Seeking the Right Business Model for Sub-Saharan Africa’s $11B Mini-grid Opportunity

April 27, 2018
Work is underway by a new Rockefeller Foundation-backed lab to test mini-grid business models for Sub-Saharan Africa, where the technology could cost-effectively serve 100 million people, representing an $11 billion opportunity.

Work is underway by a new Rockefeller Foundation-backed lab to test mini-grid business models for Sub-Saharan Africa, where the technology could cost-effectively serve 100 million people, representing an $11 billion opportunity.

In all, about 600 million people in the area do not have electricity, a problem being tackled by the Mini-Grid Innovation Lab, a new partnership between The Rockefeller Foundation and CrossBoundary Group.

The lab’s analysis compared private mini-grids — the term used for microgrids in Africa — to main grids and solar homes. It found that mini–grids in remote areas are more cost-effective than the main grid for villages with more than 400 people per square kilometer.

“Mini-grids make more sense under certain population densities,” said Lucy Shaw, global coordinator for CrossBoundary, which aims to find capital to aid developing economies. “It depends on how far away they are from the existing grid infrastructure. The further away you go from existing grids, and the smaller the city size, the higher the cost to extend the main grid.”

Extending the main grid is least expensive for people who already live close to the grid, such as in urban areas, she said. Mini-grids are less expensive for those who live so far from the main grid that its extension becomes more expensive than installing generation and storage.

But mini-grids must be located in areas that are densely populated enough to pay for the fixed costs. An analysis by the lab found that 400 people per square kilometer is the tipping point that makes mini-grids cost-effective.

About 100 million people in Sub-Saharan Africa meet the criteria for cost-effective mini-grids, Shaw said. Most of them would use solar, with diesel backup.

Solar home systems are economical for those who don’t fit the mini-grid or main-grid scenarios.

Given that there’s a potential to serve 100 million people cost-effectively with private mini-grids, the challenge now is to create innovative business models for mini-grid companies, said Shaw. Part of the problem is that the costs of operating mini-grids are high, and sometimes the people in the region don’t consume enough power to pay for those costs, said Shaw.

Join us in Chicago May 7-9 for “Microgrid 2018: Markets and Models for the Greater Good”

In one pilot project, funded by the Rockefeller Foundation, the lab is providing financing for appliances. “We provide cash for mini-grid companies to sell appliances at more than 10 sites. Our hypothesis is that people can’t afford to buy appliances, but their power consumption would go up if they had them. Is it worth the extra revenue you get from using more power?”

The lab provides capital for the mini-grid companies to buy the appliances. The companies in turn sell the appliances to customers on credit.

In the pilot project underway right now, customers are excited about getting the appliances, Shaw said.

Another business model is for the mini-grid companies to sell related services, such as Wi-fi or water pumping.

The Mini-Grid Innovation Lab is also trying to understand how mini-grid operators should interact with the main grid, said Shaw.

“In India and Cambodia, we have had examples of interactions with the main grid. Cambodia had successful main-grid integration. But in Sub-Sahara Africa, mini-grids operate in isolation,” said Shaw.

The energy sector in the region seems to want to work toward a distributed grid with some solar and backup power provided by mini-grids, she noted. “This is a more reliable model than main grids going down for long periods of time.”

In the pilot projects, the size of the mini-grids varies, depending on the market. In East Africa, mini-grids have as few as 60 connections, with each connection being a house with five people.

In Nigeria, on the other hand, mini-grids could have as many as 2,000 connections. The lab is working with 25 existing mini-grids in Kenya and Tanzania, and are aware of at least 10 more.

Mini-grid systems more reliable than grid

When CrossBoundary announced the formation of the lab, it released data showing that mini-grids are more reliable than main grids. They’re down 2 percent of the time compared to 53 percent downtime for main grids.

Building mini-grids for 100 million people in Sub-Saharan Africa would require an $11 billion investment, according to CrossBoundary.

Rural areas served by the main grid are subsidized by consumers in urban areas, which makes the costs of main grids in rural areas look less expensive than they really are, she said. That makes it challenging to convince policymakers that mini-grids are more cost-effective.

Track news about mini-grids in Africa. Subscribe to the free Microgrid Knowledge newsletter.

About the Author

Lisa Cohn | Contributing Editor

I focus on the West Coast and Midwest. Email me at [email protected]

I’ve been writing about energy for more than 20 years, and my stories have appeared in EnergyBiz, SNL Financial, Mother Earth News, Natural Home Magazine, Horizon Air Magazine, Oregon Business, Open Spaces, the Portland Tribune, The Oregonian, Renewable Energy World, Windpower Monthly and other publications. I’m also a former stringer for the Platts/McGraw-Hill energy publications. I began my career covering energy and environment for The Cape Cod Times, where Elisa Wood also was a reporter. I’ve received numerous writing awards from national, regional and local organizations, including Pacific Northwest Writers Association, Willamette Writers, Associated Oregon Industries, and the Voice of Youth Advocates. I first became interested in energy as a student at Wesleyan University, Middletown, Connecticut, where I helped design and build a solar house.

Twitter: @LisaECohn

Linkedin: LisaEllenCohn

Facebook: Energy Efficiency Markets

Related Content

petrmalinak / Shutterstock.com

DOE Funds Long-Duration Energy Storage Microgrid for California Tribe

March 18, 2024
The U.S. Department of Energy's Loan Programs Office has made a conditional commitment to provide a $72.8 million partial loan guarantee for the development of a solar plus long...
Image credit Tommy Lee Walker/Shutterstock

Microgrids Help Create Data Centers that Don’t Break the Grid or the Environment

March 18, 2024
A new model for data center design uses microgrids to provide flexibility and clean energy that reduces grid stress. Other models focus on modular data center design and providing...
Brandon Olafsson / Shutterstock.com

Department of Energy Spending Up to $200M Connecting Remote Microgrids

March 15, 2024
The U.S. Department of Energy is currently accepting proposals for transmission projects that would connect remote and isolated microgrids to each other or to existing transmission...
U.S. Army photo by Scott Darling, Fort Cavazos Public Affairs)

U.S. Army Improves Resilience at Fort Cavazos with New Microgrid

March 14, 2024
U.S. Army Garrison-Fort Cavazos, formerly known as Fort Hood, will use the microgrid to power critical services and infrastructure during outages and to reduce energy costs during...

Only through Standardization Can Microgrids Accelerate the Energy Transition

Jan. 18, 2024
Jana Gerber, North America microgrid president at Schneider Electric discusses how standardizing microgrids will accelerate the energy transition.

Clean Energy Microgrids_cover
Clean Energy Microgrids_cover
Clean Energy Microgrids_cover
Clean Energy Microgrids_cover
Clean Energy Microgrids_cover

Staying the Course on Clean Energy in a Time of Societal Disruption

Concern is growing that an economic downturn could stifle progress on clean energy. How can clean energy microgrids help society stay the course through their use and management...