BusinessDay

Mini-grids’ financing is set to transform, here is how

Traditional approaches to infrastructure financing are proving hard to apply to mini- grids that require long-term, low-cost capital just like other infrastructure assets but this is about to change.

Mini-grids form part of the basic physical systems of a nation such as transportation, communication, water, and power.

However, unlike traditional infrastructure, minigrids are small, distributed and serve customers directly, rather than government off-takers. To finance these new and disruptive assets, the mini-grid sector needs new models of financing that allow infrastructure capital to flow into the underlying assets.

To solve this problem, Crossboundary Energy Access (CBEA), Africa’s first project financing facility for mini-grids, is open-sourcing their approach to investing infrastructure capital into mini-grids across Africa.

To design and launch this model, CBEA worked with their partners Ceniarth, Camco Clean Energy, DOEN Foundation, Foley Hoag, Norton Rose Fulbright, Powergen Renewable Energy, the Renewable Energy Performance Platform (REPP), Rockefeller Foundation, Shell Foundation, Standard Microgrid, and UK aid.

Nonetheless, to accelerate energy access, this approach needs to be adopted more widely. However, project finance has high barriers to entry. Complex, detailed, and interlocking financial models and project contracts are required to create bankable projects.

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Six million people across Africa lack access to affordable, reliable, sustainable energy and mini-grids are a disruptive new approach that could accelerate energy access.

The International Energy Agency (IEA) forecasts that mini-grids will be the least cost method to connect at least 264 million people by 2030. But to unlock their potential, there is a need for new ways of financing mini-grids.

The UN Sustainable Development Goal 7 commits the global community to achieve universal energy access by 2030. Time is running out to achieve this goal.

In February 2021, a white paper that sets out the financing structure and guiding principles, the typical challenges and risks encountered in implementing the structure in practice, possible improvements to the model, and recommendations for investors, developers, donors, and governments will be made available.

CBEA believes the competition this poses to its future growth is far outweighed by the potential to achieve the goals CBEA and their partners’ share, which is to deliver affordable and reliable power for all by 2030.

“We’ve seen how the Open Source movement transformed the software industry. The best innovations in software now impact far more people, and far more quickly. We believe this radical approach to information sharing can do the same for financing energy access,” Humphrey Wireko, associate principal at Crossboundary Energy Access, said.

According to Mat t Tilleard, co- founder and managing partner at CrossBoundary, this approach won’t be the best for every financier or mini-grid developer. “But we do think that we have created valuable intellectual property in adapting traditional project finance for the distributed nature of mini-grid assets. We believe that we will accelerate access to energy globally by proactively sharing that knowledge, and more importantly, collaborating with others to improve on it.”

Emma Miller, head of mini-grids at the Shell Foundation said that the launch of the open-source initiative is critical because finance is one of the pivotal building blocks the sector needs to scale. It ensures that funding to CBEA unlocks maximum impact and it underpins the other sector-building work Shell Foundation has supported: developers to build and operate mini-grids, the African Mini-grid Association (AMDA) to work with governments on innovative regulation for mini-grids, and the Universal Electrification Facility ( UEF) to bring in the public capital the sector needs to scale.