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Private investors: key players in rural microgrid development?

Henock Dibaba, LUT University

Microgrids are a suitable solution for rural Africa’s electricity challenge. However, most of the microgrid developments in the region are still carried out by government or donor initiatives. This hinders their expansion throughout the region.

Why it has been difficult to invest in rural microgrids?

For the vast majority of rural microgrid, investing without a subsides is not economically viable. This is mainly because of the characteristics of rural communities such as remote and dispersed customers, a lower income of customers and lower uptakes of electricity, which typically do not cover the costs.

How can countries improve rural microgrid development?

One way of improving rural microgrid expansion can be by inviting private investors to participate in capitalizing the sector. To enable them to do so, enabling regulation and viable business models are required. So far, private investors’ involvement in the microgrid sector remains minor; and for those that exists, they are mainly through parallel support from government or donors to reduce the risks involved.

There have been some improvements in the region; some countries already adopt enabling policies and regulations that promote private investment participation in the development of the rural microgrid. However, there should be further regional initiatives and established frameworks that create opportunities for private sector involvement.

Besides, a well-defined business model can play an important role in describing the business process and economics and can help improve rural microgrid expansion. Business model design includes technical, financial, ownership, and operational roles. Today, several business models have been designed and studied for public and commercial sector microgrids. However, many of these models focus on a specific part of the business process, such as economic benefits, success factors, or frameworks for policies and regulation. Hence, it becomes important to facilitate the business environment along with policy action to improve the private sector participation.

Who is considered a private investor? 

Investors for rural microgrid projects can be individuals, organizations, or larger firms. The type of investment can be in the form of equity, debt, or other forms of financial instruments.

Some of the common potential microgrid investors are:

– Angel investor: an individual who provides capital for start-ups or expansion, 

– Venture capitalists: equity provided by venture capital firms for startups that demonstrate high growth potential,

– Impact investors: investments made with the intention of impact on social and environmental issues parallel to financial incentives,

– Strategic investors: larger companies taking smaller equity of the same industry for seeking strategic advantages in the market, 

– Local community organization: collectively fund by local communities for investing in microgrid projects.

– Sovereign wealth funds (SWFs): investment fund owned by a state that invests in real or financial assets, 

– Other types of funds: these can be pension funds, insurance funds, foundations, and endowments.

A strategic way of financing projects

Funds for microgrid project development can be raised through different means. these can be:

– Pooled funds: are aggregating funds into a portfolio from different investors for microgrid development and operation. This can help investors to mitigate risks by diversifying and providing lower transaction costs. 

– Crowdfunding: a small amount of funding for a project from many peoples. Such fundraising is mostly made via internet platforms. It differs from pool funds since it targets small scale investors or individuals rather high net worth investors.

– Export financing: is a means of facilitating export sales of microgrid equipment to developing countries though competitive long-term funding by an export credit agency. The agencies provide guarantees and insurance for political risks for exporters and partner banks.

– Result based financing (RBF): are funds provided after achieving pre-agreed and verified results. Since RBF makes it possible to focus more on the results risk associated with ineffective use of funds can be limited. 

Are there notable companies that raised capital for microgrids?  

There have been many exemplary cases for raising funds for rural microgrids projects in Africa. Powerhive, Powergen, HuskPower and Total Eren successfully raised fuds for microgrid developments in Africa. In addition, major companies are also involved in the microgrid development projects as strategic investors including Tesla, Facebook, Schneider Electric, Engie, and ENO.

To sum up, with the right policies and descriptive business models countries could increase private investor’s confidence in microgrid development projects. There have been innovative financial tools and mechanisms which are becoming suitable solutions to tackle the previous long-existing challenges. Furthermore, project developments for microgrids should focus on communities as active stakeholders rather than seen as only a customer. This can help to create a sense of ownership among the communities.

References

1.      Power for All, Investor Position Paper: Unlocking Private Capital for Mini-Grids in Africa, https://www.powerforall.org/resources/calls-to-action/investor-position-paper-unlocking-private-capital-mini-grids-africa , [Accessed:18 -August 2020]

2.      Lockhart, E., Reber, T. and Booth, S., Financial and operational bundling strategies for sustainable micro-grid business, National Renewable Energy Laboratory, 2018.

3.      Arezki, R., and Sy, A., Financing Africa’s infrastructure deficit: From development banking to long-term investing, 2016

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Improving Citizen-Centric e-Government Services via Access to Internet

Karin Amukugo Fröhlich, PhD, Post-doc researcher, Aalto University

Electronic government (e-government) developments in Africa remain at a periphery when compared to the world trend. Chief among the challenges is the lack of supporting infrastructure in rural areas. Leading African e-government adopters are advocating and promoting connectivity in rural areas. South Africa, for example, Namibia’s neighbor and the 2nd most developed African country in terms of e-government, is working on ambitious projects to promote connectivity in rural areas. This is clearly reflected in the National Broadband Policy of 2013 and the development of information and communication technology (ICT) access points in rural areas known as telecenters that are meant to promote ICT skills and access to government services through electronic means.

The Fusion Grid project has brought mobile access and digital platforms to marginalised rural areas. In the case of Okalevona/Revon C under the Oniipa Town Council (OTC) in Namibia, the project has set up the ICT infrastructure powered by solar panels with batteries. WiFi hotspots and a 4G backbone connect the remote village to the digital world. The members of the community have been provided with smartphones to access the WiFi and a laptop for system configuration and maintenance purposes.

The aim has been to extend e-government services to this previously disconnected area through the introduction of a community network. Due to popularity of the WhatsApp service among the members of the community, a chat group was established to maintain contact and exchange information between the beneficiaries and the project sponsors/consortium.

The beneficiaries have expressed ultimate satisfaction with the project as they can now access Internet, which has been provided for them during the project at no cost. This connectivity and access to communication services is important for livelihood. It has enabled some beneficiaries to market their small-business products and even make demonstrations through video calls. Furthermore, access to Internet is playing a pivotal role in facilitating mobile learning for school kids during the national lockdown caused by the Covid-19 pandemic.

While the Fusion Grid project has been a success in terms of meeting its goals, a few isolated challenges remain. For example, there is a brief loss of connectivity during system updates and some unanticipated loss of connectivity arising from broader challenges by the Internet service provider that links the village to the outside digital world. However, these challenges are considered relatively minor in the overall setting. Therefore, the project looks forward to expanding its connectivity to nearby beneficiaries. Such extension would broaden access to e-government services to even more citizens and, at the same time, offer rural dwellers improved job opportunities and options to make a living.

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Equalising Opportunities in the Digitalising World: Electricity with Connectivity and Digital Services Accelerates Livelihood Improvements in Under-Served Communities

Marko Nieminen, Aalto University

In the digitalising societies, a significant amount of activities is based on value creation using digital tools and platforms. The utilisation of such opportunities requires, however, access to fundamental information-society infrastructure consisting of electricity and connectivity. The existence and availability of these enabling elements is the starting point for the value-added activities that introduce new possibilities for learning and education, entrepreneuring and development of businesses, healthcare, and public services.

Essential characteristics of the new service provisioning models in this digital landscape are the electronic (e-) and mobile (m-) service delivery channels. The coverage of infrastructure that facilitates these e- and m-services has increased quickly during the last two decades. However, a significant number of people are still without access to these foundational information society backbones: access to electricity and access to information. Despite increased efforts by governments and private investors, estimates are that “650 million people will still have no access to electricity by 2030” (Rowling 2019) majority of them living in Sub-Saharan Africa where 44% of the population had access to electricity in 2017.

Challenges relate to the viable models in setting up electricity production and distribution in marginalised and remote locations. In electricity distribution, the “centralised national-grid approach” faces challenges in sparsely populated areas that do not enable economic way of expanding the distribution network to small rural communities. Similar challenges relate to the operational model of the traditional telecom and mobile network operators: financial calculations do not legitimate the investments for making the initial investments nor covering the operating costs with the traditional approaches. Therefore, significant amounts of people living in remote and marginalised surroundings are in the danger of being left to the under-served side of the digital divide.

Fresh ideas and models in tackling the challenge are needed. The World Bank Energy Progress Report in 2019 (World Bank 2019) addresses some promising directions stating that “To reach remote areas, off-grid solutions are essential; these include solar lighting systems, solar home systems, and—in-creasingly—mini-grids”. From the electricity viewpoint the last part is being addressed by the Fusion Grid project. Reaching beyond the boundaries of individual households (that is readily available as off-the-shelf isolated photo-voltaic electricity production packages) introduces interesting opportunities for systemic benefits. These include aspects of efficiency in dimensioning the grids, in enabling scalability for growth in electricity usage, and opportunities for innovative market models. Such characteristics open up possiblities, for instance through new resource boundaries, to explore economically different schemes for the electrification of previously “no-go” areas. It may, however, require complementary elements from outside the traditional electricity production and distrbution models that may be realised with connectivity and digital services that offer additional layers of value on top of pure electricity.

Fusion Grid project has been addressing the challenge with a multi-disciplinary approach. The development and implementation of a real-life pilot experiment has delivered a proof-of-concept on the possibilities of smart off-grid micro-grids. The blogs at this project website illustrate the different aspects of these emerging opportunities to electrify the remaing 600 million under-served citizens in Sub-Saharan Africa. And, perhaps some of the reports bring up additional ideas and possibilities for the increasing trend of energy production and sharing communities in other regions, too.

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Sustainable Energy and Connectivity for Marginalised Communities

The FusionGrid research project has its focus on the definition, construction and introduction of solar-powered electricity together with mobile connectivity (4G/LTE) and digital services for remote and under-served communities. It aims at developing a community-run solution that can support various types of livelihood-improving services for the members of the community supporting entrepreneurship, e-Government, e-learning, healthcare, and other services and functions that leverage improved livelihood.