMMENDATIONS

Consider community and customer engagement in all stages of mini-grid projects. Communities can either fully own projects, partially invest in the project via equity or gradually overtake ownership of projects. If the mini-grid is privately owned and operated communities can be involved via consultations, discussions and on-the-ground surveys during the site selection phase. During implementation, operations and maintenance local managers and operators can be hired to ensure ownership and thereby sustainability of mini-grid projects. Additionally, given the tremendous amount of community-owned projects in South- and South-East Asia, more work is needed to investigate how and where private operators could support communities in existing mini-grid projects.

 

THE CASE STUDIES

  • Rahimafrooz Renewable Energy: 80kW solar-powered mini-grid in Ghorjan Island (Bangladesh)
  • Okra and Pteah Baitong: 8 kWp DC mini-grid in Kbal Damrei (Cambodia)
  • Mlinda Foundation: 22.4 kWp solarpowered mini-grid in Sahitoli (India)
  • Tara Urja: 31.2kWp solar-powered mini-grid in Derni (India)
  • Clean Power Indonesia: 700 kWp biomass gasifier in Mentawai (Indonesia)
  • Mandalay Yoma Energy: 55kWp solar-powered mini-grid in Dee Doke South (Myanmar)
  • Yoma Micro Power: 31.2 kWp solarpowered mini-grid in Sagaing Region (Myanmar)
  • Gham Power: 52 kW solar-powered mini-grids in Khotang (Nepal)
  • RERL and Subas & Sujan Electric Service Center: 29 kWp micro-hydro mini-grid in Simli Khola (Nepal)
  • PowerSource Philippines Inc. (PSPI): 893 kWp biomass gasifier in Rio Tuba (Philippines)
  • Inno Energy School, Blue Solar and Symbior Solar: 60 kWp solarpowered mini-grid in Koh Jik Island (Thailand)

 

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