Local renewable-energy grids can provide electric power to hundreds of millions of people in developing nations, especially in Africa, but will not attract enough financial backing unless they are subsidised, a group of investors said on Monday.
Twelve energy and impact investors – with more than $2 billion under management and about 100 mini-grids built or in development – urged donors to reduce financial risks for them.
“The capital is there and waiting to invest, but there is a missing piece,” said Nico Tyabji, director of strategic partnerships with SunFunder, which provides debt financing for solar enterprises.
That is using public money to pay mini-grid developers and operators according to the number of connections they make.
Taxpayer funding has long backed expansion of national power grid systems around the world – and the new subsidies would be in line with that, Tyabji told the Thomson Reuters Foundation.
In a position paper, released to coincide with the Africa Energy Forum in Lisbon, the investors said mini-grids – which are self-sufficient grids serving households and businesses – had “immense potential” to accelerate electrification in Africa.
Around the world, the number of people without access to electricity dropped to about 840 million in 2017 from 1.2 billion in 2010, said a global tracking report last month.
But sub-Saharan Africa lags behind, with 573 million people – more than one in two – still living without electric power, in part because of the cost of extending national grids in remote or rural areas.
Analysis from the International Energy Agency showed that to achieve universal electrification – a global goal by 2030 – mini-grids would the cheapest technology to connect 290 million people, according to the investors’ paper.
“However, mini-grids have not yet attracted the private investment required to achieve this outcome,” it said.
According to a report from McKinsey, the benchmark cost for national grid connections in rural areas is $2,300 per connection, compared with about $1,000 for mini-grids, it noted.
Pilot projects to test the model of paying mini-grid developers for the connections they make have been launched in East Africa using funds from government development agencies, including those in Britain and Sweden, said SunFunder’s Tyabji.
Another, bigger $75-million effort is now getting underway in Nigeria, involving the state electrification agency and the World Bank.
Subsidies for connections help bridge the gap between mini-grids being built and revenues starting to come in, Tyabji said.
Demand for power can take time to develop in rural areas where most customers are less affluent than in urban areas, he said.
In many cases, mini-grids are based on a combination of solar power generation and storage technology, with users making digital payments via mobile phones.
The group of investors said new technology and business models are improving the economics of rural electrification, meaning the need for subsidies would decline as costs decrease.