Until recently, Gbamu Gbamu, a rural community in Nigeria’s Ogun State, was left without access to electricity – cash-strapped utilities could not justify the expense of extending the main grid to the community. Enter minigrids and the road to affordable and reliable electrification.
With no prospect of grid extension in sight, the Gbamu Gbamu1 community eschewed the expensive diesel generators they had come to rely on in favour of clean, affordable, and reliable power from a local installation of solar PV, battery storage, and a backup generator.
This example is indicative of the need to reconsider electrification: conventional approaches alone do not address the challenge of rural electrification most effectively with the limited funds available.
Minigrids can complement grid extension
To date, most utilities, governments, and development organizations have focused on increasing energy access through grid extension and expanding centralized power generation capacity. These investments have amounted to billions of dollars annually2 in sub-Saharan Africa.
And in many situations this approach is warranted, as capacity issues persist.
But elsewhere reliability is poor and grid extension is expensive – as such, reliable grid power cannot be cost-effectively extended3 to too many areas. This is where minigrids provide a compelling alternative4 to both grid extension and existing energy alternatives (like diesel and petrol generation).
Minigrids, and other technologies like solar home systems (SHS)5, create an enormous opportunity to accelerate affordable energy access to millions of unserved and underserved people across sub-Saharan Africa.
Minigrids fill an important gap for electrifying communities where grid extension would be expensive and slow, but where energy demands are too intensive for SHS. For customers, minigrids provide access to reliable tier 3 and 4 service6 that can meet high and variable electricity loads, according to Sustainable Energy for All’s multi-tier framework for measuring energy access.
This level of service can power small to medium commercial and industrial users with agro-processing, manufacturing, and other revenue generating activities that are the root of economic development.
In contrast, SHS provide access to lower power tier 1 and 2 service. For utilities, when the grid eventually does expand, minigrids have laid the groundwork for interconnection. Metering and billing systems are in place, and the minigrid system can provide additional benefits such as feed-in generation and protection from load shedding.
Declining costs open the door to scale
One reason for intensifying excitement about minigrids is their rapidly declining costs. While grant-funded minigrids have been developed around the world for well over a decade on a small scale, recent global trends in PV module and battery prices have significantly reduced the upfront cost of a minigrid.
As a result, minigrids are at or near commercial viability in many locations, and costs are poised to fall dramatically. This opens the door to massive scale – in Nigeria alone, there are tens of thousands of communities7 where minigrids could be installed.
To put costs in perspective, consider Nigeria. Existing minigrids there have achieved tariffs as low as $0.60 per kilowatt-hour, making them cheaper than small diesel and petrol generators, which often cost upwards of $0.70 per kilowatthour to operate (even with subsidised fuel costs).
The situation is the same in east Africa, where minigrid developers have recently installed systems with costs as low as $900 per customer connection.8 The high cost of installing medium voltage lines over 20 to 30 km to reach a remote village with grid power can quickly make minigrids the least-cost option. Power for All analysis9 found these grid projects frequently cost upward of $2,000 per customer connection.10
While already competitive today, minigrids are poised to become significantly cheaper. Rocky Mountain Institute (RMI) research and extensive interviews11 with industry stakeholders has determined that minigrid costs can be slashed by more than half, reaching $0.25 per kilowatt-hour by 2020.12
This can be driven by straightforward measures to reduce cost along six key areas: hardware, management of customer loads, improved customer engagement and acquisition, project development and operations, finance, and policy.
Many of these cost reductions can be driven by the private sector. Take hardware for example: in addition to continued reduction in PV and battery costs from global trends, developers and OEMs can create standardised modular solutions to reduce engineering time by a third and installation time by 80%. In total, this can cut total system costs by 17%.
Similarly, managing loads by providing financing for productive use appliances can stimulate demand and increase capacity utilisation, helping reduce costs by 10%. But there is a role for governments and utilities to play as well, even beyond enabling policy and regulation. For instance, governments can help to enable demand stimulation by coordinating minigrid development with other programmes to expand agricultural productivity or develop water pumping.
Integrated planning can unlock the full potential
As international investors closely monitor the space, it is clear that commercial development of minigrids will happen organically with simple enabling policy.
But to unlock the full potential of minigrids to support cost-effective electrification and efficient use of capital, utilities and governments should incorporate minigrids into planning processes.
By taking an integrated approach to planning, governments and utilities can identify areas where minigrids and other off-grid solutions provide a more costeffective approach than traditional grid extension. As a demonstration of the potential for integrated planning to reduce costs, RMI identified over $1 billion in potential annual savings in Uganda if the country were to adopt an integrated approach to energy planning, including a substantial role for minigrids and other off-grid solutions.13
Where these alternative solutions are most cost effective, there are a variety of ways to enable development. Utilities might look to create opportunities for private developers for a period of time. In other countries, national governments may be best suited to facilitate development.
Supporting community-led development and ownership through a cooperative model is another promising option. While there is no one-size-fits-all approach, integrating off-grid options into planning is the critical first step that enables further exploration of the opportunity.
As the 21st century advances, the challenge of electrifying rural communities across sub-Saharan Africa remains daunting. But integrating new approaches like minigrids alongside conventional large infrastructure projects can accelerate the timeline of extending access to electricity, while providing customers with clean, reliable, and affordable power. And as minigrid costs decline, this opportunity will only grow. ESI
References
1 In Nigeria, a Template for Solar-Powered Minigrids Emerges. GTM blog post by Chris Warren. February 2018
2 Rural electrification: How much does Sub-Saharan Africa need the grid? World Bank blog post by Michael Toman and co-author Jörg Peters. November 2017
3 Distributed Models for Grid Extension Could Save African Utilities Billions of Dollars. GTM blog post by Benjamin Attia and Rebekah Shirley. June 2018.
4 Energy Within Reach Report. RMI
5 Bringing (solar) power to the people. McKinsey&Company blog post by Adam Kendall and Gillian Pais. June 2018
6 Multi-tier framework for measuring energy access. ESMAP
7 Nigeria Minigrid Investment Brief. Rural Electricity Agency. December 2017
8 Interview, African Mini-grid Developers Association (AMDA)
9 Decentralized Renewables: The Fast Track to Universal Energy Access. Power for All. May 2016
10 Distributed Models for Grid Extension Could Save African Utilities Billions of Dollars. GMT blog post by Benjamin Attia and Rebekah Shirley. June 2018.
11 A Design Charrett to Achieve 20c/kWh by 2020. RMI
12 How solar minigrids could brighten economic prospects for unserved millions in Africa. GreenBiz blog post by James Sherwood. June 2018
13 Rocky Mountain Institute analysis, 2017
About the authors
James Sherwood is a manager with Rocky Mountain Institute’s Sustainable Energy for Economic Development (SEED) programme supporting electric utilities, governments, and the private sector with energy strategy development.
Kendall Ernst is a senior associate with Rocky Mountain Institute’s SEED programme focused on technical and economic analysis of utility and mini-grid business models.
This article first appeared in ESI Africa Edition 3, 2018. You can read the full digital magazine here or subscribe here to receive a print copy.
