April 10, 2018
Insider Insight: Rafiki Power
The International Energy Agency has advised that 45 percent of rural electrification—bringing power to over 480 million people—is best achieved via mini-grids. In a recent Power for All survey, we asked mini-grid providers for their insights on the most important steps policy-makers can take to unlock this potential. In the technology category, standards, clear regulation and fast, low-cost licensing and permitting were all pinpointed as key policy actions. To learn more, we spoke to Sebastian Rieger, Finance Director, for Rafiki Power—a mini-grid company, owned by the utility E.ON which has built 8 photovoltaic mini-grids in Tanzania, and has plans to increase that number to 100 over the next three years.
Listen to the Q&A, or read the edited highlights below.
Power for All: What was it that first attracted you to Tanzania?
Rafiki: We were attracted to Tanzania due to the good economic environment, relatively stable economic growth, political stability, the large potential market, use of the English language (helpful to a German company), and the comparatively supportive regulatory environment for decentralized renewable energy generally--and mini-grids in particular.
Power for All: The regulatory environment in Tanzania is more advanced than in many other nations with low levels of energy access. How important has this been for your plans to rapidly accelerate mini-grid roll-out? And where do challenges still lie?
Rafiki: While there is some good regulation in Tanzania, there are still very significant gaps. So while the regulatory environment provides a lot of flexibility, it also creates a lot of uncertainty--which can put the private sector in a risky position and puts a question-mark over achieving scale. These include:
- A lack of transparency on grid extension
- A lack of clear regulation on what happens when the grid comes, and the commercial mechanisms for dealing with the grid arriving at a mini-grid site
- A lack of detail around technical standards that will be necessary for mini-grids to connected to the national grid when it arrives
- Issues around mini-grid specific licensing and regulation--a lot of regulation is designed for larger scale projects but not the right fit for mini-grids
- A large population living off-grid but only certain towns and villages where mini-grids are currently viable--licensing requirements, environmental assessments, building permits and planning costs can pose a problem for the viability of small projects, and while there are exemptions for small-scale power producers the “devil lies in the detail”, and these can still be difficult to implement in practise
Power for All: How can government better approach energy planning to integrate different energy sources, and how can they work with mini-grid developers to drive scale?
Rafiki: Flexibility to operate, freedom and a competitive environment in the energy sector are necessary to enable the most economic solutions to be adopted. However, mini-grids are long-term infrastructure that will last for decades, and if they are built to enable productive use, developed so they can be integrated into the central-grid, and set up so they can be upgraded over time, the payback period will be in the range of 10 years at a reasonable tariff rate—making uncertainty a problem for investors. In Tanzania, there is a great environment for mini-grid pilot projects at the minute, but not yet the right environment for scale.
Governments need to have off-grid systems as a more integrated part of their planning, and see mini-grids as a chance to accelerate electricity access. A mini-grid which has been built to a good technical standard can provide the same—if not a better—level of energy service as the national grid. It can be integrated into the grid when it arrives. And it can be built today, rather than in 5-10 years.
Power for All: In which other countries are you seeing the policy and regulatory environments shifting in a way that will drive mini-grid development? And what is your prediction for the expansion of the sector over the next few years?
Rafiki: Gradually things are beginning to happen. For example, Nigeria is working on its mini-grid regulations, in Uganda there are plans for tenders on mini-grids in isolated areas, in Kenya there is a tender scheme already executed, and a similar scheme is coming up in Madagascar. A lot of countries have recognized the possibility of accelerating energy access by having private sector friendly regulation in the energy sector. Although, whether fully supportive mini-grid regulation is rolled out, or whether there will be shortcomings, remains to be seen.
The future looks a little mixed. On one side, the potential of mini-grids is becoming better understood. In countries such as Tanzania, the regulatory issues are being worked on, and some policy-makers realize that mini-grids provide a huge opportunity to advance electricity access. Mini-grids make macro-economic sense. So that is another key reason to be positive.
On the other side, work across the last two years in Tanzania has also given me a bit of a reality check. The amount of time that policy-makers have available to focus on different topics is fairly limited, and there is still an inclination towards national grid-extension--simply because it is easier to fund a $100 million grid project than it is to fund 100 x $1 million mini-grid projects. Politicians like to put their name on bigger projects, so this gives a political advantage to the conventional energy system, and donors, including the World Bank and KfW also find it easier to push money into central-grid extension.
I therefore see there is a bit of a “make or break” for the mini-grid sector in the next few years. We have attracted a lot of companies, and the first utilities have gone into the sector--including E.ON, Engie and EDP. There is momentum. Yet if it in the next two or three years the sector does not come to a commercial scale, policy-makers may say that it is not delivering at speed and will simply put their focus back onto the national grid. The next one or two years will be critical.
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