Solar mini-grids could be pivotal in electricity access to 111 million households

More than 5,000 mini-grids are already installed in Sub-Saharan Africa, Asia and small island nations, with some in Latin America

Mini-grids
could play a critical role in providing electricity to rural communities and
businesses and in helping to connect the 789 million people worldwide who
currently do not have access to electricity, according to a new report from the
mini-grid partnership. The report was published by BloombergNEF (BNEF) and
Sustainable Energy for All (SEforAll).

However,
today the mini-grid market is nascent, despite it being the least-cost option
for electricity access in many areas, the report found. The research identified
5,544 installed mini-grids in Sub-Saharan
Africa, Asia and small island nations,
with some in Latin America. The estimated cost of electricity is $0.49-0.68/kWh
for isolated solar hybrid mini-grids for larger scale “anchor” users such as
agricultural pump and milling machine companies who have a much higher power
demand than residential households during the daytime.

The
State of the Global Mini-Grids
Market Report 2020^[1] examines the technologies, businesses, regulations,
financing, economics and impact assessment of mini-grids. It looks into the
most effective policies for mini-grid development in different countries,
including subsidies, licensing, tariff setting and grid arrival. The report includes
case study analysis on six locations: the state of Bihar in India, Indonesia,
Nigeria, the Philippines, Tanzania and Uganda.

The
report estimates that 238 million households will need to gain electricity
access in Sub-Saharan Africa, Asia and island nations by 2030 for the
achievement of universal access – as outlined by Sustainable Development Goal
7. Mini-grids can serve almost half of this total – an estimated 111 million
households. This will require capital investment of an estimated $128 billion
between 2020 and 2030.

Mini-grids
are the most suitable option for many low- and medium-density areas and can
address a larger number of low-income families more economically than alternative
options, including the build-out of a larger grid with centralized power
stations.

New
technologies are making it possible for electricity to be provided through more
decentralized networks. The costs of PV modules and lithium-ion batteries have
continued to fall sharply by 86% and 85% respectively between 2010 and 2018,
and remote connectivity, control and data analysis have expanded the range of available
options. Solar hybrid mini-grids that integrate PV and other decentralized
energy resources such as diesel generators and energy storage can complement
and compete with main grid extensions in terms of the cost of electricity and
the speed of deployment, said the companies.

Grid
extension is still the predominant approach for providing electricity access in
remote areas. However, the areas that the main grid can reach more economically
than off-grid alternatives are slowly being exhausted, and in some places the
incremental costs of adding new rural customers via this route are becoming
prohibitive.

Given
that many state-owned utilities are debt-ridden and the need for electricity
access is urgent, it is critical for governments and utilities to take a
least-cost approach that takes advantage of the breadth of technology options, said
BNEF and SEforAll.

“As
the market matures, funding deployment must be quicker. This is linked to the
policy and regulations of the countries where recipients of funding are
located. Governments need to promote robust regulatory frameworks that support
the development of mini-grids,” said Takehiro Kawahara, frontier power lead
analyst at BloombergNEF.

The
report identified 7,181 mini-grid projects in Sub-Saharan Africa, Asia and
small island nations with some in Latin America, as of March 2020. As many as
5,544 mini-grids were operational, of which 63% were solar or solar hybrid
systems. Information on these projects is stored in the open-source mini-grid
project database, accompanying the report.

The
mini-grids already installed today represent only a small fraction of the total
needed for full rural electrification.

The
economic analysis in the report compares the levelized costs of electricity
(LCOEs) of different mini-grid types. LCOEs ranged from $0.49 to $0.68 per kWh
for solar hybrid mini-grids operating in isolated areas and serving both
households and productive-use customers[1]
in the six case study countries. In general, installing PV modules in
mini-grids improves their economics as compared to just using diesel. Adding
daytime demand can cut the overall cost of electricity as it correlates with
the generation profiles of PV systems powered by the sun. This boosts the
utilization rate of the mini-grid, leading to a lower cost of electricity and
higher average revenue per user.

Hurdles
to widespread deployment

There
are two big challenges that need to be overcome for mini-grids to scale up and realize
their potential. First, rural customers in need of electricity access often
have limited power demand and sometimes lack the ability to pay. Second, there
is a general lack of policies and regulations to support mini-grids.

The
report found that 14 funders belonging to the Mini-Grids Funders Group had approved
a total of $2.1 billion by March 2020, of which only 13% had been disbursed.
This suggests that there can be significant delays in getting funding, and
therefore in projects moving forward. There is also a lack of pure commercial
financing as the mini-grid market lacks scale and developers’ project track
records are limited.

Damilola Ogunbiyi, CEO of Sustainable Energy for All, commented, “In the fallout of COVID-19, countries have a unique opportunity to ‘Recover Better’ and reset their economies while accelerating energy access. Now, more than ever, we need a thriving mini-grids sector that can power critical infrastructure and give access to the 789 million people worldwide who lack electricity. We must improve regulatory frameworks, commit greater finance and scale innovative mini-grid business models. This research offers critical insights for all mini-grids stakeholders that can help the market reach its full potential and deliver Sustainable Development Goal 7 progress.”

The full report is available for download here.
^[2]