Speaker 1 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 Enensis.

Speaker 2 0:36

Hello everyone, this is Nico. Welcome to our New Year's episode, enensos 2025, mini-grid market outlook. I'm here today with my colleagues Kelly Moronghi and Diego Perez from Inensos. Hi, kelly.

Speaker 3 0:53

Hi Diego, hello Nicole, hi everyone and happy new year.

Speaker 4 0:57

Hi everyone, happy new year.

Speaker 2 0:58

Thanks Kelly, thanks Diego, for being here Now, as we're talking about what is happening in 2025, I must mention that, well, we at Inensos, we are kind of in a privileged position of having a very broad market overview, working with mini-grid companies, working with funders, working with governments and working with suppliers to the mini-grid sector, and I believe, from that perspective, the year 2025 will be different from what we have seen before. What we have seen so far is what I would consider a market preparation phase. In 2025, we may actually see the market ramp up, starting and finally leading to a breakthrough from the mini-grid sector, and that is mainly thanks to, on the one hand, mini-grid companies being prepared now to roll out mini-grids, but, at the same time, also thanks to various grant funding programs, large-scale grant funding programs coming online in 2025.

Speaker 3 2:08

Yes, absolutely, nico, and I want to say, you know, in addition to funding, I would say we see a shift in perspective.

Speaker 3 2:16

In the past, in the last two decades, there has been a strong private sector focus.

Speaker 3 2:20

The private sector has been responsible for both financing, implementing mini-grids, figuring out their profitability, and the conversations happening around the sector seem to suggest a shift to a more mixed model where, finally, we consider mini-grids as infrastructure, just like the on-grid energy projects, and this of course, changes how governments are looking at mini-grids, how we finance mini-grids, to a more longer-term focus, things like cross-subsidization, and I mean I also like conversations that have been happening around M300, which is shifting the focus to just connections, this being technology agnostic.

Speaker 3 2:58

So whether we are doing these connections on-grid or mini-grid, it means we finance them all, grid or mini grid, it means we finance them all, and I think this is key because then, as we've been saying, historically mini grids have been viewed as ventures that are risky, that should get short-term risk capital, and so these shifts, and especially at government policy level, then should attract additional interest again from private sector financiers and give also mini grid operators some security from you know, from the challenges that we see in the sector. So if this bears fruit, I think it will be good for the sector overall.

Speaker 2 3:31

True, yeah, I fully agree, Kelly Diego. Do you want to take us through some of the major grant funding programs that we are expecting to come online in 2025 or 2026?

Speaker 4 3:43

Sure, nico. So I think most of the action will come through several World Bank programs that have been recently launched or are being launched and then will be deployed in 2025. We know that the Nigeria Dares program is already online. There will be a wider West Africa window for Dares as well, and then we also have Ascent in East Africa, which together will probably channel more than a billion dollars into the sector, probably not in 2025, but over the next few years. And then we also have new programs or new phases of well-known programs in the sector, such as the new GetTransformed phase supported by JZ and the European Union, new windows from GetInvest and I would say, essentially all relevant donors in the sector are doubling down on their efforts and the budgets that we see have been increasing. So hopefully this really helps in making that change happen from a more market preparation phase towards really the scale up and the more mature market that Kelly was describing.

Speaker 2 4:49

Yeah, and I would just like to highlight the M300 initiative that Kelly already mentioned, which is a collaboration between the World Bank and the African Development Bank and some other partners, and the idea is to finally electrify 300 million people in the coming years, and that, of course, includes the mini-grid sector and all the existing programs are getting some additional impetus from that agreement between the two major development banks active in Africa and we see a lot of movement there and we see a lot of motivation and also a lot of drive of individuals in these two organizations, but also a new level of collaboration between these two larger development banks.

Speaker 2 5:38

And it's not just the banks that we see are getting more interest in the mini-grid sector, but it's also governments, african governments. They are already taking a stronger role in mini-grid financing, especially in grant financing. While in the past most of the grant funding has come from donors, through actual donations from industrialized countries, african governments are now taking loans and forward those loans as grants to private sector mini-grid companies, and this is happening in the large scale in Nigeria already. We've already talked about Nigeria dares. It's happening in Ethiopia, where the government installs mini-grids in the large scale from loans taken out from the World Bank. Or let's think about Senegal, which has initiated a project with the German development bank KfW some years back and this is now coming to a close and mini-grids have been implemented. So there is a stronger role of governments taking also financial risks in the mini-grid sector.

Speaker 3 6:51

I want to comment on the financing, because when we have a lot of grants coming into the space, there's the question of then where do they get the equity needed for the projects, where do they get the debt needed? And I think we said this when we were discussing financial modeling and financing mini-grids that it is infrastructure, but a bit more creative than traditional infrastructure. So, for example, we see, on the debt side, so far we've had a lot of bridge financing. These are private debtors coming into bridge between start of construction and when the grant is disbursed. This is, you know, low risk, entry level kind of debt and we hope that, you know, as this financiers mature, then they would go into issuing longer term debt. And then the other area we've seen an entry into, I believe recently that InfraCredit closed for one mini grid operator in Nigeria for Sukuk Bond. This is an infrastructure bond that is structured in the form of using Islamic financing tools. To me that is very, very creative, you know, facilitated by FSD. This is a seven years fixed rate.

Speaker 3 7:57

I want to highlight the East Africa. You know, where we have the mana capital that has shareholding from local pension funds and their goal is to have local currency, long-term pension money going into energy projects, including mini-grids. I think there is money in the market. But, nico, I think the sticking point here is are we getting licenses for 10, 15, 20 years for these mini-grids, so that then we can direct the financing? Because we've all agreed that financing for mini-grids, especially for the very rural poor, needs to be cheap and also needs to be longer term. That's the only way this is sustainable, and so there is a sticky point there that easy-to-deploy mini-grids will have ready financing. As a sector we need to solve for the harder ones.

Speaker 2 8:41

Yeah, and even on the licensing side we've seen big advancements in 2024 that will finally come to fruition in 2025. And I'm talking about the African Forum for Utility Regulators, which had been successful in bringing together African electricity regulators to think about and harmonize mini-grid regulation across the continent. And what AFUR did is they came up with a harmonized mini-grid tariff calculation tool which is being utilized and picked up by more and more regulators on the continent and at the same time, with the support of GetTransform, they came up with a software tool that can help regulators create regulation specific to their countries, but harmonized on a higher level with best practice from the African continent and the international mini-grid markets. And these tools will finally be deployed in 2025 and we will see much more coordinated approaches in tariff calculation, main grid connection protection, securitization from the regulatory side of mini-grid investments, but also, of course, a lot of focus on electricity customer rights and so on. So we see the regulators play a more central role in the mini-grid sector from 2025 onwards.

Speaker 4 10:24

Absolutely, nico, and I think, coming back to what Kelly was explaining before, in order for the sector to be considered less risky and closer to infrastructure finance, we really need to make more effort on securing those investments and really deploying those risk mitigation mechanisms that we've been discussing for a while but where I think there has been limited practical application so far.

Speaker 4 10:49

And then, for example, talking about MIGA as a mechanism to protect contracts. In fact, in the context of the four harmonized mini-regulations, there have been conversations with MIGA to make sure that those new regulations can be protected in the future future and developers have that protection in case of contract breaches. There are also innovative ideas, such as this minimum revenue guarantee from IFC, which will protect developers in case that demand is lower than expected, similar to what typically toll road contracts have been implementing, where operators get a compensation in case the volume is lower. So I think there are a number of innovations that will help us move in that direction of less risk and longer term finance being available. But of course, those shifting patterns might also have implications in terms of which companies stay in the game, which companies win, which companies lose. I don't know, kelly. What do you think about that?

Speaker 3 11:49

Yeah, I mean I'm hearing both what Nico has said, you know, in terms of regulation and regulators being advocating for the end user, but also what you've said on formalization of the sector, and what comes to mind is one the idea of tariffs. We have had extensive discussions across the continent because mini-grid tariffs are typically higher than on-grid tariffs and yet mini-grids have the most poor. So there has been a push to adopt uniform tariffs and sometimes even lower than on-grid tariffs in terms of equity and fairness. And on the other hand, also, diego, when you talk about MIGA, I know that they have certain requirements that call for a certain level of formalization and track record of developers that participate in the sector. So these are all positive, but I've got to wonder, then, what does this mean for the landscape of developers in the continent? You know who is primed to take advantage of these developments and who is more likely to need to modify the way they operate.

Speaker 2 12:48

Yeah, and yeah, I see some developments here. And, of course, these large players in the sector, like the IFCs and the MIGAs, they want to see some scale right. They are not interested in projects of a million dollars or below. They are not interested in projects of a million dollars or below. They will probably want to see projects in the tens of millions or the hundreds of millions of dollars. That's what they're used to and that is what just a few companies can implement these days, and we've talked about a billion dollars of grant funding coming into the sector. The question is is the private sector ready to co-finance these grant funds? Because the grant funds are usually designed to cover 50, 60, 40% of the total capex and the rest is supposed to come from the private sector, and that is again possible. Like to answer that call. It's possible for large companies.

Speaker 2 13:49

The problem is that these large companies are mainly international companies that traditionally have had good access to capital and also good access to talent, and, after all, well, these have developed to the larger players in the sector by now. Right, I'm talking about the MGs, the house powers of the mini-grid world, so to say. Now, what I see happening is that these large companies are well prepared to answer to the calls for co-funding from World Bank and the respective governments, and that these companies will finally attract a pretty large part of the market. So now, gaining economies of scale and given the more harmonized tariff calculation approaches that we've just talked about, these companies will be in a position to reduce tariffs after some time. Per kilowatt hour reduces the more customers you supply with electricity and the more kilowatt hours you actually sell, because the overhead cost can be divided by a large number of kilowatt hours if you scale up. So now this is only possible for these large international companies.

Speaker 2 15:20

The problem is that many African companies will not be able to follow this trajectory, this development. They cannot reduce the tariffs, whereas the African governments will soon ask for reduced tariffs to implement mini-grids at a more harmonized tariff level across the country. Many governments in Africa talk about equity across all regions and all citizens in their state, but after all, if the smaller companies cannot follow, what will happen? What will be the natural result? It will be market consolidation, and market consolidation will most likely happen through mergers and acquisitions. So I see larger companies acquiring smaller companies and we're already approaching this, like large companies are already looking into which smaller companies could be integrated best into their existing business. Yeah, and this is, I think, what is lying ahead in 2025 and beyond.

Speaker 3 16:28

It's interesting, nico. I mean we see that and we've seen that in different sectors, even in the on-grid sector, where local developers have had to partner with larger foreign developers that have the capital, the equity but also the systems. So that is not surprising. But then, as you're discussing that, of course I then think about the unresolved question of the sector, which is the business model, sustainability. As we keep saying, we still not resolved this issue of how to profitably run mini-grids in the continent, and it is a unique, of course, continental problem, given the financing models that we've adopted that are different. And I mean what I would say here is our hope is that as the sector develops, as it gets formalized, then we see more development, economic development, being driven by the mini-grid sector in rural areas.

Speaker 3 17:19

You know we've talked about rural industrialization, primary agro-processing. Most of the continent is agrarian. There is vast opportunity. We lose over 40% of our harvests because of post-harvest losses, which will be fixed by electricity. You know we have a lot of timber, for example, forestry industry, we have artisanal mining and we have many, many other industries that benefit, that could benefit from rural electrification. So the hope remains that we can find a way to connect those two themes, because at present governments are pursuing electrification as one parallel theme and economic development as another, and sometimes that is even split up. You know, one ministry is doing agri, another one is doing mining and so on and so forth, so they're not talking to each other. And yet we know for a mini grid of one electricity business to be sustainable, there has to be rural economic development. We need rural jobs, people need more money in their pockets. We need to bring about some incomes and economic development for climate resilience. So we know this.

Speaker 3 18:19

I think the question that remains, and a dialogue to keep having here, is what can governments do, you know, to pair up these sort of two themes, because they work well together. So it can be policy, it can be tax incentives, grants where development partners can support, and maybe some infrastructure investments. Many African countries don't have enough road networks and so I remain, you know, an Afro-optimist. You know, against all evidence, I want to hope that governments get to where we are now, where they see electricity and development going hand in hand. But in addition to that, nico, also a lot of innovation around community-driven electrification efforts. You know electricity cooperatives, because, again, as African countries and we are communal in nature, we work well together and so learning from other countries, but also contextualizing it for each country, because every country organizes differently, this may be a way, you know, to make this model sustainable and again, better deploy the theme of electricity and development together. So I am excited even as we talk about, you know, the consolidation in the sector.

Speaker 2 19:27

There are opportunities there, yeah let me refer back to what you said before, the rural industrialization that Inensos has been pushing for for quite a long time, which has not materialized yet in the large scale.

Speaker 2 19:42

But we are still seeing great opportunities for African players, so to say, from adjacent markets to the electricity market.

Speaker 2 19:52

They have a huge opportunity here and, as you said, kelly, like governments can play a central role.

Speaker 2 19:58

But even within governments they probably need to work cross-ministry, cross-agency and authority, cross the whole landscape of government to make this happen and to finally motivate these African players. And that, after all, going even one step back could resolve the issue of international companies taking over many of the smaller African mini-grid companies, because these African companies, they have the specific knowledge and the specific insight and the network required to make the sector coupling between food and energy, between mining and energy, between forestry and energy and so on and so on, to make all of this happen. And governments could actively drive that and push their local companies, their companies from their own countries, to the forefront in this sector coupling activity. And that is where Inensos is very much interested in supporting and we hope that this can become a big movement in the future. Ok, now let's get into new models electric cooperatives that you mentioned, kelly I believe that electric cooperatives in Africa have so far been underrepresented. While we're seeing a lot of electric cooperative models in the mini-grid sector in Southeast Asia, africa doesn't have many of these models yet.

Speaker 3 21:36

I mean, it is actually surprising because Africa has the largest cooperative movement globally. But you're right, we haven't seen cooperatives get deployed for electricity and I think the source of this first nickel has been that provision of electricity has been the responsibility of the government, and so, while the other cooperatives, like pharma cooperatives, come from the grassroots to enable market access and to organize farmers and to finance farmers, electricity, I would say, has not been a theme that has been actively engaged with ground up. And I mean we are seeing, of course, ethiopia, zambia, malawi, nreca is doing a lot of work in terms of developing an African model for electric cooperatives, because, also, we see what has worked elsewhere may not necessarily work in the African context. I mean, for me that is exciting because, again, electric cooperatives are an example of people solving their own problems and it gives them agency and it gives them the equity that we are talking about and they have buy-in in the projects.

Speaker 3 22:38

There are, admittedly, an answered question how scalable is it? How long does it take to deploy an electricity cooperative? How do we finance it? But I think, just as we're seeing with the current mini-grid models, I think, yeah, this is the time now to develop and prove these concepts and I was going to say there's a role for government, but also there's a role for development partners. In the past they've been very private sector focused. I think it's good to see a lot more engagement in directing development funding to electricity cooperatives and also NICO, to rural industrialization as a theme. So I'd say now on the policy side, since they are funding all these other themes, they could also influence government into also being more friendly to these models.

Speaker 2 23:19

And, after all, the private sector will not electrify all of the 600 million people that don't have access to electricity in Africa yet.

Speaker 2 23:28

There will be room for other models, for sure, and electric cooperatives is most likely one of these models. But I think what we've learned, or what I have learned, is, if you want to go into electric cooperatives, we need to think about the model at scale, not in a village by village approach. Anyway, there are lessons learned from Southeast Asia that now need to be transferred to Africa. As you said, kelly, you cannot copy and paste. Of course you need to adjust, but I think that is what lies ahead and there are big opportunities out there to also cover the gap that the private sector is leaving. The private sector will most likely go for the commercially most interesting models, but cooperatives may see a different gap and fill that gap with their model, so that may also contribute to achieving 100% electrification in Africa in the coming years, or, let's say, decade. Diego, there is another aspect that has not been used much in the mini grid space yet, and that is climate finance. Do you want to talk about that?

Speaker 4 24:41

Sure no, in fact, as you were discussing about mini-grids or electricity and then rural nationalization, I would see climate as the third aspect, the third leg of it, in the sense that it can also be very beneficial from a climate perspective to set up those kind of clean energy mini-grids coupled with productive activities that are done in a responsible way, in a way that also mitigates climate change effect or helps people adapt to climate change impact.

Speaker 4 25:11

I think it has not yet been very effective because the focus originally has been on mitigation and, from a purely USD per ton of CO2 perspective, mini grids are not the cheapest option. Of course, if you just take this into account, there are other technologies at larger scale that can be cheaper. But I think it's the adaptation angle that should be paid more attention and where perhaps also climate finance mechanisms and funds could pay more attention when looking at the mini grid sector. Nsms and funds could pay more attention when looking at the mini-grid sector, and the benefits don't come solely from the mini-grid portion of it, but really from the productive activities that mini-grids allow. We can talk about, for example, regenerative grazing for cattle. We can talk about responsible forestry, we can talk about any activities involving a coal chain, so there are lots of potential industrial sectors that can be supported by mini grids while at the same time delivering climate benefits. I think it's something to be done.

Speaker 2 26:13

List for 2025 definitely yeah, and there are again a lot of synergies between, for example, electric cooking to reduce fuel, wood consumption, in combination with reforestation programs and these kind of things, and all of that starts with electricity, and I think all of that needs to be thought through. 2024, from my perspective, has been the year where it actually became obvious that we will not be able to stop climate change, that we will not be able to reach the 1.5 degree target that was set in Paris some years back. So therefore I also see on the climate finance side, I also see a certain shift from mitigation projects to adaptation projects, and that will provide new opportunities to the mini-grid sector and not only to the private sector, but potentially especially also electric cooperative models. Good, now let's look at the technology that we've been seeing in 2024 and let's look at what we can expect to take center stage in 2025. So, on the one hand, of course, we've seen drastically reduced prices for PV panels and lithium-ion batteries, the LFP batteries, and also some initial deliveries of sodium batteries have taken place. So this is a very interesting development which has reduced capex on the generation side drastically.

Speaker 2 28:03

But the distribution network costs still remain high because in most countries mini-grids have to meet the national distribution network standards the distribution codes, holes must have a certain diameter and a certain height, they must be manufactured from certain materials, and so on, cables must have certain cross sections, and so on and so on.

Speaker 2 28:32

After all, as Kelly, you said already, mini grids are infrastructure and there is certain costs to infrastructure.

Speaker 2 28:40

But there is a new technology which has also started scaling in 2024 and which we will see more often in 2025 and beyond, and that is the DC mesh grids, which is also some kind of mini grid with a decentralized generation setup where every house in the community, or many houses in the community, have PV panels, some have battery storages and they are all interconnected to supply additional customers and to make electricity available in a more reliable manner for everyone in the community.

Speaker 2 29:22

And the interesting part on the mesh grids is that the distribution network costs can be significantly reduced. The cables as such. They don't need to transmit electricity over such long distances, as generation is not central but decentralized. You're basically just supplying electricity to your neighbor and at the same time, the dc mesh grids distribute electricity at an extra low voltage, which doesn't come with a lot of safety concerns, and the lower number of safety concerns, reduces also the installation requirements and the technical requirements, which after all further reduces the distribution network costs. So after all, what we can say? Dc mesh grids are an opportunity, I guess, for those communities that don't have large scale centralized productive consumption but where commercial and small-scale productive use is prioritized, and that holds true for a large number of communities out there in Africa.

Speaker 3 30:30

So I was actually going to say yes, absolutely the majority.

Speaker 3 30:33

Of course, the most need is for households and, as we know, the structure of many villages is that, yes, you have a market center, but also you have homes that are a bit of a distance away.

Speaker 3 30:45

And so the mesh grids, yes, as a solution by itself, but also as a complementary solution, you know, for mini grid operators and also mini grid cooperatives, because there's an area that is dense enough for the mini grid and then you may have community members that are further away and they still want to participate, they want the electricity. So I think DC mesh grids, of course, lower cost per connection, lower O&M, less technological intervention, I think is a very much welcome development in the sector. And again, the higher power level. You know, solar home systems are great, I think they serve a need, but sometimes you know you find a household has to keep upgrading the system. But with the DC mesh grids, then you know they're getting the power that they need. I mean, as always, I hope, as we are talking about tariffs, of course, we hope that this of course means that customers can get affordable electricity in the long term.

Speaker 2 31:36

Yeah, and it's to be seen how governments think about that technology and if governments accept that in rural areas the technology standard for the distribution networks and DC mesh grids will not be main grid compliant as such, and I think that is the main risk for the DC technology, the DC mesh grid technology. But let's see how this is developing, at least in Nigeria. We will most likely see a lot of these DC Mesh networks being set up this year, next year and in the few years after under the Nigeria DERES program where DC Mesh Grids are eligible for grant funding, and I mean Nico and Kelly.

Speaker 4 32:20

It's also probably part of a broader or more integrated approach towards universal access, universal electrification, where programs are not just 100% focused on mini-grids. I see there is a bit of a big separation between the electrification modes, but I also see more and more voices in the sector advocating for more integrated approaches where, when you set up a tender or when you set up a grant program, you don't necessarily need to define that mini-grids are the only option, but you can define universal access as the target and let companies explore what combinations of AC mini-grids, DC mini-grids, individual systems work best in order to deliver this. So I think it's a technological issue, but it also has a policy or program design component to it. That is interesting.

Speaker 2 33:11

Definitely, definitely All right. There is another international trend that I would like to talk about that we have seen in 2023, 2024, especially from the European perspective, and there is, as we discussed in one of our episodes, a strong move in Europe to the political right due to more and more refugees coming into Europe. And these refugees are coming due to war and conflicts, but in the future at least, we suspect that the climate change will cause more severe living conditions in Africa. That will also lead to conflict, that will lead to fights over resources and that, after all, will potentially drive more people into Europe. Now the thing is that European researchers have found that climate refugees will probably not come Especially from Africa. They say they cannot afford the travel, and now think about it Like. What they are saying is they cannot afford the travel, and that's why the European governments don't need to be afraid of climate refugees going to Europe. This statement is actually humiliating and, if one thinks this through further, the consequences for European politics are really embarrassing, I think.

Speaker 3 34:50

Absolutely, nico, and I mean research has shown that Africa will be quite affected by climate change, and it feeds to what you're talking about in terms of building mitigation and resilience in the sector, which everyone should be concerned about, and not just because of refugees. I mean, africa is also a source of raw materials for a lot of European industries, global industries, and so I wouldn't engage on the travel, the cost of travel. I mean, like you've said, it's embarrassing and, frankly, a bit silly of an argument, because people make their way to places even with little money. But I would say this should be a global concern for all in terms of making the continent more resilient.

Speaker 3 35:30

It is well known that our governments, of course, don't have fiscal space to invest more, but we also know that there is a lot that can be done by the West, by development partners and even by ourselves, because ultimately, yes, even if people cannot travel to Europe, europe will be affected economically if Africa is not developing. So can't run away from the fact that climate change is a global problem. Nico, exactly, I feel like now we've gone on a very dark path. Nico, what I would ask you is where are the new places, where are the new markets that we are looking at in 2025?.

Speaker 2 36:06

Yeah, and there have been some great developments recently. Let's look into Somalia. Somalia is a very young state. After the civil war, they established a new government structure moving towards becoming a democracy, and the new government is restructuring the electricity sector. Somalia's electricity sector consists of 100% mini grids. There's no national grid. There is no government-operated assets.

Speaker 2 36:39

Everything that you find, all the generation distribution assets that you find in Somalia, are under private sector ownership, and now, as the new framework is being established, this is a market that becomes highly interesting. So far, somalia's city centers in urban areas, are electrified by mini-grids, but even the peri-urban areas in Somalia are not covered, and there are grants that are being prepared for that country. There is knowledge about mini-grid operation in the country, meaning that there are well-trained people there who can manage mini-grids, who understand how to sell electricity. This will be an exciting market. Then let's look into Zambia. Zambia is also an interesting place. The Zambian president has actually announced in 2024 that Zambia wants to become one of the top priority mini-grid markets in the world, and now let's see if the government can deliver on that promise. Kelly, do you want to talk?

Speaker 3 37:52

about DRC. Yes, I mean I was going to jump in and say DRC is another one. Drc is both an interesting and challenging country. Vast geography, it's a huge country, but also a very wealthy African country, and so we know the opportunities have been there. Yes, there are challenges security challenges, especially in the East, that I think the global community needs to resolve, but that notwithstanding, there are still opportunities for electrification in DRC Because, remember, drc's operator Snell is overrun. They cannot meet the demand.

Opportunities and Challenges in DRC

Speaker 3 38:24

I mean, it's a huge, almost equivalent to a number of European countries combined, and the law is liberalized, so there is room for metro grids, different technologies, there's a lot of solar, there's also hydro and then also the fact that, like I've said, the wealth, the natural wealth, means there's room to combine the themes that we are talking about. There's mining, there's agriculture, and all these need electricity, and so for me, I get excited about DRC, but I also say that, you know, I wish funders also could get as excited, because then we would see money flowing into the country a bit more. So far it's been good. With the World Bank and MIGA being there. We've seen larger infrastructure projects get funded.

Speaker 2 39:03

We hope that money starts flowing for the smaller infrastructure projects, both for the local electricity providers but also to have some of the foreign companies come into DRC, a large and met market some of the foreign companies coming to DRC, a large unmet market, yeah, but I think, before DRC can really become one of the largest mini-grid markets in the world, the political issues and the conflicts the armed conflicts need to be resolved. Unless that has happened, I believe especially international companies will not enter the country.

Speaker 3 39:36

I would say true, but I would add a bit of nuance there, Nico, because, again, being a huge country, the conflict is on the east, you know, towards the lake, and we have a whole. We have the Katanga region, which is the mining region, you know. We have the rest of the country where business is being done without electricity and even I mean the opportunity of interconnected mini grids. I've been in Kinshasa and we look at five, six hours of power outages daily, so it means there is opportunity. I don't know the science then of managing that. You know where international funders are looking at global country metrics, but then within that country there are pockets of opportunity. I don't know how they can isolate that. Again, it's a challenge there to funders and to development partners, and we know that often conflict is economic. Sometimes, when you start resolving the economic issues, the conflict sort of resolves because really people are fighting for resources. But, Diego, you wanted to jump in here. Please go ahead.

Speaker 4 40:33

I was just going to say that.

Speaker 4 40:34

In fact I find it very paradoxical the case of DRC because if you look at the private mini-grid developers that are there, most of them are in the east, precisely in the conflictive region. That's where some of those small mini-grids have been built and where more small-scale private sector is active, which I guess also suggests that there is money and there is economic activity that can support those mini-grids and make them viable. But in parallel to that, what I'm getting from larger scale donors, for example IFC, is that they're actually interested in electrifying larger cities. Even there's a project from IFC to electrify a city of more than 1 million people. I assume it's not a city without electricity at all. There might be diesel generators, there might be local low-quality grids, but there is a big opportunity in Dyrstede specifically to look at those kind of larger scale towns tens of thousands, hundreds of thousands of connections where we also know there will be more economic activity and eventually probably a more viable business model for companies. So it's really a complex place but probably full of opportunities.

Speaker 2 41:42

And where bilateral funds and funding cannot be provided because of the conflicts in DRC, maybe regional funds can be tapped into, and I also see a move towards thinking more regionally.

Speaker 2 42:00

Think of the new West Africa Dairs, which is a regional program, think of the approaches under the Desert to Power initiative of the African Development Bank, which is a regional initiative, and also recent consultancy assignments are more structured on a regional level rather than on a country-by-country level, and that makes me hopeful for DRC to benefit from funding that is provided to a certain region rather than the country itself.

Speaker 2 42:39

All right, in the mini-grid sector, we have seen in 2024 that mini-grid companies are facing difficult times working with their electricity meters, and this is surprising as there are some specialized companies that focus on mini-grid electricity, smart meters and the market for smart meters has grown over the last few years. But it really seems that operating electricity meters in rural mini grids is a challenge. It's not just on the connectivity side the traditional classic challenge that you would see in a rural community but it is especially also on the meter technology itself, it seems, and the customer support and related services around the meter that do not really come through reliably. So that is something that the mini-grid sector needs to master, I believe, before a large-scale rollout can actually happen.

Speaker 4 43:47

And then in terms of other components, like the main ones and also the ones that make the larger share of the CAPEX, such as the PV panels and the batteries, we've seen some price drops in 2024, and the prices have remained low. In fact, I think it's probably time to also review our assumptions of what a reasonable CAPEX benchmark for mini grids is, because we keep discussing, we keep mentioning those $6,000 per kilowatt peak, and then when you do the math, when you do the component breakdown and use market prices, you end up at a much lower figure right now. This is probably also a chance to have lower costs. And then, of course, the whole Virtus circle that we keep describing.

African Mini-Grid Industry Development Opportunities

Speaker 2 44:32

Yes, and that is where many developments are coming together. On the one hand, the drop in capex, as you just said, then the economies of scale that you can achieve when you install larger systems will also drive down the cost per kilowatt installed. And, after all, yes, the overall economies of scale within each company that operates a larger number of systems can further reduce cost, and the main challenge of mini-grids being so much more expensive than the main grid may, after all, be resolved through this, as you called it, virtuous cycle, diego. Now, as we're talking about the ramp up phase now of the mini grid sector, which we are approaching in 2025, I believe that African governments and African industry should actually have a closer look at what share of the supply and manufacturing task and work they want to have within their own country, and there is a lot that could be done within African countries.

Speaker 2 45:51

Of course, you wouldn't start manufacturing PV panels, most likely, or inverters. Maybe meters could be an interesting option for African countries, because that would also help provide local expertise for local metering problems, and that is, I guess, what many mini-grid companies would be very grateful for. At the same time, there are opportunities in poles manufacturing. Let it be steel poles, let it be wooden poles, even concrete poles, cables, cable manufacturing in-country is definitely a business which will find a market not only in the mini grid space but also in the further growing main grid extension market. Lightning protection, all these assets that are heavy and difficult to transport over long distances they could be manufactured in Africa. Distances, they could be manufactured in Africa, especially as Africa, as we've already said, has a lot of resources that are needed for those types of manufacturing.

Speaker 3 47:05

Indeed, nico, if I may jump in also, I mean opportunity also for assembly, right, because we are still seeing bits being assembled outside of the continent. I think there's a lot to learn from the motor vehicle industry, the motorcycle industry, e-mobility, where we are seeing companies setting up assembling plants in the continent. So seeing containerized solutions being put together here, I think would help in terms of transferring expertise. But I think also, what you're driving at is what I think we talk about next, which is the challenge of currency, because if we have more work being done locally, it means then we are again seeing less of a challenge in terms of deploying currency in importing goods. Then this connects to what we discussed at the beginning on who will finance mini-grids.

Speaker 3 47:51

We know that loans come in dollars or basically hard currency. We know that loans come in dollars or basically hard currency, and we've seen increasingly currencies depreciating, even in strong economies such as Kenya. Of course, nigeria has had an ongoing challenge, malawi currently has a significant FX challenge and, looking at the indebtedness of the countries, really we can only expect those to increase. So local manufacturing, local assembly, is one, I think. The other, of course, is intervention in terms of financing tools that are local currency denominated, such that then you know, local content, such as civil works and the parts that we've talked about then, are financed using local currency, and this reduces the pressure on the mini-grid operators to then service this long-term debt with depreciating local currency. I don't know what else, nico. What can we do also to resolve this currency depreciation problem?

Speaker 2 48:47

Well, yeah, local currency debt, and we've seen, as we've already discussed, some good initiatives over the last few years which will be scaled up in the future. And yeah, after all, I guess this is what we need to push for, right.

Speaker 3 49:04

Yeah, absolutely. And I mean, when you talked about manufacturing, nico, I was going to say that, as we talk of governments enabling sectors, this is one, you know, this is one that governments could come together even to build on, the centralized procurement initiatives we've seen. Why not, you know, develop a lot more on centralized manufacturing, take advantage of the Africa continental free trade area agreements and provisions and, of course, the same with warehousing financing and de-risking it for currency risk.

Speaker 2 49:34

Yeah, especially heavy industry, for example, needs volumes, and these volumes can be found in Africa only if free trade zones are being created, and I think that the mini-grid sector can play an important role in taking off a lot of these materials. As we have been already indicating that there will probably several billions of dollars spent on mini-grid assets in the coming years Good, when we are talking about installing a lot of assets. I think there is another trend that we need to touch upon, and that is recycling of mini-grid equipment, and I'm especially looking here at battery recycling. But when I think about PV panels, inverters, all these electronics that are being used, even the meters, they also require recycling solutions, and there is not much recycling existing in Africa as of yet. There are a few lead acid battery recycling plants, but when it comes to electronics and these kind of things, most of it would at the moment be exported, and I believe that sooner or later, such a recycling industry needs to be set up in Africa too.

Speaker 2 50:58

All right now we have gone through all different perspectives on the mini-grid sector, started with financing, went through the technologies and the market developments, and now I believe we can summarize, and well, I think I can say that we at Inensus, we believe that the market is on a good track, that we will continue providing our services, of course, when it comes to mergers and acquisitions, if you have the intention to merge with another company, if you're interested in acquiring smaller companies or larger companies, maybe get in touch. I think we can help you out with contacts and due diligence services and analysis and market outlooks and these kind of things, and analysis and market outlooks and these kind of things In general. We at Enensis, we are also trying to become more African as a German-European company. Traditionally, of course, we've had a lot of European staff, but we had set up our Nairobi hub and we are expanding on that. And, kelly, do you want to maybe elaborate on that a little bit?

Speaker 3 52:19

Yes, of course, nico. So, yes, nairobi is our first hub. We have a team here and the focus, I think, as head of Africa business, you know part of my mandate is not only develop relationships but also increase our team footprint throughout the continent. Of course, this is in recognition of the fact that there is a lot of talent, intellect, but also knowledge capital in the continent and this is key, you know, not just for Inenzas but for all players, you know, if we hope to solve the actual problems, you know, that are in the continent, especially around this area of rural electrification, that are in the continent, especially around this area of rural electrification. The last year, of course, we've seen our Africa team grow significantly and in the coming year that trajectory will continue and it's really, really exciting and, of course, supported by the extremely experienced team in Germany and in other European countries.

Speaker 2 53:12

All right, thank you Kelly. Thank you Kelly, thank you Diego. I hope that Diego, kelly and I, we could help you our listeners a little bit with our 2025 outlook, developing your strategy forward in the mini-grid sector, and we're looking forward to supporting you with our services market development, transaction advisory, due diligence service and everything I already mentioned in 2025. Please stay tuned and support our podcast by following us, by recommending us to other people, and we are looking to an exciting year and with that, kelly and Diego thanks a lot for your contributions and we will have more sessions together. This year.

Speaker 3 54:02

Thanks, nico, it's been a pleasure.

Speaker 4 54:03

Thank you and happy new year everyone.

Speaker 1 54:05

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