The role of the private sector in the deployment of renewable energy minigrids in Africa

On 27 April, the Climate Parliament convened a parliamentary roundtable on the role of the private sector in the deployment of renewable energy minigrids in Africa. Camille André-Bataille, co-founder and CEO of ANKA-Madagascar, and Irene Calvé Saborit, co-founder and CEO of Sunkofa Energy, presented the work of their respective companies, which provide off-grid renewable energy solutions with a particular focus on the productive use of electricity.

In order to achieve Sustainable Development Goal 7, ensuring access to reliable, sustainable and affordable modern energy services for all by 2030, renewable energy will play a crucial role in Africa. Africa has by far the highest levels of solar radiation in the world, as well as significant wind and hydro resources. The private sector, which can be more flexible and quicker to react than the public sector, can provide complementary solutions to government efforts to expand national grids, allowing remote areas to access electricity quickly and at an affordable price on independent grids. Both experts insisted on not opposing minigrids to national grids. One of the main concerns of project investors is that if the national grid arrives in the village where they build a minigrid, they risk losing their initial investment. But minigrids can be a pre-electrification solution, compatible with the national grid, and can be connected to it in the long run. It is therefore important to stipulate and clarify, at the initial stage of the project, the conditions and requirements of all parties in case of connection to the national grid arrives in the village.

ANKA Madagascar and Sunkofa Energy are important players in the development of resilient social and economic ecosystems, looking at electricity as a lever, not as an end in itself. More than just turning on a light, electricity enables communities to undertake income-generating economic activities and services. Our experts stressed the importance of creating added value around access to electricity to create employment and sustainable economic and social development. It is therefore crucial to specify in concession contracts for developers not only what percentage of the population should be connected to the minigrid, but also a minimum level of services, ensuring that electricity is provided to productive actors such as welders or carpenters, and to productive machinery such as grain mills, agricultural processing equipment, irrigation, electric cooking or cold storage. This approach not only allows for a stronger local impact on the beneficiary populations, it also makes the economic model of the minigrids more profitable by stimulating demand.

Camille and Irene provided the parliamentarians with advice on how to facilitate and accelerate the development of minigrids in rural areas, thus enabling their constituents to benefit from a better quality of life and income-generating economic opportunities. Most African countries already have regulatory frameworks in place, but they are not updated regularly enough to reflect the changes in markets, supply, demand or policy strategies. Parliamentarians have an important role to play in facilitating dialogue between all stakeholders to adapt and make existing frameworks more favourable in light of market feedback and financial sector constraints. According to both experts, the main challenge remains access to finance. There are few financial players ready to invest in minigrid projects, and developers are forced to accept a large number of constraints. On the one hand, investors want to maximise their margins and minimise the risks; on the other hand, public authorities want to protect citizens by ensuring affordable tariffs; and multilateral development institutions lack flexiblility, imposing significant constraints to their grants.

To reconcile these conflicting interests, it is crucial to strengthen the bankability of minigrid projects by creating a climate of trust. Legislators can encourage their governments to show goodwill in reassuring financial actors, for instance through tax incentives exempting tariffs on imports of electrification equipment, or by granting tax payment facilities for companies in the sector. They can push governments to establish roadmaps detailing the objectives and the strategies to achieve them, in order to give the private sector better tools on the prospects for market penetration. Finally, parliamentarians can work on anticipating energy needs. Correctly assessing the needs of the population is an important task to be carried out upstream, because if they are underestimated, the supply of electricity will not be sufficient to exploit the full productive potential of a village. If they are overestimated, the project will not be profitable for the developers and will risk bankruptcy. All the tools to reassure investors, and to alleviate some of the risk, should be used by parliamentarians to attract more private actors and accelerate rural electrification.