Press Release: New Roadmap Says Minigrid Industry Needs 10 Companies with 10 Times Current Scale to Achieve Universal Energy Access and SDG7
After pioneering and leading the minigrid industry in rural Asia and Africa for 15 years, Husk Power Systems today released the first-ever industry roadmap for minigrid developers. The roadmap outlines a framework for growth and commercial viability for the solar minigrid industry in emerging markets, and lays out detailed metrics for achieving scale and sustainability.
The minigrid industry is at a crossroads: either it assumes a central role in ending energy poverty, or it becomes a marginal solution. Minigrids have been identified by the World Bank as the most cost effective and quickest way to provide modern electricity to nearly 500 million people, most of them in Sub-Saharan Africa. Yet the industry has yet to fully scale to its optimal capacity, with only 10% of the needed 200,000 microgrids currently in operation.
“Now more than ever, solar minigrids are a core solution for closing the energy access gap, and the World Bank has been scaling up its support for the industry,” said Jon Exel, team lead for the World Bank ESMAP’s global facility on minigrids. “The new industry roadmap clearly outlines actions needed from private sector companies to realize the full potential of solar minigrids. Policy and finance actions are also needed, such as embedding minigrids into national electrification plans and devising financing solutions more suitable for large portfolios of smaller projects.”
Industry roadmaps have proven instrumental for other industries in driving targeted investment and innovation that lead to scale, but the minigrid industry has never had one to guide unified action based on a commonly agreed upon set of targets and metrics..
Scaling Solar Hybrid Minigrids: An Industry Roadmap fills that gap, and identifies the key characteristics for sustainability and scale. It also selects the appropriate metrics and timelines for scale, which if met will ensure the achievement of Sustainable Development Goal 7 (SDG7) – access to modern, affordable, reliable and sustainable energy for all by 2030. The roadmap received input from more than a dozen leading institutions, including development banks, private sector trade groups, academics, think tanks and multilateral agencies.
“In spite of the urgent need, the minigrid industry has yet to produce a profitable company,” said the roadmap’s lead author Brad Mattson, who is chairman of Husk Power and board member of the Africa Minigrid Developers Association (AMDA). “There are strong signs that the industry is maturing, but remaining barriers to sustainability and scale require a new level of ambition and clarity, and a proven formula with quantifiable metrics.”
The roadmap translates the barriers to sustainability and scale into clear industry performance indicators, with a timeline that establishes a path to success. This not only provides targets for minigrid developers, but also the entire ecosystem of investors, donors, suppliers and regulators that support the minigrid sector. The roadmap lays a foundation for uniting that ecosystem around a set of common goals.
The roadmap reached several important conclusions on what actions are required by 2030 for the industry to scale and to be bankable, with a focus on cost, demand, quality of service and rate of deployment. A summary follows:
- Sustainable business models are the highest priority: The industry requires viable business models that work at both the individual site level and at the portfolio level. The three components that drive this viability are cost, quality of service and demand. Long-term viability is only possible if companies move from a traditional utility model to an energy services model;
- Key success metrics need an overhaul: To date, the industry has used Cost Per Connection (CPC) to measure cost. The roadmap recommends instead basing that metric on Levelized Cost of Energy (LCOE), the energy industry standard. In addition, Average Revenue Per User (ARPU) and Capacity Utilization Factor (CUF) should be used as indicators of demand;
- Costs must come down significantly: The industry should target a cost of electricity that is less than $0.20 kWh by 2030 if it is to both scale and offer customers affordable power, which means a more than 40% decline from current industry average costs;
- Demand must go up significantly: Developers need to shift from a pure utility model to an energy services model, with a focus on increasing ARPU and CUF. This could include introducing appliance sales for households and businesses, and identifying and aggregating productive use off-takers. Both ARPU and CUF must more than double by the end of the decade for industry viability;
- The industry needs companies with scale: In most industries, 3 companies typically account for 80% of market share. The minigrid industry is currently made up of dozens of companies with minimal scale. To achieve industry targets, 10 companies with 10 times the highest current annual construction capacity are needed;
- Market segmentation is out-of-date: The industry needs to stop treating the market as a homogenous entity. Different markets need different solutions. The roadmap takes the pioneering step to define three major market types – commercially viable markets, bridge markets and concessionary markets – and starts the discussion about business models to address them.
Photo courtesy of Knut-Erik Helle.