A report from the African Minigrid Developers Association finds that in rural areas minigrid connections can be significantly less expensive than state-run utilities but red tape is holding back their growth. David Thomas looks at the findings
Minigrid connections in Africa are expanding exponentially and costs have decreased for developers, but regulation continues to hamper sector growth, according to research from an industry body.
In its Benchmarking Africa’s Minigrids report, the African Minigrid Developers Association (AMDA) reports that connection numbers increased from under 2,000 in 2016 to over 42,000 in 2019 as donor funding increased, with the most growth in East Africa, providing over 250,000 people, businesses and community facilities with energy. The association surveyed 12 countries and 28 companies.
A minigrid is an off-grid electricity distribution network involving small-scale electricity generation, usually disconnected from utility-scale grids. Their popularity has increased in Africa as rural communities long-neglected by inefficient national grid systems demand new sources of electricity.
The sector’s growth coincided with falling costs, with the average price per connection falling from $1,555 at the beginning of the reporting period in 2014 to $733 in 2019. Established developers were able to reduce capex pricing by 57% over the reporting period, while the cost for new companies entering the market reduced by 33%.
The AMDA claims that with installed costs of $733 per connection, minigrids are significantly less expensive in rural areas than national utilities, which they say cost at least $1,500 per connection. Yet minigrids are hampered by slow regulatory processes which take on average more than one year per site.
“With the World Bank estimating that Africa requires 140,000 minigrids, regulation represents an enormous barrier to sector growth and to SDG 7. Neither will be achievable without the urgent development and adoption of more automated and bundled approval processes that allow for higher volumes of approvals at greatly increased speeds,” says the report.
Call for a collaborative response
Another problem is low energy consumption among African consumers. The average consumption per customer is only 6.1 kWh per month across the continent, making it difficult to cover operational costs for residential consumers, let alone secure a return on investment. Minigrid average revenues per user remain low, at under $5 on average across all customer categories on the continent.
“Because of this systemic challenge, bankability will remain elusive until a systemic, long-term collaborative response from minigrid companies, the donor community and national governments is deployed at scale… experience shows that ideally, a broad-scale demand-growth program would likely need be a combination of micro-finance (for appliance purchases), micro-entrepreneurship training (ensuring appliances and small businesses are increasing incomes) and agricultural extension work (minigrid sites and customers will remain largely agrarian for some time).”
The organisation calls for additional public funding to support the sector’s growth.
“Overall, the African minigrid market is behaving predictably both as a nascent industry, with significant price reductions emerging as investments increase, and also as a rural electrification sector, in that public funding has proven an essential catalyst to bring in private investors and kickstart cost reductions through the scale-up process. Logic holds that continued public support will see continued scale-up and price reductions.”