Investors in Africa’s renewable energy sector are calling on donors to provide more effective support for mini-grids on the continent during the Africa Energy Forum. A leading group of energy and impact investors voiced confidence in renewable energy mini-grids as a key solution to ending energy poverty in Africa at the forum and went on to urge governments and multilateral and bilateral donors to create a unified Results-Based Financing (RBF) mechanism to immediately mobilize private capital, both debt and equity.
According to the International Energy Agency (IEA), mini-grids can electrify 450 million people by 2030, mostly in Africa, with proper finance and policy support. But only a fraction of the capital needed, both debt and equity, is available.
The 12 initial investors Acumen Blue Haven Initiative, Ceniarth, CrossBoundary Energy Access, DOB Equity, ENGIE Powercorner, Hoegh Capital Partners, KawiSafi Ventures, Renewable Energy Performance Platform (REPP), responsibility, SunFunder and Tridos Investment Management—have more than $2 billion under their management and more than 100 mini-grids built or under development. Others are expected to join the group in the near future.
In a paper jointly presented at the Africa Energy Forum the investor groups said “We believe mini-grids have a role to play in achieving universal electrification, and we have the types of capital needed for mini-grid financing alongside well-designed RBFs,” the investors said in a public position paper, Unlocking Private Capital for Mini-Grids in Africa. “We stand ready to work with donors and governments to help design effective RBF programs that will unlock our capital.”
The investors added that they had the means to provide the matching private capital that donor and government-backed mini-grid subsidy programs needed in Africa.
“We therefore strongly encourage donors and governments to support effective RBF programs that subsidize rural connections,” the paper said.
Information from the IEA says that mini-grids and other decentralized renewable solutions are the lowest-cost option for bringing electricity to three-quarters of the global population living without energy access. Similarly, McKinsey’s Brighter Africa report found that the benchmark cost for rural grid connections is $2,300 per connection, whereas rural mini-grids serving 100+ connections are typically around $1,000.
“We believe those subsidies will decline over time as the business model and technology continues to improve with scale, just as they did for wind and solar,” the investors said, adding that achieving universal electrification today is “going to require less subsidy than at any time previously” because new technology and business models emerging from private sector companies are improving the economics.