Africa is making advances in building its energy infrastructure, but not quickly enough. National power grids continue to struggle with demand and finances, while those consumers with access to power are often hit by shortages. Many millions more live in rural areas on the continent without any access to power at all.
Increasing attention is being paid to the potential of smaller-scale, localised networks that do not depend on national power utilities. These micro-grids make use of various energy sources – from diesel to hydro – and they don’t need to be connected to the national grid.
Could micro-grid energy provide the answer to Africa’s power supply problems?
Unlocking the potential of micro-grid power depends largely on finding the right model – something early projects have experimented with extensively, with lessons only now emerging. Micro-grid models fall into four categories, namely privately financed and operated; community-led; utility-operated; or a hybrid of two or three of these. Each has its advantages and flaws.
Under the first model, private companies are allowed to set up and operate a micro-grid at their own cost, and generate their own revenues.
The primary advantage is that those companies entering this space have a wealth of expertise to competently launch and manage the project. However, private companies are generally driven by return on investment, which can lead to electricity prices in remote areas being pushed up in order to recoup initial outlays and create returns.
Another option is entrusting the operation of micro-grids to government or parastatals. Micro-grids can be connected to the national grid, and it is possible to cross-subsidise the rural (higher) costs with lower urban or grid tariffs – making connecting remote areas more feasible from a cost perspective.
Kenya has provided a useful case study of the government-led approach, with the Rural Electrification Authority (REA) handling the development of numerous mini-grids around the country. While the initial 14 mini-grids were diesel-reliant, there has been a shift towards hybridisation of these with renewable sources.
Given that power is sold at a unified tariff for on- and off-grid consumers, government and grid-based users have had to subsidise the higher costs of micro-grid remote power provision, as the REA and Kenya’s national utility do not have the resources to finance the off-grid operations. As such, the Kenyan trials suggest more work needs to be done under this model on pricing structures so that on-grid power consumers do not pay higher tariffs to cover off-grid power provision.
In addition, the trials concluded that the shift to renewables comes with such a high upfront cost that it would be advisable to bring private-sector partners on board.
Community models see either local community members or NGOs stump up the cost of developing the micro-grid, and locals operating and managing the network. Securing the financing for such projects is challenging, and other problems come into play too – there is an inherently unclear ownership structure, and finding the human capital to operate the project on-site can be difficult.
These challenges contribute to the limited occurrence of stand-alone micro-grids both developed and operated by communities, which are often drawn in as contributors and partners in a more hybridised structure.
Given the drawbacks of each structure individually, a hybrid model combining two or three of the players generally proves most effective. Private companies and utilities have the power to finance infrastructure, are able to spread rural costs, already have payment collection mechanisms in place, and can take charge of maintenance. Meanwhile, communities can be involved in the operation and management of the network.
The Renewable Energy for Senegal programme (ERSEN) provides a clear example of a hybrid model at work. The Senegalese government is proactively seeking to electrify rural off-grid areas, and has created a regulatory framework to encourage this.
Under the ERSEN off-grid solar project, 80% of upfront financing for the project comes from international donors, with private operators and consumers each covering 10% of the cost.
The government retains ownership of the plants, granting 15-year concessions to private companies to operate and maintain them, with private operators selling power at regulated prices. The local community is involved from an operational quality perspective, for example. They are responsible for fault reporting and local communication of issues such as scheduled outages.
With 18 solar-diesel mini-grids implemented through a hybrid model across Senegal, the main lessons from the experience have been to manage consumer expectations, as well as to plan for donor withdrawal – as the extent of upfront funding has proven unsustainable. In addition, managing the project across the various actors has been difficult, as has ensuring sufficient local technical capabilities to operate and manage the infrastructure.
These are challenges echoed by Travis Hough, business unit leader of energy and environment at Frost & Sullivan Africa. He says that while hybrid is the strongest model of all, there are challenges to implementation because detailed binding agreements are needed, and there are often conflicts of interest between the various parties.
He says that while the technology and potential are there to provide power via micro-grids to unserved and under-served areas, the reality is it is much less straight-forward to put the technology into practice.
‘On paper it looks like the ideal way to solve the problem [of power shortages], but looking at the business models, it’s not that easy to implement,’ says Hough.
‘To set up independent micro-grids is very expensive. Unless you have a hybrid model, it’s a very big outlay for a private company to do. It’s the same for community models. Even if you bring together the funds, it’s still a very difficult project to implement.’
An important benefit of micro-grids in rural power supply is that the model lends itself well to promoting renewable energy sources.
While rural areas currently relying on diesel as an energy source encounter very high transport costs to get the fuel to the locality, renewable energy sources are readily available in remote areas.
‘Micro-grids powered by renewable energy supply can offer 24/7 supply of electricity if you get the combination of energy sources right,’ says Marcus Wiemann, executive director of the Alliance for Rural Electrification.
‘Furthermore, renewable energy micro-grids typically rely on local energy sources, which do not run out and can be maintained by local staff to ensure that power shortages do not occur.’
As renewable-energy technologies continue to fall in cost, they are beginning to become the cheaper and more reliable energy supply in remote areas. Micro-grids not only offer a potential solution to achieving universal electrification, but they also promote a shift to sustainable energies.
With micro-grids holding such potential to solve the power shortage problems plaguing national grids, policymakers play a key role in encouraging the private sector to become involved in micro-energy projects.
In particular, policymakers have to focus on facilitating collaborative micro-grid roll-outs and addressing the financial burden placed on private companies setting up micro-grids. A tariff strategy also needs to be implemented to balance out the necessarily higher costs of energy in remote areas.
The Africa-EU Renewable Energy Co-operation Programme, in its Mini-grid Policy Toolkit, advises that ‘policymakers can mitigate the economic risk [to micro-grid operators] through a suitable policy and regulatory framework’.
This includes ‘defining appropriate tariff structures that reflect the mini-grid operators’ cost structure through adequate financial support, and a well-designed process for obtaining and holding permits, licences and concessions’.