Summary
A very large number of minigrids must be deployed in Africa to achieve the goal of universal electricity access in the continent by 2030, according to estimates by the minigrid industry and well-known international organizations. Most of the large volume of capital that is needed must come from private investors, and this will only be possible if business models for minigrids can be defined that are financially viable and can maintain this condition permanently, i.e., if the business models are sustainable. In addition, it is necessary that these business models can be scaled up to the necessary dimension, both in terms of the required financing and the technical and managerial capability of the minigrid developers to install all the minigrids identified in the electrification plan.
Despite the favourable projections, minigrids have failed resoundingly in Africa and everywhere else over many years to have a significant impact on electricity access. This paper explains that minigrids cannot attain the relevance they should unless the sustainability of their business model is resolved and implemented through necessary regulatory measures. The paper focuses on the specification of the fundamental regulatory conditions, business model designs, and financial approaches necessary to attain sustainability – a necessary but not sufficient condition for scalability – which is not examined here beyond the regulatory, business model and financial aspects that are common with achieving sustainability.
First, the paper presents the challenges involved in defining sustainable business models for minigrids, both from the viewpoint of the private investor and of the government of the country. Second, it highlights two fundamental conditions that are indispensable to attract the massive amounts of private capital needed to deploy all the minigrids that must be installed to achieve universal access to electricity: cost of service remuneration and adaptation to each particular situation of the universally accepted versions of cross-subsidisation. Finally, this technical note stresses the importance of addressing the electrification process with an integrated perspective in several dimensions: i) considering the three modes of electrification together – grid extension, minigrids, and standalone systems – at the planning stage; ii) defining regulatory and business models for each mode that are easily compatible among these modes; and iii) using a single comprehensive approach to finance the entire electrification plan.
