Setting The Stage In Sierra Leone

SPEAKER_01 0:15

We were there when many 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 many grid distinct.

SPEAKER_00 0:35

Hello, this is Nico. Today we're talking about learnings from Sierra Leone. My guests are Dipto Majumda from Inensus and Momori Camara from MIK Energy Limited. Dipto is senior energy access specialist in Inensus. He is in charge of Sierra Leone related projects in Inensus and spent 12 months in Sierra Leone supporting the Rural Renewable Energy Project RREP. Momori is a renewable energy professional with over 10 years of experience in mini-grid electrification across Sierra Leone and the region. He supported organizations including GIZ NDEF, PowerGen, WeCare Solar, and Inensus. Hi Momori. Hi Dipto.

SPEAKER_03 1:19

Hi Nico.

Mini-Grid History And Programs

Tariffs Explained And Debated

SPEAKER_00 1:20

Hello Nico. All right. Some facts about minigrids in Sierra Leone. Sierra Leone has one of the highest densities of privately operated solar minigrids in the world. It's a small country with a relatively large number of minigrids so far. It has one of the oldest fully established regulatory frameworks for minigrids in Africa. The framework was established in 2019. Let's go through the history of minigrid installations in Sierra Leone. Three pilot minigrids have been installed in 2017 under the project Prest D Sierra Leone, followed by the RREP, funded by FCDO and implemented by UNOPS, which introduced more than 90 minigrids to the country. And then followed by the SE for All's Universal Energy Facility UEF minigrids. Those were three added under the operator PowerLeon, and SE for All financed a total of seven, out of which four seem to still be established. One minigrid has recently been funded and established by CDW, and uh it's operated by the NGO Stard and Light, which is an interesting approach, as so far minigrids are being operated by professional operators, and now this is an NGO starting to operate minigrids. In Sierra Leone, there have been discussions around tariffs a lot, and uh tariffs have been considered high. Dipto, Momori, can you summarize quickly what the electricity tariffs in Sierra Leone and the mini-grids are?

SPEAKER_03 3:03

So I can come in here. The Sierra Leone tariff right now in mini-grids are around six to seven Leons per kilowatt hour, and within 12 lions per month, which is a fixed charge. On average, this will come down to around 7,500 lion per kilowatt hour terms. This is in USD terms right now around 30 cents.

Upcoming Funding And Tenders

SPEAKER_00 3:32

30 cents. All right, understood. There are plans to establish more mini-grids in Sierra Leone, especially under the EU-funded Salone Off-Grid Renewable Energy Acceleration Initiative. So GREAR. The European Union provides 34 million euros to electrify 60 communities. And currently there's a tender open for services to check 150 communities and evaluate which of those can be electrified, out of which 120 are green field and 30 are brown field. What does brown field mean in this case?

SPEAKER_03 4:14

Brown field sites are the mini grids that are already operational in different programs, including Presti, including RREP, and to see how we can either extend the capacity of these minigrids if that is needed. What can be improved and what additional measures can be taken to make sure that the people are getting more reliable electricity?

Operator Performance And System Sizes

SPEAKER_00 4:37

This will be basically an extension or an enhancement of existing mini-grids. All right. So then there is another large program coming, which is called Regional DARIS, which is one of the instruments under the Mission 300 initiative. And that will most likely be ready for implementation in 2026. And that is a program with a volume of approximately 420 million US dollars, which is distributed across six countries. So if you would divide 420 by six countries, you will see 70 million US dollars per country, including Sierra Leone. But that is not only for mini-grids. It includes minigrids, but it also includes standalone systems for health centers and schools as well as solar home systems. But there will be a significant portion for mini-grids in there too. So after all, to close the facts for the minigrid sector in Sierra Leone, two major operators take center stage in Sierra Leone. This is on the one hand energicity with its uh Sierra Leonean subsidiary, Power Leone, and PowerGen. And uh, how are these companies doing? Momori, maybe you can contribute here.

Cost Recovery And Battery Failures

SPEAKER_02 5:55

Yes, um thanks very much, Neko. So um as initially uh outlined, um so the IAP project was having two phase, um, phase one and uh phase two. Um the phase one was having uh range of um and system between six to thirty-six kilowatts, while it's uh phase two from 30 kilowatts up to 200 plus kilowatts systems. So um for the phase two projects, um they are doing a bit uh well. Um whereas um since they were installed between 2019 and 2022, so some of these systems are working very well, whilst um others are also are there um underperforming because of um the system capacity, because um the demand increase as uh as as time goes by. So we are as uh most of the system uh are unable to serve the community like uh in a 24-hour basis. Whilst for the REP project one with the system between six to 16 to 36 um kilowatt system, um, these systems are extremely uh in the peak. We are in the they need a battery replacement because they have been in operation for quite too long. So um the system also we are undersized because the initiative was uh uh mainly for the health facility and also supporting the community, but the community demands also increase over time. So we are as um this uh two initiatives uh has to be considered in order to meet the community expectation by um upgrading and also doing extension. Thank you, Nicole.

Split Asset Model And Ownership

SPEAKER_03 7:55

We have been discussing with the operators through different various assignments over the years, and the same observation that we have through all these discussions is that the operators are finding it difficult to make sure that at one hand they can provide reliable service to their customers, but at the same time they can recover their cost. So the tariff that has been applied right now, as I was saying a bit earlier, is around 30 cents right now. But when it was approved by EWRC, the Electricity and Water Regulatory Commission of Sierra Leone, it was around uh 58 cents, 60 cents. So this means that the revenue in general is getting halved, and therefore uh these companies, both operators, are struggling uh to recover their costs with the same level of tariff that has been applied. Uh but this has multiple angles as well. Um, the overall quality, as Mori was saying, that the work package one sites, which uh have issues with battery performance at this point, and so definitely the replacement cost of these batteries are not available, or the funding for this replacement of batteries are not available at this point to the Mini Grid operators. There has been a different fund being set up for that, but for various reasons, it's also difficult to get the additional investment to replace the work package one batteries in time. So this means there has been dissatisfaction because of these various challenges, macroeconomic challenges as well as a lack of funding to replace the work package one batteries. So, overall, in a cluster scenario, throughout the whole portfolio scenario, the operators are having difficulties and struggling to recover their costs overall in Sierra Leone.

SPEAKER_00 9:51

So, what we have to explain here is that under the RREP, there is a um a special ownership structure for assets and also uh asset replacement arrangement that is somehow specific. Uh, does any of you want to explain?

Replacement Gaps And Reserve Accounts

SPEAKER_03 10:10

I can take that as Mori previously explained about these two phases. So it's called work package one sites and work package two sites. So, work package one, a bit of history on that. Um, so this came as an as an initiative after the Ebola crisis to really strengthen the community health centers in Sierra Leone. And that was the idea to electrify the community health centers so therefore the vaccines and everything can be kept in place and the service can be provided. But therefore, Innanzus was also at the forefront of this to provide an option and to provide and to even develop this RAP project to come up with this idea for community electrification, not only the community health center electrification. At the beginning of this 50-50 plus sites or community health center sites and community electrification, um, they were mostly fully grant subsidized at this point. And the next phase of the project, RREP work package two, where 40 plus mini-grids were rather tendered out throughout the country to a public-private partnership program. And here um a split asset model was basically implemented. To explain it simply, private sector companies were to invest in the generation assets of the mini-grid systems, whereas the public funding would go into the distribution assets. And it has different uh justifications around it. The public assets or the distribution assets are hosted by the Ministry of Energy. And if it happens that the main grid arrives at certain point in these rural communities, it can easily be connected to the main grid. So that was one of the key ideas, and the generation assets, which is owned by the private sector, can then be taken away or replaced or to take to a different site by the mini-grid developers. So that was the idea of the split asset model, which has been applied in the work package two sites.

SPEAKER_00 12:27

So now what you're saying is that uh Momori and you mentioned that earlier, is that the batteries and especially the work package one sites are coming to the end of their lifetime, but probably that also holds true pretty soon for the work package two sites, which have just been installed a couple of years later than the work package one sites. So now, in the work package one sites, it is the government that is supposed to replace the batteries, isn't it?

SPEAKER_03 12:55

Exactly.

SPEAKER_00 12:56

And there is no funding for that.

SPEAKER_03 12:58

Right. There is a lack of funding for that.

SPEAKER_02 13:01

Momori, do you want to contribute? Yeah, um, it's um just as Dicksa mentioned, um the battery are also underperforming and uh they are still funding at the moment. We are as we are expecting uh for the upcoming project um with the SC for all and for this to be considered in order to um optimize the operational aspects of this mini-grid.

SPEAKER_00 13:27

How many of the mini-grids are uh work package one sites and how many are work package two sides? We said more than 90 mini-grids in total. How is the split and what percentage or how many of the work package one side mini-grids have already failed?

Elasticity Trial: Tariff Cuts Vs Demand

SPEAKER_02 13:47

So um the work package one is about uh almost uh 50, 45 to 50 systems. And uh as mentioned, the size of the system is between 16 kilowatts and uh 36 kilowatts is the largest. So um for this site, all the systems um are underperforming. Um, even for the area we are in, uh the battery was replaced because you have a few communities which was replaced, I think uh about three to um six the of the power loyal sites. So these are also um having some significant issue because um if you check the the the the battery size as against the system size, you notice that um the uh the system will not be able to charge the battery uh to full capacity.

SPEAKER_00 14:48

Why is that? Is the system not functional anymore? The PV system?

SPEAKER_02 14:53

Um the PV system is functional in a nutshell, the battery capacity replaced some of the sites. Um is about uh 130 kilowatts per hour, and if you consider 36 kilowatts, um uh the losses along this system can only produce between 30 to 32 kilowatts, and at the same time, you think about the temperature also um the weather condition, so you will not be able to get the maximum easily from the system, and also you think of the daytime consumption from the community, so this is also not allowing the battery to fall. So we are in uh um expansion of the system uh will be highly recommended, especially on the PV end. And for the area we are in, the battery is not replaced. Um, it's also will be recommended for them to be replaced.

Overuse, Lifetimes, And Subsidy Risks

SPEAKER_00 15:54

All right, so basically, these systems triggered electricity demand well beyond the initially assessed demand volume, and that does not allow the battery to be fully charged. And as we're talking about let acid batteries here, fully charging the battery is essential to maintain battery lifetime. Um, yeah, and that's definitely an issue. You said, Momori, that there are six sites where batteries have been replaced. Who paid for that?

SPEAKER_02 16:24

Um, for these six sites, um, actually it's uh under the government uh fund because they have like uh um um an account. So this account is set in order to um undertake maintenance, support the operator in the maintenance, especially for the replacement of uh key components, because um government is trying to ensure that uh the operator did not increase the tariff for it not to cause a burden on the community.

SPEAKER_00 16:59

Wasn't that account supposed to be filled by tariff collection according to the tariff calculation methodology?

SPEAKER_02 17:09

Um, this account uh um is a fund set aside from the initial fund uh for the project. Like um, for example, in the implementation, there is a certain amount of this fund set aside, which can be used for the feature maintenance. And also, like if anyone wants to, any institution wants to donate or support, they also can uh deposit into this fund.

Was RREP Too Expensive?

SPEAKER_00 17:38

Yeah, uh Deptowa, if I remember correctly, when we designed the framework in uh Sierra Leone and set up the first tariff calculation methodology, we foresaw uh a certain amount to be reserved, like into a reserve account, uh, from that tariff collection. And that was supposed to be available for asset replacement later on. This obviously has not happened as the tariff uh was considered high, and that was the first thing that was cut, right? The payments for the reserve accounts, and then we had a lower tariff. The lower tariff then led to a higher demand, and that higher demand led to faster aging of the batteries, which is kind of a circle which could have been avoided. Uh, but of course, for political reasons, after all, the batteries died earlier than expected, and the account was not filled.

UNOPS’ Role And Institutional Landscape

SPEAKER_03 18:43

Exactly. What I understand that it was also a bit of a bureaucratic challenge for the operators to gain access to this amount. Whatever amount was already in this reserve account uh for maintenance and for replacement of major assets. So it was basically filled up for batteries and inverter replacement. And this was part of the work package one only sites because work package one was fully publicly owned. Therefore, for the operator, they are not responsible to replace the batteries or inverters. The public sector is. And you're right, Nico, that one of the reasons why the work package tariff was still high, even after subsidizing, let's say, maximum of the assets, was because there needs to be a reserve set for later replacement, which unfortunately uh has not happened to the to the way that it was designed.

SPEAKER_00 19:40

And that also explains why, in a recent talk I had with a regulator in Sierra Leone, they said, well, they don't believe in mini-grids below 100 kilowatts. They don't want mini-grids below 100 kilowatts. Any mini-grid that uh that they want to regulate should have more than 100 kilowatts because that's after all. All will be a scale that is reasonable for supply. And then they also talked about even larger clusters of mini-grids and so on. So they see a lot of potential in economies of scale. And I think that is probably one of the mistakes that has been made in the earlier RREP projects. Also, the history of that project, as you explained, Dipto, led to the selection of very small sites, very small villages to be electrified. Even though these villages have then been electrified with 100% grants for the assets, the long-term sustainability was not there when the tariffs were reduced from the initially envisaged levels.

Site Selection: Control Vs Practicality

SPEAKER_03 20:49

Even when I was based in Sierra Leone, we had this discussion multiple times. And the I think both from the Ministry of Energy side and the UNOP side, because of this high tariff, they have implemented multiple measures to reduce it or at least to control the tariff to a certain extent that the customers can still pay affordably. There were corporate tax assumptions from the tax authority. There were duty waivers. Like in 2021, the GST was waived from MiniCrit Tariff. And I believe FCDU even provided additional funding in work package two sites for the indoor installation and so on. So that the tariff is even further reduced. That's where we came at the level of 6,000, let's say 7,000 Lyon per kilowatt hour. Or at that time it was 6,000. Later, of course, the three zeros were cut down, and now we have six to seven Lyon per kilowatt hour.

SPEAKER_00 21:52

Alright. So now that was some kind of measure that was taken to reduce tariffs from a political side. And there was some research that has been conducted by cross-boundary energy access on price elasticity and potential ways of reducing tariffs, considering price elasticity. What was that research and how did it after all affect all of this discussion around tariff reduction, the political activities around waiving the tax, additional grant funding coming in, and these kind of things?

Clustering, Distance, And OPEX

Tech Choices, EPCs, And Local Capacity

SPEAKER_03 22:37

Yeah, this was a study done by Cross Boundary Group, their Mini Grid Innovation Lab, in partnership with GIEP and government of Sierra Leone. And the idea for that was to use the impact of price elasticity into the mix. This means that particularly for uh household customers, um, which is still the majority of customers in Sierra Leone and Mini Grids, um, if the tariff is reduced, the customers will increase their demand level or their consumption level. And the other way around, if the tariff is too high, they will reduce their electricity consumption. So the idea was that if tariff is reduced strategically, the consumption will increase in a way that overall this will accelerate the demand in mini-crits. This will have a snowball effect, and therefore the mini crits will have larger capacity utilization, and overall the RPU level, the average revenue per user will also increase in in reality. So there was a pilot which was done on eight sites for one year. This started in December or end of December in 2022. And for this project, or for this uh particular project, the tariff was reduced from let's say average of 7.5 million to 4.4 lion, so around 40% reduction. And throughout the one year, on average, what they have found is the average consumption per user increased by 58%. In terms of revenue, this means that the sites or these eight sites which participated had an RPU level increase of 10% overall. Um, of course, this is in Lyon terms. Um, in reality, in hard currency terms, uh, the RPU did not increase uh for obvious reasons for the macroeconomic conditions, but it was clear that more demand can be unlocked through this tariff reduction strategy. So this has been largely successful, but this also it is clear that this alone will not solve the tariff issue.

SPEAKER_00 25:03

Well, you could call it successful, but you could also call it detrimental, right? Um if you reduce the tariff, demand increases. We've seen that, and we've even discussed earlier that the increase in demand led to an basically overusage of the system.

SPEAKER_03 25:20

Yeah.

SPEAKER_00 25:21

Reducing battery lifetime, uh, not allowing the battery to recharge properly, to have an equalization charge.

SPEAKER_03 25:29

Yeah.

SPEAKER_00 25:29

And uh uh that basically kills the system after all. And as uh Mamori said, um an extension of the generation assets would now be required to make up for the tariff reduction uh and the increased demand that has been triggered by the tariff reduction earlier.

SPEAKER_03 25:51

Another point I want to make in here um is that if the tariff is once reduced, I mean it's very unlikely that the customers will accept again a higher tariff once the let's say the project is finished, right? Or the project is completed. So they will refuse to go back to higher tariff once more. And this can trigger an ongoing subsidy requirement on OPEC side, which I believe nobody would like to happen in the sector, an ongoing subsidy to keep the mini grids alive. So that's another factor.

Rethinking Split Assets And Responsibility

SPEAKER_00 26:22

But that is only for these uh work package one villages, the smaller ones, right? The larger ones you said, the work package two villages, and more likely also, most likely also the SE for all UEF supported villages and uh everything that uh came after. Probably That is not that is not touched by this, right? We're maybe talking about the issues around the work package one villages, the smaller ones.

SPEAKER_03 26:51

Yes, that's correct.

SPEAKER_00 26:52

Okay. Now there was a a report by GreenMax who analyzed the Sierra Leonean mini-grid sector and especially the RREP, and what they claimed was that the RREP was very, very expensive. Now, the question is why has it been so expensive? And is it after all a bad job that has been implemented there, or were other constraints a major issue here? Mamori, do you want to come in on this? Yes.

FX Shocks, Inflation, And Tariffs

SPEAKER_02 27:30

So for the REP, you know why it's expensive as during the construction process at that time the solar items products were extremely expensive. And now you know the calculation is based on degradation from the assets. You know, the electronics parts, the inverter, they all have a lifespan. The battery as well have our life uh span. So, based on this, the cost calculation for the tariff is based on was done based on this one. So this is why it was actually considered expensive because at the time for the tariff uh set up for the mini grid, it was about like 2.5 times higher than the national grid. It's only now almost at the same level because of the national grid was initially subsidized. Why the subsidies now are being removed.

Conditions Improving And New Capital

Attracting Operators And JVs

SPEAKER_00 28:32

Yeah, and what also needs to be considered is that the RREP budget was not just for assets, but it was also for preparing the framework. And uh, those people who know what it takes to establish a new framework in a new country know that it can be millions of dollars that flows into that. Like it's a very comprehensive process that involves various ministries, various stakeholders, the general public, institutions, associations, companies, all of them need to be heard and involved and aligned. And it takes years usually, and it did here in Sierra Leone too, until the first version of the regulatory framework was established. And we know very well that even after that, the development continued and the tariff model was revised, and some other aspects about the regulation were changed. So, yeah, and in Sierra Leone, any regulation of this nature needs to go through a parliamentary approval, which is another heavy administrative step, which requires budget and alignment and discussions and meetings and a lot of support and background research and these kind of things. So, therefore, yeah, it was expensive, but uh there was a large component in there which was a one-time cost. And now the framework is there and can now be used and can be the mini-grids can be expanded, which we're seeing now in the EU project and which we are seeing in the regional DareS project. And uh yeah, there's something there to build upon. Now, what is what was and what is UNOPS role in all of this? As they we have not really mentioned them yet much, but they were the organization running the RREP project funded by FCDO. Uh Dib, do you do you want to explain UNOP's role a little bit more?

Closing Thoughts And Next Steps

SPEAKER_03 30:35

Yeah. UNOPS was the implementing agency for this project on behalf of Ministry of Energy and as you said, with funding of FCDO. So UNOPS was the implementing partner of the not only for the public assets, so they were responsible to install the distribution networks. They are also responsible to make sure the framework that you were mentioning is to put that into place and to support EWRC, to support the Ministry of Energy, Ministry of Environment, to have a streamlined environmental clearance procedure as well. So all this at the same time assisting the government in selecting the private sector um compatriots, so having a public-private partnership and to make sure that the public-private partnership, the PPP contract, is being uphold, and at the same time, at the end of the RRIP project, to hand it over to the Ministry of Energy so that they can continue uh this partnership with the private sector.

SPEAKER_00 31:43

All right, and now um what is their current role?

SPEAKER_03 31:47

At this point, with this Sogria initiative, they are also uh will be an implementing partner uh along with SE4ALL. So SE4AL, as you know, are now hosted by UNOPS. So they are also implementing the EU funded, or at least at the helm of this SOGRIA initiative.

SPEAKER_00 32:07

All right. So UNOPS plays a very central role in the Sierra Leonean mini-grid sector. Which other institutions in Sierra Leone are involved and have a strong say? And what role do they play?

SPEAKER_02 32:24

Beside the three pilot minigrid, all the other was uh done by UNOPS in conjunction with the Ministry of Energy.

SPEAKER_00 32:34

Yeah, exactly. So Ministry of Energy was basically the leading part on the governments of Sierra Leone side, and our contact person, the main contact person within the ministry was Cyril Grant. And Cyril Grant has just recently been promoted to become the Minister of Energy of Sierra Leone. Now we have a Minister of Energy in Sierra Leone who is a mini-grid expert, who knows all the details of how mini-grids in Sierra Leone have been established, what they have been going through over the last years, and probably also what the takeaways from these learnings are. So, therefore, I guess there are great opportunities here to continue the mini-grid journey in Sierra Leone under Surreal Grant as a minister.

SPEAKER_03 33:36

Are EWRC, so Electricity and Water Regulatory Commission. We have mentioned UNOPS and SE for all, of course. The World Bank has been active in the sector for a few years. Um, we have also been involved from an ENSA side with the ZIZ project recently, uh which is also um along the same line. And under the EU funding, it's the transformational energy use for Sierra Leone, who was so-called TEU SL Phase 1 project. And under this, we are also supporting uh ZIZ and NDEV to assess five minigrid sites and how we can repower those assets because some sites, particularly from the prestige sites, have been down for some time and have been struggling. So we are also in the process of developing a blueprint for how to extend mini-grids beyond what was established, what was installed, and see a way forward that um how they can be improved in terms of technology, in terms of tariff determination for the next mini-grids to come.

SPEAKER_00 34:46

Um, yeah, it's good to see that uh these organizations are working hand in hand already. One is preparing the ground for the other. So now um I think one of the big issues that has been discussed for the Sierra Leone case is the site selection by government, which has been the case under the RREP, which has not been the case under the SE for all UEF scheme. How is this possible? On the one hand, the government says we want to be in control to select the sites, and on the other project, under the other funding stream, the government says, Okay, well, please go ahead and select the sites. We don't care. Mamori, what's your take on this?

SPEAKER_02 35:35

Yes, the key reason for this one, um, I think uh because some of the sites initially selected, um, the the operators noticed that uh accessing this sites is challenging. Also, the the socioeconomic activity basis within these sites uh we are uh uh extremely low. So this also uh creates an operational burden. So for this uh so career project, the sites are also an anchor selected sites by the government. So from this, the projects we select the best among these sites that will be much more uh useful for the operators and also with higher socioeconomic activity that will also improve the livelihood for this community. It's not that uh they are selecting and uh other sites that are not within the government framework, it's within the government-selected sites, just that um the project we try to assess and also select those that will be much more uh cost-efficient during the implementation and also for the operator as well, uh, with higher socioeconomic activities.

SPEAKER_00 36:55

All right, that uh sounds good. Um, so that is at least one of the learnings we wanted to also derive from our discussion today. Site selection is definitely one thing that either should be with the operators, they will more likely go for the more profitable sites, which of course is a concern for the government because the government wants electrification to proceed in all regions and all villages, and uh an equal uh distribution across the country uh for such programs. But what we have learned is like if sites are too far from each other, it's very expensive to service them. And I guess that is also one of the reasons why Power Leone and Power Gen are struggling to cover their ongoing costs with the revenues from these sites. Would you agree that probably the distance between the sites and the size of the villages and the distance between all these small sites is the main reason for the high cost, the high ongoing cost, and therefore also the tariffs?

SPEAKER_02 38:03

Yes, the distance is one factor, but also the socioeconomic activity within this community. Because for the mini grid uh, the other part is uh if the storage is not too effective, the battery can fall during the day, and uh if there is no more socioeconomic activity which can uh draw more energy from the system only during the night, then also this also um will make it more difficult in order to uh maximize profit.

SPEAKER_03 38:37

And this is where CR probably can take some inspiration from the DERS project, particularly for the Nigeria DERS, the government or the RIA there did not say go to particular sites, rather, they published a list and provided a differentiated subsidy level for sites. So if some sites are, let's say, socioeconomically a bit backward and do not have that much socioeconomic activities or productive activities, those sites still need to be included because people there also deserve electricity, but they need a higher amount of subsidy to reach there, otherwise, it's not uh attractive enough for the private sector to go there. On the other hand, the private sector will probably go for the low-hanging fruits first, where they can easily go to those sites and establish mini-grids, um, those who have some sort of uh economic activities in there, but they will need less amount of subsidies because they are easily accessible and have good demand opportunities already. Therefore, this learning of differentiated uh subsidies and is something that can also be uh an idea for Sierra Leone because we definitely see that this has been one of the talking points with the operating. That some sites are too far away and only a little bit of for a little bit of power, let's say 36 kilowatt, as you are saying, for work package one sites, right? So that's something that I believe there are opportunities in the in the next programs, next projects.

SPEAKER_00 40:17

Yeah, do you see any opening on the government side to let mini-grid companies select their sites in Sierra Leone, or do you rather see the government deciding what sites are going to be tendered out?

SPEAKER_03 40:33

From my point of view, I still see that the government of Sierra Leone would still like to take this decision. But um an window of opportunity could be that the private sectors are provided with some sort of list and then come as a first come, first services. But the overall list, I believe, would still come from the government of Cielon, as we have seen for the Socria initiative as well.

SPEAKER_00 41:02

Yeah. Okay, which is also an option where then the private sector can select clusters that are close to each other instead of having some geographic outlier villages which consume large parts of the OPEX, while other villages which are close to each other are much more profitable. Okay, now the second takeaway, I believe, from the learnings in Sierra Leone is the technology choice. Like under the RREP, especially in Work Package One, a battery inverter and solar technology have been tendered out and handed over to the operators. I understand that this has not been such a welcome initiative on the operator side. Momori, do you want to respond to that?

SPEAKER_02 41:54

Yes. Really, um, for the operators as already mentioned that um they prefer the low-hanging fruit. Um but based on the reference mentioned uh for us the learning from the Nigeria aspect, it also will be a good initiative. We are in the subsidy level based on the area and also um the locations. So because the accessibility also is a great factor, because for our end, uh there are communities which are easy to access, and there are communities which are hard to access, even though the distance is not that far, but um the the road network is a bit um terrible, which makes it more challenging for the operators. So if these sites are far apart, then this also will increase the operational cost.

SPEAKER_00 42:52

Yeah, and also the installation cost for the assets, yeah. And what we have seen in Sierra Leone is that tendering out assets, EPC, basically turnkey established on site, may not always be the cheapest option because oftentimes the winners of these tenders are not really based in Sierra Leone. Whereas the mini-grid companies nowadays they are based in Sierra Leone, and we can make use of that experience and that local knowledge that these companies bring to the table. And therefore, at that time, when the RREP established some of the first minigrids in the country, an EPC tender may have been the reasonable solution. Whereas today we have the specialists, we have uh PowerLeon and we have PowerGen, which now have spent years in the country's operating systems, bringing assets to sites, and so on. And it's better to let them do the installations after all. That may be cheaper. And there are methodologies of how to make sure that the costs stay within reasonable levels, at least through regulation, right? That is well established in Sierra Leone.

SPEAKER_03 44:11

And also in terms of the implementation methodologies, like the split asset model, and some part of the assets are being done by public sector and some part by private sector. The general impression from the private sector is that they would not like to do it. They would rather make the whole mini grids themselves and run it than to have uh multiple actors and doing multiple things. So that has been the general impression. It could make some sense in hindsight. But at that point of time, I believe split asset model is still a reasonable solution and it can still, let's say, propel under certain conditions. Um, but I also see the private sector's point in terms of putting the whole mini-grid by themselves and running it.

SPEAKER_00 45:00

Yeah, I fully agree. At that time, when we discussed various options with the government of Sierra Leone under the REP, the government insisted on owning assets. And that is where all these kind of split assets considerations came from. And they were afraid of when the main grid comes, what happens to the assets that are then owned by the private sector, would they have, would the government have to pay for them from budgets that don't exist? Those were actually the discussions we've had. But now I think with this experience that has been gained over the last years with mini-grid operation and so on, the government may reconsider. And uh yeah, anyway, split asset models may still work as long as the split is between distribution assets and generation assets and does not include any assets that need to be replaced within a foreseeable future because of the end of its lifetime, or need to be extended for capacity reasons by the government. Because the government, as we have seen, does not have budgets. Even if you foresee that in the tariff model, there will be political pressure coming to avoid accumulating budgets for these kind of purposes. All right, we have discussed earlier briefly the foreign exchange issues in Sierra Leone. I think this aspect deserves a little bit more elaboration. So now, what was the impact of the foreign exchange on the Sierra Leonean mini-grid sector and what was the history of it?

SPEAKER_03 46:42

Yeah, I can start. I mean, when I went there in Freetown in Sierra Leone in 2019, at the start of my time there, I think the dollar was something around 8,500 Leon at that time. And when I left 12 months later, it was already double, like 16,000 and so on. The inflation rate, as we know, has been so high over the years in the range of 50%. I was looking at some data that even the inflation rate was 50% some two years back. And very recently this has slowed down a bit. Um, but the macroeconomic conditions will not change drastically over one year or so. Therefore, it will take some time, and it's good to take that into consideration. In terms of the tariff itself, so when it was approved, it was around so this 7500 or 7.5 million in today's terms, it was around uh 60 cents. But in real terms, right now, and the tariff has not changed since then from three years, it is now around 30 cents, so almost half of what it was uh some years back. So this has been the impact overall on the tariff.

SPEAKER_00 47:56

Yeah, one of the initial ideas of funding larger portions of the CapEx through grant, and what we've seen in the work package one was to mitigate that foreign exchange risk to a certain extent. The more assets are owned by government, the lower the foreign exchange exposure to the private sector. But after all, it didn't work because there are still significant, on the one hand, uh capex components and therefore probably loans that have to be repaid in hard currency on the private sector side. And at the same time, the inflation, of course, goes along with the foreign exchange depreciation, and therefore, general cost for staff, for transport, and these kind of things in Leone terms have significantly increased. Um, all right, so what we're seeing is conditions for mini-grids in Sierra Leone are actually improving. Um, on the one hand, we have um Minister of Energy, who is very much uh into the subject of mini-grids, we have uh currency, which is now more stable, uh and inflation, which is more stable, we have new money coming in from the EU funded program and then from the World Bank funded program, um, to roll out a larger number of mini-grids. Do you think more mini-grid operators will be attracted to Sierra Leone based on those conditions? Or will we stick to PowerLeone and PowerGen only?

SPEAKER_02 49:43

Um at the moment, no. Um, but um, based on the framework, they are saying they want to encourage new mini-grid operators. But um the condition already set, um, it seems as if it will only attract international uh operators instead of locals.

SPEAKER_00 50:03

Yeah. Well, I agree. Probably what we should try to encourage is joint ventures between international companies with a good financial muscle, with a very strong technical track record with international experience, and then local entities who can then do the management, who have the local connections, and these kind of things. So that would, from my perspective, be a very good combination. But if that does not happen, then at least we have good opportunities for the two existing operators to scale, and economies of scale, as we all know, is required to make mini-grid companies profitable and to reduce tariffs in the long run. All right, I think we've touched upon many things today that make or break the mini-grid sector in Sierra Leone. Thanks a lot, Momori. Thanks a lot, Dipto, for your contributions. And let's see how Sierra Leone is going to develop over the coming years and how Sierra Leone can make use of the good opportunities that are lying ahead. Thanks a lot. Bye-bye.

SPEAKER_03 51:15

Thank you, Nico.

SPEAKER_02 51:16

Yeah, thank you, Nico. Thank you, Dipto.

Sponsor Message And Credits

SPEAKER_01 51:21

This episode of the Mini Grid Business has been brought to you by Ininstitut, your one-stop job for sustainable minigrids. For more information on how to make mini grid work, visit our website, ininstitut.com, or contact us through the link in the show notes. The minigrid is powered by Innstitts.