Intro: 0:09

Solar mini-grids have turned from small pilots to an electrification wave. We were there when mini-grid regulation was established, when financial transactions were closed. We saw new technology thrive and companies fail. This is where we tell the stories. This is where we discuss the future the mini-grid business Powered by INENSUS.

: 0:35

Hello, this is Nico. Welcome to our mini-grid wrap-up 2023 with my dear colleague and COO of INENSUS, Joanis Holzigel

Joanis: 0:46

Good morning, Nico.

Nico: 0:47

Hi Joanis. Let us start with the most important thing, Something that the mini-grid sector is indeed very good at, which is organizing events.

Joanis: 0:57

So at the end of February, ESMAP held the seventh mini-grid action learning event in Nairobi, which was probably one of the largest mini-grid conferences ever held, with some close to 800 attendees. The event was split into three main parts, with the first day focusing on Kenya, the second day talking about other countries in Sub-Saharan Africa and the third day discussing global best practices on mini-grids. And, if you remember very well, Nico ESMAP also used this event to unveil its mini-grids for half a billion report with an explosion of confetti like I have never seen in the world of mini-grids.

Nico: 1:35

Amazing, amazing yeah.

Joanis: 1:38

And then finally also 100 participants got the chance to visit some actual mini-grid sites in Western Kenya. Yeah, and they flew them in, right? Exactly, they flew them all the way to Kisumu and then took another bus ride, I think of another, like two or two and a half hours, to see a couple of mini-grid sites, Very much dedicated.

Nico: 1:59

And then at the end of the year, there was COP28, and various mini-grid companies and AMDA and so on were present and also posted their experiences and pictures. So now, while very relevant for the sector, overall on the mini-grid side there do not seem to have been any significant news. To be honest, the largest announcement was probably that GEAPP and Allon extended the DART program in Nigeria by another $15 million. Beyond this, Zambia, Mozambique and Nigeria announced some commitments to further building out mini-grids. Generally speaking, even though there was an agreement on transitioning away from fossil fuels, you can't help but feel some disappointment at the slow pace of progress. This is no surprise, though, I believe, because, well, the event was held in Dubai. What could you have expected? And the CEO of the 12th largest oil company as chairperson.

Joanis: 3:04

If I remember well, Nico, the BBC even originally reported that they were planning to use the event to strike some oil deals, but they quickly recruited that claim.

Nico: 3:18

While we are talking about deals, let's talk about finance for the mini-grid sector, because our audience is usually most interested in it.

Joanis: 3:27

Yeah, Nico. So based on our own research, we estimate that the total announcements for mini-grid grants, investments and financing in 2023 sum up to some 3 billion US dollars.

Nico: 3:42

Oh, and what was the largest announced financing for mini-grids? 3 billion sounds like a very large number.

Joanis: 3:49

Yeah, Nico. Well, the largest one of that takes up almost 50% of that number, and it's something that probably most people have not even heard of. So the Ministry of Finance in Angola apparently has secured a loan for some 1.29 billion euros from Standard Chartered to finance the construction of some 48 mini-grids in Angola, and this project is set to benefit some 203,000 households across Angola, coming in at a cost of a bit more than 6,000 US dollars per connection. I mean, this is a pretty high cost per connection, but this is no surprise with each mini-grid being around 6 megawatt peak in size. I just hope that, with such a large amount of investment, they got their demand assessment right.

Nico: 4:37

But maybe they have. Remember, Angola is an oil-driven country and one liter of diesel or petrol is below 30 dollars cents. I guess that people have a pretty high demand with air conditioners around every corner.

Joanis: 4:52

Yeah, well, let's see. I haven't gotten the details yet, but certainly looking forward to see them. Also, Nico, what is actually happening, or what has been happening, at the main minigrids market in Nigeria in 2023.

Nico: 5:06

Yeah, well, after the end of the current funding program, somehow a funding gap Accord, and this is now to be filled by the new Nigeria dares program. The world bank has approved 750 million dollars Under the Nigeria distributed access through renewable energy scale up called their project, which is financed by an international development association credit and aims to leverage over one billion of private capital and significant parallel financing from development partners.

Joanis: 5:49

The World Bank is quite daring here.

Nico: 5:55

No, no, no. I think the Nigerian minigrid market will actually thrive, no doubt about that are the other things that I've happened in Nigeria.

Nico: 6:04

We've already talked about start and well, the original dot program had 11 million to support 25 mini-grids across Nigeria and now we've heard that another 15 million are coming on top, which is nice. G up is not just supporting the darts, but also another facility together with the denim, and they are providing 50 million in local currency finance to the decentralized renewable energy sector Also very welcome. Local currency finance is exactly what the minigrid sector needs.

Joanis: 6:44

Especially in Nigeria, Nico, I think. That country has been struggling with exchange rates for some years.

Nico: 6:49

Yes, that's true.

Joanis: 6:50

Yeah, but from my perspective, I think 2023 really has been A year of increased activities in francophone markets in particular. So let me just read through some announcements very quickly to show you the scale of investment that we have seen in francophone markets. So, in Mauritania, the African Development Bank group authorized a 14 million euro grant for the rim dear minigrid electrification project, which is a desert to power initiative. In Madagascar, the European Union and the AFD committed some 33 million euros to support electrification by minigids. In the AC, the multilateral investment guarantee agency, or short meager, of the world bank, has issued a 50 million dollar guarantee to Congo energy solutions for solar hybrid minigrid projects which will be developed through NURU. In Cameroon, the African export import bank is lending 53 million euros to the government to construct some 87 minigids. And in Senegal, KFW has provided a hundred and 30 million euro financing package for the deployment of minigids. So, as you can see, there has been a lot of activity in francophone markets in 2023.

Nico: 8:02

Yeah, very nice indeed, and also nice to see that the desert to power project on the minigrid side is finally coming to fruition. We've been talking about desert to power for so long.

Joanis: 8:13

That's true, Nico. What other finance aspects should we mention for 2023.?

Nico: 8:20

Well, yeah, there is some continent wide funding. For example, germany has pledged 40 million euros to set for the sustainable energy fund for Africa and the green climate fund, which is highly interesting, I believe approves a 50 million US dollar funding for CAMCO's new blended finance for Africa. Sorry, Nico is.

Joanis: 8:46

CAMCO a public sector entity or private entity? Because I always thought that the green climate fund only finances public sector projects.

Nico: 8:56

Yes, but they can also support banks for debt funding to the sector. It's just that they are very careful and not providing any grants to private sector. That's why I understand and CAMCO acting like a private fund or so, but yeah, I'm not 100% sure about that, to be honest. And yeah, last but not least, we have the UEF, the universal energy facility, which awards 10.4 million dollars of grant to six companies operating in DRC, madagascar and Sierra Leone.

Joanis: 9:32

Good to see that the UEF is also starting to take off now.

Nico: 9:36

Yeah, and as we've heard in one of our earlier episodes, there are big plans to acquire 100 million dollars by the end of this year. Let's see what announcement will come early 2024. Now, with all of that, does that mean that the private sector is finally getting the equity and debt it needs to scale?

Joanis: 9:56

Yeah Well, Nico, according to some reports at least, the overall financing for the private sector seems to have kept increasing in 2023. So there's a report that was published by Patrick Longmeier from the Walton School, which says that private mini-good firms have seen record inflows in 2023. Over the last seven years, they have received financing of some 500 million USD, and of that, 200 million USD was received in 2023 alone. So in 2023, we have also, however, seen a very significant shift towards increased investment from the public sector, which accounted for more than 90% of the total financing for private companies. The majority of this funding has been coming from the EU, which includes Electrify, rep, fmo and Propaco, and, generally speaking, the transactions have been getting larger and more concentrated amongst a limited number of recipients, with most of the funding again going to EU-based companies. So, unfortunately, not African-based companies. Yeah, yeah, yeah.

Nico: 11:06

And the EU driving basically the electrification space at the moment, with the companies and the funding Interesting.

Joanis: 11:16

But I think that the firm that received the largest financing in 2023 is not EU-based right. Nico.

Nico: 11:23

True, that was Husq Power Systems, based out of the United States and India. So Husq Power announced that it has closed the total funding of $103 million, composed of 43 million equity and 60 million debt, which is the largest ever raised in the mini-grid industry for electrifying communities in rural sub-Saharan Africa and South Asia. And that happened just a few months after Husq Power having reached EBITDA positivity, and this is a clear milestone, and we've said in other episodes before that probably everybody who can actually prove hey, I'm EBITDA positive, I can cover my ongoing salary cost, can actually hope and count on additional funding for the company and the scaling strategy. Of course, a proper plan to finally break even financially and pay back loans and provide some return to equity investors must also be available.

Joanis: 12:38

Yeah, let's hope that we'll get some more news in that direction in the next year and also, at the same time, let's hope really that there is still a growth in financing, because, despite all this progress that we have seen in 2023, overall I would argue that there's still not enough financing for the sector. I mean, ever since I started working in the sector, the total number of people unelectrified has been hovering between some 650 to 700 million people, and a recent analysis from IRENA again has shown that we are still at some 675 million people unelectrified and, at the same time, they also show that under business as usual scenario. So where investment is not significantly increasing over the next few years, by 2030, that number will basically still be unchanged and some 660 million people are still expected to be without electricity. So, again, we need to grow investments in the sector. More financing needs to come to the sector.

Nico: 13:43

Yeah, if only many grids were more profitable, perhaps there would be more financing. Let us see what this year has brought to the sector in terms of business models, opportunities and achievements.

Joanis: 13:59

The first one of those I would like to mention is Nigeria's first interconnected mini-grid. The project was built by PowerGen in collaboration with the Abuja Electricity Distribution Company and funded by the World Bank. This project has powered some 2000 homes and businesses and industries in one of the states in Nigeria, and I believe there are also some other projects that are working on interconnected mini-grids in Nigeria, for example, the Nigerian Energy Support Program.

Nico: 14:29

Yeah, which we are also supporting right.

Joanis: 14:31

Exactly, then. The second achievement that I would like to mention is that, finally, renewable energy credits and certificates are being used to build mini-grids. So the Congolese solar developer, NURU, has announced that it is building two solar-based hybrid mini-grids in the DRC that are financed by Google's purchase of peace renewable energy credits, or in short, P-RECs. And beyond P-RECs, of course, there are also other RECs initiatives, like the DRECs and the recently announced Renewvia’s RECs, or short R-RECs, Nico. What other achievements have there been in 2023 with regards to business models?

Nico: 15:10

Well, I wouldn't call this achievement actually, but a significant change. And you just mentioned NURU. NURU started operating small grids, but now operates large mega grids in cities and these projects seem to be quite profitable. And PowerGen, by the way, has taken a similar approach, moving towards larger systems and larger communities. But the interesting news in 2023 was that some years back, the sector celebrated the first project finance, or one of the first project finance approaches, through this asset co-op co-model, and now suddenly PowerGen is retrieving from that, telling that they want to become the utility themselves and own the assets again to reduce the complexity of their financial structures. Very interesting indeed. So now many minigrid companies improve their profitability through activities in adjacent solar markets. What is going on there?

Joanis: 16:21

Yeah, especially in the market for institutions, so health facilities, education facilities.

Joanis: 16:29

I think that we are seeing some innovation, and especially around the new ESCO model or perhaps it's not a new model, but it's a model that is now increasingly being tried out, where an energy service company essentially provides the service of providing electricity to an institution and does not charge the client for the upfront installation, but rather gets back the initial investment through the ongoing service charge. So in this instance, for example, we have seen that the UNHCR, which is the UN Refugee Agency, has welcomed the IKEA Foundation as a new partner to the green financing facility, with a $23 million commitment to accelerate the transition of UNHCR offices to solar energy. And again, these are to be electrified using this ESCO model approach, coupled with a financial guarantee. And again, we are seeing this ESCO model also being rolled out in other instances. For example, the UNDP intends to roll this out in the future, and UNICEF is also thinking about that at the moment. I think that this presents an interesting opportunity for the minigrid sector, something that the minigrid players could certainly get interested in.

Nico: 17:50

Yeah, especially as the model is very similar to owning and operating minigrid assets. This could blend into minigrid companies operational and ownership models quite nicely.

Joanis: 18:04

I think so too.

Nico: 18:04

Yeah, and of course the United Nations are very reliable customers, I hope, and good payers, so therefore this could even stabilize the cash flow.

Joanis: 18:12

Yeah, especially when the whole approach is coupled with a financial guarantee, as I mentioned. Yeah, true, and but to innovate on all these business models, Nico, we need to get the technology right in the first place. Is there any development in terms of technology in 2023?

Nico: 18:30

Well, I wouldn't say technology development has made big leaps, but especially cost of generation technology has significantly decreased in 2023. Look at lithium ion LFP batteries Now. Finally, they overtook the lead asset batteries, probably even in 2022, but definitely in 2023. So now they are the preferred storage in minigrids throughout sub-Saharan Africa, and the reason is that, as I said, the cost of lithium ion battery packs has dropped significantly. Bloomberg NEF reported that there has been a price drop of 14 percent to a record low of $139 per kilowatt hour of lithium ion battery packs, including battery management system and everything, whereas I also understand this as a number that covers NMC and LFP batteries on average, and my experience, as I already mentioned in other episodes, is that LFP batteries can even have a significantly lower price than this. So therefore, storing electricity doesn't cost much anymore.

Joanis: 20:00

And what about generating electricity? What about the PV panels?

Nico: 20:04

Yeah, the PV panels have also fallen in price. We are currently seeing a price valley, so to say, with prices that are significantly below $20 per watt peak, and that significantly reduces the LCOE of the generated electricity. It looks quite good for lower cost electricity in many grids. The only thing that is probably not reducing in price is the distribution network and potentially the meters in the long run. So now, before all this low cost technology can be deployed, regulation must be in place. What has changed on that end in 2023, Joanis.

Joanis: 20:48

One of the innovations or one of the new programs we have seen in regulation is that in Sierra Leone, where the regulations currently allow for cost-reflective tariffs, there have been some complaints by rural customers in particular around affordability, and to mitigate this, the government, in collaboration with CrossBoundry and GEAPP, have introduced a tariff buy-down pilot for minigids. They also removed the goods and services tax on operators to lower the end-user tariffs and the idea here really is to see how consumption will change based on a change in tariff and, of course, Nico, based on the early results from this program. We can see that the more you reduce the tariff, of course, the more people are going to consume electricity, but the overall budget, especially for household users in terms of consuming electricity, does not really change.

Nico: 21:49

The other country was Tanzania, where they have run the experiments and came to similar results as they now get from the Sierra Leone experiment, which is quite nice to see that in East and West Africa these price-elasticity effects work in a very similar manner. Yeah, and then we have the AFUR Tariff Tool. Afur, the African Forum for Utility Regulators, published the standardized tariff tool and is also working on a digital regulation tool to harmonize regulation for mini-gids and tariff calculation for minigids across the African continent.

Joanis: 22:36

And have we seen also any new regulations in specific countries?

Nico: 22:42

Yeah, Mozambique has come up with a mini-grid sub-regulation that was approved in 2023, including tariff regulation, grid arrival, technical norm e.t.c. Two options were included for grid arrival in Mozambique a one-off compensation option and a compensation through tariff setting, which is very interesting because this provides a little bit more flexibility to the minigrid sector, also in case of main grid encroachment. And finally, there were some other highlights and lowlights also. Joanis, you may use the sandwich approach and wrap the bad news into two good ones.

Joanis: 23:22

All right, let me start with the good news and then I will let you take over the bad news, Nico. So the good news is that Manosh from Husk Power has been among the top 100 renewable energy leaders as recognized by the Time magazine. So congratulations to that, Manosh. I think it's the first time that minigüts and also people from the minigüts sector have been officially recognized by Time magazine unless there were other times of which we're not aware; please comment and let us know if this is not the case. But, Nico, you take over the bad news now.

Nico: 23:59

Yeah, thanks, Joanis. Yeah, the bad news is that Winch Energy has become insolvent, but it seems that investor NeoT is in the driving seat of the Ugandan and Sierra Leone subsidiaries, as far as I know, and new structures will soon be sought, and therefore, this insolvency has not actually generated any larger waves yet.

Joanis: 24:28

All right, Nico, I will also let you wrap up with some good news.

Nico: 24:32

Thank you very kind, berthiou. Joanis 23 has seen a new AMDA CEO. Lamide is turning AMDA finally from a white people's club to an entity that even African governments could take seriously, and with that I think we can close our session today and look into 2024 with a lot of hope and a lot of trust that 2024 will generate new record highs for the mini-grid sector. Thank you, Joanis.

Joanis: 25:12

Thank you so much Nico.

Nico: 25:13

Bye, bye.

Joanis: 25:14

Bye.

Outro: 25:17

This episode of the mini-grid business has been brought to you by INENSUS, your one-stop shop for sustainable mini-grids. For more information on how to make mini-grids work, visit our website, inensus.com, or contact us through the links in the show notes. The mini-grid business powered by INENSUS.