Mini-grids: A Key Piece to Africa’s Energy Access Puzzle

By: Daniel Schroth, SEforAll – Africa Hub Coordinator, African Development Bank

(This article was originally published in the Alliance for Rural Electrification’s August 2017 Newsletter and is reprinted here with permission)

To address Africa’s energy challenges, the Bank launched the New Deal on Energy for Africa, which targets universal energy access in Africa by 2025, five years earlier than SDG 7. The New Deal recognises that this will not be possible through grid extensions alone and therefore includes a target of connecting 75 million through off-grid systems.  Accordingly, the Bank has been increasing its focus both on the solar home systems sector – through the “Off-Grid Revolution” launched earlier this year – and the mini-grids sector.

One of the drivers of the AfDB’s mini-grid activities is the Green Mini-Grids Market Development Programmee (GMG MDP) implemented by the SEforALL Africa Hub and funded through the Bank’s Sustainable Energy Fund for Africa (SEFA), which has become a one-stop shop for products and services to stimulate the emerging mini-grids movement.

The MDP provides technical assistance to GMG developers via its Help Desk, currently more than 40 different developers in 20 countries covering all types of technologies. On the Help Desk, you can also find a myriad of reports, tutorials and other knowledge products relative to the full range of mini-grid questions, from site selection to operations and maintenance. You can also find the Programme’s own publications, including the series of country mini-grid opportunity assessments (covering to date Mozambique, Ethiopia, Burkina Faso, Cameroon and DRC) that explore where main grid, mini-grid and off-grid solutions are most appropriate; the GMG Africa Strategy endorsed by African Ministers earlier this year in Lomé, which outlines the five essential elements that comprise a favorable policy environment for GMGs, including clear regulations, simple licensing, cost-reflective tariffs and integrated energy sector planning; and an analysis of barriers to GMGs and a market study on available instruments in support of GMGs.

The latter studies found that most GMGs to date are financed through a combination of grants and subsidies and commercial equity, with the availability of debt extremely rare. Moreover, while a large number of facilities exist to support mini-grid developers most of these are grant programs. From a transaction cost perspective, it has historically been difficult for the Bank to support smaller-scale projects in the decentralized energy access area. As one of the ways to address this issue and aforementioned challenges, the AfDB approved last December a $100 million anchor investment (equity/debt) in the Facility for Energy Inclusion (FEI). FEI will have an “off-grid” window to provide short- and medium-term debt instruments to off-grid providers and an “on-grid” window to provide senior and mezzanine debt financing to mini-grids and small-scale IPPs.

The GMG MDP is set to expand both in scope and scale under its recently approved Phase 2. Among the new activities is an expansion of the Help Desk to also cover support to policy makers, which will allow us to work with Ministries in implementing the GMG Africa Strategy. We will also develop a system to allow for monitoring the state of the mini-grid market in Africa, work on capacity-building and explore approaches for a potential GMG Result Based Financing Facility

The AfDB today has an integrated vision of how to address Africa’s energy access challenge, which includes mini-grid solutions, and we are happily working alongside other partners such as business associations like ARE, GMG developers and Governments to achieve our shared goal.