Why Cities Are the Growth Market for African Minigrids

Why Cities Are the Growth Market for African Minigrids

Picture an African minigrid and chances are you’ll think of a rural electrification project. But increasingly the reality on the ground is a different matter, according to experts. If there’s a major minigrid opportunity in Africa right now, it’s in urban and peri-urban areas rather than rural ones. 

“Villages are just not able to pay for electricity,” Thomas Hillig, of consulting firm THEnergy, said in an interview. That leaves rural minigrids and microgrids — the definitions of which are fluid and often overlapping — in the realm of donor financing. 

Practically all rural microgrid and minigrid projects are being funded by international financing programs, “without any economic or business case behind [them], from what I’ve seen in the field,” Hillig said. That’s a challenging model for scaling up a business, with only a fraction of commitments from donor organizations so far making their way into projects.  

As a result, a growing number of minigrid developers appear to be focusing on urban and peri-urban markets, the latter term referring to areas on the borders between cities and rural areas. These customer groups tend to have higher electrification requirements than do rural villagers, and thus they provide more consistent demand for reliable and affordable minigrid services. 

Husk Power Systems, for example, saw a 52 percent increase in African and Indian community minigrid sales between March and September, mainly driven by larger systems than those traditionally used for rural electrification. 

“Average capacity of the minigrids is 50 kilowatts, a system size that is significantly larger than most other rural energy service providers and able to power multiple productive loads for a range of small businesses,” said the company in a press release. 

Husk, which had notched a total of 100 community minigrids and 5,000 micro-enterprise customers as of December, says its systems are being used to power shops, factories, agricultural processing, cold storage, water filtration and schools as well as households.

Zola Electric is another business benefiting from a focus on larger, typically urban power customers. The company makes digital energy management systems and has historically focused on rural electrification. Around 90 percent of its customers have the company’s small-scale Flex systems, which provide power in the hundreds of watts, CEO Bill Lenihan told GTM in an interview. 

But last year Zola Electric launched a smart minigrid product called Infinity aimed at customers with power needs of 2 kW and up. The company is expecting to sell as many Infinity as Flex systems by the end of next year, said Lenihan.  

  

“We could put that system anywhere,” But it makes sense, at least from an economic perspective, to put them in more densely populated areas because ultimately you need offtakers.” he said. 

Meeting electricity demand with minigrid supply

Hundreds of cities with populations over 100,000 in sub-Saharan Africa have “unreliable or nonexistent grid connectivity,” he said. But this customer group appears to have been largely overlooked by development finance institutions in the rush to bring electricity to underserved communities in Africa. 

Because donor finance has been so important to the early development of Africa’s minigrid industry, that’s led to a focus on off-grid villages. 

“Almost all [of our] members are building grids in rural areas where the main grid is decades away,” said Daniel Kitwa, energy access finance adviser at the Africa Minigrid Developers Association, in an email. “A few are in peri-urban locations, but this is the exception, not the norm.”

This focus is understandable given the dire need for rural electrification in many parts of Africa. In the Democratic Republic of Congo, for example, 48 percent of the urban population has access to electricity, but in rural communities, the level is just 1 percent. 

But Hillig noted that the lower electricity requirements of these communities can often be served with inexpensive solar home systems, rather than full-scale minigrids. 

For minigrid developers wrestling with regulatory and financing challenges, it simply doesn’t make sense to serve this market unless international donors can foot the bill, particularly when there’s a much better customer base nearby. 

A 2019 report from Wood Mackenzie estimated a $1.7 billion global market as of 2018 for companies with products, services and financing to make electricity available both to customers off the grid and those served by unreliable power. While roughly 1 billion people lack grid access, another billion are served by unreliable grids, according to data from sources including the World Bank and the International Monetary Fund.

“It’s a constant refrain on our side,” said Lenihan. “Don’t forget about the billion people that live on unreliable grids.” 

Original Article published on Greentechmedia by Jason Deign