A push is on to bring electricity to the nearly one billion people who lack it worldwide. But if you build it will they come? Apparently not, as some minigrid developers are finding in Sub-Saharan Africa.
Electricity does little good for those who have nothing to plug in. And unfortunately that’s too often the case in remote areas with new minigrids — the name used for microgrids in Africa. As much as the villagers want to use the electricity, they have no means to do so.
As a result, well-meaning rural electrification programs sometimes build a bridge to nowhere, creating only half of what’s needed for economic development when they install minigrids. The other half requires what the Rocky Mountain Institute calls ‘demand stimulation’ — giving customers, especially businesses, reason to connect to the minigrid, along with access to equipment that uses power.
RMI found that without demand stimulation, electricity can become cost-prohibitive for Africans.
“We’d run into these minigrids and distribution systems that were up and functioning but had really low capacity utilization. And because of that, power costs were high at a unit level,” said Scarlett Santana, senior associate in RMI’s electricity practice and co-author of a new paper, Closing the Circuit: Stimulating End-Use Demand For Rural Electrification.
The tailspin fall
If enough villagers do not take power from the minigrid, the project can end up in a financial tailspin. Unable to spread minigrid costs over many buyers means a small pool of users shoulder the burden. If their electricity prices are too high, they eventually disconnect from the minigrid and the project becomes unsustainable.
For example, in Uganda a minigrid meant for 350 customers drew only 60 who were left paying $2/kWh for power. Large customers disconnected “causing a downward spiral in demand and damaging the cost recovery of the system,” says the RMI paper.
Unfortunately, demand stimulation gets little attention in rural electrification planning — a situation that RMI hopes to change. Almost half of the nearly $4 billion the World Bank invested in energy access went into building power supply (fossil fuel based mainly) from 2000-2008, and only 0.7 percent into supporting its productive use. Today, there is 50 times more financing available in Africa to generate electricity than for promoting its consumption, according to the paper.
So what will it take to stimulate electric demand in small African villages? For North Americans or Europeans who have lived with electricity for more than a century, some of RMI’s findings may be a surprise.
For one, not all villagers understand the economic value of electricity for their homes and businesses. And even if they do, it may not be easy for them to secure appliances — there is no Best Buy or Walmart down the street.
“It is easy to find a light bulb, it’s easy to find a fan, it’s probably easy to find a television. But getting an energy efficient refrigerator may be really hard in a rural community — or a productive piece of equipment, like a grain mill,” said Sachi Graber, senior associate with RMI’s Sustainable Energy for Economic Development (SEED) program.
A different take on efficiency
Demand stimulation runs counter to the energy efficiency zeitgeist in developed countries, one which pushes for reduction in electricity use. The picture is different in Sub-Saharan Africa where lack of electricity creates inefficient economies.
“It’s about providing access to people who do not have electricity and figuring out how to do that in a smart way. A smart way is using energy efficient technology that would allow for lower cost systems and a lower cost total bill for the consumer,” said Santana.
Graber added, “You can’t make efficient the consumption that doesn’t exist.”
She also noted that stimulating electricity demand in a village does not typically mean building a bigger minigrid. This is because most of the minigrids use solar which peaks during the day, coinciding with the work periods in agriculture communities.
Low income, high costs
Like most economies, Sub-Saharan Africa’s market responds to pricing and financing. However, these factors may be even more crucial in Africa, given the large gap between family income and product costs.
Innovative payment methods — such as time-of-use pricing — can help villagers with the sometimes exorbitant electricity rates in Africa, according to the paper. For example, the paper notes that electricity runs as high as 53 cents/kWh in Nigeria. (By comparison in the US, where households have four times the disposal income as Nigerians, the average rate is 10.4 cents/kWh.)
Sub-Saharan villagers also need access to financing for equipment and appliances. A small irrigation pump with a borehole may cost tens of thousands of dollars, approaching 300 percent of the average farmer’s income.
Demand stimulation isn’t really a new idea. And in fact, it’s no stranger to North Americans who remember the early history of their rural electrification. The report points out that the US boosted rural electrification from 10 percent in the 1930s to 96 percent in 1956, partly by encouraging electric use. This was done with low-interest government loans to access the grid and financing for refrigerators, milking machines and other appliances.
Impact of End-Use Stimulation on Levelized Costs: RMI
For minigrid developers and government policymakers in Africa, demand stimulation will add a new dimension to their effort, requiring they more carefully calculate potential demand and cultivate its growth through financing and appliance programs. The good news? Some are already beginning to take it on.
“We’ve seen recently a handful of developers in Africa who are starting to question whether they are seeing the expected amount of demand after they install a system and starting to dig into what sorts of solutions they can access,” said Graber.
Still, RMI sees a lot of work ahead in building the other side of the bridge. Read more in RMI’s report Closing the Circuit: Stimulating End-Use Demand For Rural Electrification, now featured in the Microgrid Knowledge white paper library.