Lessons for Africa from India's Electrification Experience?

The questions around enabling environment for mini-grids at the Solar and Off Grid Renewable Energy Africa are largely concerned with policies and regulation, and particularly of course the Tanzanian mini grid policy: is it working sufficiently, and should other countries emulate it?

The answer is not so simple. As we found investigating the Indian mini-grid sector for the Rockefeller Foundation's Smart Power for Rural Development initiative, is that policy and regulation are one piece of the political economy and financing ecosystem puzzle that needs to be addressed for mini-grids (or rather, those which are privately built, owned and operated by distributed energy services companies, or DESCOs) to be viable at scale and for the technology to be sustainable in the long-term. 

In our report on the sector, called Scale and Sustainability: Toward a Public-Private Paradigm in Powering India, we outline the case for DRE - both mini-grids/micro-grids as well as smaller solar home systems (SHS) in some instances, for their ability to provide power significantly more efficiently and cost-effectively to underserved areas, and meet consumer demand, than traditional utility grids. However, in the absence of subsidy and incentive regimes that would level the playing field between DRE and grid power, off-grid business models are not close to providing returns at scale that would attract interest from capital markets. And in the absence of secure and stable long-term outlooks, off-grid business models are not able to lower risk sufficiently to attract interest from capital markets. To address both of these aspects requires more than policy: a policy that mandates a concession, financial transaction or tariff level which investors do not find credible will ultimately not help to make a project or company bankable; indeed it may do the opposite (thus the half-answer to the question on Tanzania's policy must include a caveat that TANESCO's financial health will also play a role in how investors view power purchase agreements signed with it).

So the question is: what is needed to level the playing field and create secure and stable long-term outlooks for DRE? The breadth of this challenge clearly necessitates buy-in from the public sector, and the development of sustainable and credible long-term mechanisms for incentivising and subsidising private operators for providing a public good. Our report has outlined a few ways this might be undertaken in India, such as a public-private instrument for financing distribution infrastucture of mini-grids.

At the same time, we at REEEP are taking these lessons into account in our role as managers of the Beyond the Grid Fund for Zambia, where we are working with Zambian government ministries and agencies, donor governments and the private sector to help Zambia as it encourages the development and deployment of market-based approaches to power provision for its considerable underserved population.