TR9: Business models for mini-grids

Date: February 2017
Author/s: Tayyab Safdar
Download: pdf (2.0MB)

This report focuses on mini-grids that generate a substantial portion of electricity using renewable energy sources. The IEA (2011) estimates that mini-grids are the best solution for providing electricity to 45% of the rural population without access to electricity. Mini-grids can utilise locally available energy sources such as wind, solar, biomass, and hydro. Using locally available renewable energy sources has the advantage of low running costs, greater energy security, and lower environmental pollution.

Deploying mini-grid systems also has greater welfare impacts than home-based electricity
systems. Mini-grids can provide electricity both for domestic use as well as for local businesses.
They can therefore have a positive impact on the local economy and contribute to sustainable
development (ibid.), and if appropriately designed, they can allow for demand growth in the future.

Evidence suggests that a “meagre” provision of electricity that only supports lights and domestic
appliances is not enough. Access to electricity needs to be linked with opportunities for its
productive use. This realisation has meant that there is an increasing emphasis on developing
business models for mini-grids that are more sustainable (Safdar and Heap, 2016). In addition
to the IEA (2011) projections referred to above, estimates suggest that mini-grids represent the
lowest cost option to supply electricity to almost 120,000 towns and villages in the regions of sub-Saharan Africa, South Asia and Southeast Asia (Exel, 2016).

Despite the opportunities presented by mini-grids and improvements in the technology as
well as business models, they generally remain more expensive to deploy, operate, and maintain than grid-based electricity supplies for urban communities.