Results-based Financing Needed for Mini-Grid Development

  • A diverse group of investors, with over $2.0 billion under management, say well-designed Results-Based Financing (RBF) for mini-grids will accelerate access to electricity in Africa, and unlock significant private capital.
  • On Monday, at 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.
  • The investors strongly urged governments and multilateral and bilateral donors to create a unified Results-Based Financing (RBF) mechanism to immediately mobilise private capital, both debt and equity.

The 12 initial investors – AcumenBlue Haven InitiativeCeniarthCrossBoundary Energy AccessDOB EquityENGIE PowercornerHoegh Capital PartnersKawiSafi VenturesRenewable Energy Performance Platform (REPP)responsAbilitySunFunder and Triodos Investment Management – have more than $2.0 billion under management, and more than 100 mini-grids built or under development.

Others are expected to join the group in the near future.

Results-based financing can tackle electrification rates

In a public position paper, Unlocking Private Capital for Mini-Grids in Africa, the investors 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 Results-Based Financing.”

“We stand ready to work with donors and governments to help design effective RBF programmes 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 programmes needed in Africa.

“We therefore strongly encourage donors and governments to support effective RBF programmes that subsidise rural connections,” the paper said.

According to the International Energy Agency (IEA), mini-grids and other decentralised 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.

With the appropriate policy and finance in place, IEA has estimated up to 200,000 mini-grids are needed, with the potential to meet the energy needs of 450 million people, most of them in Africa.

The group of investors noted that throughout history – in all economies, advanced or emerging – rural electrification has always required subsidy because it serves remote, dispersed customers with higher costs to connect, and because rural households and businesses have much lower incomes than urban customers.

“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.

Author: Nicolette Pombo-van Zyl

This article was originally published on ESI Africa and is republished with permission with minor editorial changes.

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