The evolution from Mini-Grids to Off-Grid Utilities

At Shell Foundation, we have been working to address this access to energy gap for nearly two decades; more recently in partnership with structured co-funding partnerships with DFID and USAID.

Our commitment to accessible energy has led us to support various energy solutions, including solar home systems (SHS), biomass cookstoves, powered agricultural equipment, mini-grids and various financing intermediaries, improving the lives of over 60 million low-income people across Africa and Asia.

We do this because the meeting of complete energy needs of low-income consumers is essential to unlocking the development of emerging markets. Almost all countries with less than 2000KWH per person are at the bottom of the UN Human Development Index (see chart.)

Our experience working with mini-grids – beginning with Husk Power Systems in 2008 – has helped us understand how business models would need to evolve to utility standards in order to be successful in the long term, including the critical adoption of 24-hour residential and commercial services, demand stimulation and smart metering.

Last year we launched a new enterprise that subsidises rural electrification by the urban and industrial areas. Konexa is working with distribution companies in Nigeria to provide an holistic energy model where large industry customers with high energy demand allow for lower tariffs for rural, off-grid customers.

We also co-created a SMART Results Based Financing (RBF) facility with AMDA and SEforAll that will allow the sector to gain stability and maturity:

• Simple: Subsidy is fixed and available once connections are installed, eligibility is clear.
• Measurable: Funds are disbursed based on specific, measurable outcomes – not arbitrary approvals. The facility will be results based so it’s easy to measure when payment is due.
• Africa-Wide: Developers work regionally − consistency in how subsidies are managed improves rate of deployment and reduces application and reporting timing and costs. It will also reduce gaps in programmes across countries which stall progress in the sector.
• Repeatable: The programme is designed to be repeatable and consistent to create certainty for the private sector and encourage more commercial investment. The amounts can reduce over time and operating guidelines can be tweaked based on learnings, but it’s important to ensure the facility builds trust and credibility if the sector is to mature.
• Timely: Funds are deployed in a timely manner once connections are verified. The management structure ensures facility managers’ performance can be measured and incentives can be aligned. For example, IT processes that can track facility manager service level agreements on response times.

Ultimately, the SMART RBF facility should leverage consistent donor/government funding and off-grid utility data to gain trust from commercial investors, so they can more confidently invest in the sector and build a commercially viable off-grid utility sector over the coming years.

In partnership with DFID and USAID, Shell Foundation has supported the design of the RBF operating guidelines and is providing $1.5m to test the facility by the end of 2019.