Increasing Energy Access in Sierra Leone

1

MARCH 2021

INCREASING ENERGY ACCESS IN

SIERRA LEONEMini-grid survey analysis on tariffs,

subsidies and productive use

TABLE OF CONTENTS

FIGURES 4

TABLES 5

BOXES 5

ABBREVIATIONS 6

ACKNOWLEDGEMENT 8

EXECUTIVE SUMMARY 9

1. INTRODUCTION 20

1.1 Background and Context of the Assignment 20

1.1.1Mini-GridElectrificationinSierraLeone 20

1.1.2 Rural Renewable Energy Project 22

1.1.3Mini-GridElectrificationinNigeria 24

PART I – MINI-GRID FRAMEWORKS, TARIFFS AND SUBSIDIES 27

2. MINI-GRID ELECTRIFICATION PLANNING AND DEVELOPMENT IN SIERRA LEONE AND NIGERIA 28

2.1Mini-GridElectrificationPlanningandDevelopment 28

2.1.1Mini-GridElectrificationPlanning 28

2.1.2 Mini-Grid Business Models 30

2.2StatusofMini-GridSectorDevelopmentinSierraLeoneandNigeria 31

2.2.1 SierraLeone 31

2.2.2Nigeria 34

2.2.3 SummaryofFindings 36

3. MINI-GRID REGULATORY FRAMEWORKS, TARIFFS AND SUBSIDIES IN SIERRA LEONE AND NIGERIA 38

3.1AssessmentofMini-GridRegulatoryFrameworksinSierraLeoneandNigeria 38

3.1.1 TariffFramework 38

3.1.1.1 SierraLeone 43

3.1.1.2 Nigeria 48


3.1.2.1 ComparativeAnalysisofTariffDeterminationMethodologiesinSierraLeoneandNigeria 51

3.1.2.2 SummaryofMini-GridTariffFrameworksinSierraLeoneandNigeria 53

3.2AssessmentofMini-GridSubsidySchemesinSierraLeoneandNigeria 58

3.2.1 ImpactofSubsidiesonProjectDevelopmentCostsandElectricityTariffs 58

3.2.1.1 SierraLeone 63

3.2.1.2 Nigeria 63


3.3RecommendationsforSierraLeone 69

PART II – PRODUCTIVE USE OF ENERGY AND SITE SELECTION 74

4. PRODUCTIVE USE OF ENERGY AND MINI-GRIDS 75

4.1Productive-UseApplicationsandBusinessModelsintheMini-GridSector 75

4.2ExpandingMini-GridsandPromotingElectricityAccessforProductiveUse 77

4.3AssessmentofAgriculturalProductiveUseinSierraLeoneandNigeria 79


4.3.1.1 SmallholderWaterPumpingandIrrigation 85

4.3.1.2 AgriculturalProcessing 86

4.3.1.3 ColdStorageandRefrigeration 89

4.3.2Nigeria 92

4.4SummaryofFindings 94


5. MINI-GRID SITE SELECTION 99

5.1SiteSelectionCriteria 99


5.1.2Nigeria 100

5.2SummaryofFindings 101


6. RECOMMENDATIONS FOR FURTHER RESEARCH 104

ANNEX 1: MINI-GRID BUSINESS MODELS 105

ANNEX 2: MINI-GRID POLICY, REGULATORY AND INSTITUTIONAL LANDSCAPE IN SIERRA LEONE AND NIGERIA 107

ANNEX 3: MINI-GRID COMMUNITY ENGAGEMENT 111

ANNEX 4: RESEARCH METHODOLOGY AND ANALYTIC FRAMEWORK 113

ANNEX 5: STAKEHOLDER CONTACT LIST 123

KEY DEFINITIONS 124

REFERENCES 127

COPYRIGHT AND DISCLAIMER 131

4

FIGURES

FigureES-1:Mini-GridCommunityProductiveUseSurveyResults 15

Figure1:SierraLeoneRISEElectricityAccessandFrameworkforMini-GridsScores,2015–2019 21

Figure2:DistributionofSettlementsbyLeast-CostElectrificationOption,2030 22

Figure3:MapofRREPMini-Grids 24

Figure4:NigeriaRISEElectricityAccessandFrameworkforMini-GridsScores,2015–2019 26

Figure5:Nigeria’sInstalledMini-GridsbyProjectandCapacity,2019 26

Figure6:TheMini-GridSpaceinRuralElectrification 29

Figure7:OwnershipStructureofPublicandPrivateAssetsundertheRREP 32

Figure8:KeyGovernmentStakeholders,Policies,LawsandRegulationsinSierraLeone’sMini-GridSector 32

Figure9:UserSatisfactionwithMini-GridQualityofService 34

Figure10:NigeriaElectrificationProject:Performance-BasedGrantProgramme 35

Figure11:KeyGovernmentStakeholders,Policies,LawsandRegulationsinNigeria’sMini-GridSector 36

Figure12:SummaryofMini-GridPoliciesandRegulationsinSierraLeoneandNigeria 37

Figure13:Affordabilityvs.SustainabilityinTariffSetting 39

Figure14:KeyStakeholdersInvolvedinTariffSetting 39

Figure15:UserKnowledgeofAmountChargedperkWhofElectricity 56

Figure16:TransitiontoaSustainableMarketforDeliveringEnergyAccess 61

Figure17:ChangeinDailyLoadProfileandLCOEfromIncreasesintheProductiveUseofElectricity 75

Figure18:Mini-GridDeveloperProductive-UseBusinessModels 77

Figure19:EstimatedOff-GridSolarCashMarketPotentialfortheProductive-UseSectorinSierraLeone 78

Figure20:Mini-GridCommunityProductiveUseSurveyResults(WP-1) 81

Figure21: Mini-GridCommunityProductiveUseSurveyResults(WP-2) 82

Figure22:AreaSuitableforSurfaceIrrigationandIdentifiedSettlementsSuitableforOff-GridSolarPumps 85

Figure23:RiceMillingValueChain 87

Figure24:CassavaValueChain 89

Figure25:Cooling-as-a-ServiceBusinessModel 90

Figure26:ColdStoragefortheFisheriesValueChain 92

Figure27:Mini-GridTarifftoAchieve15%IRRUnderDifferentProductive-UseScenarios 94

Figure28:KeyInterventionstoSupportDevelopmentoftheProductive-UseSector 97

Figure29:RoadmapforPUEEquipmentandApplianceIntegrationintoMini-GridDevelopment 98

Figure30:Mini-GridSiteSelectionundertheNigeriaElectrificationProject 101

5

TABLES

BOXES

TableES-1:Mini-GridSubsidyProgrammesinSierraLeoneandNigeria 13

TableES-2:SummaryofRecommendations 17

Table1:Mini-GridElectrificationPlanningApproaches 30

Table2:Mini-GridTariffComponentsandStructures 41

Table3:Mini-GridTariffDeterminationComparison 52

Table4:Mini-GridTariffFrameworksinSierraLeoneandNigeria 53

Table5:TypesandSourcesofProducerSubsidies 58

Table6:Mini-GridSubsidyDisbursementOptions 59

Table7:OverviewofMini-GridSubsidies 62

Table8:SummaryofPreviousandOngoingMini-GridSubsidyProgrammesinNigeria 64

Table9:NigerianEnergySupportProgrammeI:Mini-GridProjectOverview 67

Table10:Mini-GridSubsidySchemes:SummaryofFindings 68

Table11:EvolutionaryRegulationforMini-GridMarketDevelopment 72

Table12:RecommendedRegulatory,Tariff-SettingandSubsidyMechanismsforSierraLeone 73

Table13:INENSUSKMMFeasibilityAssessmentofAgriculturalPUEApplicationsinSierraLeone,2019 80

Table14:RREPMini-GridCommunityFieldSurveys 84

Table15:Mini-GridSiteSelectionCriteria 102

Box1:MobilePowerBatteryRentalPlatform 79

Box2:SolarIrrigationforUgandanFarmers 86

Box3:Mini-HydroPalmOilProcessingPlantinSierraLeone 88

Box4:ColdChainSolutionsforIndianBananaFarmers 90

Box5:JUMEMEFishingIndustryPilotProjectinTanzania 91

6

ABBREVIATIONS

ABC Anchor-Business-CommunityAfDB AfricanDevelopmentBankAMDA AfricaMini-GridDevelopersAssociationARPU AveragerevenueperuserBOO Build-Own-OperateBOT Build-Operate-TransferCaaS Cooling-as-a-ServiceCapex CapitalexpenditureCAPM CapitalAssetPricingModelCEADIR ClimateEconomicAnalysisforDevelopment,InvestmentandResilienceCHC Community health centreDBO Design-Build-OperateDFI DevelopmentFinanceInstitutionDisCo DistributioncompanyDRE DistributedrenewableenergyEaaS Energy-as-a-ServiceEDSA ElectricityDistributionandSupplyAuthorityEEI EnergizingEconomiesInitiativeEGTC ElectricityGenerationandTransmissionCompanyEIA EnvironmentalimpactassessmentEPA EnvironmentalProtectionAgencyESMP EnvironmentalandSocialManagementPlanEU EuropeanUnionEUCS ElectricityUsersCooperativeSocietyEWRC ElectricityandWaterRegulatoryCommissionFCDO Foreign,CommonwealthandDevelopmentOffice(formerlytheDepartmentforInternational Development,DfID),UKFGN FederalGovernmentofNigeriaFI FinancialinstitutionGBP BritishpoundsterlingGoSL GovernmentofSierraLeoneGPRBA GlobalPartnershipforResults-BasedApproachesGST GoodsandservicestaxIBT Increasing block tariff IEC International Electrotechnical Commission IEP IntegratedelectrificationpathwayIFAD InternationalFundforAgriculturalDevelopmentIMAS InterconnectedMini-GridAccelerationSchemeIRR Internal rate of returnKMM KeyMakermodelkW KilowattkWh KilowatthourkWp Kilowattpeak

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LCOE LevelizedcostofelectricityLV LowvoltageM&E MonitoringandevaluationMAS Mini-GridAccelerationSchemeMCCU MillenniumChallengeCoordinatingUnitMLGRD MinistryofLocalGovernmentandRuralDevelopmentMoE Ministry of EnergyMoF MinistryofFinanceMoHS MinistryofHealthandSanitationMSME Micro,smallandmediumenterpriseMTF Multi-TierFrameworkMW MegawattMYTO Multi-year tariff orderNEP NigeriaElectrificationProjectNERC NigerianElectricityRegulatoryCommissionNESP NigerianEnergySupportProgrammeNGN NigeriannairaNPSP NigeriaPowerSectorProgrammeO&M OperationandmaintenanceOpex OperatingexpenditurePAYG Pay-as-you-goPBG Performance-based grantPPA PowerpurchaseagreementPPP Public-privatepartnershipPRESSD-SL PromotingRenewableEnergyServicesforSocialDevelopmentinSierraLeonePRPM Performance-relatedprofitmarginPUE Productiveuseofenergy/electricityRAB Regulatory asset baseRBF Results-basedfinancingREA RuralElectrificationAgencyREAN RenewableEnergyAssociationofNigeriaREASL RenewableEnergyAssociationofSierraLeoneREEEP RenewableEnergyandEnergyEfficiencyProjectREF RuralElectrificationFundRESIP RuralElectrificationStrategyandImplementationPlanRISE RegulatoryIndicatorsforSustainableEnergyROGEP RegionalOff-GridElectrificationProjectRR RevenuerequirementRREP Rural Renewable Energy ProjectSHS SolarhomesystemSLEWRC SierraLeoneElectricityandWaterRegulatoryCommissionSLL SierraLeoneanleoneSME Smallandmedium-sizedenterpriseTA Technical assistanceTAR TotalallowedrevenueTOU Time of useUNOPS UnitedNationsOfficeforProjectServicesUSD UnitedStatesdollarVAT Value-addedtaxWACC WeightedaveragecostofcapitalWAPP WestAfricanPowerPoolWh WatthourWP WorkpackageWp WattspeakWTP Willingnesstopay

8

ACKNOWLEDGEMENT

ThisreportwascommissionedbySustainableEnergyforAll(SEforALL),withfundingsupportfromtheUK’sForeign,

Commonwealth&DevelopmentOffice(FCDO)andwithadministrativesupportfromtheUnitedNationsOfficefor

ProjectServices(UNOPS)inSierraLeone.

TheSEforALLteamthatoversawthedevelopmentofthereportconsistedofLucSeveri,EmiMizunoandIngridRohrer.

ThereportwaswrittenbyGreenMaxCapitalAdvisorsInc.,ledbyAlexanderLaBua.Otherteammembersinclude:

SegunAdaju,IfechukwudeUwajeh,KoyeAlaba,SophieJohnson,AleeceCooperandCliffordAron.

Wewouldliketothankthenumerousorganizationsandindividualswhocontributedtothefindingsofthereport,including

theMinistryofEnergyinSierraLeone,theSierraLeoneElectricity&WaterRegulatoryCommission(EWRC),Energicity,

PowerGen,andWinchEnergy.Wewouldalsoliketoexpressourgratitudetothenumerouscommunitymembersand

stakeholderswhoprovidedvaluablefeedbackandfacilitatedsitevisitsanddetailedstakeholderinterviews.

ValuableguidanceandoversightwasprovidedbyDamilolaOgunbiyi(ChiefExecutiveOfficerandSpecialRepresentative

oftheUNSecretary-GeneralforSustainableEnergyforAll),KeithHammond(SeniorInfrastructureAdvisor,FCDO),

JasminRoberts(TeamLeader,TechnicalAssistanceandCapacityBuilding,UNOPS)andNicholasGardner(Country

Manager,UNOPS).

WewouldliketothankSEforALLstafffortheirsupport:SameerAhmad,JuanCerda,AndreaStojanovandMeriamOtarra.

WealsoacknowledgethefundingprovidedbytheAustrianDevelopmentAgency,theMinistryforForeignAffairsof

IcelandandtheIKEAFoundationfortheircoresupporttoourwork.Forafulllistofoursupporters,pleasevisitour

website at www.SEforALL.org.

IN SUPPORT OF

https://www.seforall.org/

9

ThepurposeofthisstudyistoprovidepracticalguidanceandrecommendationstotheGovernmentofSierraLeone

(GoSL)forthesustainabledevelopmentofthecountry’smini-gridsectorbybuildinguponlessonslearnedfromthe

ongoingRuralRenewableEnergyProject(RREP)aswellasfrommini-gridsectordevelopmentinNigeria.Important

lessonscanbelearnedfromthetwocountrieswithrespecttotheirmini-gridpolicyandregulatoryframeworks,market

developmentapproaches,andpotentialoptionsforagriculturalproductiveuseofelectricity(PUE)tofacilitateboth

mini-gridelectrificationandruraleconomicdevelopment.Thisreport—andthisExecutiveSummary—isbroadly

structuredasfollows:Part Icoversmini-gridregulatoryframeworks,tariffstructuresandsubsidies;Part II focuses on

PUEandmini-gridsiteselection.ThisExecutiveSummaryconcludeswithasummary of the report’s main findings and recommendationsforpolicymakersandkeyenergysectorstakeholders.

MINI-GRID FRAMEWORKS, TARIFFS AND SUBSIDIES

EXECUTIVE SUMMARY

Mini-Grid Electrification Planning and Market Development in Sierra Leone and Nigeria

Mostmini-gridprojectsinnascentmarketshaveslimor

non-existentprofitmargins,asprojectsrequiresignificant

resourcesforpre-feasibility,developmentandoperation

relativetopotentialrevenue,drivenbytheneedto

engagecommunities,theremotenessofsitesandthe

tailor-madenatureofmini-gridprojects.Asupportive

policyandregulatoryframeworkthatde-risksprojects

fordevelopersisthereforecritical,asnascentmarketsare

particularlysensitivetooverly-burdensomeregulation.1

Aboveall,thegoalofaregulatoryframeworkformini-

gridsshouldbetopromotegoodserviceatthelowest

possiblecost-recoverytariffs,whileremainingpredictable

butflexibleenoughtoevolveasthemarketmatures.2

Mini-Grid Policy and Regulatory Frameworks in Sierra Leone and Nigeria

SierraLeonehasoneofthelowestratesofelectricityaccess

intheworld;thecountryhasanationalelectrificationrate

1 PracticalGuidetotheRegulatoryTreatmentofMini-Grids,NationalAssociationofRegulatoryUtilityCommissioners,2017.2 Mini-GridsforHalfaBillionPeople,WorldBankESMAP,2019.3 TrackingSDG7:TheEnergyProgressReport2020.4 Blimpo,M.,andCosgrove-Davies,M.,“ElectricityAccessinSub-SaharanAfrica:Uptake,Reliability,andComplementaryFactorsforEconomicImpact,”

AFDandWorldBank,AfricaDevelopmentForum,(2019):https://openknowledge.worldbank.org/bitstream/handle/10986/31333/9781464813610.pdf?sequence=6&isAllowed=y

5 TrackingSDG7:TheEnergyProgressReport2020.6 StateoftheGlobalMini-GridsMarketReport2020.

of26percent,althoughthisfiguredeclinesto6percent

inruralareaswherethemajorityofthepopulationlives.3

Wheremaingridconnectionsexist,powersupplyis

oftenunreliable,withfewerthanone-thirdoffirmsand

householdsreportingreliableaccesstoelectricitywhen

surveyed.4Thereareanumberofbarrierstoexpanding

grid-basedelectricityaccessandimprovingservicequality,

including a weak and limited transmission and distribution

system;non-technicaldeficiencieswiththeutility,which

resultinhightechnicalandcommerciallosses;insufficient

generationcapacity;seasonalvariabilityinhydropower

production;andinstitutionalandregulatoryconstraints.

InNigeria,accesstoelectricityremainsanongoing

challengeandisakeybarriertoeconomicdevelopment;

thecountryhasanationalelectrificationrateof57percent,

whiletheruralelectricityaccessrateis31percent.5Where

thegridisavailable,consumersexperiencefrequentpower

cutsrangingfromfourto15hoursperday.6Nigeriahas

asignificantelectricitysupplydeficit,withonlyone-third

ofits12.5GWofinstalledgenerationcapacitytypically

available.Meanwhile,tensofmillionsofon-sitediesel

generatorsareusedtomeetthecountry’sactualdaily

10

peakelectricitydemand,whichisestimatedtoexceed

40GW.Thissituationistheresultofseveralfactors:a

stagnation of on-grid generation due to limited additions

ofnewgenerationcapacity;thepoorstateofthenational

gridandacorrespondinglackof investment ingrid

maintenanceandnewtransmissionnetworks;liquidity

issues faced by electricity utilities and distribution

companies(DisCos);andassociatedissuesofcommercial

and technical losses.

A key difference between the two countries is that

SierraLeonedoesnothaveanagencysuchas the

NigerianRuralElectrificationAgency(REA)dedicated

exclusivelytoruralelectrificationandenergyaccess;all

ruralelectrificationplanninginSierraLeoneiscurrently

managedbytheMinistryofEnergy(MoE).WhileSierra

Leonedoesnothavearuralelectrificationmasterplan,

itsoff-gridelectrificationstrategiesarebroadlydefined

initsvariousenergypolicydocuments,includingthe

ElectricitySectorReformRoadmap2017–2030,which

provides a framework for restructuring thepower

sectortoachievelong-termelectrificationobjectives

overthenextdecade.Despitetheexistenceofthis

roadmap,therehasbeennoformaladoptionof its

recommendations,whichmeansnewenergyprojects

arenotimplementedaspartof,orinsupportofan

integratedsectorplan. In themini-gridsector, the

ElectricityandWaterRegulatoryCommission(EWRC)

hasdevelopedacomprehensiveregulatoryframework—

the2019Mini-GridRegulations—thatprovidesspecific

guidanceonlicensingprocedures,consumerservice,

grid interconnection and commercial arrangements to

supportthedevelopmentofmini-grids.

InNigeria,thegovernmentadoptedthe2017Rural

ElectrificationStrategyandImplementationPlan(RESIP),

underwhichtheREAprovidesdeveloperswithfinancial

incentivesandtechnicalsupporttoexpandruralelectricity

access.TheMini-GridRegulationsenactedbytheNigerian

ElectricityRegulatoryCommission(NERC)in2016provide

thenecessaryregulatoryandpermittingguidelinesforthe

developmentandoperationofmini-gridsinthecountry,

including clear guidance on tariff setting through the REA

Mini-Grid Tariff Tool methodology.

Mini-griddevelopmentinSierraLeonehasnotbeenpart

ofanationalstrategybutratherimplementedundertwo

donor-fundedprojects,7thelargestofwhich–theRREP

–followedapublic-privatepartnership(PPP)modelof

7 (1)TheEU-fundedPromotingRenewableEnergyServicesforSocialDevelopmentinSierraLeone(PRESSD-SL)and(2)theRREP.

publicownershipandprivatemanagementdrivenbya

top-downapproach.InNigeria,mini-griddevelopment

has followedamorebottom-up,private sector-led

approach(seeSection 2.1).

Mini-Grid Tariff Frameworks in Sierra Leone and Nigeria

Mini-Grid Regulations

In June2019, theEWRCapproved the2019Mini-

GridRegulations,whichweresubsequentlyratifiedby

parliamentlaterthatyear.Themini-gridregulationsin

SierraLeonecloselymirrorthoseenactedbytheNERCin

2016;bothregulationsincludeprovisionsformarket-entry,

cost-reflectiveretailtariffs,contractualarrangements,

technicalandservicestandards,andthearrivalofthe

maingrid,withuniqueguidelinesandlicensesformini-

gridprojectsbasedoncapacityandwhethertheyare

isolated and interconnected. Section 3.1.1.1 and Section 3.1.1.2 covereachcomponentoftheregulationindetailinSierraLeoneandNigeria,respectively.

Tariff Affordability and Cost of Service

In2016,priortotherolloutoftheRREPinSierraLeone,

a demand assessment carried out by the project

encompassing68ruralcommunities,2,500interviews,

andfeedbackfrom1,950householdrespondentsfound

thathouseholdswouldbenefitfromsavingsofupto52

percentwiththeadventofmini-gridelectricity,based

onaveragecostsofalternativesourcesofenergy(i.e.,

expendituresonkerosene,batteries,fueletc.).Thesurvey

estimatedtheaverageamountruralcustomerswereable

topaywasapproximatelyUSD6/month(SLL59,400/

month),mainlyforlighting,mobilephonechargingand

other household uses. The study also found that rates

of electricity demand could increase by a factor of 20

withthearrivalofmini-gridelectrification,withaverage

consumptionbetween3.5and6.3kWhpermonthper

household.SubsequentstudiesconductedbytheMoE

followingtheinceptionoftheprojectfoundevidencethat

the cost of electricity from mini-grids remains lower than

alternativesourcesofenergy.

After theWorkPackage1 (WP-1)mini-gridsbegan

operatingin2019(seeSection 1.1.2 foradescriptionoftheRREPWorkPackages),80percentofmini-grid

communityrespondentssurveyedbytheGreenMaxfield

11

research team who did not connect to the mini-grid cited

affordability of the electricity tariff as the main reason for

not connecting.8TheinitialtariffsforWP-1sitesranged

fromUSD0.82/kWhto0.87/kWh,withanaveragetariff

levelofaboutUSD0.85/kWh.Giventhefocusonproviding

accessforWP-1sites(i.e.,targetingsmallersitesinorder

toavoiddeliberateselectionofonlylargerandmore

economicallyattractivelocations),theseinitialsiteshad

alowertargetednumberofcustomers.Thisdynamic—

smallersiteswithrelativelylimiteddemand—combined

withhighprojectdevelopmentandoverheadcostsfor

developers,contributedtoahighertariff,whichwas

necessarytomakeprojectsbankable.Anotherfactorthat

increasedcostswastheinitialrequirementforoperatorsto

maintainareserveaccountforWP-1batteries,9 which has

sincebeenaddressedthroughanFCDOsubsidyunder

WorkPackage7(WP-7)oftheRREP.10

Underthenextphaseoftheproject,WorkPackage2(WP-

2),operatorsareco-investinginthedevelopmentof40+

largermini-gridsundera“split-asset”modelinwhichthe

GoSLiscoveringthecapitalcostsofthedistributionassets.

Astheoperatorsbegintoconnectmorecustomersand

bringlargermini-gridsystemsonline,projectdevelopment

costs are gradually decreasing. The most recent round of

tariffnegotiations,combiningtheWP-1andWP-2sites,

resultedinarangeofUSD0.74/kWhto0.82/kWh,with

anaveragetariffofUSD0.79/kWh.11

Bycomparison,accordingtotheREA,mini-gridtariffsin

NigeriarangefromUSD0.39/kWhto0.79/kWh(NGN

150/kWh–300/kWh),withanaveragetarifflevelofabout

USD0.58/kWh(NGN220/kWh).12Interviewswithmini-grid

operatorsinNigeriafoundthattherehavebeenrelatively

fewcomplaints fromcommunitiessurroundingtariff

affordability,asthemajorityofendusersspendlesson

electricityfromthemini-gridthantheydidonexpensive

andpollutingalternativesourcesofenergypriortothe

mini-grid’sinstallation.Forinstance,thelevelizedcostof

electricity(LCOE)fromasmalldieselgeneratorisatleast

USD0.75/kWh(NGN250/kWh)andisvulnerabletofuel

pricevolatility.13

8 NB:Thesefindingsdonotreflectthefactthatperceptionsonaffordabilitydonottakeintoaccounttheincreaseinconsumerspendingonelectricityfromthemini-gridasaresultoftheuseofappliances,theyalsodonotreflectalike-to-likecomparisonofend-userspendingonelectricityfromthemini-gridincomparisontoexpensiveandpollutingalternativesourcesofenergypriortothemini-grid’sinstallation.

9 Asubstantialdelaybetweenthetimethemini-gridsystemswereinstalledandthesiteswereelectrified(mainlyduetodelaysinthetenderingprocess)ledtothecapacityreductionofbatteries.

10 http://www.energy.gov.sl/wp-content/uploads/2020/10/Fact-sheet_RREP-Updated-September-2020.pdf11 Stakeholderconsultations,2021.12 Figuresarefromsolarhybridmini-gridsranginginsizefrom30-234kWpthathavebeencommissionedundertheAfDB/WorldBankNigeria

ElectrificationProject(NEP)Performance-BasedGrantProgrammeandtheEU/GIZNigerianEnergySupportProgrammeI(NESPI);seeTable8inSection3.2.1.2.

13 “Mini-GridInvestmentReport:ScalingtheNigerianMarket,”RockyMountainInstitute,(2018):https://rmi.org/wp-content/uploads/2018/08/RMI_Nigeria_Minigrid_Investment_Report_2018.pdf

14 WorldBank:Povertyheadcountratioatnationalpovertylines:https://data.worldbank.org/indicator/SI.POV.NAHC?locations=NG-SL

Key Drivers of the Disparity in Tariffs between Sierra Leone and Nigeria

Itisimportanttoprovidecontextaroundthesenumbers

inordertounderstandwhatisdrivingthedisparityin

tariffsbetweenthetwocountries.Despitetheabove-

mentioned similarities in theirmini-gridpolicyand

regulatoryframeworks,therearealsoseveralimportant

differencesbetweenthemini-gridmarketsinSierraLeone

andNigeria,includinginter alia:

• The two mini-grid markets are at different stages of

developmentandhavepursueddifferentmini-grid

planningapproaches(seeSection 2.1)andsubsidyschemes(seeSection 3.2).

• ThelargersizeoftheNigerianmarket(andincreased

scaleofelectricitydemand)playsanimportantrolein

drivingcostreductionsvis-à-visSierraLeone,where

therearefewermini-gridcustomersinmoresparsely

populatedruralvillages.

• HouseholdincomelevelsarelowerinSierraLeone(56.8

percentnationalpovertyheadcountratiocomparedto

40.1percentinNigeriain2018),contributingtoalower

householdconsumptionrate.14

Itisimportanttoemphasizethatalthoughthemini-grid

tariffinSierraLeoneisconsideredunaffordablebymany,

alargenumberofmini-gridcustomershadneverused

electricityinthisformpriortothearrivalofthemini-

gridandendedupconsumingmoreelectricitythanthey

couldafford.Publicandprivatesectorresourcesshould

thereforefocusheavilyoncommunitysensitization,

consumer education and training around electricity

usageandexpenditures,energyefficiency,mini-grid

loadcapacity,applianceusage,PUE,andotherbenefits

andcostsavingsofmini-gridelectrification.Asconsumer

awarenessaroundenergyusageandexpenditures

improvesovertime,mini-gridusagecanbeoptimized.

AstheSierraLeoneanmini-gridmarketcontinuestoevolve

andelectricitydemandincreases,tariffsareexpectedto

continuetodecrease.Indeed,asisindicatedabove,the

https://data.worldbank.org/indicator/SI.POV.NAHC?locations=NG-SL

12

Photo:GreenMaxCapitalAdvisorsInc.

mostrecenttariffsinSierraLeonearealreadycomparableto

thehigherendofthespectrumofmini-gridtariffsinNigeria.

Section 3.1.2.2 providesadetailedsummaryoffindingsvis-à-vismini-gridtariffframeworksinSierraLeoneandNigeria.

Mini-Grid Subsidy Schemes in Sierra Leone and Nigeria

InSierraLeone,theRREPutilizeddonorandgovernment

fundstocoverallofWP-1constructionexpensesandalso

providedan‘in-kind’subsidytooperatorsbycovering

thecapitalcostsofthedistributionassetsunderWP-2,

thereby enabling them to charge a lower connection fee

tocustomers.However,wheninterviewed,operators

indicatedthatthepre-financingmechanismunderthe

RREPwasnotnecessarilytheirpreferredapproach,as

theywouldhavepreferredanalternativestructurethat

mayhaveprovidedthemwithmoreflexibility.15

15 Stakeholderinterviews,2020.16 AfDBGreenMini-GridMarketDevelopmentProgramme-Mini-GridMarketOpportunityAssessment:SierraLeone,2019.

Inaddition, theFinanceActof2017providesduty

exemptionson the importationof solarequipment

(excludingancillarymaterials suchasbatteriesand

invertersetc.)thatmeetsInternationalElectrotechnical

Commission (IEC)globalqualitystandards,andthe

FinanceActof2021providescorporatetaxexemptions

andagoodsandservicestax(GST)waiverformini-grid

projects.Whilethesefiscalincentivesshouldostensibly

result in lower tariffs, theprocess for the2017 tax

exemptionisnotfullyclearandrequirestheadoptionof

streamlinedprocedurestomakeitsimplerforoperators

toapplyforthem.16The2021exemptionshaveyettobe

implemented,soitistooearlytodrawanyconclusions

regardingtheirefficacy.

Acomparativeanalysisofpreviousandongoingmini-

gridsubsidyprogrammesinSierraLeoneandNigeriais

presentedinTable ES-1.

13

TABLE ES-1Mini-Grid Subsidy Programmes in Sierra Leone and Nigeria

17 OdysseyEnergySolutionsisaweb-baseddataplatformtosimplify,streamline,andreducethecostsofdevelopingandfinancingmini-gridsinemerging markets.

Indicator Summary of Lessons Learned

Speed of delivery • Similartomostprogrammesofitssize,scopeandambition,theRREPis

complexinitsdesign,involvinglengthynegotiationandfinancingprocesses

thatrequiresignificantresourcestomanage;programmedelayswerelargely

attributedtoextendedapplicationprocessestoobtainlicensesandother

permits,aswellastoongoinggeneralelectionsinSierraLeoneinearly2018.

Continuouslearningbydoing(byregulators,developersandcommunities)and

thesubsequentrefinementandstreamliningofpermitting/contractnegotiation

processesisakeylessonlearned.

• A key area of consideration for mini-grid contracts is that contract negotiations

forenergyprojectsinSierraLeonetypicallytake18monthsfromthestartof

thenegotiationprocesstoapprovalatthecabinetlevel.Theseprocesseswere

transferredtothenegotiationoftheRREPPPPcontract,whichinvolvedallthe

same stakeholders as energy IPP contracts.

• Thefirstmini-griddeployedundertheNigeriaElectrificationProject(NEP)

thatutilizesresults-basedfinancing(RBF)wascommissionedinDecember

2019–justthreemonthsaftertheproject’sgrantagreementsigningunderthe

performance-basedgrant(PBG)componentoftheprogrammeandninemonths

aftertheprogrammewaslaunched.AccordingtotheREA,thetransparencyand

speedoftheNEPprocessisduetothee-procurementmethodutilizedtogether

withthenationaldatamanagementplatform,Odyssey.17

• RecentexperiencewithvariousauctionprogrammesinNigeria(MST,MAS,

IMAS,REF)suggeststhatthisstructureisgenerallymorepronetodelays.

Nevertheless,itisworthnotingthattheNEPhasalsofacedsomedelaysrelated

toalackofaccesstofinance,developers’limitedcapacityandengagement

withdistributioncompanies(DisCos).

• AkeytakeawayfromtheexperienceinNigeriathusfaristheneedforsome

earlydisbursementofsubsidies,particularlyinthecontextoftheCOVID-19

crisis,as40percentoftheRBFpaymentsundertheNEPPBGhadtobepaid

up-fronttoreducedelaysduetofinancingdifficulties,whilethebalanceispaid

after90daysaccordingtotheoriginalpaymentschedule.Thereisalsoaneed

fortheprovisionofconcessionallocalcurrencydebtfacilities(e.g.,theabove-

mentionedNigeriaInfrastructureDebtFund)aswellastechnicalassistance(TA)

tosupportdeveloperswithaccesstofinanceneededtocovertheportionof

capexnotcoveredbysubsidies.

14

Indicator Summary of Lessons Learned

Tariff Reduction • Averageend-usermini-gridtariffsforsolarhybridmini-gridsinSierraLeone

startedwithanaverageofUSD0.85/kWh(USD0.82/kWh–0.87/kWh)forWP-1

sitesin2019,whichrecentlycamedowntoanaverageofUSD0.79/kWh(USD

0.74/kWh–0.82/kWh)forWP-1andWP-2sitescombined,whiletheaverage

tariffinNigeriaisUSD0.58/kWh,witharangeofUSD0.39–0.79/kWh.

• InSierraLeone,asoperatorsbegintoconnectmorecustomersandbringlarger

mini-gridsystemsonline,projectdevelopmentcostsaregraduallydecreasing.

• InNigeria,thereisadirectcorrelationbetweenthelevelofsubsidyandthe

tariffs.AcomparisonoftheREFandNEPPBGprogrammesshowsthatREF

subsidiescover50-70percentofcapex,whiletheNEPPBGcoversonlyabout

30percent.Consequently,tariffsforNEPsitesaregenerallyhigherby25-108

percentcomparedtotariffsforREFsites.Itisworthnotingthatthereareother

factorsthatinfluencetariffs,includinglocation,presenceofproductiveuses,

costoffinancing,siteaccessibilityetc.

Economies of scale

• OperatorsinSierraLeoneopinedthattheRREPwasstructuredinawaythat

doesnotallowthemtosufficientlytakeadvantageofeconomiesofscale.

• InNigeria,discussionswiththeREArevealedthatitwouldliketoseeprivate

companiesdeveloplargeportfoliosofmini-gridsitestorealizeeconomies

ofscale,whichcouldpotentiallyleadtoareductionintariffs.UndertheNEP

MinimumSubsidyTender,developersareallowedtodevelop40-50sites

together.However,giventhattheprogrammehasyettoprogresstothe

implementationstage,thecostreductionimpactsofthismechanismcannotbe

assessed.

Photo:GreenMaxCapitalAdvisorsInc.

15

PRODUCTIVE USE OF ENERGY AND SITE SELECTION

DOES THE SOLAR MINI-GRID SUPPORT INCREASED PRODUCTIVITY IN ANY OF THESE SECTORS?

FIGURE ES-1Mini-Grid Community Productive Use Survey Results

WHAT TYPE OF PRODUCTIVE-USE ACTIVITIES DO YOU ENGAGE IN?

Source:GreenMaxCapitalAdvisorsfieldsurveys,2020

GRINDING

MILLING

REFRIGERATION

NONE

RICE

PALM OIL

TUBERS/ROOTS

GROUNDNUTS

FISHING

FRUITS

VEGETABLES

8%

46%

38%

8%

27%

14%

9%14%

14%

4%

18%

Productive Use of Electricity and Mini-Grids

InSierraLeone,wheremostofthepopulationlivesin

ruralareasandengagesinsubsistenceagriculture,mini-

gridscanpowerruralagriculturalproductivityandcreate

newbusinessesorexpandexistingoneslinkedtothe

agriculturalvaluechain.

Consultations with rural mini-grid community stakeholders

inSierraLeonefoundthatmillingandrefrigerationare

amongthemostcommonproductive-useapplications,

whilesolarmini-gridelectrificationcansupportincreased

productivityacrossavarietyofagriculturalsectors,led

byrice,palmoil,fish,vegetablesandgroundnutsvia

agriculturalprocessingandcoldstorageapplications

(Figure ES-1).

In Sierra Leone, the ability to pay for mini-grid

electrificationamongruralagrariancommunitiesishighly

dependentupontheseasonalityofincome,cropyield

etc.ThismakestheutilizationofPUEacriticaltoolgoing

forward,asitcanprovideasteadysourceofincomeand

helpincreasethepurchasingpowerofcommunitiesinthe

longterm.Operatorswillalsoneedthesupportofkey

publicandprivatesectorpartnerstoexpandPUE;these

privatesectorpartnershipsandfinancingarrangements

arealreadybeingpursuedunderWP-6oftheRREPwith

fundingfromtheFCDO.

WinchEnergy,operatinginSierraLeone,hasalready

formed several key partnerships to develop local

enterprisesandexpandaccesstoappliancesinitsWP-1

mini-gridcommunities.Thecompanyhaspartnered

withEasySolartoofferconsumerselectricalappliances

16

available on microcredit and is working with the

telecommunicationsoperatorOrangetoexpandaccess

tomobilemoneyservicesinitscommunities.18InNigeria,

undertheNEP,theREAanditsdevelopmentpartners

rolledoutasuccessfulPUEequipment-financingscheme

(inpartnershipwithPowerGen).UndertheEnergizing

EconomiesInitiative(EEI),theREApursuedanend-to-

endapproachforelectrifyingcommercialhubs/economic

clusters.BoththeNEPandEEIinitiativescanserveasa

blueprintforSierraLeonetointegratePUEintomini-grid

development(moreonPUEinSection IV).

Mini-Grid Site Selection in Sierra Leone and Nigeria

InSierraLeone,theRREPbeneficiarycommunitieswere

selectedin2016byasteeringcommitteeledbytheMoE

basedonanationwidelistofvillageswithCommunity

HealthCentres(CHCs)providedbytheMinistryofHealth

andSanitation(MoHS)inthewakeoftheEbolacrisis.The

GoSLselectedthesitesbasedonthefollowingcriteria:

(i)existenceofaCHC;(ii)sizeofthecommunitywith

respecttohouseholds,businessesandpopulationdensity

(aminimumof250structureswasrequiredinorderto

ensureeconomicviability);(iii)distanceofthecommunity

totheCHC(toreducethecostofusingmediumvoltage

lines);and(iv)distanceofthecommunitytoanyexistingor

plannedtransmissionlinesand/ortheexistenceorplanfor

anyotherelectrificationproject.Thecriteriaforselecting

mini-gridsiteswerethesameforbothWP-1andWP-

18 “WinchEnergycelebratesprojectsuccessinSierraLeone,”AfricanReview,(26October2020):https://www.africanreview.com/energy-a-power/renewables/winch-energy-celebrates-project-success-in-sierra-leone

19 Mini-GridInvestmentReport:ScalingtheNigerianMarket,RockyMountainInstitute,2018.

2;however,lessemphasiswasplacedondemand-side

considerationsduringtheinitialWP-1siteselection,which

aboveallprioritizedsupplyingelectricitytotheCHCs.In

contrast,WP-2focusedmoreonPUEopportunities,with

severalstudiescommissionedbyUNOPStosupportthe

operatorsinthisregard(seeSection 4.3.1).

InNigeria,undertheNEP,anRBFmechanismprovides

financialincentivesforprivatesector-leddevelopment

ofidentifiedoff-gridsiteswithhighcustomerdensity

characteristics that are best suited for mini-grid

electrification.AtthecommencementoftheNEPmini-

gridprogrammein2017,theREAsupportedadetailed

surveythatprioritizedover200siteswithdemandof

at least100kWacross five states.Theassessment

utilizedgeoreferenceddatatoassessthefollowingkey

parametersforsiteselection:(i)sufficientload/density;(ii)

productive-use,daytime,andflexibleloads;(iii)supportive

localandstategovernment;(iv)communityengagement;

and(v)accessibility.Detailedsurveyswerecarriedout

ineachselectedcommunityusingacomputer-aided

personalinterviewapponamobiledevice.

TheREAisworkinghardtoengagewithandsensitizethe

identifiedmini-gridcommunities,includingthroughthe

promotionofproductiveactivitiesdesignedtoincrease

employmentandincomeandinturnenablelocalcapacity

andwillingnesstopay.19 Section VprovidesmoredetailssurroundingthesiteselectionapproachesundertheRREP

inSierraLeoneandtheNEPinNigeria.

17

SUMMARY OF RECOMMENDATIONS

A summary of recommendations for mini-grid

policymakers,regulatorsandoperatorsinSierraLeone

ispresentedinTable ES-2.Formoredetails,seealsoSection 3.3,Section 4.5 and Section 5.3.

NOTE:Theanalysis/findingspresentedinthisreportarebasedonamarketassessment(interviews,survey

activitiesetc.)thatwascarriedoutinearlytoclosegap

mid-2020.Themini-gridmarketsinSierraLeoneand

Nigeriaareextremelydynamic,withfrequentchangesand

newdevelopmentsinprogrammestructures,regulatory

frameworks,andotherpublicandprivatesectoractivities

inthesector.Forexample,inlate2020,RREPWP-2sites

inSierraLeonestartedcomingonline;theFCDOprovided

anewtariffsubsidyunderWP-7;andtheEWRCswitched

its tariff regulation methodology to a multi-year tariff order

(MYTO)tool.InNigeria,theNEP’smini-gridcomponents

andprogrammesareonlyjustlaunching,makingitdifficult

todrawanyconclusionsorlessonslearned.TheCOVID-19

pandemichasonlycomplicatedthingsfurther.Wherever

possible,theauthorshavetriedtoaccountforthese

developments,butitissuggestedthatthisdocumentbe

viewedasaworkingdocumenttobeupdatedasthemini-

gridmarketsinbothcountriescontinuetoevolve.

TABLE ES-2Summary of Recommendations

Indicator Summary of Recommendations

GoSL policymakers should…

Policy and Regulatory Framework

• Developandimplementacoherentlong-term strategythatbuildsuponthestrongfoundationoftheRREPandtheexistingregulatoryframeworkandalignstheprioritiesofallmarketactors—government,developers,endusersandfinanciers—tode-riskandmobilizemini-gridfinancingandexpandmini-gridelectrificationinthecountry.Thiscanbeintheformofa‘master plan’butshouldincludeclear national targets for mini-grid expansion in the long term.Thiswillfosterprivatesectorparticipationandprovideclarityandpredictabilitytomini-gridmarketplayers,notablyforinvestorsandcompanieswhoneedtoconsidermulti-yearplansinvolvingsignificantcapitalexpenditureorborrowing.

• Expand the internal capacity of the MoEand/orcreateeitheraseparatedirectorate within the MoE or an entirely new rural electrification agency dedicated to managing therolloutofanationalmini-gridprogramme,withalong-termvisionandtargetsinordertoprovideclarityandpredictabilitytomini-gridmarketplayers.

• Adoptpolicyandplanningapproachesthatcreateopportunitiesfordeveloperstotakeadvantageofeconomies of scale(withfixedcostsspreadoverfarlargervolumesofkWhsold)toreducecostsandexpeditemarketdevelopment(i.e.,allowforabottom-up approachtocoexistinthemarket).

• Streamline import duty exemptionsforsolarequipment,includingtheadoptionofclearguidelinesforallrelevantpublicinstitutions;considerexpandingexistingimportdutyexemptionstocoverancillaryequipmentsuchasdistributionequipment,invertersandbatteriestofurtherreducedevelopmentcosts.

• Implementpolicymeasurestoensure standards/qualityofequipmentintheoff-grid/mini-grid sector.

• SupportlocalmarketgrowththroughcollaborationwiththeRenewableEnergyAssociationofSierraLeone(REASL)(e.g.,tocertifyandtrainlocalentrepreneurs),astheuseoflocalsuppliersandengineerswillreduceprojectdevelopmentcosts.

18


Tariff Setting • Utilizeavailabledatatoproposeabenchmark returnonequitybasedonexistingmarketconditionsinSierraLeone(orfinancingopportunitiesformini-gridsinternationally)tosimplifythetariffreviewprocessandprovideaclear market signal to developersontheprofitabilityoftheirpotentialinvestments.

• Makeexplicittherequiredsubsidytoreachacertaintariff(e.g.,viaRBF,perkWhor%capexsubsidies),whichwouldprovideclaritytotheprivatesectorandclearbenchmarksforgovernmentoncostsofdecentralizedelectrificationvs.centralgridexpansion.

Subsidy Mechanisms

• Adoptanup-front cash grant/RBF hybrid scheme(asopposedtoan‘in-kind’subsidy)to reduce project costs and potentially lower tariffs;thehybridstructurewillreducedevelopers’up-frontcapitalconstraintswhilealsoensuringqualityofserviceasdevelopersarefullypaidbasedonthedeploymentandverificationoftheconnections;thevalueofthesubsidyshouldbehighenoughtoachievetariffreduction.

• Adoptasimplified, streamlined and consistent process acrossallrelevantpublicagencies to reduce complexityandtheamountoftime/resourcesrequiredofdevelopersforlicensingandpermitting.

• Adoptaframework contract that can be used on an ongoing basis to streamline projectapprovals,savetimeandreduceprojectdelays/costs.

• Designsubsidyprogrammestoensure quality of constructionbymakingdevelopers/subsidyrecipientsresponsibleforinstallingandtestingallmini-gridassets.

• Incorporatelong-term maintenance of mini-grids in subsidy design.

• Identifyareaswhereprojectdevelopersmayneedsupportandprovidetechnical assistancethroughtheMoEand/ordonor-fundedprogrammes(e.g.,toaccessavailablefinancing,transactionadvisoryservicesetc.).

• Utilizedata analytics and e-procurementtoincreasetransparencyandspeedofprojectdelivery.

• Considerhowsubsidieswilleventuallyberemoved;athree-phase approach can be adoptedtograduallytransitiontowardsasustainablemarket(seeFigure 16 in Section 3.2.1).

Productive Use of Electricity

• Developandimplementprogrammesprovidingtechnicalandfinancialsupporttomini-griddeveloperstostimulatePUE andrevenue-generatingactivitiesinmini-gridcommunities,whichprovideanchorclientsformini-gridpowersupplyandincreasecustomerincomelevelsandpurchasingpower.RollingoutPUEinmini-gridcommunitiesonalargescalewillrequireextensive coordination across various public agencies (e.g.,MoE,MinistryofAgricultureandForestry,MinistryofPlanningandEconomicDevelopment,MinistryofLocalGovernmentandRuralDevelopment),as well as private sector support,includingfromthelocalfinancialsector(e.g.,SierraLeoneAssociationofMicrofinanceInstitutions)toimproveaccesstolocalcurrencyfinancingforthe sector.

• Raise awareness of the benefits and long-term cost savings associated with switching to equipment powered by clean energy;off-gridcommunitiestypicallyuseequipmentthatispoweredbydieselgenerators;thus,thereisaneedforinterventionsinordertoraisecustomerawarenessandprovideassociatedtraining(e.g.,onhowtousenewsolar-poweredequipmentandappliances).

19


Productive Use of Electricity

• Incorporateproductive-use appliance and equipment financing for households and small and medium-sized enterprises (SMEs) into mini-grid business models and planning;providingbusinesssupportservicestoSMEsontheuseofapplianceswillincreaseproductiveactivities,stimulateelectricitydemand,andthusincreasetheiroverallcapacitytopayforelectricityconsumed;grantfundinghasalreadybeenmadeavailablebytheFCDOunderWorkPackage6(WP-6)toincreaseaccesstoPUEamongtheRREPmini-grid communities.

• ProvideTA and financing to help local businesses grow and expand their access to a wider marketfortheirproducts(beyondtheircommunities).

• Apply lessons learned from Nigeria:InNigeria,undertheEEI,theREAidentifiedsuitablecommercialandagriculturalhubsthatcouldbenefitfrommini-gridelectrification,thencarefullyselectedandintegratedappropriatePUEequipmentthroughanappliance-financingmechanismwithongoingbusinessdevelopmentsupport(seeSection 4.5).PolicymakersinSierraLeonecanrefertotheEEIasablueprintforSierraLeonetofollowtointegratePUEintomini-griddevelopment.

Site Selection • Adoptaprivate sector-led model with a dual focus on increasing connections and improving the commercial viability of sites.InNigeria,undertheNEP,theREApursuedacomprehensivesiteselectionapproachthatincludeddetailedsiteassessmentsandcommunitysensitizationinitiatives.

• UtilizeGIS/georeferenced data and other consumer and market intelligence tools20 tosupportthesiteselectionprocess;inNigeria,theREAimplementedanational data management platform(Odyssey)thatprovidesinformationtodevelopers(e.g.,demandforecasting,tariffcalculationetc.)inanefforttostreamlineprojectdevelopmentandimprovecustomerdemandestimationandavoidpowerunderutilization.

• Emphasizeproductive-use activities as the primary method of stimulating electricity demand in the community. Electricity demand assessments currently focus more on personalconsumptionatthehouseholdlevel(e.g.,lightingandphonechargingetc.),whichmayleadtolowerlevelsofelectricityuptakeforprojects.Developersneedbothfinancialandtechnicalassistancefromthegovernmentand/ordevelopmentpartnerstosupportrobustassessmentsofPUEpotentialduringthesiteselectionprocess.

• Pursue a robust community sensitization and consumer education and training campaignaspartofthesiteselectionprocess.Giventhatmini-gridelectrificationremainscheaperthanalternativesourcesofenergycurrentlyutilizedbyruralcommunities(e.g.,purchasingofkeroseneforlighting,dieselforgeneratorsetc.),itcanbededucedthattheinefficientuseofenergyfromthemini-gridisatleastpartiallycontributingtomisperceptionssurroundingaffordabilityinSierraLeone.Enduserswhoarereceivingelectricityaccessforthefirsttimemaylackanunderstandingofhowmuchtheycanaffordtospendonpower.Publicandprivatesectorresourcesshouldthereforefocusheavilyoncommunitysensitization,consumereducationandtrainingaroundelectricityusage(especiallyvis-à-vismonthlyexpenditures),mini-gridloadcapacity,applianceusage,PUE,andotherbenefitsandcost-savingsofmini-gridelectrification.Asconsumerawarenessaroundenergyexpendituresimprovesovertime,mini-gridusagecanbeoptimized.InNigeria,duringtherolloutoftheNEP,theREAledacomprehensiveefforttoraiseawarenessandsensitizeruralcommunitiesbymobilizinglocalstoform/joinElectricityUsersCooperativeSocieties(EUCSs).

20 Off-gridenergyservicescompaniesareincreasinglymakingmoredemand-sidedataavailablethroughcustomerandmarketinsights.Forexample,Nithioprovidesdataoncustomercreditworthiness,expenditurepatterns;Fraymoffersadvancedgeospatialdatasolutions(see:http://www.nithio.comandhttps://fraym.io)

20

INTRODUCTION

1.1 Background and Context of the Assignment

Thepurposeofthisreportistoprovidepracticalguidance

andrecommendationstotheGovernmentofSierraLeone

(GoSL)forthesustainabledevelopmentofthecountry’s

mini-gridsectorbybuildinguponlessonslearnedfrom

theongoingRuralRenewableEnergyProject(RREP)as

wellasfrommini-gridsectordevelopmentinNigeria.The

reportprovidescomparisonsofandlessonslearnedfrom

thetwocountrieswithrespecttotheirmini-gridpolicyand

regulatoryenvironment(includingtariffframeworksand

subsidyschemes),mini-gridproductive-useapplications

(withafocusontheagriculturalsector),andmini-grid

siteselectioncriteria(bothsupply-sideanddemand-side

factors).Thisreportwaspreparedthroughacombination

ofdeskresearchandextensivestakeholderconsultations

withindividualsandorganizationsinSierraLeoneand

Nigeria.Amissionwasalsocarriedouttosurveyrural

mini-grid community end users in Sierra Leone.A

descriptionofthestakeholderengagementactivities,

research methodology and analytic framework can be

found in Annexes 3-5.

1.1.1 Mini-Grid Electrification in Sierra Leone

SierraLeone’spowersectorisrelativelysmall,withslightly

over150MWofinstalledgenerationcapacityoperatedby

thepublicutility,ElectricityGenerationandTransmission

Company(EGTC).Abouthalfofthiscapacitycomesfrom

thermalpower,withhydropowermakingupmostofthe

remainingbalance.SierraLeonehasoneofthelowest

ratesofelectricityaccessintheworld;accordingtothe

2020SDG7TrackingReport,thecountryhasanational

21 TrackingSDG7:TheEnergyProgressReport2020.22 Blimpo,M.,andCosgrove-Davies,M.,“ElectricityAccessinSub-SaharanAfrica:Uptake,Reliability,andComplementaryFactorsforEconomicImpact,”

AFDandWorldBank,AfricaDevelopmentForum,(2019):https://openknowledge.worldbank.org/bitstream/handle/10986/31333/9781464813610.pdf?sequence=6&isAllowed=y

23 “ElectricitySectorReformRoadmap(2017-2030),”MillenniumChallengeCorporation,(2017):http://www.mccu-sl.gov.sl/documents/Sierra%20Leone%20Power%20Sector%20Roadmap.pdf

24 SLEWRCMini-GridRegulations2019:https://ewrc.gov.sl/mini-grid-regulations/

electrificationrateof26percent,althoughthisfigure

declinesto6percentinruralareaswherethemajorityof

thepopulationlives.21Wheremaingridconnectionsexist,

powersupplyisoftenunreliable,withfewerthanone-

thirdoffirmsandhouseholdsreportingreliableaccessto

electricitywhensurveyed.22 There are a number of barriers

toexpandinggrid-basedelectricityaccessandimproving

servicequality,includingaweakandlimitedtransmission

anddistributionsystem;non-technicaldeficiencieswith

theutility,whichresultinhightechnicalandcommercial

losses;insufficientgenerationcapacity;seasonalvariability

inhydropowerproduction;andinstitutionalandregulatory

constraints.

TheGoSLhasbeenworkingwithdevelopmentpartners

toaddressthesebarriersandimproveratesofelectricity

access.In2017,thegovernmentpublishedtheElectricity

SectorReformRoadmap2017–2030,whichprovidesa

policyframeworkforthedevelopmentofthecountry’s

energysectorthrough2030,includingaseriesofreform

measuresandactionstorestructurethepowersector

andachievelong-termelectrificationobjectivesthrough

acombinationofgridextensions,off-gridrenewable

energy mini-grids and stand-alone systems.23Despite

theexistenceofthisroadmap,therehasbeennoformal

adoptionofitsrecommendations,whichmeansnew

energyprojectsarenotimplementedaspartof,orin

supportofanintegratedsectorplan.

In2019,theGoSLapprovedMini-GridRegulations

that provide specif ic guidance on l icensing

procedures,consumerservice,gridinterconnection

andcommercialarrangements(e.g.,tariffsetting)to

supportthedevelopmentofthecountry’smini-grid

sector.24Overall,thegovernment’seffortstoestablish

21

asupportivepolicyandregulatoryframeworkforthe

off-gridsectorareprogressingrapidly.IntheWorld

Bank’sRegulatoryIndicatorsforSustainableEnergy

(RISE)index,SierraLeone’selectricityaccessscorehas

25 WorldBankRegulatoryIndicatorsforSustainableEnergy:https://rise.worldbank.org/country/sierra-leone26 Janse,S.,“Affordableandreliablemini-gridsinSierraLeone,”TUDelftTechnology,PolicyandManagement,(May2019):https://repository.tudelft.

nl/islandora/object/uuid%3Ab98a7726-bb05-430f-832c-53282130edeb27 “RegionalOff-GridElectrificationProject:Off-GridSolarMarketAssessmentandPrivateSectorSupportFacilityDesign:SierraLeoneReport,”World

Bank,ECOWASCenterforRenewableEnergyandEnergyEfficiency,(July2019):http://www.ecreee.org/sites/default/files/ecreee_rogep_sierra_leone_final_report.pdf

28 Theseestimatesarebasedontheassumptionthatallplannedgridextensions/densificationplanswillbecompletedby2030.TheGISanalysisexaminedthepopulationdensity,proximitytoelectricalinfrastructure,andeconomicgrowthpotentialofoff-gridsettlements.

increasedsubstantiallyinrecentyears,withnotable

improvementinitsframeworkformini-grids,which

isabout30percenthigherthantheregionalaverage

(Figure 1).25

FIGURE 1Sierra Leone RISE Electricity Access and Framework for Mini-Grids Scores, 2015–2019

RIS

E S

CO

RE

(O

UT

OF

10

0)

0

10

20

2015 2017 2019

30

40

50

60

70

80

90

100

FIGURE 1: Sierra Leone RISE Electricity Access and Framework for Mini-Grids Scores, 2015–2019

ELECTRICITY ACESS SCORE SL

FRAMEWORK FOR MINI-GRIDS SCORE SL

SSA REGIONAL AVG. ELECTRICITY ACESS SCORE

Source: Adapted from World Bank Regulatory Indicators for Sustainable Energy (Rise) index.

1723

3633

53

83

Source:AdaptedfromWorldBankRegulatoryIndicatorsforSustainableEnergy(RISE)index.

Todate,therehavebeenalimitednumberofmini-grid

projectsdeployedinthecountry,largelyconcentrated

undertwodonorprogrammes–theEU-fundedPromoting

RenewableEnergyServicesforSocialDevelopmentinSierra

Leone(PRESSD-SL)project,whichinstalledthreesolarmini-

grids,andtheongoingUK-fundedRREP,whichaimsto

developupto5MWofrenewablemini-gridcapacityin

ruralareaswithprivatesectorinvolvement.Outsideofthese

keyinitiatives,aboutanotherdozenmini-gridshavebeen

developedinagrariancommunitiesthroughoutthecountry,

poweredmainlybydieselandhydropower.26

Given the country’s persistently low rates of rural

electrification,distributedgeneration,andmini-grids

inparticular,areexpectedtoplayasignificantrolein

providingelectricityaccesstoruralcommunitiesover

thenextdecade.Accordingtoaleast-costelectrification

analysisconductedin2019fortheWorldBankRegional

Off-GridElectrificationProject(ROGEP),27by2030,an

estimated4,365settlements(about420,000households)

inSierraLeonerepresentingapproximately25percentof

thepopulation,canbeoptimallyelectrifiedbymini-grids

(Figure 2).28

22

FIGURE 2Distribution of Settlements by Least-Cost Electrification Option, 2030

Source:EnergioVerdaAfricaGISanalysis;WestAfricanPowerPool(WAPP).

WorldBank-ECREEERegionalOff-GridElectrificationProject(ROGEP):SierraLeoneReport,2019.

29 AnyusageabovethisthresholdispaidbytheMinistryofHealth.30 MinistryofEnergy-RuralRenewableEnergyProject:http://www.energy.gov.sl/home/rural-renewable-energy-project/

1.1.2 Rural Renewable Energy Project

In2016,SierraLeone’sMinistryofEnergy(MoE)launched

theRREP,fundedbytheUKForeign,Commonwealthand

DevelopmentOffice(FCDO),formerlytheDepartmentfor

InternationalDevelopment(DfID),andadministeredby

theUnitedNationsOfficeforProjectServices(UNOPS).

TheGBP34millionprojectaimstoestablishanenabling

environmentforaprivatesector-drivenruralmini-grid

marketinthecountry,withtheobjectiveofsupplyingupto

5MWofrenewableelectricityinruralcommunitiesthrough

installationsofatleast94solarmini-gridstobeoperated

andmanagedbyprivatesectorpartners.TheRREPisbeing

implementedinseveralphasesoverafive-yearperiod.

Thefirstphase,WorkPackage1(WP-1),involvedthe

installationof6kWpsolargenerationsystems in54

communityhealthcentres(CHCs)aspilotsites in14

districtsacrossSierraLeone.TheMoEselectedtheWP-1

sites in districts that are not already targeted by grid

extensionsorotherruralelectrificationprogrammesand

initiatives.CHCswereestablishedasbaselinefacilities

forelectrificationundertheRREPfollowingtheonsetof

theEbolacrisis,whichmadeitapriorityfortheGoSLto

provideruralhealthclinicswithareliablesourceofpower.

UndertheRREPbusinessmodel,inreturnforuseofthe

landonwhichtobuildthepowerstations,theCHCs

areprovidedwithupto6kWh/dayofelectricity,29 an

arrangementmanagedthroughatripartiteInter-Ministerial

CooperationAgreementsignedbetweentheMoE,the

MinistryofHealthandSanitation(MoHS)andtheMinistry

ofLocalGovernmentandRuralDevelopment(MLGRD).30

Next,underWorkPackage1+,theCHCsystemsin50

ofthecommunitieswereexpandedintosmallmini-grids

withcapacityof16–36kWp,extendingelectricityaccess

tosurroundinghouseholds,schoolsandbusinesses.

23

Constructionofall50WP-1mini-gridswascompletedin

2018underthesupervisionofUNOPS.

UnderthesecondphaseoftheRREP,WorkPackage2

(WP-2),threeprivatesectorcompaniesbidandnegotiated

public-privatepartnership(PPP)agreementswiththeMoE

tooperatetheexistingmini-gridsystemsinstalledunder

WP-1andWP-1+andtoco-investintheelectrification

ofanadditional44ruralcommunitieswithmini-grids

ranginginsizefrom36kWpto200kWp.Underthe

biddingprocess,theRREPsitesweredividedintofour

lotsacrossdifferentregions–Lot1(Kailahun),Lot2(Bo,

Kenema,BontheandPujehun),Lot3(Falaba,Bombaliand

Koinadugu)andLot4(Kambia,PortLokoandMoyamba).

Thethreeselectedoperators—WinchEnergy,PowerGen

andEnergicity—obtainedmini-gridlicensesfromthe

ElectricityandWaterRegulatoryCommission(EWRC)for

theirrespectivelotsandbegansellingelectricitytoWP-1

customersasofQ42019.31Allthreeoperatorshavealso

completedtheirinitialroundoffinancingfordevelopment

oftheWP-2sites.

In addition to mini-grid electrification of rural health

centresandcommunities,theRREPprovidedinstitutional

31 “Mini-GridMarketOpportunityAssessment:SierraLeone,”GreenMini-GridMarketDevelopmentProgramme,AfricanDevelopmentBankandSustainableEnergyFundforAfrica,(November2019):https://greenminigrid.afdb.org/sites/default/files/sierra_leone_gmg_final_report.pdf

32 http://www.energy.gov.sl/wp-content/uploads/2020/10/Fact-sheet_RREP-Updated-September-2020.pdf

capacitybuildingandtechnicalassistance(TA)tothe

MoE, theEWRCandother relevantagenciesunder

WorkPackage3(WP-3),withtheobjectiveofimproving

theregulatoryenvironmentinordertoencourageprivate

sectorinvestmentandfacilitatelong-term,commercially

sustainablemini-griddevelopment andoperations.

Subsequentworkpackagescoveredemergencyresponse

(WP-4)andmonitoringandevaluation(WP-5)functions,

whileWorkPackage6(WP-6)intendstobolsterprivate

sectordevelopment.TheobjectiveofWP-6istostimulate

demandfortheelectricityprovidedtothebeneficiary

communitiesbypromotingproductiveuseofenergy

(PUE)applicationsandprojects,thussupportingthe

commercialviabilityoftheprivately-operatedmini-grids

andimprovingtheeconomicandsocialwelfareoflocal

communities.Grantfundinghasbeenmadeavailableby

theFCDOunderWP-6toincreaseaccesstoproductive-

useequipmentandappliancesamongthemini-grid

communities.WorkPackage7(WP-7)wasapprovedbythe

FCDOin2020tosupportthereductionofmini-gridtariffs

throughadditionalsubsidyfornon-generation,public

assets(namelyelectricitymeteringandindoorconnection

materials)andthereserveaccountforreplacementof

WP-1generationassets(batteriesandinverters).32

24

FIGURE 3Map of RREP Mini-Grids

Source:EnergioVerdaAfricaGISanalysis;WestAfricanPowerPool(WAPP).WorldBank-ECREEERegionalOff-GridElectrificationProject:SierraLeoneReport,2019.NOTE:Existing=WorkPackage1mini-gridsites;Future=WorkPackage2mini-gridsites.

33 TrackingSDG7:TheEnergyProgressReport2020.34 “StateoftheGlobalMini-GridsMarketReport2020:Trendsofrenewableenergyhybridmini-gridsinSub-SaharanAfrica,Asiaandislandnations,”

BloombergNewEnergyFinance,Mini-GridsPartnershipandSustainableEnergyforAll,(July2020):https://www.seforall.org/system/files/2020-06/MGP-2020-SEforALL.pdf

35 “Mini-GridMarketOpportunityAssessment:Nigeria,”AfricanDevelopmentBankGreenMini-GridMarketDevelopmentProgramme,(June2018):https://greenminigrid.afdb.org/sites/default/files/minigrid_market_opportunity_assessment_nigeria_june_2018.pdf

1.1.3 Mini-Grid Electrification in Nigeria

NigeriaisAfrica’smostpopulousnationandhasitslargest

economy.Morethan80percentofinstalledcapacitycomes

from thermal generation with most of the remaining balance

comingfromhydropower.Accesstoelectricityremains

an ongoing challenge and is a key barrier to economic

development;accordingtothe2020SDG7TrackingReport,

thecountryhasanationalelectrificationrateof57percent,

whiletheruralelectricityaccessrateis31percent.33Where

thegridisavailable,consumersexperiencefrequentpower

cutsrangingfromfourto15hoursperday.34TheFederal

GovernmentofNigeria(FGN)hassetatargettoincrease

thenationalelectrificationrateto90percentby2030and

aimstoachieveuniversalaccessby2040.

Nigeriahasasignificantelectricitysupplydeficit,withonly

one-thirdofits12.5GWofinstalledgenerationcapacity

typicallyavailable.Meanwhile,tensofmillionsofon-site

dieselgeneratorsareusedtomeetthecountry’sactual

dailypeakelectricitydemand,whichisestimatedtoexceed

40GW.35Thissituationistheresultofseveralfactors:a

stagnation of on-grid generation due to limited additions of

newgenerationcapacity;thepoorstateofthenationalgrid

andacorrespondinglackofinvestmentingridmaintenance

andnewtransmissionnetworks;liquidityissuesfacedby

electricityutilitiesanddistributioncompanies(DisCos);and

associated issues of commercial and technical losses.

Inordertoaddressthesechallengesandachieveits

energyaccess targets,Nigeriawillneedtoprovide

25

electricitytomorethan1millionhouseholdsperyear

andaddanestimated25GWtoitspowergeneration

capacity. This will require solutions beyond grid

extensions,namelytheutilizationofoff-gridstand-alone

systems and distributed generation from isolated and

interconnectedmini-gridstoprovideaccessinruralareas

aswellasinurbanandperi-urbanareasthatreceivevery

unreliablecentrally-generatedpower.Theeconomicsfor

off-gridsolarareextremelyadvantageousinNigeria,as

asignificantshareoftheeconomyisalreadypoweredby

small-scalegeneratorsandnearlyhalfofthepopulation

haslimitedornoaccesstothegrid.Thecountry’svastand

underdevelopedmini-gridsectoroffersrevenuepotential

ofanestimatedUSD8billion(NGN2.8trillion)annually.36

Initselectrificationplanning,theRuralElectrification

Agency(REA)ofNigeriaestimatesthatmini-gridswill

represent the least-cost electrificationmethod for

approximately15.3millionpeople.37

The FGN has prioritized off-grid solutions in its

electrificationplanningandiscurrentlyimplementing

severalpolicies,programmesandfinancialinterventionsto

supportthedevelopmentofthecountry’srapidlygrowing

off-gridsector.Under the2017RuralElectrification

StrategyandImplementationPlan(RESIP),theREAwill

administeraRuralElectrificationFund(REF)toprovide

developerswithfinancial incentivestoexpandrural

electricity access.38 The Mini-Grid Regulations enacted

by theNigerianElectricityRegulatoryCommission

(NERC) in 2016 provide the necessary regulatory

36 Mini-GridInvestmentReport:ScalingtheNigerianMarket,RockyMountainInstitute,2018.37 Babamanu,S.,“CreatinganEnablingEnvironmentfora10,000Mini-GridsMarket:WorldBankMini-GridActionLearningEventandSummit,”

RuralElectrificationAgency,(June2019):https://atainsights.com/wp-content/uploads/2019/06/7.-Suleiman-Babamanu-Nigeria-Rural-Electrification-Agency-1.pdf

38 “RuralElectrificationStrategyandImplementationPlan,”FederalMinistryofPower,WorksandHousing,RuralElectrificationAgency,(2016):http://rea.gov.ng/file/2017/09/RESIP.pdf

39 WorldBankRegulatoryIndicatorsforSustainableEnergy:https://rise.worldbank.org/country/nigeria40 StateoftheGlobalMini-GridsMarketReport2020.41 Mini-GridInvestmentReport:ScalingtheNigerianMarket,RockyMountainInstitute,2018.

andpermittingguidelinesforthedevelopmentand

operationofmini-gridsinthecountry,includingclear

guidance on tariff setting through the REA Mini-Grid

TariffToolmethodology.Fundingintheformofsubsidies

providedunderprogrammessuchastheWorldBank

and AfricanDevelopmentBank(AfDB)-fundedNigeria

ElectrificationProject(NEP),theGIZ-fundedMini-Grid

AccelerationScheme(MAS)andInterconnectedMini-Grid

AccelerationScheme(IMAS)amongothers,hassupported

thedevelopmentandinstallationofmini-gridsacrossthe

country,allowingoperatorstochargemoreaffordable

tariffs.MuchlikeSierraLeone,Nigeria’sWorldBankRISE

electricityaccessscorehasimprovedsharplyinrecent

years,drivenbytheimplementationofenablingpolicies

andregulationsintheoff-gridsector–particularlyfor

mini-grids,withNigeriareceivingaperfectscoreinthis

categoryinthe2019RISEindex(Figure 4).39

Thenumberofcommercialmini-griddevelopershas

growntoatleastnineactivemembersoftheNigerian

chapteroftheAfricaMini-GridDevelopersAssociation

(AMDA).Attheendof2019,Nigeriahadanestimated

59mini-grids(2.8MWofinstalledcapacity),ofwhich

52usedsolar(Figure 5).40 The number of commercial

mini-gridsissettoincreaserapidly,withanestimated

200projectscurrentlyinthepipeline,whichwouldyield

approximatelyanadditional10MWofinstalledmini-

gridcapacitythroughoutNigeriaand,atcurrentcosts

fordevelopment,wouldrequireUSD28million(NGN10

billion)ininvestment.41

http://rea.gov.ng/file/2017/09/RESIP.pdf


26

FIGURE 4Nigeria RISE Electricity Access and Framework for Mini-Grids Scores, 2015–2019

RIS

E S

CO

RE

(O

UT

OF

10

0)

0

10

20

2015 2017 2019

30

40

50

60

70

80

90

100

FIGURE 4: Nigeria RISE Electricity Access and Framework for Mini-Grids Scores, 2015 2019

OVERALL ELECTRICITY ACCESS SCORE

FRAMEWORK FOR MINI-GRIDS SCORE

SSA REGIONAL AVG. ELECTRICITY ACESS SCORE

Source: Adapted from World Bank Regulatory Indicators for Sustainable Energy (Rise) index.

22

3540

70 72

100

Source:AdaptedfromWorldBankRegulatoryIndicatorsforSustainableEnergy(RISE)index.

FIGURE 5Nigeria’s Installed Mini-Grids by Project and Capacity, 2019

NUMBER OF MINI-GRIDS INSTALLED

0,0

5,0

10,0

2013 2014 2015 2016 2017 2018 2019

15,0

20,0

25,0

30,0

35,0

40,0

45,0

FIGURE 5: Nigeria’s Installed Mini-Grids by Project and Capacity, 2019

SOLAR

HYDRO

SOLAR HYBRID

Source: SEforAll State of the Global Mini-Grids Market Report, 2020.

OTHER

SOLAR

SOLAR HYBRID

HYDRO

OTHER

CUMULATIVE INSTALLED CAPACITY (MWp)

0,0

0,2

0,4

2013 2014 2015 2016 2017 2018 2019

0,6

0,8

1,0

1,2

1,4

1,6

1,8

Source: SEforALLStateoftheGlobalMini-GridsMarketReport,2020.

27

PART IMINI-GRID FRAMEWORKS,

TARIFFS AND SUBSIDIES

28

MINI-GRID ELECTRIFICATION PLANNING AND DEVELOPMENT IN SIERRA LEONE AND NIGERIA

2.1 Mini-Grid Electrification Planning and Development

This section presents a brief overview of the key

componentsofmini-gridpolicydevelopment—including

planningmethodsandbusinessmodels—whichhave

implicationsforthespeedofdelivery,thetariffframework,

andtheassociatedfundingrequiredfordevelopment

and/orsubsidies.

Theaimofmini-grid sectorpolicyand regulation

is to direct the industry’s performance towards

improvingthecollectivebenefitgainedbycustomers

andoperators.42 Inunregulatedmarkets,mini-grid

operatorsdeterminethetariffchargedtocustomers.

Government-implementedpoliciesandregulations

formini-gridsthattakeintoconsiderationtheirunique

requirements(size,typicalcustomerclass,etc.)are

capableofsupportingpoliciesthatpromotemini-

griddevelopment.Whentheseframeworksareclear,

consistent,enforceableandtransparent,andreflect

thecommercialandeconomicrealitiesofthemarket,

theyengenderconfidenceinpotentialfinanciers, and

inthelong-termviabilityofmini-gridsasanoff-grid

electrificationmodelforagivenmarket.Wherepolicy

andregulatoryframeworksfallshortofthesestandards,

theycanconstitutebarrierstogrowthoftheprivate

mini-grid sector.43

Mostmini-gridprojectsinnascentmarketshaveslim

ornon-existentprofitmargins,asprojects require

significantresourcesforpre-feasibility,development

andoperationrelativetopotentialrevenue,drivenby

theneedtoengagecommunities,theremotenessof

42 BatlleC.,andOcañaC.,“ElectricityRegulationPrinciplesandInstitutions:RegulationofthePowerSector,”Springer,London,2013.https://link.springer.com/chapter/10.1007%2F978-1-4471-5034-3_3

43 USAID:https://www.usaid.gov/energy/mini-grids/regulation/elements44 PracticalGuidetotheRegulatoryTreatmentofMini-Grids,NationalAssociationofRegulatoryUtilityCommissioners,2017.45 Mini-GridsforHalfaBillionPeople,WorldBankESMAP,2019.46 Kyriakarakos,G.andPapadakis,G.,“MultispeciesSwarmElectrificationforRuralAreasoftheDevelopingWorld,”Applied Sciences,9,(2019):

https://www.mdpi.com/2076-3417/9/19/3992/htm47 “ThePotentialforAlternativePrivateSupplyofPowerinDevelopingCountries,”EconomicConsultingAssociates(ECA),WorldBank(2014):https://

www.eca-uk.com/wp-content/uploads/2016/10/APS_Report.pdf

sitesandthetailor-madenatureofmini-gridprojects.

Asupportivepolicyandregulatoryframeworkthat

de-risksprojectsfordevelopersisthereforecritical,

asnascentmarketsareparticularlysensitivetooverly-

burdensome regulation.44Aboveall, thegoalofa

regulatory framework for mini-grids should be to

promotegoodserviceatthelowestpossiblecost-

recoverytariffs,whileremainingpredictablebutflexible

enoughtoevolveasthemarketmatures.45

2.1.1 Mini-Grid Electrification Planning

Ruralelectrificationcanbeaccomplishedusingsome

combinationofthreemainapproaches:gridextensions,

mini-grids,andsolarhomesystems(SHSs).Inruralareas

ofSub-SaharanAfrica,theaveragecostofelectrification

(perconnection)isestimatedtobebetweenUSD2,000

and3,000forgridextensions,USD500and1,200for

mini-grids,andUSD150and500forSHSs.46When

comparingthecostbetweendifferentsolutions,itis

importanttoconsiderthetierofenergyaccessprovided

(seeKey Definitions).Inelectrificationplanning(Figure 6),someofthefactorsthatdeterminewhetheramini-gridisoptimalfordeliveringenergyaccessincludeinter alia

thecostofelectricityfromthemaingrid;thecommunity’s

distancefromthemaingrid,incomelevels,economic

activitiesandwillingnesstopay(WTP)forelectricity;

whetherthecommunityisscatteredorconcentrated;the

availabilityandcostofenergysourcesusedtopowerthe

mini-grid(solar,wind,hydropower,bioenergy,dieselfuel,

orsomehybridofthesetechnologies);andthecostof

alternativeenergysources(kerosene,dieselgeneration

etc.).47Throughanintegratedplanningapproachand

supportiveregulation,governmentscandeploymini-grids

29

toserveareasthatcannotbereachedbythenationalgrid,

orthatrequiremoreelectricitythancanbeprovidedby

48 PracticalGuidetotheRegulatoryTreatmentofMini-Grids,NationalAssociationofRegulatoryUtilityCommissioners,2017.49 “Mini-Grid Policy Toolkit: Policy and Business Frameworks for SuccessfulMini-Grid Roll-outs,” EuropeanUnion Energy Initiative

PartnershipDialogueFacility(EUEIPDF),(2014):http://www.euei-pdf.org/sites/default/files/field_publication_file/RECP_MiniGrid_Policy_Toolkit_1pageview_%28pdf%2C_17.6MB%2C_EN_0.pdf

50 Tenenbaum,B.,Greacen,C.,Siyambalapitiya,T.,andKnuckles,J.,“FromtheBottomUp:HowSmallPowerProducersandMini-GridsCanDeliverElectrificationandRenewableEnergy inAfrica,”WorldBank, (2014):https://openknowledge.worldbank.org/bitstream/handle/10986/16571/9781464800931.pdf?sequence=1&isAllowed=y

stand-alonesystems,thusensuringalignmentbetween

ruralelectrificationandeconomicdevelopmentgoals.48

FIGURE 6The Mini-Grid Space in Rural Electrification49

UNSUBSIDIZED ELECTRICITY RETAIL

COST ON SITE[EURO/kWh]

NATIONAL GRID EXTENSION

LARGEHIGH

CLOSEEASY

STRONG

SMALLLOWFAR

COMPLEXWEAK

SIZE OF COMMUNITYDENSITY OF POPULATION

DISTANCE TO NATIONAL GRIDCOMPLEXITY OF TERRAIN

ECONOMIC STRENGTH

“MINI-GRID SPACE”

SOLAR HOME SYSTEMS AND PICO PV

FIGURE 6: The Mini-Grid Space in Rural Electrification49

Source: INENSUS, Mini-Grid Policy Toolkit.Source:INENSUS,Mini-GridPolicyToolkit.

In the context of mini-grid sector development,

governmentregulationfallsalongaspectrumoflight-

handed to comprehensive regulation.Determining

theappropriatelevelofregulationdependsonmarket

conditionsandpoliticalwill,amongotherfactors,and

canbeachievedthroughflexibleregulationthatevolves

as themarketmatures. Likewise,governments can

adoptacentralized/top-downapproachtoplanning,

a decentralized/bottom-up approach, or some

combinationofthetwo.Eachapproachhaskeytrade-

offsthatpolicymakersandregulatorsneedtoconsider

whendeterminingwhatismostappropriatefortheir

nationalcontext.Duringregulatoryframeworkdesign,

policymakersshouldallowbothtop-downandbottom-up

approaches(Table 1)tocoexistinthemarketandshouldnotrestrictthemselvestoaparticularapproach.50

30

TABLE 1Mini-Grid Electrification Planning Approaches

Electrification Planning Approach Advantages Disadvantages

Top-DownUnderacentralized,top-downapproach,thegovernmentidentifiessitesformini-griddevelopmentandleadsprocurementofdevelopersforeachsite;thisapproachoftenincludesagovernmentalroleinthedevelopmentand/orownershipofmini-gridassets.Atop-downapproachisusuallyassociatedwithsomeformofincentivefordevelopers,suchasasubsidyand/orguaranteethattheoperatorcanhaveanexclusiverighttosupplyagivenserviceareawithoutthreatofcompetitionforagivenperiod.

• Allowsgovernmenttocontrolthemini-griddevelopmentprocess,increasing the likelihood that siteswillbedeveloped,whilesimultaneouslyremovingtheearly-stagecostsofdevelopmentthatwouldhavebeenbornebyadeveloper

• Ensuresthatmini-griddevelopersprovideaccesstoall,includingthemostvulnerablehouseholds;mayleadtoamoreequitablepathwaytoachievinguniversalelectricityaccess

• Requiressignificantfinancialandhumanresources,aswellascoordinationonthepartofgovernmentauthorities

• Requiressignificantcapacitytoidentifyandassesssites,developandmanageapprovalprocesses,andmanagecompetitivebiddingprocesses,amongotherresponsibilities

• May constrain the ability of entrepreneursandcommunitiestodevelopprojectsinareasnotincludedincentralizedplans,therebyhinderingexperimentationwithinnovativebusinessmodels

Bottom-UpAdecentralized,bottom-upapproachreliesondeveloperstotaketheinitiativetoidentifyanddevelopsites;underthisapproach,thegovernmentstillmanagestheregulatoryframeworkforsitedevelopment(e.g.,bydevelopingeligibilityrequirementsforprojects)butusuallydoesnotprocuredevelopers.Theremayormaynotbeasubsidyincluded,andthereisusuallynoprotectionfromcompetitionthrough concession contracts or a tariff-setting framework.

• Takesadvantageofthediverseknowledge and skills that developersbringinidentifyinganddevelopingsites

• Canreducedevelopmentcostsandrisks,sincedevelopershavemoreinfluenceoverthedirectionofprojects

• Fosterscompetitionandallowsprogresstomoveatthepaceoftheprivatesector,providedthatthegovernmenthassetupanenablingregulatoryenvironment

• May lead to confusion and lack ofcoordination,particularlyifmultipledevelopersareinterestedinpursuingprojectsinthesamearea,orifadeveloperisinterestedin a site slated for grid extension

• Thegovernmenthaslesscontroloversiteselection;asaresult,projectsmaynotbedevelopedinareasthatwouldprovidethegreatestpublicgood

Source:NARUC,2017andWorldBankESMAP,2014.

51 “Mini-GridsforTimelyandLow-CostElectrificationinGhana:ExploringRegulatoryandBusinessModelsforElectrifyingtheLakeVoltaRegion,”WorldBankESMAP,(November2017):https://openknowledge.worldbank.org/bitstream/handle/10986/29017/121824-ESM-GhanaESMAPGhanaTechnicalReportDECclean-PUBLIC.pdf?sequence=1&isAllowed=y

52 “Mini-GridsforHalfaBillionPeople:MarketOutlookandHandbookforDecisionMakers,”WorldBankESMAP,(June2019):https://openknowledge.worldbank.org/bitstream/handle/10986/31926/Mini-Grids-for-Half-a-Billion-People-Market-Outlook-and-Handbook-for-Decision-Makers-Executive-Summary.pdf?sequence=1&isAllowed=y

53 Givens,R.,“TheAnchor-Business-CommunityModel forRuralEnergyDevelopment: Is itaViableOption?”NicholasSchoolof theEnvironmentofDukeUniversity,(April28,2016):https://dukespace.lib.duke.edu/dspace/bitstream/handle/10161/11940/MP%20Final_Givens.pdf?sequence=1&isAllowed=y

2.1.2 Mini-Grid Business Models

A wide range of business models exist in the mini-grid

sector,withvaryingrisk-sharingarrangementsandroles

forthepublicandprivatesectorintheownershipand

operationofmini-gridassets(seeAnnex 1).51 Public-

privatepartnerships(PPPs)areoftenaneffectiveway

ofdistributingresponsibilitiestooptimizegovernment

andprivatesectorcapacitiesandcanalsoenablemini-

griddevelopersthatdonothavesubstantialfinancial

resources to enter the market.52Whenselectingownership

models,governmentsneedtoconsiderthestrengths

andweaknessesofeachoptionaswellastheimpact

thatagivenapproachwillhaveonthespeedofdelivery,

consumertariffs,economicviabilityandcostsofproject

development.Ingeneral,governmentsshouldseekto

encourageandincentivizeprivatesectorparticipation

to ensure long-term market growth and sustainability.

Policymakersshoulddesignand implement flexible

regulatoryframeworkstoaccommodateanypotential

businessmodelsthatmayemergeasthemarketdevelops.

Inaddition to thevariousapproachesdescribed in

Annex 1(whichalsocategorizesbusinessmodelsinrelationtotheirownershipstructure),severalothermini-

gridelectrificationmodelshavebeendeployedwith

varyingdegreesofsuccess.Onecommonexampleis

theAnchor-Business-Community(ABC)model,which

allowsdeveloperstoserveruralareasbyleveraging

thecontinuousdemandfrom‘anchor’customers(e.g.,

telecommunications towers, institutional facilities,

miningoperationsetc.)toprovideareliablerevenue

stream,therebymitigatingtheriskofprovidingenergyto

businessesandcommunity/householdcustomersinrural

areas.53TheABCmodelcanbedeployedunderdifferent

typesofownershipschemes(public,private,PPPetc.).

31

Mini-gridbusinessmodelscanbebasedondifferenttypes

ofcustomerpayment/tariffstructures.InTanzania,the

solarmini-griddeveloperJUMEMEhascarefullyselected

communities where a mini-grid can be integrated into

existingeconomicactivitiestoboostitsoutput,orwhereit

canbethebaseforessentialpublicservices(seeSection IV).54Devergyisamini-gridcompanythatchargesitscustomersfor“bundlesofenergy”similartohowamobile

networkoperatoroffersinternetpackages.Foreach

bundle,customerscanconsumeamaximumamountof

energyforacertainperiodoftime(e.g.,oneweekorone

month),withlimitsonhowmuchpowercanbeconsumed

instantaneously.55InZambia,alocalmini-griddeveloper,

StandardMicrogrid,utilizesasimilarEnergy-as-a-Service

(EaaS)model(seeKey Definitions)todeliveraffordableandreliablesolarelectricitytoitscustomers,billingfor

energyservicesratherthankWh.56Theseconceptsare

examined in further detail in Section 3.1.1.

Businessmodelscanalso relyon innovative funding

mechanisms.Forexample,in2020,theCongolesesolar

developerNurucommissionedthe1.3MWtownshipmini-

gridprojectinGoma,thecapitalofNorthKivuProvince,

becomingAfrica’slargestoff-gridsolarmini-gridinoperation

to date.57Itisthefirstrenewableenergyprojectfromwhich

Energy Peace Partners will issue Peace Renewable Energy

Credits–aninnovativefundingmechanismdesignedto

acceleratethetransitiontorenewablesinconflict-affected

areas(therevenuefromtheirsalewillfundtheconstruction

ofpublicstreetlightsconnectedtothemini-gridinthe

NdoshoneighborhoodofGoma).58

2.2 Status of Mini-Grid Sector Development in Sierra Leone and Nigeria

2.2.1 Sierra Leone

Mini-Grid Policy, Regulatory and Institutional Landscape

UndertheRuralRenewableEnergyProject(RREP),the

governmenthasutilizedatop-downapproachduring

initialstagesofmarketdevelopmentbypre-defining

54 “JUMEME’sbusinessmodelformini-gridsreapingmultiplebenefitsinTanzania,”SustainableEnergyforAll,(27May2020):https://www.seforall.org/news/jumemes-business-model-for-mini-grids-reaping-multiple-benefits-in-tanzania

55 Devergy:https://devergy.com/about/56 StandardMicrogrid:https://standardmicrogrid.com57 Takouleu,J.,“DRC:Nuruconnects1.3MWsolaroff-gridhybridprojectinGoma,”Afrik21,(7February2020):https://www.afrik21.africa/en/drc-

nuru-connects-1-3-mw-solar-off-grid-hybrid-in-goma/58 “Newsletter:FirstP-RECPilotProjectinOperation,”EnergyPeacePartners,(8April2020):https://www.energypeacepartners.com/blog/newsletter-

first-p-rec-pilot-project-in-operation59 TheWP-1PPParrangementcloselyresemblesaDesign-Build-Operate(DBO)model,wherebythegovernmenthasfullyfinancedtheinitial

constructionofthemini-grids(seeKey Definitions).60 AfDBGreenMini-GridMarketDevelopmentProgramme-Mini-GridMarketOpportunityAssessment:SierraLeone,2019.

projectsites,promotingpilotprojectsthroughthe

healthcaresector,andretaininginternationalfirms

tobringinternationalbestpracticestothemarket.

OutsideoftheRREP,mini-gridsystemsinSierraLeone

arelargelyownedbytheprivatesectororcommunities,

with the Electricity Generation and Transmission

Company (EGTC) operating a few larger thermal

systems.

TheownershipmodeladoptedbytheGovernmentof

SierraLeone(GoSL)undertheRREPisahybridmodel,

wherebypublicandprivateentitiesaredeveloping

mini-gridsjointly(Figure 7).WorkPackage1(WP-1)sitesweredevelopedunderapublicownership/private

managementmodel,whileWorkPackage2 (WP-2)

followedthe“split-asset”ownershipmodel(seeAnnex 1).ThePPPagreementsignedbetweentheMinistryofEnergy(MoE)andthethreeoperatorsisstructuredasa

hybridbetweenaBuild-Own-Operate(BOO)andBuild-

Operate-Transfer(BOT)model(seeKey Definitions)andincludestwokeycomponents:

i. aUsageRightsAgreement,underwhichtheprivate

operatorspaidtheGoSLafeeforusageofWP-1

assetsthathadalreadybeendeveloped;and

ii. aProjectDevelopmentAgreementsignedforthe

projectstobeco-financedanddevelopedunder

WP-2.

TheWP-1scopeofwork for theprivateoperators

includesoperationandmaintenance(O&M)ofthe54

communityhealthcentre (CHC)systemsovera20-

yearperiod,withthecapexforthegenerationand

distributionnetworkequipmenthavingalreadybeen

paidforbytheFCDO.59UnderWP-2,theFCDO(through

UNOPS)fundedthedistributionnetworkequipment,

whiletheprivateoperatorscoveredthecostsofthe

generationequipmentandwererequiredtoobtainall

necessarylicensesandpermitsforthemini-gridprojects.

Attheendofthe20-yearconcessionperiod,thepublic

assets(i.e.,generationanddistributionequipmentfor

WP-1anddistributionassetsforWP-2)willbetransferred

to the MoE.60

32

FIGURE 7Ownership Structure of Public and Private Assets under the RREP

FIGURE 7: Ownership Structure of Public and Private Assets under the RREP

Source: AFDB Green Mini-Grid Market Development Programme.

CONTRACTINGAUTHORITY

Ministry of Energy

OWNS PUBLICASSET

OPERATES PUBLICASSETS

PROCURES PUBLICASSETS

simultaneous close

HANDOVEROF ASSETS

USAGE RIGHTOVER ASSETS

PRIVATE MINI-GRIDOPERATORUNOPS

Source:AfDBGreenMini-GridMarketDevelopmentProgramme.

Thekeygovernmentstakeholders,andthepolicies,laws,

regulationsandroadmapsguidingthedevelopmentof

SierraLeone’sruralelectrificationeffortsaresummarized

in Figure 8.MoreinformationisavailableinAnnex 2.

FIGURE 8Key Government Stakeholders, Policies, Laws and Regulations in Sierra Leone’s Mini-Grid Sector

FIGURE 8: Key Government Stakeholders, Policies, Laws and Regulations in Sierra Leone’s Mini-Grid Sector

2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021

NATIONAL ENERGYPOLICY

National PublicProcurement

Authority

EnvironmentalProtection

Agency

NATIONAL RENEWABLEENERGY ACTION PLAN

MINI-GRID REGULATION RATIFIED

FINANCEACT 2017 FINANCE

ACT 2021

NATIONALELECTRICITY ACT

RENEWABLEENERGY POLICY

SIERRA LEONE ELECTRICITYAND WATER REGULATORY

COMMISSION ACT

PUBLIC-PRIVATE PARTNERSHIP (PPP) UNIT

[OFFICE OF THE PRESIDENT]

SIERRA LEONE ELECTRICITYAND WATER REGULATORY

COMMISSION (SLEWRC)

ELECTRIC SECTOR REFORM ROADMAP

(2017-30)

EPA GUIDELINES FORRENEWABLE ENERGY

AND MINI-GRIDS

Ministryof

Finance

Ministryof

Energy

33

Cost of Service

In2016,priortotherolloutoftheRREPinSierraLeone,

a demand assessment carried out by the project

encompassing68ruralcommunities,2,500interviews,

andfeedbackfrom1,950householdrespondents,found

thathouseholdswouldbenefitfromsavingsofupto52

percentwiththeadventofmini-gridelectricity,based

onaveragecostsofalternativesourcesofenergy(i.e.,

expendituresonkerosene,batteries,fueletc.).Thesurvey

estimatedtheaverageamountruralcustomerswereable

topaywasapproximatelyUSD6/month(SLL59,400/

month),mainlyforlighting,mobilephonechargingand

other household uses. The study also found that rates

of electricity demand could increase by a factor of 20

withthearrivalofmini-gridelectrification,withaverage

consumptionbetween3.5and6.3kWhpermonthper

household.SubsequentstudiesconductedbytheMoE

followingtheinceptionoftheprojectfoundevidencethat

the cost of electricity from mini-grids remains lower than

alternativesourcesofenergy.

After theWP-1mini-gridsbeganoperating in2019

(seeSection 1.1.2 foradescriptionoftheRREPWorkPackages),80percentofmini-gridcommunityrespondents

surveyedbytheGreenMaxfieldresearchteamwhodid

not connect to the mini-grid cited affordability of the

electricity tariff as the main reason for not connecting.61

TheinitialtariffsforWP-1sitesrangedfromUSD0.82/

kWhto0.87/kWh,withanaveragetarifflevelofabout

USD0.85/kWh.Giventhefocusonprovidingaccessfor

WP-1sites(i.e.,targetingsmallersitesinordertoavoidthe

deliberate selection of only larger and more economically

attractivelocations),theseinitialsiteshadalowertargeted

61 NB:Thesefindingsdonotreflectthefactthatperceptionsonaffordabilitydonottakeintoaccounttheincreaseinconsumerspendingonelectricityfromthemini-gridasaresultoftheuseofappliances,nordotheyreflectalike-to-likecomparisonofend-userspendingonelectricityfromthemini-gridincomparisontoexpensiveandpollutingalternativesourcesofenergypriortothemini-grid’sinstallation.

62 Asubstantialdelaybetweenthetimethemini-gridsystemswereinstalledandthesiteswereelectrified(mainlyduetodelaysinthetenderingprocess)ledtothecapacityreductionofbatteries.

63 http://www.energy.gov.sl/wp-content/uploads/2020/10/Fact-sheet_RREP-Updated-September-2020.pdf64 Stakeholderconsultations,2021.

numberofcustomers.Thisdynamic—smaller sites

withrelativelylimiteddemand—combinedwithhigh

projectdevelopmentandoverheadcostsfordevelopers,

contributedtoahighertariff,whichwasnecessaryto

makeprojectsbankable.Anotherfactorthatincreased

costswastheinitialrequirementforoperatorstomaintain

areserveaccountforWP-1batteries,62 which has since

beenaddressedthroughanFCDOsubsidyunderWork

Package7(WP-7)oftheRREP.63

Underthenextphaseoftheproject,WP-2,operators

areco-investinginthedevelopmentof40+largermini-

gridsundera“split-asset”modelinwhichtheGoSLis

coveringthecapitalcostsofthedistributionassets.As

theoperatorsbegintoconnectmorecustomersandbring

largermini-gridsystemsonline,projectdevelopmentcosts

are gradually decreasing. The most recent round of tariff

negotiations,combiningtheWP-1andWP-2sites,resulted

inarangeofUSD0.74/kWhto0.82/kWh,withanaverage

tariffofUSD0.79/kWh.64

Quality of Service

The regulatory framework in Sierra Leone requires

operatorstofollowminimumservicequalitystandards

thataredefinedinthemini-gridregulations(technical

andservicestandardsforSierraLeonearedescribedin

further detail in Section 3.1.1.1).WhensurveyedbytheGreenMaxfieldresearchteam,aboutthree-quartersof

mini-gridcommunityrespondentsweresatisfiedwiththe

overallqualityofpowersuppliedbythemini-grid(Figure 9).Thesurveycoveredqualityofservicebroadlyinrelationtoservicereliability,voltagestability,andresponsiveness

to outages.

34

FIGURE 9User Satisfaction with Mini-Grid Quality of Service

FIGURE 9: User Satisfaction with Mini-Grid Quality of Service

YES

NO

Source: Mini-Grid Community Survey, 2020.

26%

74%

Source:Mini-GridCommunitySurvey,2020.

65 Warren,C.,“InNigeria,ATemplateforSolarPoweredMini-GridsEmerges,”GreentechMedia,(February20,2018):https://www.greentechmedia.com/articles/read/nigeria-solar-powered-minigrids

Discussionswithoperatorsfoundthataboutone-third

oftheWP-1siteshaveexperiencedtechnicalproblems

relatedtoinstallationqualityandthecapacityreduction

of batteries arising from a substantial delay between the

time the mini-grid systems were installed and the sites

wereelectrified(mainlyduetodelaysinthetendering

process).Otherchallengesthatwereidentifiedinclude

system-sizing issues tomatch the specificdemand

requirementsofthecommunity,whilemanymini-grids

areexperiencinglowlevelsofcapacityutilization.In

somesites,theoperatorsareplanningtoexpandthe

solargenerationcapacityortorundieselgenerators,

whiletheGoSLisprovidingdistributiongridmaterials

tooperatorssothattheadditionaldemandcanbemet.

Downtimeforthemini-gridsystemscanvaryfromafew

hourstoafewdays;operatorsworkcloselywithlocal

staff to address maintenance issues and are generally

responsivetoquality-of-serviceissuesthatarise.

2.2.2 Nigeria

Mini-Grid Policy, Regulatory and Institutional Landscape

IncontrasttoSierraLeone,Nigeriahasadoptedamore

bottom-up,privatesector-drivenapproachtomini-grid

sectordevelopment.AsdescribedinSection 1.1.3,theNigerianoff-gridmarkethasseveraluniquecharacteristics

thatmakeitfavourableforinvestment.Mini-gridscan

providereliableelectricitytounservedandunderserved

areas throughout thecountry,withopportunities for

significantcustomersavingswhilealsoprovidingdeveloper

returns. In addition to these advantageousmarket

conditions,thecountryhasimplementedarobustand

supportivepolicyandregulatoryframeworkformini-grids.

Withassistancefromvariousdevelopmentpartners,the

FederalGovernmentofNigeria(FGN),ledbytheRural

ElectrificationAgency(REA),continuestopursueinnovative

solutionstoscaleupmini-griddevelopment.Forinstance,

withfundingfromtheUSAIDRenewableEnergyandEnergy

EfficiencyProject(REEEP)andtheEU/GIZNigerianEnergy

SupportProgramme(NESP),aninnovative“split-asset”

ownershipmodel(seeAnnex 1)waspilotedwithprivatedeveloperRubitecSolartofinancethedevelopmentof

a mini-grid in GbamuGbamu,avillageinOgunState.65

TheNigeriaElectrificationProject(NEP)combines both

top-downandbottom-upapproachestoacceleratethe

rolloutofmini-grids.Initially,theprojectusesatop-

downapproachwithsolicitedproposalstoelectrify250

prioritizedcommunitiesacrossfourstates(Niger,Sokoto,

OgunandCrossRiver)inthefirstphase,followedbya

bottom-upapproachdrivenbyprivatedevelopersand

supportedbyaresults-basedfinancing(RBF)instrument

inasecondphase.WithUSD220millioninfunding

fromtheWorldBankandtheAfricanDevelopmentBank

(AfDB),theRBFprogrammeutilizesaperformance-based

grant(PBG)andminimumsubsidytendermechanismto

35

helpdevelopersfinanceisolatedsolarhybridmini-grid

projects(Figure 10).66 TheREAaimstoprovideprojectdeveloperswithgeoreferenceddataonthemostviable

sites to let them choose which sites they are interested

66 StateoftheGlobalMini-GridsMarketReport2020.67 Babamanu,2019.

indeveloping(onaspontaneousbasis),with the grant

amountsetatUSD350perconnection. The mini-grids

willbedevelopedonaBuild-Own-Operate(BOO)model

(seeKey Definitions).67

FIGURE 10Nigeria Electrification Project: Performance-Based Grant Programme

FIGURE 10: Nigeria Electrification Project: Performance-Based Grant Programme

Source: Bloomberg New Energy Finance; Rural Electrification Agency.

1 2 3 4 5QUALIFICATION

SITE-SPECIFCTECHNICAL

APPLICATION

GRANTAGREEMENT

SIGNING

MINI-GRIDCONSTRUCTION

PHASE

VERIFICATIONAND

DISBURSEMENT

Developers submit a performance-based grant programme application, including a corporate business plan, to show that they are eligible andqualified.

They must also prove they meet initial selection criteria.

Qualified appicantsare then invited tosubmit site-specificapplications.

Details of site,generation anddistribution design,target number ofconnections permini-grid.

Grants will be dispersedupon verification thatcustomers have beenconnected to the mini-gridand are receiving asatisfactory service.

Odyssey’s online platform can be used forremote verification.

Once grant agreement signed, developer sources for constructionfinancing.

Once in receipt of the capital, developerbuilds proposed mini-grid.

A mini-grid permit from NERC is requiredfor this phase.

Once site-specificapplication approved,developer enters intoa grant agreementwith NEP.

Source:BloombergNewEnergyFinance;RuralElectrificationAgency.

Thekeygovernmentstakeholders,andthepolicies,laws,

regulationsandroadmapsguidingthedevelopmentof

Nigeria’sruralelectrificationeffortsaresummarizedin

Figure 11.MoreinformationisavailableinAnnex 2.

36

FIGURE 11Key Government Stakeholders, Policies, Laws and Regulations in Nigeria’s Mini-Grid Sector

FIGURE 11: Key Government Stakeholders, Policies, Laws and Regulations in Nigeria’s Mini-Grid Sector

2001 2003 2005 2007 2009 2011 2013 2015 2017 2019

NATIONAL ELECTRICPOWER POLICY (NEPP)

POWER SECTOR REFORM ROADMAP

ELECTRIC POWERSECTOR REFORM

ACT (EPSRA)

NIGERIAN ELECTRICITYREGULATORY

COMMISSION (NERC)

RURAL ELECTRIFICATIONFUND (REF) -

OPERATIONALGUIDELINES

REGULATIONFOR MINI-GRIDS

RURAL ELECTRIFICATIONSTRATEGY &

IMPLEMENTATIONPLAN (RESIP)

REGULATIONS ON NATIONAL CONTENT DEVELOPMENT FOR THE POWER SECTOR

NATIONAL POLICY ONRENEWABLE ENERGY

AND ENERGY EFFICIENCY (NREEEP)

Energy Commission of

Nigeria

FederalMinistry of

Finance

NATIONALENERGY POLICY

RURAL ELECTRIFICATIONAGENCY (REA)

NIGERIAN ELECTRICITYMANAGEMENT SERVICES

AGENCY (NEMSA)

RURAL ELECTRIFICATIONPOLICY

Federal Ministry of

Environment

FederalMinistry of

Power

68 Figuresarefromsolarhybridmini-gridsranginginsizefrom30-234kWpthathavebeencommissionedundertheAfDB/WorldBankNigeriaElectrificationProject(NEP)Performance-BasedGrantProgrammeandtheEU/GIZNigerianEnergySupportProgrammeI(NESPI);seeTable 8 in Section 3.2.1.2.

69 “Mini-GridInvestmentReport:ScalingtheNigerianMarket,”RockyMountainInstitute,(2018):https://rmi.org/wp-content/uploads/2018/08/RMI_Nigeria_Minigrid_Investment_Report_2018.pdf

70 “Mini-GridsinNigeria:ACaseStudyofaPromisingMarket,”WorldBankESMAP,(November2017):http://documents1.worldbank.org/curated/en/352561512394263590/pdf/ESM-dNigeriaMiniGridsCaseStudyConfEd-PUBLIC.pdf

Cost of Service

Bycomparison,accordingtotheREA,mini-gridtariffsin

NigeriarangefromUSD0.39/kWhto0.79/kWh(NGN

150/kWh–300/kWh),withanaveragetarifflevelofabout

USD0.58/kWh(NGN220/kWh).68Interviewswithmini-

gridoperatorsinNigeriafoundthattherehavebeen

relativelyfewcomplaintsfromcommunitiessurrounding

tariffaffordability,asthemajorityofendusersspend

less on electricity from the mini-grid than they did on

expensiveandpollutingalternativesourcesofenergy

priortothemini-grid’sinstallation.Forinstance,the

levelizedcostofelectricity(LCOE)fromasmalldiesel

generatorisatleastUSD0.75/kWh(NGN250/kWh)and

isvulnerabletofuelpricevolatility.69

Quality of Service

Themini-gridregulatoryframeworkinNigeriarequires

mini-grid license holders to meet minimum technical

requirementsandensurequalityofserviceinaccordance

withtheiragreementswithbeneficiarycommunities.70

UndertheNEPRBFscheme,allinstallationsmustbe

quality-verifiedfordeveloperstoreceivethesubsidy.

Mini-gridtechnicalandservicestandardsforNigeriaare

described in Section 3.1.1.2.

2.2.3 Summary of Findings

TheNigerianmini-grid sector is regulatedby the

NERCRegulation forMini-Grids2016,whileSierra

Leone’smini-gridsectorisregulatedbytheElectricity

andWaterRegulatoryCommission(EWRC)Mini-Grid

Regulations2019.AsdescribedinSections 1.1.1-1.1.3, bothcountrieshavedevelopedvariouspoliciesand

guidelinestosupportthedevelopmentofrenewable

energygenerationcapacityandruralelectrification

(Figure 8 and Figure 11).SierraLeonedoesnothaveanagencysuchastheNigerianREAwhichisdedicated

exclusivelytoruralelectrificationandenergyaccess;all

37

ruralelectrificationplanninginSierraLeoneiscurrently

managed by the MoE.

Regulatoryandpolicymeasurestosupportmini-grids

arebroadlysimilarbetweenNigeriaandSierraLeone

(Figure 12).Thesimilaritiesbetweenthemeasuresinboth countries are not unrelated to the fact that the

GoSLdevelopedandapproveditsmini-gridregulatory

framework based on the existing strong regulatory models

inNigeria,Tanzania,andatthestatelevelinIndia.71

Bothcountrieshave regulationsspecifying relevant

standards,licensingprovisions,tariffmechanismsandgrid

interconnectionrules,andbothframeworksencourage

privatesectorparticipationinthemini-gridmarkets,albeit

71 “ARobustMini-gridRegulatoryFramework,”ElectrifyingEconomies,(2019):https://www.rockefellerfoundation.org/wp-content/uploads/2020/10/EE-Download-Solutions-CaseStudies-Minigrid-regulations.pdf

72 “PoliciesandRegulationsforRenewableEnergyMini-Grids,”InternationalRenewableEnergyAgency,(November2018):https://www.irena.org/-/media/Files/IRENA/Agency/Publication/2018/Oct/IRENA_mini-grid_policies_2018.pdf

73 WorldBankGlobalPovertyWorkingGroup:Povertyheadcountratioatnationalpovertylines(%ofpopulation):https://data.worldbank.org/indicator/SI.POV.NAHC?locations=NG-SL

throughcontrastingapproaches–mini-griddevelopment

undertheRREPinSierraLeonehasbroadlyfolloweda

publicownership/privatemanagementmodeldrivenby

atop-downapproach,whereasmini-griddevelopment

inNigeriahasfollowedamorebottom-up,private-sector

drivenapproach.

WhileSierraLeonedoesnothaveanintegratedrural

electrificationmasterplan, itsoff-gridelectrification

strategiesarebroadlydefinedinitsvariouspolicyand

roadmapdocumentsincludingtheElectricitySector

ReformRoadmap2017–2030,theSierraLeoneRenewable

EnergyPolicyandtheNationalRenewableEnergyAction

Plan,amongothers.

FIGURE 12Summary of Mini-Grid Policies and Regulations in Sierra Leone and Nigeria72

FIGURE 12: Summary of Mini-Grid Policies and Regulations in Sierra Leone and Nigeria72

Source: International Renewable Energy Agency.

PRIMARY MEASURES

NATIONALPOLICY

ONRENEWABLE

ENERGY

NIGERIA

SIERRALEONE

FINANCIALSUPPORT

RURAL ELECTRIFICATION

STRATEGYAND

MASTER PLAN

ARRIVALOF

MAIN GRID

LEGAL ANDLICENSINGPROVISION

COSTRECOVERY

AND TARIFFREGULATION

QUALITYSTANDARDS

MINI-GRID POLICIES AND REGULATIONS

PROPOSED MEASURES BUT YET TO BE APPROVED

IMPLEMENTED MEASURES

Source:InternationalRenewableEnergyAgency.

It is importanttoemphasizethatwhiletheNigerian

tariffisconsiderablylowerthanthetariffinSierraLeone,

the two mini-grid markets are at different stages of

developmentandhavepursueddifferentmarketplanning

anddevelopmentapproaches,whichhasanimpactonthe

costofservice.Inaddition,thelargersizeoftheNigerian

market(andincreasedscaleofelectricitydemand)plays

animportantroleindrivingcostreductionsvis-à-visSierra

Leone,wheretherearefewermini-gridcustomersinmore

sparselypopulatedruralvillages.Householdincome

levelsarealsolowerinSierraLeone(56.8percentnational

povertyheadcount ratiocompared to40.1percent

inNigeriain2018),contributingtoalowerhousehold

consumptionrate.73

38

MINI-GRID REGULATORY FRAMEWORKS, TARIFFS AND SUBSIDIES IN SIERRA LEONE AND NIGERIA

3.1 Assessment of Mini-Grid Regulatory Frameworks in Sierra Leone and Nigeria

3.1.1 Tariff Framework

Tariff Setting

The affordability of energy access is a function of the

priceofelectricityandtheenduser’sincomelevel.74 A

household’sexpenditureonelectricityagainstitsincome

isanindicatoroftheaffordabilityofelectricity.Ingeneral,

ahouseholdisconsidered‘energypoor’ifmorethan

10percentofthehouseholdincomeisspentonfuelto

maintainanadequatelevelofcomfort.75Withoutelectricity

access,off-gridhouseholdswillspendahigherproportion

oftheirincomeonalternativeformsofenergy(e.g.,diesel

generators,kerosenelanterns,batteriesetc.),whichhave

highercostscomparedtomini-gridandgridpower.As

aresult,mostcustomersalreadypaymuchhigherrates

foraccessusingthesealternatives,thusdefiningtheir

willingnesstopay(WTP)formini-gridelectricity.

Providingservice to ruralcustomersviaamini-grid

is almost always more costly than electrifying urban

customersconnectedtothenationalgrid,sincelarge

utilitiescanaveragecostsacrossawidercustomerbase

withuniformnationaltariffsthateffectivelycross-subsidize

customerswhoaremoreexpensivetoservewithrevenue

fromthosewhoarecheaper.Nationaltariffscanoften

haveamarket-distortingeffectwherebycustomers—

particularlythoseinremoteregions—donotunderstand

theutility’struecosttoprovideservice,whichcanset

unrealisticexpectationsabouthowmuchtheyshould

74 Bhatia,M.andAngelou,N.,“BeyondConnections:EnergyAccessRedefined,”WorldBankESMAP,(July2015):https://openknowledge.worldbank.org/bitstream/handle/10986/24368/Beyond0connect0d000technical0report.pdf?sequence=1&isAllowed=y

75 “Lights,Power,Action:ElectrifyingAfrica,”AfricaProgressPanel,(2015):https://www.africa50.com/fileadmin/uploads/africa50/Documents/Knowledge_Center/APP_Lights_Power_Action_2016__PDF.pdf

76 Reber,T.,Booth,S.,Cutler,D.,Li,X.,andSalasovich,J.,“TariffConsiderationsforMicro-GridsinSub-SaharanAfrica,”NationalRenewableEnergyLaboratory(NREL),USAIDPowerAfrica,(February2018):https://www.nrel.gov/docs/fy18osti/69044.pdf

77 “OpenSourcingInfrastructureFinanceforMini-Grids,”CrossboundaryEnergyAccess,(December2020):https://www.crossboundary.com/wp-content/uploads/2020/12/Project-Financing-Mini-Grids-Online-Pages.pdf

78 USAID:https://www.usaid.gov/energy/mini-grids/regulation/tariffs/79 Reberetal.,2018.

payforpowerandexacerbatetariff-settingchallenges.76

Consumer education and awareness-raising around

thisissueisthereforecritical.Thiscanbeachallenge,

especiallygiventherelativelylowleveloffinancialliteracy

that istypicalofruralareas.Financial literacydrives

consumerdecision-makingandunderstandingofbenefits

andcost-savings–inthiscase,thesavingsassociatedwith

payingahighertariffformini-gridaccessinruralareas

vis-à-visthenationalgridbaselineand/ormorecostlyand

pollutingalternativeenergysources.

Mini-gridoperators typicallysellelectricity to retail

consumerswhoarereceivingpowerforthefirsttime,

whichmakesitdifficulttofixorevenpredictrevenues.

Fixingothercostsandrisksthroughlong-termcontracts

isalsochallenging,asalotisstillunknownabouthow

mini-griddevelopmentandoperationwillevolveoverthe

longterm.Regulationplaysanessentialrole,notonlyto

ensurecostrecoveryfromprojectdevelopment,butalso

toaddressintegrationwithandcompensationfromthe

maingriduponitsarrival.77

Thereisnostandardtariffstructurethatcanbeapplied

toallcontexts,astechnology,scale,geographyand

customerprofilesvary.78Whendeterminingtariffoptions,

policymakersandregulatorsneedtobalancecomplex

andfrequentlycompetingprioritiesofprovidingprice

controlonelectricityserviceinthenameofsocialgood,

whilealsoprovidingameansforinvestorstoachieve

sufficient returnson their investment toattract the

necessaryfinancingtothemarket.79Generally,when

settinganelectricitytariff,policymakersmustassesstrade-

offs related to whether mini-grids should be allowed to

39

chargecost-reflectivetariffsthatareabovetheaverage

nationaltariff,whichhasimplicationsfortheamountof

subsidyrequiredaswellasforthespeedofelectricity

accessrollout.Whensettingtariffs,an“optimal”solution

80 “GreenMini-GridHelpDesk:Billing,RevenueCollectionandMeteringModelsforMini-Grids,”Energy4ImpactandINENSUS,(April2019):https://energy4impact.org/file/2098/download?token=EcIaPTX_

81 Philipp,D.,“BillingModelsforEnergyServicesinMini-Grids,”GIZWorkshoponHybridMini-Grids,(9March2014).

will ideally account for the interests of all key stakeholders

(e.g.,customers,governments,regulatorsandinvestors).80

The key dynamics surrounding mini-grid tariff setting are

illustrated in Figure 13 and Figure 14.

FIGURE 13Affordability vs. Sustainability in Tariff Setting81

FIGURE 13: Affordability vs. Sustainability in Tariff Setting81

Source: Philipp, 2014.

CONSUMERS’ABILITY TO PAY

TARIFFS’MAIN

CHALLENGE

COVER CAPITALCOSTS

COVERO&M

COSTS

CONSUMERS’WILLINGNESS

TO PAY

Source:Philipp,2014.

FIGURE 14Key Stakeholders Involved in Tariff Setting

FIGURE 14: Key Stakeholders Involved in Tariff Setting

Source: Energy4Impact and INENSUS, 2019.

PARTIES WITH AN INTEREST TO KEEP TARIFFS LOW

Customers have a limited budgetto spend on electricity and wantto maximize this budget

Central and local governmentsneed to justify tariff levels toconsumers

“NEUTRAL” PARTIES

Regulators who are mandatedto balance the interest of allparties and set possible tarifflevels

OTHER LIMITATIONS

Metering and other technology

Competition in the form ofdiesel, kerosene, SHS

PARTIES WITH AN INTEREST TO GENERATE HIGH REVENUES

Investors and financiers who needto see a return on theirinvestments

Mini-grid developers, who requirerevenue for operations, expansionand financing activities

“HIGH”TARIFFS

“LOW”TARIFFS

Source:Energy4ImpactandINENSUS,2019.

40

Cost Components

Thelevelizedcostofelectricity(LCOE)isanimportant

indicatorintariffdesign,asitisequivalenttotheminimum

averagetariffatwhichelectricitymustbesoldtocover

project costs (seeKey Definitions).Mini-grid costcomponentscanbebroadlyclassifiedascapitalcosts

(capex)andoperatingcosts(opex):

• Capital costs arelargelyincurredatthestartofprojectdevelopment,usuallyrelatetofixedassets(anyasset

expectedtolastmorethanoneyear)andinclude

thecostofreplacementofanassetovertheproject’s

lifetime.Examplesincludepowergenerationequipment

(panels,batteries, invertersetc.) anddistribution

equipment(electricitypoles/wiringforconnectionsand

metering).Capexalsoincludesprojectplanningand

developmentcosts,includingcostsforacquiringland

andprojectpermits,aswellascostsforcivil,mechanical

and electrical engineering and installation.

• Operating costs can be fixed(relativelyconstant,irrespective of the level of output) or variable

(proportionaltooutput).Fixedoperatingcostscanbe

presentevenifelectricitygenerationoutputiszero

andaretypicallyincurredonarecurringbasisorfor

thepurchaseofassetsexpectedtolastlessthanone

year(e.g.,staffsalaries,equipmentmaintenance,cost

82 Energy4ImpactandINENSUS,2019;andReberetal.,2018.

offinancing,costofrentingland,meteringplatform

feesetc.).Variableoperatingcostsareincurredonly

when electricity is generated and sold by the mini-grid

operatorandarethusproportionaltooutput(e.g.,fuel

costsforadieselgenerator);whenthereisnooutput,

variablecostsarenegligible.

Tariff Components, Structures and Cross-Subsidization Schemes

Capitalandoperatingcostsforamini-gridarefunded

throughtariffsfromcustomerspurchasingelectricity,cross-

subsidiesfromthemini-gridoperator—derivedfrom

customersbasedontheirclassification—andexternal

subsidiesfromgovernmentand/orinternationalfinancial

institutions.Whetheracost-reflectivetariffisappliedto

individualcustomersisamatterofpolicychoice,with

importantconsiderationsforhowthisprocesswillbe

funded.Inpractice,cross-subsidizationcanbeachieved

through a combination of different tariff structures in

ordertoyieldanaveragetariffthatiscostreflective.

Differenttariffcomponentscanalsobecombined;for

example,bothenergy/consumption-basedcomponents

andcapacity-basedcomponentscanbeusedtogether.

Asummaryofthevarioustariffstructures,billingand

revenuecollectionmethodsthataretypicallydeployed

bymini-griddevelopersispresentedinTable 2.82

41

TABLE 2Mini-Grid Tariff Components and Structures

Tariff Structure Advantages Disadvantages

CUSTOMER OR SITE CLASSIFICATION

Theoperatorcategorizesdifferenttypesofcustomers(e.g.,commercial,residential,community/government)sothatsomepaybelowthelevelofthecost-reflectivetariff,whileotherspayaboveit.Thistypicallyworksinoneofthefollowingways:• Commercial/productiveusersarechargedmoretocross-subsidizelowerratesforresidentialusers,thusstimulatingdemandamonghouseholdswithlowerdisposableincome

• Residentialusersarechargedmoretocross-subsidizelowerratesforcommercial/productiveusers,thusincentivizingmoreproductive-useactivities.

Anotherpossibleformofcross-subsidyariseswhenanoperatorhasmultiplesitesordifferentbusinesses;underthisscenario,themini-gridoperatormaychoosetohaveanaveragetariffforasinglesystemsetbelowthecost-reflectivelevel,withtheintentionofmeetingthefundinggapthroughtheinternaltransferofcashfromtheothersitesorbusinesses.

• Promotes electricity access among low-incomehouseholdsbyprovidingalifelinetariff;or

• StimulatesthePUEamongcommercial/productive-usecustomers

• Mini-gridsaretypicallyservinglow-incomecustomers,mostofwhomarereceivingelectricityaccessforthefirsttime;thecomplexityofthistariffstructuremaythereforebedifficultforcustomerstounderstand,requiringextensivecommunityengagement/sensitizationandcustomereducation and training

• Requiressmartmeters(andthustheavailabilityofmobilenetworkcoverage)

ENERGY/CONSUMPTION-BASED: QUANTITY OF USE

Electricityispurchasedin“blocks”ofkWhusagewherebythemarginaltariffrateincreasesinastepwisemannerasacustomerusesmoreenergy.Whenusedforcross-subsidization,additionalrevenuefromhigher-intensityuserswhoarechargedhighertariffscross-subsidizeslowerratesforabasiclevelofsubsistenceuseacrossallcustomers.

• Incentivizesenergyefficiency• Noloadlimitersrequired• Allowsforflexibilityto“pay-as-you-go”

• Complexityofthistariffstructuremaybedifficultforcustomerstounderstand,requiringextensivecommunityengagement/sensitizationandcustomereducationandtraining(e.g.,aroundproperutilizationofmini-gridelectricity,loadcapacityusage,appliancewattages/whatappliancescanandcannotbeusedetc.)

ENERGY/CONSUMPTION-BASED: TIME OF USE (TOU)

Tariffsvarybasedonthetimeofdayatwhichpowerisused,withhigherrateschargedattimeswhendemandishighest(peak)toallowlowerratesatlow-demandtimes(off-peak).Electricitysupplyisoftenmoreimportant,especiallyforresidentialcustomers,duringtheeveninghoursforlightingneeds;however,thisalsocorrespondstowhenitistypicallymoreexpensiveforsolarmini-gridstoproducepower(relyingondieselpowerorbatterystorage).Inordertoincreaseuptakeduringdaytimehours(i.e.,whenitistypicallycheaperforasolarmini-gridtoproducepower),operatorscandeployTOU-basedtariffstobettermanagemini-gridloadprofilesandincreaseoverallsystemefficiency.ArelatedTOU-basedtariffisaseasonal tariff,inwhichthechargeperunitofenergydependsontheseason(e.g.,solarmini-gridsmaychargehightariffsduringtherainyseason).

• Operatorscanbettermanagemini-gridloadprofilesandincreaseoverallsystemefficiency

• ConvenientforsolarPVhybridsystemsthatcan match generation with demand

• Metersusedcanbeexpensive,whichaddstothe cost of electricity

• Complexityofthistariffstructuremaybedifficultforcustomerstounderstand,requiringin-depthcustomereducationtounderstand charges

• Discouragingusageduringcertaintimesofday(orduringcertainseasons)mayleadtocustomer dissatisfaction

• Seasonaltariffsmaynotcorrespondtoseasonal incomes of rural customers

CAPACITY-BASED

Similartoaconsumption-basedtariff,butratherthanchargingdifferentmarginalratesbasedonuse,customerspayaflattariffratebasedontheirmaximumpeakconsumption(kWp)withahigherrateforhigherpeaks.Tariffdependsonthenumberofdeviceswithalimitonpowerrating.

• Nometerrequired(onlyload-limiter)• Nobillcalculation• Suitableforlow-incomepopulations• Easy to understand for customers who can eitheruseornotusespecificappliances

• Difficulttoforecastdemand• Discouragesproductiveuse• Doesnotencourageenergyefficiency;mayleadtohighconsumptionlevels(andcorrespondingdifficultiesinmeetingdemand)

42

Tariff Structure Advantages Disadvantages

SERVICE-BASED / ENERGY-AS-A-SERVICE (EaaS)

Underaservice-basedelectricitytariffscheme,electricityissoldbasedontheenergyserviceprovided,utilizingacombinationofconsumptionandcapacity-basedtariffstructures(i.e.,chargeperunitofenergyconsumedandpowerutilized).Customerspre-pay/subscribeonaperiodicbasis(daily,weekly,monthlyorpay-as-you-go(PAYG))foranelectricityservicewithamaximumcapacity(kW)andaspecificallocationofenergy(kWh),typicallycontrolledbysmart-meteringtechnology.Service-basedtariffsarecustomizedtoreflecttheactualelectricityconsumptionneedsofconsumersandcanbebasedonthedesiredusageofagivenenergyapplianceand/orTOU.

Service-basedtariffscanbedeployedassomecombinationofthefollowing:• EaaS tariff:tariffdependsonhoursofusage(idealfordevelopersthatwanttoensureelectricityisusedforaspecificpurpose)

• Time-bound tariff: tariffdependsonamountoftimeelectricityisusedbycustomers(combinedwithanenergylimitapplicabletothetimeframe)

• Simplicity:Customersdonotneedtounderstandthecomplexityofelectricitytariffs.

• Improved quality of service:Renewableenergy-basedmini-gridshavestrictlimitationsintermsoftheenergythatcanbesupplieddailydue to the intermittent nature of renewable energysources.Theuseofservice-basedtariffswithcustomer-specificenergyallowancesandcapacityrequirementsfacilitatesthesizingofthesystem(minimizingriskofover/undersizing)andprovidesoperatorswithpredictabilityofdemand,allowingthemtobettermanageelectricityloadprofiles,lowercostsandimproveoverallqualityofserviceandsystemefficiency.Thisexpandsbatterylife-spansandminimizesthe use of diesel in the case of hybrid solar-diesel mini-grid systems.

• Predictable revenues/expenses: This method alsoensuresrevenuestabilityfortheoperatorsincetherevenuecanbeeasilyforecasted,thusfacilitatingfinancialplanning.Ontheotherhand,customersalsobenefitfromknowinginadvancehowmuchtheyaregoingtopay,aswellaswhattheycanafford(andwhen/ifTOUisincorporatedintothebusinessmodel).

• Tiers of Service: Service-basedtariffsaligncloselywithtiersofelectricityservice,wherethepriceofthepowerdependsonthetierofservicerequiredorequipmentusedbythecustomer.Theinclusionofamulti-tierapproach(seeKey Definitions)allowsforadaptingthetarifflevelstocustomerwillingnessandcapacitytopay.

Customers are not fully aware of their electricity consumptionWhereanEaaStariffisdeployedwithoutatime-boundtariff,itcanbedifficulttoenforcecompliance(needaloadlimiter)Doesnotencourageenergyefficiency(ifatime-boundtariffisdeployedwithoutaconsumptionlimit)Needtoensurethatcustomersareawarethattheystillpayforelectricityeveniftheydonotconsumeanyduringtheallocatedtime(mayleadtocustomerdissatisfaction)

Source:AdaptedfromEnergy4ImpactandINENSUS,2019andReberetal.,2018.

NOTES:ThevariouspricingandtariffstructurespresentedinTable 2correspondtodifferentmeteringtechnologiesandbilling/revenuecollectionmethods.A2019surveycarriedoutbyEnergy4ImpactandINENSUSfoundthatamajorityofmini-griddevelopersinAfricautilizesomecombinationofpre-paid,smartmeteringtechnologieswiththesupportoflocalagentswhocollectpaymentsthroughcashormobilemoneytransactions(includingPAYG)tooperatetheirmini-grids.Differenttariffstructurescanbeintegratedwithdifferenttypesofmetersdependingonseveralinterrelatedfactors(targetendusers,loadprofiles,availabilityofamobilenetworkfortheuseofsmartmetersetc.).83

83 Energy4ImpactandINENSUS,2019.

43

3.1.1.1 Sierra Leone

With the assistanceofUNOPS, in June2019, the


approved a comprehensive mini-grid regulatory

framework forSierraLeone— the2019Mini-Grid

Regulations—whichincludesregulationonmarket

entry,cost-reflectiveretailtariffs,technicalandservice

standards,andthearrivalofthemaingrid,withdifferent

guidelinesapplicabletoisolatedandinterconnected

mini-grids.Inaddition,theEnvironmentalProtection

Agency(EPA)introducednewlicensingguidelinesfor

renewableenergyprojectsandmini-grids,including

minimumrequirementsforholdersofabasiclicenseand

standardizedcriteriaforprojectsrequiringEnvironmental

Impact Assessments (EIAs) to be undertaken and

EnvironmentalandSocialManagementPlans(ESMPs)

tobedeveloped.

Licensing

Mini-gridprojectsareregulatedbasedontheircapacity.

Theregulationsallowfortwolicensecategories:(i)abasic

mini-gridlicenseforprojectsbelow100kW;and(ii)afull

mini-gridlicenseforprojectsbetween100kWand10MW

forthegeneration,distributionandretailsaleofelectricity.

AccordingtotheregulationsstipulatedbytheEWRC:84

• A Basic Mini-Grid License comprisesalicenseforgeneration,whichauthorizesthelicenseetoproduce

electricity,andalicenseforthesaleofelectricity,which

authorizesthelicenseetosellelectricitytoconsumers

inadesignatedunservedareastatedinthelicensevia

amini-gridofuptoandincluding100kWofdistributed

powerinaggregate.

• A Full Mini-Grid Licenseauthorizesthelicenseetoconstruct, installandoperateisolatedmini-grids,

comprisinga licenseforgeneration,a licensefor

distribution,whichauthorizesthelicenseetodistribute

electricity directly or indirectly to consumers within a

designatedunservedorunderservedareastatedin

thelicense,andalicenseforthesaleofelectricity

throughamini-gridofabove100kWanduptoand

including1MWofdistributedpowerpersiteand

notexceeding10MWinaggregate,comprisinga

distributionnetworkthatisbuiltincompliancewith

theapproveddistributioncodeandmeteringdevices.

84 SierraLeoneElectricityandWaterRegulatoryCommission:Mini-GridRegulations2019:https://ewrc.gov.sl/mini-grid-regulations/85 AfDBGreenMini-GridMarketDevelopmentProgramme-Mini-GridMarketOpportunityAssessment:SierraLeone,2019.86 Ibid.87 Stakeholderconsultations,2021.

Amodificationofthelicenseisnecessaryif:(i)anew

mini-gridsiteisbeingaddedbyamini-gridlicensee;

(ii)themini-griddistributionnetworkisextendedinto

anothercommunity;or (iii) themini-grid licensee is

classifiedinahigherlicensefeecategory,duetothe

expansionofexistingmini-gridsites.Accesstoland

linkedwithcommunityengagementsisessential;mini-

griddevelopersareexpectedtoworkwiththelocal

communitycouncilsandtheirtraditionalleaders,the

paramountchiefs,whoaretheheadsoflocalchiefdoms

andspeakonbehalfofthecommunity.

TheMini-GridRegulationsstipulatethatbasicmini-grid

licenseholders(i.e.,below100kW)canchargeanytariff

agreedtobetweenthelicenseeandtheconsumer,as

longasitisalsoapprovedbytheappropriatecommunity

authority(usuallylocalcommunitychiefs).Thesetariffs

may,however,bereviewedbytheEWRCuponreceiptofa

petitionsignedby60percentofacommunity’sconsumers

servedbyabasicmini-gridlicensee.Afullmini-grid

licensee(100kWto10MW)mayproposeretailtariffsfor

specificconsumercategoriesthattakeintoaccountthe

abilityoftherespectiveconsumerstopay;orproposea

retail tariff structure based on the amount of electricity

sold,thenumberofconnectionsorthepowerprovided

orconsumed,whichmaybepaidininstallmentsorfully

chargedupfront,subjecttotheapprovaloftheEWRC.

Whereafullmini-gridlicenseedesirestostartanew

serviceorreviseexistingratescharged,orifthevalidity

periodofthetariffgrantedwillexpirewithin60days,the

holdershallmakeanapplicationtotheCommissionfor

thatpurpose,withsupportingdocumentsdescribingand

justifyingtheinputsintothetariffcalculationtoolprovided

orapprovedbytheCommission.85

TheRuralRenewableEnergyProject(RREP)wasthefirst

timethismini-gridlicensingprocesswasimplementedin

SierraLeone.Allthreeoftheprivateoperators—Winch

Energy,PowerGenandEnergicity—successfullyobtained

fullmini-gridlicensesfromtheEWRCbasedonacost-

reflectivetariffmethodologyforWorkPackage1(WP-1)

sitesandbegansellingelectricitytoWP-1customersatan

averagetarifflevelofUSD0.85/kWh(rangingfromUSD

0.82/kWhto0.87/kWh)asofQ42019.86 The most recent

roundoftariffnegotiations,combiningtheWP-1andWork

Package-2(WP-2)sites,resultedinarangeofUSD0.74/

kWhto0.82/kWh,withanaveragetariffofUSD0.79/kWh.87

44

Thetariffstructureconsistsofaservicechargeanda

capacitycharge.Connectionfeesarepaidpriortothe

installation;however, insomecases,customerscan

reachanagreementwiththeoperatorsandpaythe

connectionfeesoveraperiodofthreemonths.88 The

mini-gridconnectionfeeincludesaone-timepayment

ofUSD15 (SLL150,000),whichpartiallycovers the

externalconnectionfee,in-housewiring,andincludes

threeswitchesandthreeenergy-efficiencylights.There

arestand-alonemetersmountedeitheronpolesor

affixedtohouseholds,butallofthemetersarepre-paid.

Recently,astandingchargeatacomparableleveltothat

oftheElectricityDistributionandSupplyAuthority(EDSA)

wasintroducedthatreducestheperkWhpaymentforthe

energyconsumptionandensuresminimumpaymentfrom

theconsumers.Previously,thechargecoveredthefirst

2kWhofconsumptionpermonth;foranyconsumption

greaterthanthisthreshold,thecustomerwouldpaya

uniformtariffirrespectiveoftheamountofconsumption.89

Somemini-gridoperatorsinSierraLeonecurrentlydeploy

anincreasingblocktariff(IBT)structure–amethodof

apportioningcostsamongandwithindifferentcustomer

classes in which a customer whose electricity usage is

greaterpaysprogressivelyhigherratesforthatusage.A

cross-subsidyfromhigh-tolow-consumptioncustomers,

referredtoasa‘lifeline’tarifforsocialtariff,isoftenpartof

anIBTtariffmechanism,wherebyalowerrateischarged

to customers who consume below a certain amount of

electricityperperiod.90Thisapproachiscurrentlybeing

deployedbyatleastoneoperatorinSierraLeone.

Market Entry

MarketentryundertheRREPentailedacompetitive

biddingprocessfortheselectionofmini-gridoperators

thatwasmanagedbyUNOPSonbehalfoftheMinistry

ofEnergy(MoE).AsoutlinedinSection 2.2.1,thepublic-privatepartnerships(PPP)arrangementsignedwiththe

selectedoperatorshastwokeycomponents:(i)aUsage

RightsAgreement,wheretheoperatorsarerequiredto

payanannualfeetotheGovernmnentofSierraLeone

(GoSL)forusageofWP-1assetsthathadalreadybeen

constructed;and(ii)aProjectDevelopmentAgreement

forthemini-gridprojectsthatweretobeco-financed

anddevelopedunderWP-2.91Thetenderingprocess

88 Duringtheinitialrolloutphase,someoperatorsexperiencedchallengescollectingpaymentsforthisconnectionfeeandhaveimplementedaloanstructuretoallowhouseholdstopaythefeeininstallments.

89 Stakeholderinterviews,2020.90 Tenenbaumetal.,2014.91 PoliciesandRegulationsforRenewableEnergyMini-Grids,IRENA,2018.92 Stakeholderinterviews,2020.93 Stakeholderinterviews,2020.

wastailoredtotheselectionofinternationalfirms,as

certainthresholdrequirementswereput inplaceto

ensure that bidders had the necessary resources and

financialcapabilitiestosecureadequatefinancingforthe

developmentoftheWP-2sites.Giventhenoveltyofthis

initiative,administrationofthesolicitationandsubsequent

negotiationswiththeselectedbiddersrequiredextensive

technicalassistance(TA)dedicatedtoprovidingcapacity

buildingforgovernment/publicofficialsinvolved.92

When interviewed,mini-grid operators expressed

satisfactionwiththeoverallqualityandrigourofthe

selectionprocessandnoted thestrongbuy-inand

supportfromallkeystakeholdersinvolvedonbehalfof

theGoSL(i.e.,MoE,EWRC,PPPUnit,UNOPS).However,

operatorsalsonotedthattheRREP—similartomost

programmesofitssize,scopeandambition—iscomplex

initsdesign,involvinglengthyproceduresthatrequire

significantresourcestomanage.Asimplifiedprocess

wasrecommended,withtheGoSLtakingonmoreof

anoversightroleinthemarkettoensureelectrification

targetsareachievedandprivateoperatorsareproviding

affordable,reliableandquality-verifiedelectricityservice.

In addition, operators indicated that the financing

mechanismadoptedbytheRREP—apre-financing

arrangementwithonlyan‘in-kind’subsidy—wasnot

necessarilytheirpreferredapproach,asitputtheonuson

developerstopayfortheassetsreceivedundereachwork

package(seeSection 2.2.1),asopposedtoanalternativesubsidymechanismthatmayhaveprovidedthemwith

moreflexibility(seeSection 3.2).93

Operatorspointedtotheutilizationofresults-based

financing(RBF)schemesasapossibleapproachtoexpedite

marketentry.Aprivatesector-drivenmodelsuchasthis

issimplerinitsdesignandstructureandcanreducethe

contractualcomplexityofprojects,whichcaninturnallow

forgreaterpossibilityofreducingprojectdevelopment

costsandend-usertariffs.However,itisworthnotingthat

RBFschemesalsofacechallenges,asfeedbackfromthe

NigeriaRuralElectrificationAgency(REA)highlightedissues

withdevelopersreceivingthelasttrancheofgrantsdueto

theirinabilitytoverifythenumberofconnectionsthatthey

indicatedintheirgrantapplication,despitereceivingthe

firstandsecondtranchesofthegrantupfront.

45

Otheraspectsofthebiddingdesignthatoperators

flagged includeadjusting fundingandexperience-

relatedrequirementstoincreasetheparticipationoflocal

companiesintheprocess;andsupportingthedesign

andimplementationofflexibleandinnovativebusiness

andfinancialmodels,includingtheintroductionofgrant

supportschemes,toensurelong-termsustainability.An

exampleofthiswouldbefortheRREP(and/orfuture

mini-gridprogrammes)toallowdeveloperstosuggest

theirownprojectsoutsideoftheexistingPPPframework,

whichwillprovideanopportunityfordeveloperstotest

innovativebusinessmodelsandsolutionsandpossibly

expediteelectrification–essentially toallowspace

fora“bottom-up”approachtocoexistinthemarket

(seeTable 1).Overall,operatorsconcludedthatinthefuture,asimplerprocessshouldbeimplemented,as

themanagement,resourcesandtechnicalcomplexity

associated with the current design may contribute to

projectdelaysandhigherprojectdevelopmentcosts.

Cost-Reflective Tariffs

ThetariffdeterminationmethodstatedintheEWRCMini-

GridRegulations2019appliestoallmini-gridsequally

irrespectiveoftheoperator.Therevenuerequirement

methodology is used to determine the tariff for the

provisionofservicesbytheoperators.Therevenue

requirementisthesumofoperationcosts,depreciation

oncapitalandcapitalizedcost,reservesforrepairand

replacements,taxes,areasonablereturnontheprivately-

financedregulatoryassetbase(RAB)thatadequately

reflectstherisksfacedbythemini-gridoperatorplus

aperformance-relatedprofitmarginonthequantityof

electricitysoldiftheprojectisheavilysubsidized.

Grant-financedactivityorassetsarenot includedin

calculating the revenue requirement.94 The tariff is

calculatedbasedon historic data for theprevious

yearandappliedintheregulatoryyear,exceptforthe

firsttariffapplicationforwhichprojectionsbasedon

reasonableassumptionsareused.Bookedcostsarenot

approvedautomaticallyandstatedconsumerdemand

isnotautomaticallyaccepted;theEWRCensuresthat

theproposedcostsfortheregulatedservicereflect

prudently-incurredcostsatareasonablelevelofefficiency

and that the underlying consumer demand is based on

eitherverifiabledataorprudentandreasonabledemand

projectionsbasedonverifiabledata.

94 ItshouldbenotedthattheseareindirectlyincludedinthereserveaccountrequirementsoftheRREPproject;otherprojectscanalsoincludeareserveaccountbutitisnotarequirementfromtheEWRC.

95 SierraLeoneElectricityandWaterRegulatoryCommission:Mini-GridRegulations2019.

Therevenuerequirementisdeterminedbythefollowing

formula:95

RR = O&M + D + T + (return x RAB) + (PRPM * E)

RR=revenuerequirementfortheregulatoryyear

O&M=operationandmaintenanceexpenses

D=depreciationexpensefortheyear(ofallregulated

capitalandcapitalizedassets)

T=taxes,dutiesandcharges,includingnon-recoverable

GSTpaid

return=rateofreturn

RAB= regulatory asset base (residual value of the

capitalizedassets,includingcapitalizeddevelopmentcost)

PRPM=performance-relatedprofitmargin(SLL/kWh)

reflectinggrantfinancing

E=electricitysold(kWh)

TheRABisdeterminedincludingallprivately-financed

usedandusefulassetsintheprovisionofregulated

activityatfairvalue(basedonthecostapproach,e.g.,

depreciatedreplacementcost).

TheRABisdeterminedbythefollowingformula:

RAB = (RABt–1 + RABt–2)

2

TheRABattheendofyear(t-1)isdeterminedbythe

followingformula:

RABt–1 = RABt–2 + CAPEXt–1 – St–1 – Dt–1

RABt−1=RABattheendofyear(t-1)(previousyear)

RABt−2=RABatthebeginningofyear(t-1)(previousyear)

CAPEXt−1=privatelyfinancedcapitaladditions(tangible

orintangibleassets)duringyear(t-1)

St−1=assetdisposalduringyear(t-1),and

Dt−1=depreciationintheyear(t-1)

TheEWRCoverseestheprocessofdeterminingthe

tariffsforbothmini-gridsandoff-gridprojects,tobe

revisedannuallybasedonhistoricdatafortheprevious

year.WhiletheentireRREPselectionprocess—from

thetenderandprocurementoftheoperatorstothe

negotiations—tookabouttwoyearstofinalize,the

tariffnegotiationitselftookaboutfourmonths,with

thefinalnegotiationhavingconcludedinJune2019.

Overall,wheninterviewed,operatorsindicatedthatthe

46

tariffdeterminationmethodologyprovidesatransparent

methodforoperatorstodeterminethepriceoftheir

services. Italso instills confidence inprivatesector

investorsabout theentire regulatoryprocess, as it

providesguidancebeforehandonhowtheycanrecoup

theirinvestments.Operatorswerealsopleasedwith

thesupportprovidedbyUNOPSasakeyintermediary

throughouttheprocess.

Thereweresomechallengesfacedinternallyasextensive

financialmodellingtrainingofEWRCstaffwasnecessary

toutilizethetoolandapplyittothetariffapplications

withtheoperators.Theprocessofassessingthecapital

andoperatingcostsoftheprojectwasdifficultduetothe

factthatmini-griddevelopmentisnovelinthecountry

andtheregionand,assuch,therearefewbenchmarksfor

comparisonincompletingtheseassessments.Therewere

further challenges in estimating the electricity demands

ofpotentialcustomers.

TheEWRCensuresthatthecostsincurredbyservice

providers inprovidingtheservicesandareasonable

amountofreturnisconsideredandcapturedinthetariff

calculationprocess.Priortotariffnegotiations,surveys

werecarriedouttounderstandcustomers’abilityand

willingnesstopay.Theresultsofthisprocessfoundthat

averageretailtariffsofUSD0.85/kWhwerecheaperthan

96 Stakeholderinterviews,2020.97 Itisimportanttoconsiderthatthedemandassessmentwasconductedin2016,whilethesystemswerenotturnedonuntil2019.

thealternativesenduserswerecurrentlyutilizingforenergy

access(includingforlighting,mobilephonechargingand

purchasingofkeroseneand/orlanterns).Thissuggeststhat

theinefficientuseofenergyfromthemini-gridmayhave

contributedtomisperceptionssurroundingaffordability,

underscoringtheimportanceofcommunity-sensitization

effortsandeffectivemessagingaroundutilizingmini-grid

electricity,appliances,costsetc.,especiallygiventhatmany

mini-gridcustomersarefirst-timeelectricityusers.96

Asregulationsstatethatthetariffsmustbecostreflective,

theprocessinvolvedareviewofthefinancialmodels

togetherwiththeoperatorsandtheEWRCinorder

todeveloptheappropriatetariffcalculationtool.The

toolwastransparent,andtheregulatorwasableto

accountforallthecostsandvariableinputs.However,

stakeholderinterviewssuggestedthattheinitialdemand

assessmentfailedtoproperlyestimate/accountforhow

many hours of electricity would be consumed by end

users;ashigherusageleadstohighercost,thishasan

impactonaffordability.97Arelatedcomplicatingfactor

is that the mini-grid tariff was higher than the national

gridtariff(whichistypicalofmini-gridprojects),which

led tomisperceptions from community end users.

Issuessurroundingfinancialliteracyandthebenefits

ofcost-savingsneedtobecarefullyconsideredduring

community-sensitizationefforts.

47

Tariff Adjustment

ThetariffadjustmentprocessadoptedbytheEWRCfor

SierraLeoneiscontainedintheMini-GridRegulations

forSierraLeone.Itstipulatesthattariffadjustmentsshall

occurwhentheEWRC(throughitsrepresentative)inspects

the mini-grid facilities or conducts an audit of the accounts

ofthemini-gridlicenseeanddeterminesthattherevenues

earnedbytheoperatororcostsincurreddeviatefromthe

costsandrevenuesstatedforthetariffdeterminationat

the time of licensing.

Technical and Service Standards

TheEWRC,with assistance fromUNOPSand the

MillenniumChallengeCoordinatingUnit (MCCU),

set the technical standards and grid codes to guide

the development and operation ofmini-grids in

SierraLeone.Thesestandardscoversiteselection

andhandovertotheoperatorswithvariousoptions

includingabuyoutincaseofgridexpansion.Mini-grids

are also bound to follow standards for health and safety.

Governmentincentivesareaccessibleonthecondition

thatimportedequipmentconformswithInternational

ElectrotechnicalCommission(IEC)certificationsand

standards.

Regulatoryinterventions(e.g.,throughthelicensing

framework)aimtofurthersupportservicequality.This

hashelpedmakeprocessesrunmoresmoothlyandhas

providedclarityinthesectorsurroundingstandards,while

alsoprovidingprotectionformini-grids.Agridcodeis

beingdevelopedbytheEWRC,currentlyinitsinterimdraft

asoflate2020.Otherstandardsandcodesincludethe

establishmentofagridmanagementcommittee,among

otherplansbeingdevelopedbytheEWRC.Operators

arebeingaskedtotakepartinmultiplemonitoringand

evaluation (M&E) frameworks (MoE,EWRC,UNOPS

etc.);wheninterviewed,operatorssuggestedthatone

consolidated/integratedM&Eframeworkbeestablished

for them to adhere to in order to reduce the regulatory

burden(IECprotocolsserveasabasicguideandtheISO

9001onthesideofthesuppliers).

Thepresenceofa large informalmarket for solar

productsinSierraLeoneleadstomisperceptionsabout

equipmentqualitythathamperthedevelopmentof

thecountry’ssolarmarket–includingthemini-grid

sector.This trendmakespublicawareness-raising

98 SierraLeoneElectricityandWaterRegulatoryCommission:Mini-GridRegulations2019.

andconsumereducationonproductqualitycritical.

Moreover,toensuresustainablemarketgrowth,IEC

and/or regionalWestAfrican (ECREEE) standards

mustbeadopted,alongwitharobustenforcement

mechanismtoensurecompliance.

Arrival of the Main Grid

TheEWRCMini-GridRegulationsincludethefollowing

stipulationsforthearrivalofthemaingrid:98

i. Basic Mini-Grid License:Whereamain-gridutilityorafull mini-grid licensee extends its distribution network

toanareaservedbyanisolatedmini-gridundera

basicmini-gridlicense,onrequestofthemain-grid

utilityorthefullmini-gridlicensee,thebasicmini-grid

licenseehastodecommissionandremoveallassets

andequipmentwithinthreemonthsafterthemain-

grid utility or the full mini-grid licensee has started

supplyingelectricitytothearea.Insuchcircumstances,

the basic mini-grid licensee shall not be entitled to any

refundorcompensation.

ii. Full Mini-Grid License: Whereamain-gridutilityextendsitsnetworktoanareaservedbyanisolated

mini-gridunder a fullmini-grid license, the full

mini-gridlicenseehastheoptiontoeitherconvert

to an interconnected mini-grid based on a mini-

grid interconnection contract between the full

mini-gridlicenseeandthemain-gridutility,orto

transfer all assets that the main-grid utility wishes to

retainontherespectivesiteinreturnforfinancial

compensationfromthemaingridutilitybeforethe

arrivalofthedistributiongridnetwork.Thetotal

compensationiscalculatedasthetotaldepreciated

valueofassetsremainingandhandedoverandassets

decommissioned,removedanddisposedofplus

compensationfortherevenuegeneratedwithinthe

last12monthspriortothedateofconnectionofthe

mini-grid to the distribution network.

Forthemini-gridcommunitiesselectedundertheRREP,

operatorshandlingthesesiteshavevariousoptions

includingbuyoutinthecaseofgridexpansiontothose

communities.Someoperatorsarebuildingsystemsthat

canbeintegratedtothegriduponitsfuturearrival.

Interviewedoperatorsaregenerallysatisfiedwiththe

arrival of themaingrid regulatory framework. The

mainconcernforoperatorsinthefutureishowthefull

compensationistobedeterminedandwhatparameters

48

willdetermineit.Aspartofanevolutionaryapproachto

mini-gridregulation(seeTable 11 in Section 3.3), these

issuesneedclarificationinordertoreducedeveloperrisk

anduncertainty,whileatthesametimeensuringasmooth

transitionfrommini-gridstothemaingridforallparties

involved(operators,utilityandcustomers).

3.1.1.2 Nigeria

The2016Mini-GridRegulationsenactedbytheNigerian

Electricity RegulatoryCommission (NERC) provide

comprehensiveregulatoryandpermittingguidelines

forthedevelopmentandoperationofmini-gridsinthe

country.Theregulationsincludetechnicalstandards,

economicregulation(includingtariffmethodologies),

quality of service requirements, environmental

requirements,typeofcontractualagreements,licensing

processes,andotheraspectsoftheframeworksuch

aswhathappenswhen thenationalordistribution

gridarrives.Theregulationshaveallowedmini-grid

operatorstochargeacost-reflectivetarifftocustomers

servedbytheirmini-grids,ensuringrecoveryofcostsand

bankability/financialsustainability.

Licensing

TheNERCRegulationsforMini-Grids2016definemini-

grids as either isolated mini-grids or interconnected mini-

grids.Isolatedmini-gridsitesaresoclassifiedwhenthe

locationisdesignatedasunservedandhasnotbeen

assignedtoanelectricitydistributioncompany(DisCo),

oranyothermini-griddeveloper.TheNERCRegulations

definemini-gridsincategoriesintermsofcapacityand

licensingrequirements.Mini-gridssubjecttoacapacity

limitof1MWareexemptfromthepowergeneration

licensingregimeestablishedbytheElectricPowerSector

ReformAct(2005)andadministeredbytheNERC.The

regulationsidentifythreebroadformsofmini-grids:99

i. Isolatedmini-gridswith100kWorlessofdistributed

powerthatmaysimplyberegisteredwiththeNERC

oratthediscretionofthedeveloper,obtainapermit

fromtheNERC

ii. Isolatedmini-gridslargerthan100kWofdistributed

powerandupto1MWofgenerationcapacitythat

requireapermitfromtheNERC

iii. Interconnectedmini-gridsthatrequireatripartite

contractwiththedeveloper,thecommunityandthe

relevantdistributionlicensee.

99 NigerianElectricityRegulatoryCommissionRegulationforMiniGrids2016:http://rea.gov.ng/wp-content/uploads/2018/07/NERC-Mini-Grid-Regulation.pdf

Isolated Mini-Grids

Thetariffmechanismforisolatedmini-gridsdependson

whetherthedeveloperhasobtainedapermitorissimply

registered.Forpermitholders,tariffsarecomputedusing

theREAMini-GridTariffTool,whichisintendedtobe

costreflectiveandsubjecttoacapof10percentfor

technicalandnon-technicallosseseach.Forregistered

mini-grids,theoperatorisatlibertytoadopttheREA’s

methodologyorsettariffspursuanttoanagreementwith

itscommunity–whichmusthavebeenconsentedtobyat

least60percentofthecustomerswithinthecommunity.

Thecommunityhastherighttointerveneandadjustthe

tariffintheeventthatthereturnaccruingtothemini-

gridoperatorexceedstypicalnon-recourselocalcurrency

commercialdebtinterestratesbyabove6percent.

Interconnected Mini-Grids

Interconnectedmini-gridsaremini-gridsdeployedwithin

thefranchiseareaofaDisCothatisunabletoprovide

electricpowerorprovidespoorquality/unreliablepower

toacommunity.Interconnectedmini-gridsutilizethe

existingelectricitydistributioninfrastructureoftheDisCo

and thus enter into agreements with both the community

tobeserved,andtheDisCothatownsthedistribution

assets.Interconnectedmini-gridtariffscomprisethe

generation tariff determined according to the REA

Mini-Grid Tariff Tool methodology and the distribution

useof service tariff that ispaid to thedistribution

franchise owner for the use of its electricity distribution

infrastructure.Wheninterconnectedmini-gridoperators

distributeelectricpowerfromtheDisCotothemini-grid

customersinadditiontotheelectricpowerfromthemini-

gridinfrastructure,atariffforthepowersuppliedbythe

DisCowillalsobecharged.Tariffsaresubjecttoapproval

bytheNERC.

Market Entry

Fordeveloperstooperateinthesector,theysimply

havetodemonstratetheircapacitythroughevidence

ofpreviousprojectsandtoensurethattheseprojects

havebeenbuiltandareoperational.Theyalsohave

todemonstratethattheyhavethecapacitytoaccess

financing, throughdebtorequity, todevelopmini-

gridsites.Whiletherearealsobasicdocumentation

requirementsaccordingtotheregulation,themajor

requirementsaretheirtechnicalandfinancialcapabilities.

49

Cost-Reflective Tariffs

InNigeria, according to theNERCRegulations for

Mini-Grids2016,tariffsarecomputedusingthecost-

reflectiveNERCMini-GridTariffTool,whichistheNERC’s

methodologyforsettingfairandtransparentretailtariffs

(seeSection 3.1.2.1).TheRABmodelinNigeriaprovidesadetailedExcel-basedtoolthathaspre-setcategoriesfor

assetbaseinputs,enablingmini-griddeveloperstoinput

dataandreceivepricingestimates.Themethodologyis

basedaroundallowancesforthreespecificcosts–allowed

returnoncapital,depreciation,andefficientoperating

costsandoverheads.Thereareentriesavailable for

bothgenerationassets(solarpanel,solarcables,battery

bank,solar inverter,battery inverter,sub-distribution

infrastructure,generationhouseetc.)anddistribution

assets(poles,gridlowvoltage,gridconnections,customer

connectionsandsmartmeters).Nigeriadoesnotcapthe

rateofreturnthatdeveloperscanearnontheirRABata

specificnumberbutpegsittothenon-recoursecommercial

debtinterestrateplussixpercentagepoints.100

TheNERCRegulationsprovideamethodologyfortariff

determinationthathasimplicationsfortheaffordabilityof

energygeneratedandconsumed.Thepolicyandregulatory

frameworkprovidesforflexibilityaroundtariffsettingfor

mini-gridsbelow1MWwherecompaniesareallowedto

determinethetariffsthatwouldallowthemtoachievea

sufficientreturnoninvestment,withtheapprovalofthe

regulator.Mostofthecountry’sexistingcommercialmini-

gridsfallintothiscategoryandutilizeanowner-operator

businessmodelfundedthroughamixofdebt,equityand

grantfunding(themostcommondebttoequityratiois

around70:30,withanadditionalvariablegrantcomponent).

TheFederalGovernmentofNigeria(FGN)hastaken

severalstepstoreduceregulatoryburdensformini-grid

developers.Attheendof2019,theNERCdevelopeda

web-based tool to streamline the mini-grid registration

processfordevelopersandreleasedasimplified,Excel-

basedNERCMini-GridTariffTooltohelpdevelopers

determinewhatcost-reflectivetariffstochargeendusers.

Registered mini-grids are allowed to set their tariffs freely

andareallowed,butnotrequired,tousetheNERCMini-

GridTariffTool,whichispubliclyavailableontheNERC

website.However,stakeholderinterviewsrevealedthatthe

previouslyavailableNERCtarifftoolwasmostlyapplicable

100 “ExploringAfrica’sMini-GridTariffMethodologies,”NationalAssociationofRegulatoryUtilityCommissioners(NARUC),UnitedStatesAgencyforInternationalDevelopment,(March2020):https://pubs.naruc.org/pub.cfm?id=A1E7A0F1-155D-0A36-319F-8CBC8BE8B342

101 Stakeholderinterviews,2020.102 NESPNigeria:https://twitter.com/nesp_nigeria/status/1268098896447733763?s=20103 Stakeholderinterviews,2020.

forthemaingridanddidnotnecessarilyprovideadequate

directionontariffsforanoff-gridproject.101In2020,under

theNigerianEnergySupportProgramme(NESP),GIZ

supportedtheNERCtoaddressthisissuebypreparing

atarifftoolthatisspecifictomini-grids,whichiscurrently

availableontheNERCwebsite.102

Thecomparisonofaffordabilityisnottypicallybasedonthe

priceofgridpower,whichisseenasunavailableandalso

notcostreflective,butonalternativessuchaskerosenefor

lighting and diesel generators for electricity. In determining

tariffs,mini-griddevelopersareobligatedtoengagewith

communities on tariff setting and sign agreements with

communityrepresentativesandkeystakeholders.During

thecommunityengagementprocess,developersconduct

demand assessments and market analysis to determine

thecostofalternativeenergysourcesandtoevaluatethe

purchasingpowerofthecommunity.

StakeholderinterviewswithNigeriandevelopersfound

thatmostcommunitiesarewillingtopayhightariffs

aslongastheyarelowerthanthealternatives.Thisis

indeedthecaseinNigeria,wherecurrentmini-gridtariffs

(averagingaboutUSD0.50/kWh)arecostreflective,with

endusersexperiencingsavingsofabout30percent

throughmini-gridelectrification(seeSection 2.2.2).103

InNigeriatheissueofaffordabilityhasnotinhibited

thedevelopmentofthemini-gridsector.Witharobust

tariffdeterminationframeworkusingtheNERCMini-

GridTariffToolmethodology,thetariffallowsalicensee

thatoperatesefficientlytorecoverthefullcostsofits

operations, includingareasonablereturnoncapital

investedinthebusiness.AsdescribedinSection 2.2.2,with the introduction of the Nigeria Electrification

Project(NEP)RBFandperformance-basedgrant(PBG)

mechanismadministeredbytheREA,mini-gridtariffswill

continuetoimproveandenablemoreaffordableaccess.

Mini-gridaffordabilityinNigeriaisfurtherenhanced

throughincreasedutilizationofproductiveuseofenergy

(PUE)applications(seeSection IV).Insomeinstances,developersofferproductiveusersandcommercialusers

(whogenerallyconsumemorepower)alowertariffthan

residentialcustomers.Thisactsasanincentivetothose

usingpowerforproductiveuse/economicgenerating

activitiesaswellastothoseusingelectricityduringthe

50

day,whenitismoreaffordablefortheoperatortoproduce

anddistributeenergy.Thistariffstructureincentivizes

otherstoenterthePUEmarketsegmentandstimulate

electricitydemandforthemini-grid,asthereiscross-

subsidizationofproductiveusersbyresidentialusers.

Otherintervieweessignaledtheneedformoreconsumer

awareness-raisingtoeducatecustomersonthebenefits

andcost-savingsassociatedwiththemini-gridtariffvis-à-

visthecostsexpendedondieselorpetrolgenerators.104

Oneofthewaysthroughwhichtariffscanbefurther

reducedisbyprovidingaccesstoaffordablefinancingto

developersinlocalcurrency,whichtheFGNisstartingto

dowiththesupportofSEforALL.Anotherwayisthrough

thereductionofimportdutiesonsolarproductsand

components.Fromthedeveloper’sperspective,reduction

ofhardwarecosts(throughvendorfinancing,forexample)

willalsocontributetoreducedtariffs,aswellasdeveloping

sitesinlargerportfoliostotakeadvantageofeconomies

ofscaletofurtherreducedevelopmentcostsandtariffs.

Generally,operatorsbelievethecurrentregulatoryregime

ontariffsprovidesacomprehensiveframeworkthatsupports

developers,meetsinvestorneeds,andthusencourages

sustainabledevelopmentofthesector.Improvementscan

be made to the framework for interconnection of mini-grids

duetotheneedtocollaboratewithdistributioncompanies

(DisCos).ThewaytheNERCMini-GridTariffToolhasbeen

structuredisthroughcost-reflectivetariffsasawayof

encouragingprivatesectorparticipationinordertoimprove

therateofenergyaccessinthecountry.Fromthetemplate

sharedbytheregulator,tariffswouldhavebeenpre-agreed

withthecommunityandsignedbyvirtueofacommercial

agreement,whichisoneoftherequirementsforapplying

forthepermit.However,ifanoperatorgeneratesbelow

100kWanddoesnotwanttogothroughtheprocessof

NECregistrationandobtainingthepermit,theycanavoid

associatedregulatorycoverageandareatlibertytocharge

anytariffagreeduponwiththecommunity.

Tariff Adjustment

TheNERCRegulations includeguidelines for tariff

determinationbythevariouscategoriesofmini-grids.

ThereisnocustomerclassificationimposedbytheNERC

formini-grids,andatariffiscalculatedusingtheNERC

Mini-GridTariffToolmethodologyforeitheronevillage,

oraclusterofvillageslocatedinthesamearea.Theactual

104 Stakeholderinterviews,2020.105 “Mini-GridsinNigeria:ACaseStudyofaPromisingMarket,”WorldBankESMAP,(November2017):http://documents1.worldbank.org/curated/

en/352561512394263590/pdf/ESM-dNigeriaMiniGridsCaseStudyConfEd-PUBLIC.pdf

tariff and billing model are described in the contract

betweenthemini-griddeveloperandthecommunity,or

thetripartiteagreementthatincludestheDisCointhe

case of an interconnected mini-grid.

Inordertoamend/escalate/adjustmini-gridtariffsin

Nigeria,theNERCMini-GridRegulationsindicatethat

sufficientnoticeshouldbegivenwhenthereisanintention

toadjustthetariff,andanapplicationtotheNERCisto

bemadeinthisrespect.Nointervalisprovidedinthe

regulationsforapplicationfortariffadjustmentsbythe

operator,andtheregulationsstatethattheNERCshallbe

entitledtoinspectandverifytheaccountsofthemini-grid

permitholderforthepurposeofadjustmentoftariffs.

UponverificationbytheNERCthattheactualcostsor

revenuesincurredorreceivedbythemini-gridoperator

deviatefromthosestated(orprojected)duringtariff

determinationwiththeNERCatthepointofapplication

forthepermit(orapprovalofthetripartiteagreement),the

inputparametersforcalculatingthetariffusingtheNERC

Mini-Grid Tariff Tool methodology are to be adjusted to

theactualcurrentvalues.Thetariffsmaythenbeadjusted

bytheNERC,withthenewtariffsappliedwithin30days

followingapproval.Themini-gridoperatororcommunity

mayrequestaninspectionoftheaccountsofthemini-grid

operatorforthepurposeoftariffadjustment;therequest

incursachargeofNGN200percustomer(USD0.50)to

bepaidbythepartyrequestingtheinspection.


Compliancewithstandardsvariesaccordingtothetypeof

authorization.Registeredmini-gridsmustapplyminimum

technicalrequirementsandensurequalityofservice,in

accordancewiththeiragreementswiththebeneficiary

communities.Theyarerecommended,butnotrequired,

tofollowtechnicalguidelinesintheNERCregulationsand

the distribution code for registered mini-grids.

Mini-grids that hold a permit, whether isolated or

connected, arebound to follow thegrid code, the

distributioncode,andhealthandsafetystandards.Some

ofthestandardsincludemaintainingastipulatedfrequency

range,notifyingusersofoutagesatleast72hoursin

advance,andreportingsignificantincidentstotheNERC

within24hours(definedasmalfunctioningofequipment,or

injurytoapersonorananimalduetoelectricalcauses).105

51


Optionsforhowtodealwithgridexpansiondifferaccording

tothetypeofmini-grid.Interconnectedmini-gridsmust

paytheDisCoachargeforusingitsnetworkinfrastructure.

This charge is determined through negotiations with the

DisCoandmustbeapprovedbytheNERC.However,

theDisComayalsotakeoverinterconnectedmini-grids

andre-integratethemintoitsnetworkoncethetripartite

contractexpires,ontheconditionofprovidingwritten

proofofendorsementbytheconnectedcommunity,and

notificationtotheNERC.106

Isolatedmini-gridsoperatingwithapermithavetwooptions:

i. Convertintoaninterconnectedmini-gridandbecome

a small power producer and/or a small power

distributor;or

ii. Selltheisolatedmini-grid’sassetstotheDisCoin

returnforcompensation.

Iftheextensionofthegridhappenswithinfiveyears

ofthecommissioningofthemini-gridoperator, the

compensationcorrespondstotheremainingdepreciated

valueofassets,includingconstructionanddevelopment

costs.Iftheextensionofthegridhappensafterfiveyears

ofthemini-gridbeingcommissioned,thecompensation

corresponds to the remainingdepreciatedvalueof

assets,excludingconstructionanddevelopmentcosts.

TheDisComustalsopaythemini-gridanadditional

compensation,whetherthegridarrivesbeforeorafterthe

five-yearthreshold.Thisadditionalcompensationequals

therevenuegeneratedduringthe12monthsbeforethe

dateofinterconnectionorbuyout.Thisaimstoprovide

anincentiveformini-griddeveloperstoincreasethe

loadwhilepreventingpredatorybehaviourfromDisCos

(e.g.,whereDisCosletmini-gridsprovetheeconomic

viabilityofalocationbeforeexpandingtheirnetworkand

takingoverthemini-gridsforarelativelylowprice.)The

NERChasthefinalsaywhenpartiescannotagreeon

theamountofcompensation;however,itisworthnoting

thattheNERChasnotplayedsucharoleyet.Duetothe

nascentstageofthemarket,therehavenotbeenany

documentedcasesofsuchconflictstodate,asnoDisCo

has extended its distribution system to an area already

occupiedbymini-grids.

Registeredmini-gridsthatdonothaveapermitarenot

eligibleforanycompensation.Theymustdecommissionand

106 Ibid.107 Mini-GridInvestmentReport:ScalingtheNigerianMarket,RockyMountainInstitute,2018.

removealltheirassetsandequipmentwithintwomonths

aftertheDisCohasstartedsupplyingelectricitytothearea.

Stakeholderinterviewsfoundthatoperatorsarecurrently

seekingoutpartnershipswithDisCostodevelopmini-grids

thatarein“under-grid”areas.Asforthecompensation

offered forgridextension, someoperators feel it is

inadequateandassuch,haveengagedoneof their

partnerstodriveapolicyreviewprocessthatwillinclude

theRenewableEnergyAssociationofNigeria(REAN)for

widerparticipation.Thepurposeofthiscollective-action

approachistoundertakeareviewfromanindustry-wide

perspectiveasopposedtoanindividualone.

Mini-gridsinNigeriaaregraduallytrendingtowardsgrid

parity,especiallyinterconnectedmini-grids,asDisCos

maybesourcingmoreoftheirpowerfromsuchprojects.

AsurveycarriedoutbytheRockyMountainInstitutefound

thatalthoughcapacityutilizationofmini-gridsisstillbelow

average,asprojectsworktowardstheachievementof

energyaccessgoalsbyconnectinghouseholds,revenue

collectionshavebeensolid.WithmorefocusonPUE,

mini-gridsinNigeriawillachievemorecapacityutilization

and further enhance affordability.107


3.1.2.1 Comparative Analysis of Tariff Determination Methodologies in Sierra Leone and Nigeria

Tariff Calculation

The tariff calculation methodologies in the mini-grid tariff

calculationtoolsusedbyboththeEWRCandtheNERC

calculatetheaveragetariffasaratioofthetotalallowed

revenue(TAR)tothetotalannualdemand.Thetariff

calculation tools used by both regulatory agencies use

similarmethodstodetermineacost-reflectivetarifffora

prudentlyoperatingdeveloper.TheTAR,whichisthesum

oftheoperationalcosts,depreciation,etc.,isusedtogether

with the total demand in calculating the tariff in both the

EWRCandNERCtarifftools,aspresentedinTable 3.

SomedifferencesinthecomponentsoftheannualTAR

existinthetariffcalculationtoolsusedbytheEWRCand

theNERCassummarizedbelow.

i. TheNERCincludesthecostofpaymentsmadetothe

localelectricitydistributioncompanywhereapplicable.

Thisappliestointerconnectedmini-gridsthatarea

52

mini-gridcategoryundertheNigerianRegulationfor

Mini-Grids2016.

ii. TheEWRC includesgrants for cost (addedas a

negativetopreventthegrantedsumsfrombeing

countedaspartofthetariff),andreserves(covering

repaircosts,etc.)ascomponentsoftheannualTAR.

TheNERCtarifftoolfurtherallowsforthecalculation

108 TheEWRCmini-gridtarifftoolincludesapplicabletaxesinthedeterminationofoperatingcosts,whichitselfisalineiteminthetariffdeterminationcalculation.TheNERCmini-gridtarifftooldoesnotconsidertaxesinthedeterminationofthetariff;Nigerianmini-griddevelopersmaythusapplyapre-taxWACCwhendeterminingatariffinordertoaddressthistaxburdeninitsrevenues.

109 EWRCTariffCalculationToolVersion9.2110 TariffToolVersion4from:https://nerc.gov.ng/index.php/component/remository/Regulations/MYTO-Mini-Grid-Model/?Itemid=591111 IncludesEWRCfees.

ofTOUtariffssplitintodaytimeandnighttimetariffs.

TOUtariffsarecalculatedasa ratioof theTARto

theprojectedtotalenergyconsumed(kWh)during

thedaytimeandnighttime.TheNERCtarifftoolalso

providesforthecalculationofthetariffasanaverage

flat-ratetariff,whichiscalculatedastheratioofthe

TARtothenumberofcustomersservedbythemini-

grid in one month.

TABLE 3Mini-Grid Tariff Determination Comparison108

Tariff Components EWRC Tariff Tool109 NERC Tariff Tool110

TotalAnnualAllowedRevenue(A)inSLLorNGN

(+)OperationalCosts111 (+)OperationalCosts

(+)Depreciation (+)Depreciation

(+)AverageReturn (+)AverageReturn

(+)Performance-RelatedProfitMargin (+)Performance-RelatedProfitMargin

(-)GrantsforCost(Capex) (+)PaymentsmadetoDisCo

(+)ReserveAccountContribution (+)NERCFee(NGN/year)

TotalDemand(B)inkWh/year TotalAnnualDemand TotalAnnualDemand

Tariff (C) = Total Allowed Revenue (A)

Total Demand (B)

Source:EWRCandNERC.

AsthetarifftoolsusedbyboththeEWRCandNERC

use similar tariff determination methodologies based on

thecost-of-serviceapproach(wherebyend-usertariffs

are calculated as the ratio of the TAR to the total annual

demand),anydifferencesinatariffcalculatedusingeither

toolwouldbeduetothedifferencesintheindividual

componentsoftheTAR,orthefactthatsomecomponents

oftheTARareuniquetoeachofthetoolsusedbythe

EWRCorNERC.

Theregulator inSierraLeone,throughitsMini-Grid

Regulationsandtarifftool,allowsthedevelopersome

flexibilityinchoosingtheweightedaveragecostofcapital

(WACC)—orreturnontheRAB—tobeusedinthe

tarifftool(andthustariffdetermination)subjecttothe

approvaloftheEWRC.TheNERCalsoallowssimilar

flexibilityinitstarifftool,andtheWACCiscalculated

basedonthecostofdebtandtheexpectedreturnon

equity.TherequirementfortheNERCtoapprovethe

rateofreturnusedtoderiveatariffusingtheNERCtariff

toolishowevernotmentionedintheNigeriaRegulations

forMini-Grids2016.

TheSierraLeoneElectricityandWaterRegulatory

Commission (SLEWRC) states in its Mini-Grid

Regulationsthat:“the applicant’s proposed rate of

return on its own invested capital shall be supported

by a cost of capital analysis. The applicant shall propose

and justify a capital structure which will include a

discussion on cost of debt and equity for the applicant.

The rate of return proposed needs to be confirmed by

the Commission.”

TheEWRCandNERCtarifftoolsandmethodologiesdo

notusetheCapitalAssetPricingModel(CAPM)thataims

toguideanappropriatereturnonequityinrelationto

53

theriskpremiumontherespectiveequitymarket.This

impliesthatpotentiallywidelyvaryingreturnsonassets

(aproductoftheRABandtheWACC)maybeproposed

bydevelopersinbothNigeriaandSierraLeonebased

ontheprevailingmarketconditionsandcouldcausewide

variationsintariffsdeterminedforeithermarket.

112 NOTE:ThesetariffsonlyreflecttheRREP;othermini-gridprojectsinSierraLeone(e.g.,PRESS-D)maychargedifferenttariffs.

3.1.2.2 Summary of Mini-Grid Tariff Frameworks in Sierra Leone and Nigeria

Asummaryoffindingsbasedonareviewofthemini-grid

tariffframeworksinSierraLeoneandNigeriaispresented

in Table 4.

TABLE 4Mini-Grid Tariff Frameworks in Sierra Leone and Nigeria

Indicator Sierra Leone Nigeria Lessons Learned

Tariff calculation methodology

• RevenueRequirementmethodology

• TheRABmodelisdefinedas“thesumofallassetsusedandusefulinprovidingregulatedservices,”whichgivestheregulatorthediscretion to determine the reasonableness of entries on a case by-case basis

• Publicly-availableNERCMini-Grid Tariff Tool

• Operatorsgeneratingbelow100kWareatlibertytosettheir own tariffs through a “willingbuyer-willingseller”regime(musthaveagreementwithcommunity)

• TheRABmodelprovidesadetailed Excel-based tool thathaspre-setcategoriesforassetbaseinputs(includesgeneration and distribution assets)allowedwithintheRAB.Italsoprovidespricingestimates.

• Themulti-yeartarifforder(MYTO)tool reduces regulatory burden for developersandregulators

• InNigeria,registeredmini-gridshavetheflexibilitytosettheirtariffsfreelyand/ortousethetariffcalculationtool.

Average mini-grid tariffs

RREP:112

• WP-1, Year 1 (2019-20): USD0.82–0.87/kWh;averageofUSD0.85/kWh

• WP-1 and WP-2, Year 2 (2020-2021): USD0.74/kWh–0.82/kWh;averageofUSD0.79/kWh

• NEP and NESP I:USD0.39-0.79/kwh(NGN150–300/kwh);averageofUSD0.58/kWh(NGN220/kWh)

• REF:USD0.32-0.39/kwh(NGN120and150/kwh)

Someofthekeysimilaritiesanddifferences between the tariff frameworksinSierraLeoneandNigeriainclude:

• The annual TAR used in tariff determinationforSierraLeoneandNigeriahascertaincomponentsuniquetoeachthatcoulddrivedifferences in tariffs for similar installations.

• ThedeveloperisallowedtocalculateitsreturnontheRAB(subjecttoapprovalbytheEWRCinSierraLeone)allowingforpotentiallydiffering tariffs as the return on the RAB is based on the local lending rate andthereturnonequityproposedbytheprojectdeveloper.

• InSierraLeone,asoperatorsbeginto connect more customers and bringlargermini-gridsystemsonline,projectdevelopmentcostsaregradually decreasing.

• Inbothcountries,somemini-griddeveloperschargeproductiveusersalower tariff than residential customers toincentivizePUE.

• Accesstofinanceisakeybarrierformini-griddevelopersinbothcountries;inNigeria,developershavebuiltuptheirinternalcapacity/expertise(undertheNEP)intermsofpreparingproperdocumentation,thusimprovingaccesstofinancingprogrammes,andinturnenablingthereduction of tariffs.

54


Market Entry • Top-downplanningapproachunder the RREP

• BiddingprocessundertheRREPislengthyandcomplex,which leads to higher costs fordevelopers,whomustabsorb these costs as overhead

• TheEWRCcanrefusetogranta license based on reasons relatingtothefinancial,technical and managerial capabilityoftheapplicant,or the inability to render the serviceforwhichthelicenseisbeing sought

• Privatesector-drivenmodelthatcombinestop-downandbottom-upplanningapproaches

• Entrantsarerequiredtoshowtechnicalandfinancialcapability

• TheNERCcansimilarlyrefuseto grant a license based onnotfulfillingthesebasicrequirements

• ThecomplexPPPstructureofthe RREP resulted in lengthy and expensivenegotiationandfinancingprocesses,withdelayslargelyattributedtoextendedapplicationprocessestoobtainlicensesandotherpermits,aswellastoongoinggeneralelectionsinSierraLeoneinearly2018.Continuouslearningbydoing(byregulators,developersandcommunities)andthesubsequentrefinementandstreamliningofpermitting/contractnegotiationprocessesisakeylessonlearned.

• DuetohigherexistinglocalcapabilitiesinNigeriawithitsmoredevelopedpowersector,companiescould assess the sites they want todevelopthemselves,carryoutsurveys,providetheirdesignandsubmittotheREA,whichcarriesoutevaluation,checksnecessarydocumentation and ensures that theymeetthefinancialandtechnicalrequirementstodeliversuchprojects.

• Followingasuccessfulgrantapplication,developersaregiventheNEPRBFgrantssubjecttoverificationthatcustomershaveconnectedtothemini-gridandbeenprovidedwithsatisfactoryservicefor90days.


• SetbytheMoEandtheEWRC

• Grid code currently under development

• Informalmarketcompetitionrequiresimprovedenforcement standards by relevantauthorities

• SetbytheREA,theNERCandtheStandardsOrganizationofNigeria

• Standardsvaryaccordingtotypeofauthorization

• Registered mini-grids are recommended but not requiredtofollowthecodes;mini-gridoperatorswithpermitsareboundtofollowthe codes

• Informalmarketcompetitionrequiresimprovedenforcement standards by relevantauthorities

• Regulatorsshouldimplementmeasurestoensurestandards/quality(e.g.,byadoptingIECand/orregional/ECREEEstandards),mitigatepotentialdifficultiesincustomsclearanceandimportlogistics,aswellastooverseeimplementationoftaxexemptionsbycoordinatingwithall agencies and regulatory bodies involved.

Ability to reduce capex development and/or opex costs

• Accordingtointerviewswithoperators,reductionsofoperationalandassetcoststosignificantlevelsarenotpossible,asopexcostsarerelativelyfixed,andthevariablecostsdirectlytiedtorevenuelevelsarelow

• RemovalofimportdutyonIEC-certifiedapprovedsolarproducts(excludingancillaries such as distribution equipment,batteries,etc.)

• RemovalofGSTfrommini-grid electricity and tax holiday formini-gridoperatorsfor5-yearperiod

• Distributioninfrastructureand storage were the most significantcostdrivers,whichcannot easily be reduced duetounder-grid/energyreliability of the grid

• 5%importdutiesand5%VATonimportedsolarcomponents113

• Developsitesatscale,astheeconomiesofscaleindevelopingmultiplemini-gridsitesatonceshouldreducesomecosts(fixedcostsarespreadoverfarlargervolumesofkWhsold).

• FocusonoptimalcostperkWhandtheappropriatefinancingstructuresforthis,assignificantlyincreasingthecustomers/sitesmanagedandtheconsumptionpercustomerremainsthe best way to reduce tariffs.

113 “PolicyResearchontheimpositionof10%TariffDutiesonSolarComponents:MakingaWayforSolarinNigeria,”https://ng.boell.org/sites/default/files/uploads/2019/07/final_35_page_-_policy_research_on_the_10_duties_on_solar.pdf.pdf

55



• Basic mini-grid licensee has to decommissionandremoveallassetsandequipment

• Fullmini-gridlicenseehastheoptiontoeitherconvertto an interconnected mini-grid based on a contract between the licensee and the main-grid utility or transfer all assetsinreturnforfinancialcompensation

• Interconnected mini-grids paytheDisCoacharge,determined by negotiation andapprovedbytheNERC,forusingtheDisCo’snetwork infrastructure or the DisComaytakeovertheinterconnected mini-grids and re-integrate them into its networkoncethetripartitecontractexpires

• Isolated mini grids with a permiteitherconvertintoaninterconnected mini-grid or selltheirassetstotheDisCoinreturnforcompensation

• Arrivalofthemaingrid/DisConetworkisthesinglemostimportantconstraintfacingmini-griddevelopersinNigeria;somefeelthatthereisunfaircompensationofferedforgridextensionandaretryingtodriveapolicyreviewprocesswiththeREA.

Source:SLEWRCMini-GridRegulations;NERCMini-GridRegulations;stakeholderinterviews,2020.

114 “ElectricityTariffsinECOWASRegion,”AfricanDevelopmentBankGroup,EnergyPolicy,RegulationandStatisticsDivision,(September2018):http://www.ecowrex.org/sites/default/files/pesr1_-_energy_statistics_bulletin_september_2018.pdf

115 Lai,K.,Munro,P.,Kebbay,M.,andThoronko,A.,“PromotingRenewableEnergyServicesforSocialDevelopmentinSierraLeone:BaselineDataandEnergySectorResearch,FinalReport,”EuropeanUnion,(July2015):https://pressd-sl.org

116 ElectricityTariffsinECOWASRegion,AfricanDevelopmentBank,2018.117 ElectricityTariffsinECOWASRegion,AfricanDevelopmentBank,2018.

Affordability is central tomini-grid development,

particularlyincountrieslikeSierraLeoneandNigeria,

whereruralincomelevelsoftenmakeitdifficultforthe

populationtoaffordelectricityaccess.Inthecontext

ofmini-grid electrification, affordability andWTP

aredirectly tied toalternativeenergyand lighting

sourcesthatareusedbyoff-gridcommunities(diesel

generators,kerosenelanterns,batteriesetc.),whichare

moreexpensivebycomparison.Hence,mostcustomers

already pay higher rates for access using these

alternativesthanthetariffsetbymini-gridoperators.

Affordability of tariffs therefore cannot be determined

basedon theabsolutevalueofagiven tariffand

mustbeexaminedwithinabroader,country-specific

economiccontext.Domesticlowvoltageconsumers

(i.e.,households)intheECOWASregionspendabout

17percentof their incomeontariffs,onaverage;

Sierra Leonehasoneof thehighest average low

voltage(LV)domestictariffsintheECOWASregion

withusersspendingupto20percentoftheirincome

on electricity, while domestic LV consumers in

Nigeriaspendabout10percentoftheirincomeon

electricity.114A2015studycarriedoutundertheEU-

fundedPRESSD-SLprogrammefoundthat—using

conventionalenergysources—thecostoflighting,on

average,accountedforbetween10and15percentof

householdincomes,whilehouseholdsusinggenerators

werefoundtospendupwardsof20percentoftheir

income on lighting.115

Electricity is a bit more affordable to lifeline consumers

whospendanaverageofabout2percentof their

income on electricity. Lifeline rates refer to the

subsidizedratesgiventocustomersforthefirstblockof

consumption(i.e.,enoughelectricityaccesstocoverbasic

needs),whosediscountsarebornebythosewithhigher

electricityconsumption.ThelifelinetariffinSierraLeone

isoneoftheleastaffordable,inrelativetermstotheGDP

percapita,asconsumersoftheElectricityDistribution

andSupplyAuthority(EDSA)ofSierraLeonehaveto

spendupto3.2percentoftheirincomeonelectricity

tariff,comparedtolifelineconsumersoftheAbujaDisCo

inNigeria,whohavetospendlessthan1percentoftheir

incomeontariff,makingthisoneofthemostaffordable

lifeline tariffs in the region.116

Onaverage,thenon-domesticlow-voltageconsumers

(whouseelectricity forcommercialactivities) in the

ECOWAS regionpay 15percent higher tariff than

domesticlow-voltageconsumers.Thisfiguregoesupto

77percentinNigeria–i.e.,thenon-domesticconsumer

tariffsare77percenthigherthandomesticconsumer

tariffswhereasinSierraLeone,thenon-domestictariffs

areonlyabout30percenthigherthandomesticconsumer

tariffs. The difference between the two tariff classes is

indicativeofthesubsidizationand/orcross-subsidization

infavourofdomesticconsumersineachcountry.This

trendsuggeststhattariffsineachcountry(andatthe

ECOWASregionallevel)donotpromotecommercialand

industrialactivities.117

56

StakeholderinterviewsinSierraLeoneindicatethatin

settingmini-gridtariffs,theregulatorinvestigatescapital

cost,financingandmore,andmostoperatorsfindthe

currenttariffcostandregulationstoadequatelycover

allkeyfactors.Someoperators,however,viewthetariff

structureasoverly controllingand thuspreventing

experimentationtooptimizestructure.Thetariffsetby

theEWRCistobereviewedafter12months;thishadyet

totakeplaceasoflate2020.

Severalfiscalpolicies(bothdirectandindirect)havebeen

takentosupportthemini-gridsector.Forexample,the

MoEandtheMinistryofHealthandSanitation(MoHS)

providedaccesstolandforthedevelopmentoftheRREP

WP-1mini-gridsites,whiletheMinistryofFinance(MoF)

providedincentivesfortheimportationofmini-grid

equipmentthatmeetsinternationalstandardsofquality.

In2021,theGoSLapprovedcorporatetaxexemptions

andagoodsandservicestax(GST)waiverformini-grid

projects,whiletheFCDO,underWorkPackage7(WP-7)

oftheRREP,providedatariffsubsidy(seeSection 1.1.2).

Itisimportanttoemphasizethat,eventhoughthemini-

gridtariffisconsideredunaffordablebymany,alarge

numberof themini-gridcustomershadneverused

electricityinthisformpriortothearrivalofthemini-grid.

Thus,whentheyfirstconnectedtothesystem,many

customersendedupconsumingmoreelectricitythan

theycouldafford.Inthiscontext,energyexpenditures

inrelationtoincomelevelsmaytakesometimetolevel

off as end users learn more about their energy usage and

expenditures.

Many of these issues can be addressed through

awareness-raisingandcommunity-sensitizationcampaigns

targetingfinancial literacy (sothatendusersbetter

understandthebenefitsofcost-savings),aswellas

energyefficiency/conservation,andappropriateuseof

end-useappliancestooptimizeenergyuse.Collaboration

betweenstakeholdersacrossvaryinglevels,fromthe

privateandpublicsector,isalsoimportanttoensure

understandingandinclusion.Improvingunderstanding

of these dynamics within a mini-grid community is critical

to fostering sustainable growth of the mini-grid sector.

AnotheroptionmaybethroughtheapplicationofEnergy-

as-a-Service(EaaS)businessmodels,wherebymini-grid

operatorsofferend-userservicesratherthansellingkWh

(see Annex 1).Thishasproventobeaneffectiveapproachin other nascent and early-stage mini-grid markets and

wouldhelpovercomemanyoftheabove-mentioned

knowledgebarriers.Indeed,mini-gridcommunitysurveys

found that user knowledge surrounding electricity usage

fromthemini-gridwasrelativelylow(Figure 15).

FIGURE 15User Knowledge of Amount Charged per kWh of Electricity

FIGURE 15: User Knowledge of Amount Charged per kWh of Electricity

YES

NO

Source: WP-1 Mini-Grid Community Surveys, 2020.

46%54%

Source:WP-1Mini-GridCommunitySurveys,2020.

57

Withthemini-gridtariffstillconsideredunaffordablefor

manyruralhouseholds,companiesinSierraLeoneare

workingtoaddressthisbyprovidingmicrofinanceto

enduserstoincreaseuptakethroughPUE(seeSection 4.2).Grantschemesandsubsidiesfromthegovernmentanddevelopmentpartnerscanplayanimportantrole

infacilitatingaccesstofinancing(e.g.,forthepurchase

ofproductive-useequipment),whichiscurrentlyafocus

oftheRREPunderWorkPackage6(WP-6).Allsurveyed

operatorsmentionedtheissueofhighcostoffinancingas

animportantcostdriver,withcommercialbanksinSierra

Leonenothavingmuchexperienceinthemini-gridsector

andthusbeingunderstandablyrisk-averse.Government

guaranteescaneasethisriskaversenesstosupport

lower-costfinancingfromcommercialbankswithout

significantburdentothegovernmentbudget.Operators

are also working with communities to better understand

differentclassesofcustomers,howtheymanage,use,

andconsumeenergyetc.tofurtherimproveaffordability.

OperatorsstatedthatvariousaspectsoftheWP-1and

WP-2sitedevelopmentcontributedtohighertariffs.

Forexample,sourcingalargequantityofinstallation

materials,andassociatedinstallation/connectionlabour,

was identifiedasbeingparticularlycostly forWP-1.

ThesecostswerereducedunderWP-2,however,as

operatorswereabletomakeuseoftheirowntrained

engineersinSierraLeone.Thebiggestcostdriverfor

WP-2developmentwasprocurementof thepower

generationassets,alongwithhavingtorepeatedlyfinance

newprojectcostsforeachsite;financingisextremely

expensive,withlegalcostsuptoUSD400–650perhour

tomanagethepreparationofvariouscontractsand

permits,particularlythoserelatedtolandleasing.The

lengthyandcomplexnatureofthisprocessledtohigher

costsfordevelopers,whomustabsorbthesecostsas

overhead.Operatorssuggestedthatanidealstructure

wouldbearelativelysimpleframeworkcontractthatcan

be used on an ongoing basis.

118 Stakeholderinterviews,2020.

Inaddition,thepossibilityoffurtherstandardization

canbeexplored.Someoperatorsexplainedthatmini-

gridprojectsaredestinedtohavehighercostsbecause

theyarealltailor-madeprojects–unlikegridextension

projects.Consideringthisinherentcharacteristic,theGoSL

cancarefullyanalyzepowerassetsanddevelopment/

permittingprocessesthatcanbefurtherstandardizedin

ordertocreatereplicabilityandlearningfordevelopers,

leadingtofurthercostreductions.Developerscanalso

explorecoordinatedeffortsofbulkpurchaseofsuch

standardizedassetstopursuecostreductionviaincreased

purchasingpower.Forthiskindofaction,however,awell-

plannedmini-griddevelopmentprogrammebytheGoSL

may become essential to create market certainty.

Operatorsmentionedequipment costs, e.g., solar

batteries,asakeycostdriver.Inaddition,thelackof

locallyavailablepartsandinstallersgreatlyaddsupthe

cost,astheyneedtobeprocuredfromoutsideofthe

country.Thereareadditionallogisticaldifficultiesduring

thecountry’srainyseason,whichcanleadtodelaysand

increase costs.

Increasingthenumberofcustomersisalsoimportantfor

operationalcostreductions.Operatorssuggestedthat

operationalandassetcostreductionsarenotpossible

tosignificantlevels,andthatcostsavingsonassetswill

simplypushcostsdownthelineintohighermaintenance

andpoorperformance–inturnresultinginreduced

revenueduetodowntime.Moreover,variablecosts

directlytiedtorevenuelevelsareabout2–4percent;

therefore,significantlyincreasingthecustomers/sites

managedandtheconsumptionpercustomerremains

thebestwaytoreducetariffs,asfixedcostsarespread

overfarlargervolumesofkWhsold.Thisrequiresclearer

processesforfinancinganddeploymentoflargerproject

portfolios.Asalonger-termcostreductionmeasure,the

GoSLshouldinvestinbuildinglocalcapacitytocreatea

sustainablemarketwithlocalexpertise.118

58

3.2 Assessment of Mini-Grid Subsidy Schemes in Sierra Leone and Nigeria

3.2.1 Impact of Subsidies on Project Development Costs and Electricity Tariffs

Theeconomicsofmini-griddevelopmentinSub-Saharan

Africaremainchallenging,asmini-gridsoftenhavehigh

up-frontcapitalandoperationalcostsandtendtoserve

low-incomeruralcustomerswithlimitedabilitytopay.

Demandfromthesecustomerscanbeunpredictable,

asmanyrelyonagricultureforincome.Varyingweather

conditions,seasonalityandcropyieldsalldirectlyimpact

theabilityofcustomerstopaytheirbills.Formini-grid

operators,suchirregularincomestreamsposesignificant

riskstorevenuecollection,andriskreturnsfortheir

financialbackers.119Whiletherearesomeexceptions,

includingsitesthathavetherightmixofloads,income

levels,andproximitytotransportationorurbanareas,

mostmini-gridstypicallyrequiresomeformofgrantor

subsidytobeeconomicallyviable.120

119 StateoftheGlobalMini-GridsMarketReport2020.120 Melnyk,M.andKelly,A.,“SmartIncentivesforMini-GridsthroughRetailTariffandSubsidyDesign:AGuideforPolicymakers,”AfricanMini-Grids

CommunityofPracticeandElectricCapitalManagement,(March2019):https://southsouthnorth.org/wp-content/uploads/2019/04/Smart-Incentives-for-Mini-grids-through-Retail-Tariff-and-Subsidy-Design_-A-Guide-for-Policymakers_LEDS-GP-FWG-1.pdf

121 Ibid.122 Consumptionorusagesubsidiesincludesubsidiesbuiltintothetariffstructure,suchaslifelinetariffs,andsubsidiespaidtocustomersforthe

purchaseofenergy-efficientappliancesandelectromechanicalequipment123 Tenenbaumetal.,2014.124 MelnykandKelly,2019.125 Excludespre-investmentsubsidies,whichessentiallycoverTAtogovernmentsanddeveloperssuchasmarketandresourceassessments,geospatial

planning,prefeasibilityandfeasibilitystudies.

Therearevariousapproachesforprovidingsubsidies.

Subsidiescanbedeliveredbyeithersupplyingcertain

elementstothedeveloperdirectly,orbyafinancial

transfer paid for inputs or outputs, generation or

distributionoutcomes,oronacapitaloroperational

basis.Subsidiesaretypicallyprovidedtoeither: (i)

consumers(i.e.,customersservedbyamini-grid),which

arederivedonthebasisofaprice-gapapproach;or(ii)

producers(i.e.,mini-gridoperators).121 The two most

common consumer subsidies are connection subsidies

andconsumptionsubsidies.122 A connection subsidy

isaone-timegrantthatallowsahousehold,business,

orpublicinstitutiontoconnecttoamini-gridsystem,

whileaconsumptionsubsidy(sometimesdescribedas

aquantity-basedsubsidy)isanongoingsubsidythat

reducesacustomer’scostofconsumingelectricityby

reducingthecustomer’stariff.123 Producer subsidies

areadministrativelyeasierandalsoallowforgreater

flexibilityinstructuringthesubsidy.124 Table 5presentsdifferenttypesandsourcesofproducersubsidies;Table 6 presentseightbasicoptionsforstructuring/disbursingsubsidies for mini-grids.125

TABLE 5Types and Sources of Producer Subsidies

Type Source

Subsidies that increase revenues Feed-intariffswithpremiums Government/donors/buyingutility’scustomersExternaloperatingsubsidies Government/donorsTariffsthatexceedcostsforothercustomersservedbytheSPPorforothernon-SPPelectricityconsumers

Othercustomersfromwithinatariffclass,fromothertariffclasses,orfromcustomerswhosetariffsarenotregulated

Subsidies that lower costsConnection cost grants Government/donors/othercustomersCustomer contributions in aid of construction CustomersDiscountedpurchasepriceonbulksupplytariff Nationalutility/government/sellingutility’sothercustomersWaiversofimporttaxes Government/donorsConcessional/softloans Government/donorsProduction tax credit GovernmentTax holidays GovernmentGuaranteesonSPPloanpayments Government/donorsGuaranteesthatnationalutilitieswillpayforelectricitysuppliedbytheSPP

Government/donors

Loanbuy-downprogrammes Government/donors

Source:Tenenbaumetal.,2014.NOTE:SPD=smallpowerdistribuitor;SPP=smallpowerproducer.

59

TABLE 6Mini-Grid Subsidy Disbursement Options

Capital Generation Distribution (including retail)

Input-based Paid based on the cost of the generation asset,asapercentageofthecostbasis

Paid based on the cost of building out the distribution network,asapercentageofthecostbasis

Output-based Paidbasedontheinstalledcapacityofthegenerationassets,ona/kWbasis

Typicallypaidbasedonthenumberofconnections(i.e.mini-grid connected customers

Otheroutputmetricsmaybepossible(e.g.thedistanceofdistributionortransmissionlinesextended)althoughnotcurrentlyutilizedformini-grids

Directsupply Selectedkeygenerationassetssuppliedfor free

Distributionassetssuppliedbyandbuiltbyanentitythatisnottheprojectproponent,andtransferred/leasedtotheprojectproponentforlong-termoperation

Operational

Output-based Paidbasedontheenergydelivered(/kWh) Paidbasedonthenumberofcurrentcustomers(e.g.paidonamonthlyorannualbasis).Thishasnotbeenutilizedasasubsidy mechanism for mini-grids in Africa

Source:MelnykandKelly,2019.

126 Phillips,J.,Attia,B.,andPlutshack,V.,“BalancingCompetitionandSubsidy:AssessingMini-GridIncentiveProgramsinSub-SaharanAfrica,”DukeUniversityNicholasInstituteforEnvironmentalPolicySolutions,PolicyBrief,(December2020):https://nicholasinstitute.duke.edu/sites/default/files/publications/Lessons-for-Modernizing-Energy-Access-Finance-Part-2.pdf

127 Peterschmidt,N.,Lopez,D.,andFuss,C.,“ARenewableEnergyMini-GridTechnicalAssistanceGuide:Take-awaysfrom15yearsofGIZsupportinmini-gridmarketdevelopment,”DeutscheGesellschaftfurInternationaleZusammenarbeit(GIZ)GmbH,(April2020):https://www.get-transform.eu/wp-content/uploads/2020/06/200602_giz_get_transform_minigrid_rz05_web-min.pdf

Althoughawiderangeofsubsidieshavebeenimplemented

acrossmini-gridmarkets,twomaintypesofgovernment

subsidieshavedrivenmini-gridprojectdevelopmentto

date–up-frontcapexsubsidiesandoutput-basedcapex

subsidiesoftenreferredtoasRBF.Arecentstudyof20mini-

gridprogrammesinSub-SaharanAfricafoundthatup-front

capexsubsidiesprovidedviaauctionprogrammesarethe

mostutilizedmechanism,accountingfor62percentofall

subsidies,whileRBFandauction-RBFhybridprogrammes

accountfor24percentand14percentofprogrammes,

respectively.126

Thevalueofasubsidyshouldbehighenoughtoensurethat

themini-gridissustainableandprofitable,butlowenough

tomaximizetheimpactoflimitedsubsidyresourcesand

motivatetheprocessofcostreductionandlocalcapacity

building.Clearsunsetclausesofsubsidymechanismsand/

orstep-by-stepreductionmechanismsareimportantways

ofincentivizingthecostreductionofsubsidizedassets/

processes.ArecentGIZstudyindicatedmini-gridcapex

subsidyneedstobebetween50percentand80percent.127

Up-front Capital Expenditure Subsidies

Up-frontcapexsubsidiesarefinancialsupportprovided

todeveloperstocoversomeportionofthetotalcapex

oftheirmini-gridprojectspriortoconstruction.This

typicallyinvolvesissuinggrantsorconcessionalloansto

coverup-frontcapitalcosts.Grantscanbedistributed

onanin-kindbasisandtypicallyincludefundingforTA

ordistribution,generationandmeteringequipment.In

termsofdistribution,up-frontsubsidiescanbemade

availableatafixedrateonafirst-come,first-servedbasis.

They may also be disbursed through minimum subsidy

tenders/auctionprogrammes.

Up-front capex subsidy auction programmes tend

tobeadministrativelycomplex,requiringsubstantial

resourcestobedevotedbydeveloperstoengagein

them.Inaddition,mostmini-gridmarketsinSub-Saharan

Africaareintheirpilotphaseandnotmatureenough

tobenefitfromauctionschemes,whicharedesignedto

prioritizecompetitionandlowerprices–anapproach

bettersuitedformorematuremarketswithasufficient

supplyofexperienceddevelopers.Nevertheless,auction

programmesarestillthemostcommontypeofmini-grid

subsidyprogrammesadoptedintheregion,with13

Africancountries(includingNigeriaandSierraLeone)

havinglaunchedtenders/auctionstointroducemini-grids

thatincludeup-frontsubsidycomponents.Thepopularity

of these mechanisms in the region seems not to be based

ontheirabilitytolowerprices;rather,auctionsarepopular

60

largelybecausetheyofferdevelopersup-frontpayment,

largerprojectsizes,andachancetonegotiateterms.Up-

frontpaymentsprovidecriticalfundingthatdevelopers

needtobeginimplementation,giventhatsmalland

medium-sizeddevelopers—especiallylocaldevelopers

—maynothaveaccesstothenecessarycapitaltowait

forback-loadedRBFpayments.128Finally,giventheearly

stagesofnearlyeverymini-gridmarketintheregion,itis

likelythatthesectorwouldbenefitlessfromcompetition

thanfromclearsubsidies,bankable/consistentregulation,

andcapacitybuilding.Thiswouldsupportascale-upphase

inthemarket,whichcouldbringnewmarketentrants,drive

downcosts,andbuildthecapacityofregulatorstoallocate

marketopportunityefficiently.129

Results-Based Financing

Results-based financing (RBF) involvespaymentof

specifiedsumswhenprojectsachievecertainverifiable

criteriaorsurpassmilestones,typicallythenumberof

newconnections,althoughthespecifiedsubsidycriteria

couldincludeawiderangeofvariables.Thelevelof

support,meanwhile, isusuallycappedataspecific

point–acontractmightspecifyanendgoalof1,000

connections,beyondwhichnofurthersubsidyispaidout.

WhileimplementingRBFcanfacechallenges,itisusually

fasterthanup-frontcapexsubsidies.RBFshiftstherisk

ofprojectdeliverytotheprivatesector.

Commonly-citedchallengesofRBFinclude:130

• Developersmightstillrequirefinancingsupportto

achieveearlymilestonesgiventhatRBFpaymentsare

backloaded.RBFmayprecludesmaller/earlier-stage

localcompaniesthatdonothavethemeanstopre-

financethecostsofdelivery.

• RBFcanintroducemarketdistortionsasdevelopersthat

emergetotakeadvantageofthemarketopportunity

maybecomedependentonthecontinuationofthe

subsidy for their sustainability.

• Settingtheincentivesothatittriggersthedesired

levelofactivitywithout(over)subsidizingactivitiesthat

wouldhavehappenedanywaycanbetricky.

• Higherdatacollectionandverificationcosts.

128 Phillipsetal.,2020.129 StateoftheGlobalMini-GridsMarketReport2020.130 “FundingtheSun:NewParadigmsforFinancingOff-GridSolarCompanies,”WorldBankESMAP,(February2020):https://openknowledge.worldbank.

org/bitstream/handle/10986/33331/Funding-the-Sun-New-Paradigms-for-Financing-Off-Grid-Solar-Companies.pdf?sequence=6&isAllowed=y131 Phillipsetal.,2020.132 Mini-GridsforHalfaBillionPeople,WorldBankESMAP,2019.133 TheGPRBARBFdatabasecontainsrawinformationonover300RBFprojectsindevelopingcountriesfrom1993todate,andtheirkeycharacteristics134 “AGuideforEffectiveResults-BasedFinancingStrategies,”GlobalPartnershiponOutput-BasedAid(GPOBA),(2018):https://www.gprba.org/

sites/gpoba.org/files/publication/downloads/2018-11/Guide_for_Effective_RBF_Strategies.pdf

• RBFcanbeveryexpensiveforthefundersincaseof

highdemandforit.Topreventrunawaycosts,countries

cancaptheincentives.

Todate,mini-gridRBFprogrammeshavebeen/arebeing

implementedinKenya,Nigeria,RwandaandTanzania,

whileauction-RBFhybridprogrammesarebeingutilized

inNiger,TogoandZambia.131GiventhatmostoftheRBF

schemescurrentlyinoperationinthemini-gridsectorare

new,itwilltakeafewyearsbeforetheireffectivenessis

properlyunderstood.132

Measurementandverificationof results arecritical

todisbursementsunderRBFprogrammes.However,

determiningtheverificationapproachtypicallyrequires

abalancebetweencertaintythatsubsidiesareonlypaid

foractualoutcomes,andeffectiveness(thatverification

costandcapacitydemandsortimedonotreducethe

impactofthesubsidy).Fundershavetodecideona

measurementmethod,determiningwhocollectsthedata,

when,andhow.Datacollectionbyindependentthird-

partyevaluatorsandlargersamplestypicallyincreasethe

confidenceintheresultsbutaremoreexpensive.Funders

alsoneedtochoosetheverificationmethod,deciding

whethertopayforobservedresults(observational)or

resultsattributabletothesubsidyprogramme(causal).

Verificationmayincludeasitevisit(e.g.,forconnections),

documentreview(e.g.,receiptsforcostsexpended)or

dataprovidedtothegrantingagency(e.g.,electricity

productiondata).AnanalysisoftheGlobalPartnership

forResults-BasedApproaches(GPRBA)RBFdatabase

indicatesthatobservationalmethodsareusedinthe

majority of cases.133 Remote verification viaonline

platformssuchasOdyssey,whichleveragesmartmeters

with remotemonitoring capabilities to verify new

electricityconnectionsandqualityofelectricitysupply,

arealsobeingutilized.Theverificationapproachselected

shouldbeindependentandrigorousenoughtoensure

thegrantingagentbelievesresultswillbeaccurately

assessedandrewarded/penalizedandthereforehasthe

incentivetodeliveronthem.134

Ontheotherhand,privatedevelopersfacetherisk

that the subsidies may not be disbursed according to

61

theagreedpaymentschedulesevenafterresultsare

achievedandindependentlyverified.ForanRBFscheme

tobeeffective,itiscriticaltoensuredevelopershave

confidencethattherewillbenodelaysindisbursements

ornon-payment.Otherwise,lackofconfidencewillresult

indevelopersdiscountingthevalueofthesubsidyand

treatingitasabonus,thusreducingitsimpact.Therefore,

definite steps should be taken to build trust with

developersinordertomaximizetheimpactofthesubsidy.

Onepossibleoptiontobuildtrustistoimplementthe

subsidyprogrammethroughaprivate,third-partyagent

thathasapre-existing,trustedreputationandatrack

recordofeffectiveandefficientprogrammemanagement

andcapitaldisbursement.135

Phase-out Mechanism and Sunset Clause

Overall,regardlessofthepolicyinstrumentsthrough

which subsidies are applied, governments that

135 MelnykandKelly,2019.136 Peterschmidtetal.,2020.137 Nash,S.andKhinmaung-Moore,J.,“DesigningSustainableSubsidiestoAccelerateUniversalEnergyAccess,”Abriefingpaperonkeyprinciples

forthedesignofpro-poorsubsidiestomeetthegoalofsustainableenergyforall,”Tearfund,(2020):https://learn.tearfund.org/~/media/files/tilz/climate_and_energy/2020-tearfund-designing-sustainable-subsidies-en.pdf

considerhowsubsidieswilleventuallyberemovedare

morelikelytoproposesustainablesupportschemes.

Timetablesforphasingoutsubsidiesfollowingtheir

introductioncanvary.Insomecases,governments

communicateaphase-outplan,withsupporttapering

off as the sector achievesgreatermaturity. Such

reductionscanbecalibratedaccordingtovariables

such as the number of registered mini-grids or their

overallcapacity.136Athree-phaseapproachcanbe

used to gradually transition towards a sustainable

market(Figure 16.)Asubsidyschemecanbeinitiallyfundedbydonors, and subsequentlyby thehost

governmentoramixofboth,beforetheschemeis

eventuallyfundedthroughsustainablecross-subsidies

asthecountry’senergyinstitutionsmatureandasits

energysectorbecomesfinanciallyviable.Thiswould

addressconcernsthatdonorsand/orgovernments

couldgetlockedintofundingsubsidiesoverthelong

term.137

FIGURE 16Transition to a Sustainable Market for Delivering Energy Access

PHASE 1Subsidiary primarily funded by donors

PHASE 2Subsidy primarily funded by governments

PHASE 3Cross-subsidy, funded by energy consumers

DONOR FUNDING

GOVERNMENTFUNDING

CUSTOMERCROSS-SUBSIDY

TIME

SOU

RC

E O

F S

UB

SID

Y

Source:NashandKhinmaung-Moore,2020.

62

Table 7 presentsacomparativeanalysisofdifferentmini-gridsubsidyprogrammes.

TABLE 7Overview of Mini-Grid Subsidies

Subsidy Structure Advantages Disadvantages

Producer vs. Consumer Subsidy

Producer Subsidies • Producersubsidiesareadministrativelyeasierandenablegreaterflexibilityinstructuringthesubsidy

• Increasesfunder’scertaintythatthesubsidyisspentonqualityenergyservices

• Mayleadtoperverseincentivesandundesiredeffects

Consumer Subsidies

• Couldincreasecustomerempowermentandbuilds awareness of the real cost of energy

• Morecomplexdisbursement/administrativeburden

Input-based vs. Output-based Capital Subsidy vs Opex Subsidy

Up-front Input-Based Capital Subsidy

• Couldaccelerateimplementation,asdevelopersneedinitialcapital.Inabusinessenvironmentwhereaccesstofinanceisasignificantbarriertomini-griddevelopment,structuringasubsidytoinclude earlier disbursement tranches that are matched(timingwise)tocapitalexpenditurescanreducetheup-frontfinancingneedsofthedeveloper(vs.disbursementuponcompletion)

• Donorcontrolonhowimplementationistotakeplace

• Early disbursement can increase risk of non-deliveryorlatedelivery

• Inflexibilityfordevelopersonhowtoachieveresults

• Notresult-oriented• Hindersdeveloper’sinnovation• Up-frontcapexsubsidiesaremorelikelytoattractmini-griddevelopersthatarelookingattheshortterm

• In conducting due diligence to ascertain the developer’scapabilityandcommitmenttocompletethemini-gridproject,grantingagenciesoftenrequiresignificantdocumentationthattakestimeandiscostly,bothforthemini-griddevelopertoprovideandthegrantingagencytoreview

Output-Based Capital Subsidy

• Developersareencouraged/incentivizedtodeliverrapidresults.Lessriskofnon-orlatedelivery(comparedtoup-frontsubsidy)

• Allowsflexibilityonhowtoachieveresults• Innovationisencouraged• Financialriskassociatedwiththenon-delivery

of results shifts from the granting agency to the recipient

• Increaseseffectiveness• Focusonresultsratherthancostincurred• There is less need for detailed documentation tobuildgrantingagencyconfidenceinthemini-griddeveloper

• Increasingresponsibilityofdevelopersmayleadtoreduceddelivery-quality

• Developermayexperiencedifficultiesinup-frontfinancing/lackofinitialcapital

• Lessdonorcontrolofimplementationprocess• Mini-griddevelopersarewaryofsubsidiesthatmaybesubjecttoeitherdelayinpaymentorhaveaperceivedriskofnon-payment

• RBFisbasedonnumberofconnections,islikelytoencouragedeveloperstofocusonmoredenselypopulatedcommunitiessoastominimizecosts(withsmallerbutmoredenselydevelopedmini-gridsystems)whileretainingthesamesubsidyamount.Dispersedcommunitiesare thus less likely to get connected.

• Ingeneral,thelongerandmoreexpensivetheverificationprocess,thelessconnectedthe subsidy is to the outcomes it is seeking as mini-griddeveloperswilldiscountthevalueofthesubsidyanddeviatelessfromwhattheywouldhavedoneintheabsenceofasubsidy.Also,themoreresourcesspentbythegrantingagencytoperformverification,fewerresourcesareavailabletofundtheactionthatisbeingsubsidized,sothesubsidyprogrammecanachievelessoverall.

Output-Based Operational Subsidy

• Long-termopexsubsidiesaremorelikelytoachievelong-termsustainabilityifthegrantingagency is able to remain committed to such asubsidy.Opexsubsidiesimprovetheuniteconomicsofelectricitysold,sothelikelihoodthemini-gridcancontinuetoatleastbreakevenandcontinuetooperateishigherwithanopexsubsidy.

• May not be feasible without cross-subsidies from grid-connectedcustomersortaxpayers

• Itisriskyforprivateprojectoperatorstoplacetheirtrustinon-goingpublicfinancialsupportgivenpotentialchangesinpolicy,budget,andpoliticalregimes

• Privateinvestorsmaybereluctanttoinvestiftheyhavetorelyonpotentiallyrisky,long-termtariffpaymentsfromdevelopingcountrygovernments

Source:NashandKhinmaung-Moore,2020;Peterschmidtetal,2020;andMelnykandKelly,2019.

63

3.2.1.1 Sierra Leone

There are currently no direct end-user subsidy schemes for

mini-gridsinSierraLeone,astheproposedtariffsunder

theRREParecostreflective.138 The RREP business model

did,however,utilizedonorandgovernmentfundsto

coverallofWP-1constructionexpensesandalsoprovided

an‘in-kind’subsidytooperatorsbycoveringthecapital

costsofthedistributionassetsunderWP-2.Thesubsidy

providedtoRREPoperatorsunderWP-2intheformof

distributionmaterials(powercables,poles,etc.)enabled

them to charge a lower connection fee to customers.139 In

2020,theFCDOapprovedWP-7tosupportthereduction

of mini-grid tariffs through additional subsidy for non-

generation,publicassets(namelyelectricitymeteringand

indoorconnectionmaterials)andthereserveaccountfor

replacementofWP-1generationassets(batteriesand

inverters).140

Inaddition, theFinanceActof2017providesduty

exemptionson the importationof solarequipment

(excludingancillarymaterials suchasbatteriesand

invertersetc.)thatmeetsIECglobalqualitystandards,141

andtheFinanceActof2021providescorporatetax

exemptionsandagoodsandservicestax(GST)waiver

formini-gridprojects.Whilethesefiscalincentivesshould

ostensiblyresultinlowertariffs,theprocessforthe2017

taxexemptionisnotfullyclearandrequirestheadoption

ofstreamlinedprocedurestomakeitsimplerforoperators

toapplyforthem.142The2021exemptionshaveyettobe

implemented,soitistooearlytodrawanyconclusions

regardingtheirefficacy.

3.2.1.2 Nigeria

InNigeria,allmini-gridrelatedsubsidieshavebeen

producersubsidies.Themini-gridcomponentoftheNEP

138 AfDBGreenMini-GridMarketDevelopmentProgramme-Mini-GridMarketOpportunityAssessment:SierraLeone,2019.139 Stakeholderinterviews,2020.140 http://www.energy.gov.sl/wp-content/uploads/2020/10/Fact-sheet_RREP-Updated-September-2020.pdf141 AfDBGreenMini-GridMarketDevelopmentProgramme-Mini-GridMarketOpportunityAssessment:SierraLeone,2019.142 “SierraLeone:UnlockthePotentialforGrid-ConnectedSolarPowerthroughPrivateSectorInvestment–gapanalysisoflegalandregulatoryframework

forsolarIPPs,”WorldBank,(July2019):http://documents1.worldbank.org/curated/en/794951581398413275/text/Sierra-Leone-Unlock-the-Potential-for-Grid-Connected-Solar-Power-through-Private-Sector-Investment-Gap-Analysis-of-Legal-and-Regulatory-Framework-for-Solar-IPPs.txt

143 NGN200/kWh[1USD=380NGN]144 Mini-GridInvestmentReport:ScalingtheNigerianMarket,RockyMountainInstitute,2018.

aimstoextendelectricityservicesto300,000households

and30,000enterprises inruralareasby2023.This

privatesector–ledcomponentprovidesviabilitygap

subsidiestomini-griddevelopersundertwofunding

windows.Thefirstwindowwilldistributeviabilitygap

subsidiesto250sitesselectedbytheREAthrougha

minimumsubsidytendertohelpkick-starttheindustryat

scale.Underthesecondwindow,developerscanapply

forPBGsofUSD350perconnectionforsitesoftheir

choice on a rolling basis.

Mini-gridend-usertariffsinNigeriarangebetweenUSD

0.39and0.79/kWhfor30–234kWpsolarhybridmini-

grids143(distinctionsmayexistbetweenhouseholdand

productive-usetariffsinsomeareas),whichreflectsthe

smallscaleandriskofatypicalmini-gridproject.144While

thesetariffsarehigherthanthesubsidizednon-cost-

reflectivetariffchargedforon-gridelectricity,theyare

typicallylessthanthecostofself-generationbythemini-

grid customers and are less than they would otherwise

bewithouttheavailabilityofsubsidies.Thesemini-grid

tarifflevelsarepossibleduetotheavailabilityofsubsidies,

whichreducecapitalexpenditureandunlockfinancingfor

mini-gridprojects.

Fundingintheformofsubsidiesprovidedunderongoing

programmessuchastheWorldBankandtheAfrican

DevelopmentBank(AfDB)-fundedNEP,theREA’sRural

ElectrificationFund(REF),theGIZ-fundedNigerianEnergy

SupportProgramme(NESP),theMini-GridAcceleration

Scheme (MAS), and the InterconnectedMini-Grid

AccelerationScheme(IMAS)amongothers,supportsthe

developmentandinstallationofmini-gridsacrossNigeria,

allowingoperatorstochargemoreaffordabletariffs.

Table 8 presentsasummaryofpreviousandongoingmini-gridsubsidyprogrammesinNigeria.

64

TABLE 8Summary of Previous and Ongoing Mini-Grid Subsidy Programmes in Nigeria

Subsidy Programme Description Type of

SubsidyFunding Source Impact & Lessons Learned

Nigeria Electrification Project (NEP) (2018–2023) 145

Minimum Subsidy Tender Programme (first window under NEP): Underthiscomponent,withabudgetofUSD140million,theREAhasinvitedprivatedeveloperstobidforminimumcapitalcostsubsidiestoelectrify250pre-selected(bytheREA)communitiesthathavehigheconomicgrowthpotential,therebyproviding110,000newconnections.Mini-griddeveloperswillcompeteonthebasisofqualityandpricetobuild,own,andoperatesolarhybridminigrids.Thegrantamountwillbedeterminedcompetitivelythroughthetender.ThegrantcanbeaboveorbelowthePBGamountofUSD350pernewconnection.Thegrantisexpectedtobepaidout3monthsaftertheprojectiscommissionedanddeveloperscanprovetotheREAthattheendusersarereceivingreliablepowerfromtheirmini-grids.

RBF WorldBankGroup,AfDBand Africa Growing TogetherFund(AGTF)

AsofOctober2019,theoriginallistof64biddingdevelopershadbeenculledto16.Itiscurrentlyunclearwhatthesubsidy amount resulting from the tender will be and what the resulting tariffs for consumers will be.146However,NigeriandevelopersinformedBNEFthattheyprefertheminimumsubsidytendersincethe250sitesarealreadydefinedforthem,reducingup-frontprojectdevelopmentcosts.AllthedevelopersneedtodoistovalidatetheinformationthattheREAhasgiventhemregardingthepredeterminedmini-gridsites.DiscussionswiththeREAinDecember2020revealedthattherehasbeenadelayinissuinganRFPundertheprogrammebecausetheREAwantedtoincreasethenumberofsitesfromaninitial57toover130.TheRFPisnowscheduledtobeissuedbytheendofJanuary2021.REAalsodisclosedthattheprocurementprocesshastakenaverylongtimeduetodiscussionswiththeDisCosoperatinginthelocationsthathadbeenidentifiedduringtheinitialdatacollectionprocess.Someoftheselocationshaveexistinggridinfrastructure(ownedbytheDisCos),whichhavenotbeenutilizedforthepast10-–20years.Inordertoavoidlitigationinthedevelopmentoftheisolatedmini-grids,theREAhadtoengagetheDisCostoobtaindata(notalwaysreadilyavailable)andensuretheproposedsiteswerenotpartoftheirexpansionplans.Nomini-gridhasbeeninstalledundertheMSTprogrammetodate,soitistooearlytodrawclearlessons.Itremainstobeseenifthisauction-basedapproachwillimprovevalueformoneyandencourageinnovationtodrivedowncosts.

Performance-based Grant (PBG) Programme (second window under NEP):Underthiscomponent,USD80millionofIDAfundsisallocatedtoprovidingPBGstodeveloperstoelectrifycommunitiesoftheirchoice.Theprogramme,administeredbytheREA,aimstodeploy580mini-grids,delivering230,000newconnections.Developersarerequiredtocarryoutgeospatialstudies,energyauditsandcommunitysurveystoselecttheirproposedviablesites.GrantsofUSD350pernewconnectionareavailableonafirst-come,first-servedbasis,withaminimumtotalgrantrequestofUSD10,000permini-grid(withabout29connectionspermini-gridatminimum).Thegrantswillbedisburseduponverificationthatcustomershavebeenconnectedtothenetworkandhavebeenprovidedsatisfactoryservice.

RBF WorldBankGroup,AfDBand Africa Growing TogetherFund(AGTF)

InterviewswiththeREArevealedthatasofDecember2020,ofthe29developersthathavegottentotheevaluationstageoftheprogramme,20havebeenapproved(8ofthesehavesignedgrantagreements,while12areyettosign),while6areunderreviewand3areawaitingclarifications.Inaddition,14outofthe20approveddevelopershavesubmittedatotalof144sitestobevettedbytheREA.Ofthese,71havebeenapproved,12areunderactivereview,34areawaitingclarification,23havebecomeinactivewhile4wererejected.Todate,grantagreementshavebeensignedfor59outofthe71approvedsites.

TheREAalsodisclosedthat,ofthe59sites,6solarhybridmini-gridswithatotalcapacityofabout500kWpproviding3,000connections,havebeencommissionedinNiger,Plateau,BayelsaandOndostatesby4developers.147 Tariffs chargedbythesemini-gridsrangebetweenNGN150/kWhand300/kWh(USD0.39-0.79/kWh),withanaverageofaboutNGN220/kWh(USD0.58/kwh).AccordingtotheREA,therehavebeenminimalcomplaintsfromthecommunitiesregardingtariffaffordability,withoperatorsrecording90–95%collections,anditisbelievedthatasconsumersbecomemoreaware,theywilllearntoadjusttheirusagepatternstominimizetheirenergycosts.

Todate,accesstofinance,exacerbatedbyexchangeratefluctuations,hasbeenakeychallenge.Initially,thegrantsweretobepaidoutafter90daysofsatisfactoryoperationofthemini-grids,however,inordertoprovidesomecushion—especiallyinlightoftheCOVID-19pandemic—thedevelopersnowget40%ofthegrantsupfront,whilethebalanceispaidafter90daysaccordingtotheoriginalpaymentschedule.Thisisalsobeingaddressedbythenewly-introducedSolarConnectionInterventionFacility,whichprovideslongtermlow-interestcreditfacilitiestodevelopers.148 In addition to the access-to-financebarrier,someofthedeveloperslackedthecapacitytoprepareproperdocumentationrequiredtoaccessthegrants.Technicalsupportisbeingprovidedinthisregardtobuildthecapacityofthesecompanies.

Inaddition,theREAhasthedevelopers’meterssyncedwithitssystemonOdyssey,enablingremotemonitoringofthemini-gridinstallations.Thispotentiallyreducesthecostofverification.Asofnow,theprogrammeisfarbehindschedulewithonly3,323connectionsagainstafirst-yeartargetof30,000connections,whichcanbepartlyattributedtoreducedactivityduringthemonthsofCOVID-19lockdown.However,theREAexpectstogetbackontrackin2021with35,000connectionsinthepipeline.Overall,theprogrammeisstillatanearlystageofimplementation,soitisnotyetpossibletodraw clear conclusions and lessons from it.149

145 InresponsetoCOVID-19,athirdmini-gridcomponenthasbeencreatedundertheNEPaimedatelectrifyingprimaryhealthcarecentres.InApril2020,foursolarhybridmini-gridswerehandedovertoauthoritiesatCOVID-19health facilities in the country. See:https://rea.gov.ng/press-release-rea-electrifies-four-covid-19-health-facilities-solar-hybrid-mini-grids/

146 Peterschmidtetal,2020.147 Theseincludea64kWmini-gridinstalledbyPowerGen;two67kWmini-gridsinstalledbyRenewvia;a234kWmini-gridinstalledbyGVE;andtwoothermini-gridsinstalledbyA4&T.148 https://rea.gov.ng/solar-power-naija/149 Stakeholderinterviews,2020.

65



Rural Electrification Fund (REF)

TheREF,administeredbytheREA,providescapitalgrantsandtechnicalsupporttoruralmini-griddevelopersselectedthroughanopencompetitivebiddingprocess.150Forisolatedorinterconnectedmini-gridsupto1MW,selecteddeveloperswillreceivegrantsrangingbetweenUSD10,000and300,000or75%ofthetotalcapitalcosts151oftheproject(whicheverisless)throughtheREF,tosupportdeploymentundercommercialPPP arrangements towards accelerating access to electricity to ruralandunderservedareasacrossNigeria.Thegrantswillbedisbursedin3installmentsprefacedonverifiablemilestonesasfollows:35%mobilizationaftersigningaRBFGrantAgreement;35%afterverificationofdeliveryofequipmentatprojectsite;andfinal30%afterverificationofcustomerconnectionsandqualityofservice.ThegrantsshallbecalculatedbasedonthenumberofplannedconnectionsandthequalityofelectricityservicethatthegrantbeneficiaryplanstoprovidetothebeneficiarycommunityinlinewiththeSE4ALLMulti-TierFrameworkforMeasuringEnergyAccess.Theselecteddeveloperswillowntheprojectsastheywouldberesponsibleforprovidingtheremainingprojectcapitalcostbothintheformofequityanddebt.152TheREFissueditsfirstgrantcallinDecember2017,andatotalofapprox.USD2.5million(NGN956.9million)wasapprovedfor12mini-gridsrangingbetween30kwand100kw,electrifying5,528householdswithatotalinstalledcapacityof1,016kW.153Thesecondgrantcall(requestforEoIs)wasissuedinJuly2020,andtherequestforproposals(RFP)stagewasexpectedtoclosebyJanuary2021.154

Up-frontCapitalSubsidy&RBF

FGN AccordingtotheREA,theREFsupportsonlyprojectsthatwouldhavebeeneconomicallyunviablewithoutthegrantsupport.AsofDecember2020,11ofthe12mini-gridshadbeencompleted,155whilethelastoneisat90%completionandexpectedtobecommissionedinearly2021.Tariffschargedbythe11solarhybridmini-gridsdeployedtodaterangebetweenNGN 120 and 150/kwh(USD0.32–0.39/kwh).AccordingtotheREA,thetariffsarewithinreasonablelimitsandthecommunitiesaregenerallypositiveabouttheserviceprovided.Thecomplaintsontariffssofarhavebeenmainlyfrom3-phaseusers(usingheavierequipment).Currently,thecapacityutilizationrateofthecompletedprojectsrangesmainlybetween30%and60%,withoneprojectbelow30%,showingthatthemini-gridsareunderutilized.Todate,onlyoneoutofallthecompletedprojectshasbeenabletoaccessthefinaltrancheofthegrantpayment,whichisbasedonachievingthenumberofconnectionsstatedinthegrantagreement.Thesuccessfuldevelopercommissionedtheprojectin2019andwenttheextramiletostimulatedemandbybuildingariceprocessingplant,pumpingwaterandprovidingmilling/grindingmachinesonapay-as-you-go(PAYG)basis,therebyenhancingthepurchasingpowerofthecommunity.Ontheotherhand,mostoftheotherdeveloperssimplyinstalledmini-gridswithoutstimulatingdemand,leadingsometoloseconnectionsratherthangainthem.ThisclearlyunderscorestheneedforTAtodevelopersinstimulatingend-userdemand.

Inaddition,whileallselectedbidderssignedgrantagreementsonthesamedayinJanuary2019,theimplementationspeedvariedwithsomemini-gridsdeployedin2019,somein2020andthefinalonewillonlybecompletedin2021.Thedelayscanbeattributedtoseveralfactors.Thedevelopersthathadaccesstofinancefromdevelopmentfinanceinstitutions(DFIs)wereabletomovefasterthanothers.SomeoftheprojectswerealsoaffectedbytheborderclosureandtheCOVID-19crisis,whileothersfacedregulatorychallengesfromlocalauthorities and community delays.

Nigerian Energy Support Programme I (NESP I) (2013–2018)

NESPI,implementedbyGIZ,pilotedthedevelopmentof6off-gridsolarmini-grids(50-100kWp)incollaborationwith5localprivatecompaniesin2017–2018usingaPPPandsplit-assetmodel.Throughthismodel,thedevelopersownthepowergenerationsystems(powerplant)whilethecommunities/statesownthedistributionassets,whicharefundedbycapitalgrantsprovidedbyGIZandaccountforroughlyhalfofthetotalprojectcapitalexpenses.Inaddition,thecapitalcostsoftheinitialend-userconnectionswerealsocoveredbythecapitalsubsidy.156Ontheotherhand,theprivatecompaniescoveredtheremaining50%oftheproject’scapitalcosts(formovableassets)withtheirownequityandprojectfinance.IncollaborationwiththeUSAIDREEEP,theNESPalsoprovidedTAinunlockingaccesstofinancefortheprojects.157

Up-frontCapitalSubsidy

EUandtheGerman Government

The6mini-gridprojectsarecurrentlyoperationalandareprovidingnearly16,000people(3,147households)withreliableaccesstoelectricity.ThetariffstructureoftheseprojectsasofJuly2018isshowninTable 9.158 The end-user tariffsfortheseprojectsrangewidelyfromNGN 150-300/kWh(USD0.39-0.79/kWh).InterviewswithRubitec,oneofthedevelopersundertheprogramme,revealedthatGIZprovidedagrantofEUR200,000thatcovered42%ofthetotalcapitalcostofits85kWmini-grid.Theprogrammealsoexperienceddelaysasaneconomiccollapseinthecountryanddevaluationofthenairain2015practicallyhaltedtheprogrammefor2yearsandtheprojectscouldnotaccessfinancing.Rubitechadinitiallyplannedtocommissionitsmini-gridinSeptember2016;however,theprojectwasnotcommissioneduntilFebruary2018.ItisworthnotingthattheTAprovidedtothedevelopersinaccessingfinancewascriticalinresolvingthisissue.Furthermore,inordertostimulatedemandandimprovethecapacityutilizationofitsmini-grid,RubitechasalsohadtoprovidesomeequipmentfinancingforPUE.159

150 Mini-GridInvestmentReport:ScalingtheNigerianMarket,RockyMountainInstitute,2018.151 Capitalcostsincludehardandsoftcostssuchasprojectdevelopmentandlogisticscosts.152 RuralElectrificationFundOperationalGuidelines2017,REA,October2017.153 Ohiare,S.,“LooktoAfrica,themini-gridmarketiscompetitive,”ESIAfrica,(March5,2020):https://www.esi-africa.com/industry-sectors/renewable-energy/look-to-africa-the-mini-grid-market-is-competitive/154 NigeriaREA:https://rea.gov.ng/addendum-request-expression-interest-ref-grant-2020-ppp-model/155 Tenofthesehavebeencommissionedwhileone(alreadyoperational)wassettobecommissionedbytheendofDecember2020.156 Stakeholderinterviews,2020.157 Mini-GridInvestmentReport:ScalingtheNigerianMarket,RockyMountainInstitute,2018;andWarren,2018.158 GIZNigerianEnergySupportProgrammeII:https://www.giz.de/en/worldwide/26374.html159 Warren,2018;andStakeholderinterviews,2020.

66



Mini-Grid Acceleration Scheme (MAS)

MASisanationwide,non-site-specific,opencompetitivetenderimplementedbytheREAdesignedtoselectmini-gridcompaniestoconstructisolatedmini-gridsupto1MW,providing21,000newconnections.TheMAStenderaimstopromoteproductive-usebusinessmodelsformini-gridstobeoperatedonacommercial,public-privatepartnershipbasis.TheREAannouncedtheresultsoftheMASinOctober2019.The4winnersofthetenderwillbesupportedindeployingtheirproposedmini-gridprojectswithanin-kindpartialcapitalgrant–intheformofdistributionandmeteringequipment–andTAvaluingatotalofEUR6million.Allassets(grantedandprivatelyfinanced)willbeinstalledandtestedbytheselectedbidders.

In-KindUp-frontCapitalSubsidy

EUandtheGerman Governmentthrough the NigerianEnergySupportProgramme II (NESPII)

AccordingtotheREA,themini-gridswillbedeliveredatanaffordabletariffthatwouldhavebeeneconomicallyunviablewithoutthescheme.160TheREAinitiallyaimedtogettheseprojectsonlinebytheendofJuly2020,however,noprojecthasbeeninstalledtodate.TheREAteamdisclosedthattheschemehasbeensignificantlydelayedbecausetheselecteddevelopersrealizedthatthegrantsprovidedwouldbeinadequatesotheydecidedtochangethedeliverymodefromisolatedmini-gridstointerconnectedmini-grids.Consequently,therequiredDisConegotiationshavedelayedtheprocess.Asofnow,theschemeisinthetechno-economicassessmentstageunderwhichthesitesproposedbytheselectedbiddersarebeingvettedbytheREApriortoimplementation.Whileitistooearlytodrawconclusions,akeytakeawaysofarfromthisschemeisthatitisimportanttoensurethevalueofthesubsidyprovidedishighenoughtoachieveprogrammegoals.

Interconnected Mini-Grid Acceleration Scheme (IMAS)

SimilartotheMAS,theIMASisanationwidenon-site-specificopencompetitivetenderimplementedbytheREAtargetedatselectingdeveloperstodesign,construct,commissionandoperateinterconnectedsolar-basedmini-gridsofupto1MWserving15,000customers(ingrid-connectedbutpoorly-servedcommunitiesinNigeria)onacommercialpublic-privatepartnershipbasis,inpartnershipwithinterestedDisCos.InApril2020,theREAannouncedtheresultsofitsIMAStenderand7developerswereselectedtopartnerwith7DisCos.Thewinnerswillbesupportedindeployingtheirproposedinterconnectedmini-gridprojectswithin-kindpartialcapitalgrantstotalingEUR3millioncoveringmetersandupto50%ofgridrefurbishment/extension(cablesandpoles)inadditiontoTA.SelectedbiddersundertheIMASwillinstallallassets(grantedandprivatelyfinanced)andtestthem.161

In-KindUp-frontCapitalSubsidy

EUandtheGerman Governmentthrough the NigerianEnergySupportProgramme II (NESPII)

TheREAinitiallyaimedtogettheseprojectsonlinebytheendofSeptember2020,providingenduserswithaffordableelectricitytariffs.However,noprojecthasbeendeployedundertheschemetodate.Presently,theschemeisintheTAphasewheredevelopersworkcloselywiththeDisCostofinetunetheproject,getapprovals,workontariffs,distributionuseofservicecharge,etc.The7developersarecurrentlyatdifferentstages,withacouplewellaheadoftheothersandalmostreadytoproceedtoimplementation.Itisthustooearlytodrawanyconclusions/lessonslearned.

Source:NashandKhinmaung-Moore,2020;Peterschmidtetal,2020;StateoftheGlobalMini-GridsMarketReport2020;andstakeholderinterviews.

160 StateoftheGlobalMini-GridsMarketReport2020.161 Ohiare,2020.

67

TABLE 9Nigerian Energy Support Programme I: Mini-Grid Project Overview

Developer Location (Community)

Local Government

AreaState kW

capacity162Number of

connectionsTariff Structure (NGN/kWh) 163

O&M (NGN/month)

Capacity Utilization

(%)164

CREDC UmonIsland Biase CrossRiver 50 100 200(USD0.53) 140,000 5

NayoTropicalTechnology Ltd.

TunganJika Magama Niger 100 300165 140(USD0.37)166 50,000 20

RubitecSolarLtd. Gbamu Gbamu Ijebu-East Ogun 85 500 180(USD0.47) 125,000 47

GVEProjectsLtd.

(i)AngwanRina(ii)Demshin Shendam Plateau 100 250 288(USD0.76) 32,500 9

GoSolar Kurdula Gudu Sokoto 80 500200/300(USD

0.53/0.79)16780,000 80

Source:RockyMountainInstitute,2018.

162 Fiveoftheseprojectsuse100%solargenerationwithbatterystorage,whileoneprojectisasolar-diesel-batteryhybrid.163 Basedonanexchangerateof1USD=380NGN.164 BasedonnumberofconnectionsasofJuly2018;severalprojectswereonlyrecentlycommissionedatthetimeandareexpectedtohavesignificantly

increasedtheircapacityutilizationoverthepasttwoyears.165 Subsequentlyexpandedto765connections.166 FixedtariffisNGN140perkWwithoptionofvariabletariffofNGN120daytimeandNGN200nighttime.https://www.esmap.org/sites/default/

files/Presentations/ENGAGING%20THE%20STATE_WORLD%20BANK%20MINIGRID%20ACTION%20LEARNING%20%20EVENT_PPT.pdf167 Tariffstructuredifferentiatedbycommercialandhouseholdusers,respectively.168 Stakeholderinterviews,2020.169 Peterschmidtetal,2020.

InterviewswiththeREArevealedthatthedevelopersprefer

up-frontgrantdisbursements(notin-kind),particularlyinan

environmentwhereaccesstofinanceisamajorbarrier.The

REAopinesthatbothup-frontcapitalsubsidiesandRBFhave

theirmeritsdependingondesiredresults.Itstatedthatin

ordertoachieveaccelerateddeploymentofsystems,which

istheobjectiveoftheMASandtheIMASprogrammes,up-

frontcapitalsubsidiesarethebestoption,asdevelopers

needinitialcapital.Yettheactualexperiencefromthe

implementationoftheMAS,IMASandREFprogrammes

sofarseemstoprovethisisnotalwaysthecaseasthere

havebeensignificantdelaysduetovariousfactors.In

ordertoachievethebeststandardandqualityofservice,

anRBFmechanismispreferred,asdevelopersmustmeet

predeterminedperformancestandardsinordertoaccess

thesubsidy.Asanimplementingagencyseekingsustainable

results and aiming to gradually shift the sector away from

relianceongrants,theREAhasapreferenceforRBF.168

TheNEPisstillatanearlystageofimplementation,soit

isnotyetpossibletodrawclearconclusionsandlessons

learnedfromtheprogramme. Nevertheless,lessonsfrom

otherRBFprogrammesshowthatalackofforesightin

addressinglong-termmaintenancerequirementshas

underminedmanyschemes.ThisisevidentintheUK-

fundedRBFscheme inTanzania,where twoservice

providersbenefittingfromtheprogrammehaveleft

themarket,andinstitutionalsystemsinstalledunder

theprogrammehavesufferedfromtechnicalsystem

failures,withpoormaintenanceprovisionhighlightedas

a challenge.169


Table 10 presentsacomparativeanalysisofpreviousandongoingmini-gridsubsidyprogrammesinSierraLeone

andNigeria.

68

TABLE 10Mini-Grid Subsidy Schemes: Summary of Findings

Indicator Sierra Leone (RREP)

Nigeria (Multiple Programmes) Lessons Learned

Speed of delivery

Similartomostprogrammesofitssize,scopeandambition–theRREPiscomplexinitsdesign,involvinglengthyandexpensivenegotiation and financingprocessesthatrequiresignificantresourcestomanage(bothfordevelopersandregulators)

• NEP:Thefirstmini-griddeployedundertheNEPwas commissioned in December2019just3monthsaftertheproject’sgrant agreement signing underthePBGprogrammeand9monthsafteritwaslaunched.However,itisworthnotingthatasofnow,theprogrammeasawholeisway behind schedule.

• REF:ThefirstgrantcallwasissuedinDecember2017and grant signing did not occuruntilJanuary2019,whilemostoftheprojectswere not built until 2020.

• MAS/IMAS:ThetenderresultsfortheMASandIMASwereannouncedinOctober2019andApril2020respectively.However,both are still yet to enter the implementationphase.

• NESP I:Theprogrammereceivedproposalsin2015,however,themini-gridswerenotbuiltuntil2018.

Sierra Leone:

• Programme delays were largely attributed to extendedapplicationprocessestoobtainlicensesandotherpermits,aswellastoongoinggeneralelectionsinSierraLeoneinearly2018.

• Continuouslearningbydoing(byregulators,developersandcommunities)andthesubsequentrefinementandstreamliningofpermitting/contractnegotiationprocessesisakeylessonlearned.

Nigeria:

• AccordingtotheREA,thetransparencyandspeedoftheNEPprocessisduetothee-procurementmethodutilizedincollaborationwithOdyssey.170 Thiscouldnothavebeenachievedthroughtraditional manual methods.171Nevertheless,theNEPhasfaceddelaysduetootherfactorsbesidesCOVID-19suchaslackofaccesstofinance,developers’limitedcapacityandengagementwithDisCos.

• OneofthekeytakeawaysfromtheexperiencesofarinNigeriaistheneedforsomeearlydisbursement of subsidies as was done under theNEPPBGtoreducedelaysduetofinancingdifficulties.Also,thereisaneedforprovisionofconcessional local currency loans as well as TA tosupportdevelopersinaccessingthefinanceneededtocovertheportionofcapexnotcoveredby subsidies.

• Inaddition,theexperiencewiththevariousauctionprogrammesinNigeria(MST,MAS,IMAS,REF)justlike the RREP shows that the auction structure is morepronetodelays.

Tariff Reduction

RREP:172

• WP-1, Year 1 (2019-20): USD0.82–0.87/kWh;averageofUSD0.85/kWh

• WP-1 and WP-2, Year 2 (2020-2021): USD0.74/kWh–0.82/kWh;averageofUSD0.79/kWh

• NEP and NESP I:USD0.39-0.79/kwh(NGN150–300/kwh);averageofUSD0.58/kWh(NGN220/kWh)

• REF:USD0.32-0.39/kwh(NGN120and150/kwh)

• InSierraLeone,WP-7wasapprovedbytheFCDOin2020tosupportthereductionofmini-gridtariffsthroughadditionalsubsidyfornon-generation,publicassets(electricitymeteringandindoorconnectionmaterials),andthereserveaccountforreplacementofWP-1generationassets(batteriesandinverters).

• InthecaseofNigeria,thereisadirectcorrelationbetweenthelevelofsubsidyandtariffs.AcomparisonoftheREFandNEPPBGprogrammesshowsthatREFsubsidiescover50-70%ofcapexwhiletheNEPPBGcoversonlyabout30%.Asaresult,tariffsforNEPsitesarebetween25%and108%higher.Itisworthnotingthatthereareotherfactorsthatinfluencetariffs,includinglocation,presenceofproductiveuses,costoffinancing,siteaccessibility etc.

170 OdysseyEnergySolutionsisaweb-baseddataplatformtosimplify,streamline,andreducethecostsofdevelopingandfinancingmini-gridsinemerging markets.

171 “CaseStudy:NigeriaElectrificationProject,”Odyssey,(18December182019):https://www.odysseyenergysolutions.com/2019/12/18/nigeria-electrification-project/

172 NOTE:ThesetariffsonlyreflecttheRREP;othermini-gridprojectsinSierraLeone(e.g.,PRESS-D)maychargedifferenttariffs.

69

Indicator Sierra Leone (RREP)

Nigeria (Multiple Programmes) Lessons Learned

Economies of Scale

• Projectsplannedandfinancedonaone-off basis

• UndertheNEPMST,each winning bidder will potentiallydevelopandfinance40–50mini-grids

• OperatorsinSierraLeoneopinedthattheRREPdidnotallowthemtotakeadvantageofeconomies of scale.

• InNigeria,discussionswiththeREArevealedthatitwouldliketoseetheprivatecompaniesdevelop20–30mini-gridsitestorealizeeconomiesofscalethatcanpotentiallyleadtoareductionintariffs.This led to the consideration to allow winning biddersundertheNEPMSTtodevelop40–50sitestogether.Thecostreductionimpactsofthismechanism are yet to be assessed.

Construction Quality

• WP-1systemsnot installed by operators;forWP-2developerswillprocureandinstall generation assets

• Underallprogrammes,allassets(grantedandprivatelyfinanced)areinstalled and tested by operatorsinaccordancewith the technical and safety standards and guidelines set forthintheNERCRegulationfor Mini-Grids

• IncontrasttotheRREPprogrammeinSierraLeone,subsidyrecipientsunderthevariousprogrammesinNigeriawereresponsibleforinstalling and testing all assets.173

• InSierraLeone,therewasasubstantialdelaybetween the time the systems were installed and thesiteswereelectrified(mainlyduetodelaysinthetenderingprocess),whichledtothecapacityreductionofbatteries.TheMoEandUNOPShavesinceworkedwiththeoperatorstoaddressthis.

Source:NigeriaREA;StateoftheGlobalMini-GridsMarketReport2020;andstakeholderinterviews.

173 http://rea.gov.ng/wp-content/uploads/2019/05/Overview-of-IMAS-CfP.pdf174 Stakeholderinterviews,2020.175 MinistryofEnergy-RuralRenewableEnergyProject:http://www.energy.gov.sl/home/rural-renewable-energy-project/

3.3 Recommendations for Sierra Leone

RREP Programme Design/Structure

• Introduce Subsidy Schemes and other Supportive Financing Arrangements: Servingrurallow-incomecustomerswho typicallyusevery littleelectricity

requiressomeformofsubsidization;ruralcommunity

surveysindicatedthattariffaffordabilitywasakey

barrier. It is recommendedthat theGoSLand its

developmentpartnersthereforeconsiderimplementing

appropriatesubsidyschemes(seeSection 2.4)toensurethatruralcustomersachieveaccess.

When interviewed, operators indicated that the

pre-financingmechanismundertheRREPwasnot

necessarilytheirpreferredapproach,astheywould

havepreferredanalternativestructurethatmayhave

providedthemwithmoreflexibility.174

› A traditional Design-Build-Operate (DBO)

model(seeKey Definitions)wouldhavebeenpreferredbytheoperatorsvis-à-vistheapproach

takenbytheRREP,whichengagedwithnational

contractors to completeWP-1 construction

works.175Whilethelogicbehindthisapproach

is sound— i.e., thedesire to increase local

participationinmini-gridsectordevelopment

—itledtochallengesfortheoperators.Going

forward, a recommendationwould therefore

betoinsteadfollowamoreconventionalDBO

approach—wherebygovernmentfinancesthe

constructionthroughadirectcapitalsubsidytothe

internationaldeveloper—andtosubsequently

takemeasurestodeveloplocalmini-gridsector

capacityfollowingsuccessfulimplementationof

apilotphasefullyimplementedbyinternational

firms,thusensuringbestinternationalpractices

and associated knowledge transfer.

› Providinggovernmentguaranteestosupportmini-

gridprojectdevelopersisanotherrecommended

approachtoeasethecostofprojectfinancing.The

GoSL,withsupportfromitsdevelopmentpartners,

couldprovideconcessionalloansinlocalcurrencyto

offsetaportionofcosts(perhapsthrougharevolving

fundmechanism).Governmentinvolvementinpre-

financingcanalsoseektolowerriskpremiumsfrom

thecommercialbankingsector,whichcanprovide

accesstoaffordablefinancinginlocalcurrency,and

in turn reduce the need for subsidies and grants and

encourage long-term commercial sustainability of

the sector.

http://rea.gov.ng/wp-content/uploads/2019/05/Overview-of-IMAS-CfP.pdf

70

• Reduce Programme Complexity:Wheninterviewed,operatorssuggestedthattheRREP—similartomost

programmesof itssize,scopeandambition—is

complexinitsdesign,involvinglengthyprocedures

that require significant resources tomanage. A

simplifiedprocesswasrecommended,withtheGoSL

takingonmoreofanoversightroleinthemarketto

ensureelectrificationtargetsareachievedandprivate

operators areproviding affordable, reliable and

quality-verifiedelectricityservice.Recentandongoing

experiencefromtheNigerianmarketalsohighlights

theimportanceofstreamliningprocessesthroughthe

useofdataanalyticsande-procurementtools.

Tariff Affordability

• TheresultsoftheUNOPScommunitysurveyprocess

foundthataverageretailtariffsofUSD0.85/kWhwere

cheaperthanthealternativesenduserswerecurrently

utilizingforenergyaccess (includingfor lighting,

mobilephonechargingandpurchasingofkerosene

and/orlanterns).Hence,theinefficientuseofenergy

fromthemini-gridlikelycontributedtomisperceptions

surroundingaffordability,whichsuggeststhatmore

resources and efforts need to be made by both the

publicandprivatesectortosensitizecommunities,

raiseawareness,andeducateconsumersaround

energyconsumptionandelectricityusage(especially

vis-à-vismonthlyexpenditures),thebenefitsandcost-

savingsofmini-gridelectrificationetc.

Subsidies

• Up-front Grant/RBF Scheme:While thesubsidydesignapproachutilizedundertheRREPmayhave

beennecessitatedbythenascentstageofthemarket,

theabsenceofestablishedprivatesectorplayers,

andthelackofdataonusagepatterns,operators

suggestedthatup-frontcapital(notin-kind)grants/

subsidies(perkWhorpercentageofcapex)oranRBF

schemeshouldbeadoptedgoingforward.176 These

areconsideredtobesimplerandlesstime-consuming

approaches(asseeninthefastimplementationof

someoftheprojectssupportedbytheNEPPBG

programme),whichwouldinturnallowforgreater

possibilityofreducingprojectdevelopmentcostsand

176 Itisworthnotingthatdeveloperswouldgenerallypreferup-frontcapitalgrantstoanRBFschemeduetodifficultiesinfinancingthefullcostsofdeliveryupfront.However,incaseswheretheup-frontsubsidyschemesaretoocomplexresultinginhighercosts(suchastheRREP)thedevelopersinterviewedwouldpreferasimplermechanismsuchasRBF.

177 Itshouldbenotedthatthereisnosingle,silverbullettoreducingcostsandincreasingtariffaffordabilityinanascentmini-gridsector.Whilesubsidiescanbeanimportantmarketdriver,allofthemeasureslistedhereareimportantandplayaroleinreducingcostsandrisksacrossmini-gridprojectvaluechainactivities–fromplanning,engineering,finance,developmentandinstallation,tooperation.Asmini-gridmarketsdevelop,initialsubsidymeasuresneedtoberevisedorreplacedtomeettheevolvingdemandsofamoreindependentandmaturesector.

loweringend-usertariffs,whilealsoprovidingclarity

toprivatepartnersandclearbenchmarksforGoSLon

costsofdecentralizedvs.centralgridexpansion.A

privatesector-drivenmodelsuchasthisismuchsimpler

initsdesignandstructurethanthetop-downapproach

adoptedby the RREP. Such an approachwould

drasticallyreducethecontractualcomplexityofthe

existing PPP arrangements. Taking into consideration

lessonsfromtheNEPPBGprogramme,wheresome

portionoftheRBFpaymentshavebeenconverted

toup-frontpayments,itisrecommendedthatanup-

frontcapexsubsidy-RBFhybridmodelbeadopted,

ensuringthatthevalueofthesubsidyishighenough

toachievetariffreduction.Thisshouldbestructured

suchthatallconstructionandprocurementiscarried

outbyprivatepartnerswithapprovalfromaTApartner

suchasUNOPS.Itwasalsosuggestedbyoneofthe

operatorsthatinthelongterm,thisbecomesarolling

fundtosupportsustainablemarketdevelopment.

Cost Reductions177

• Accordingtoseveraloperators,thecomplexPPP

contractstructure—particularlypermitsassociated

withlandleasing—resultsinalengthy/expensive

negotiationandfinancingprocessandcreatesmore

likelihoodofprojectdelays,whichleadstohigher

costsaswageshavetobepaidregardless.Adopting

asimplifiedandconsistentframework/processacross

therelevantpublicagencieswillreducecosts.

• Another suggestion was to increase the number of

sitesmanagedperoperatortofurtherreducecosts

andtarifflevels,asfixedcostsarespreadoverfarlarger

volumesofkWhsold.Operationalcostsarefixedwith

onlyapproximatelyone-thirdofcostshavingadegree

ofvariabilitydrivenbythenumberofsites/customers.

• Thereisalsoagreaterneedforpropercustomer

demandestimationasaninadequateassessmentof

powerdemandledtounderutilization,thusdriving

upcosts.

Applicable Lessons/Recommendations from Nigeria

• Oneofthewaysthroughwhichtariffscanbereduced

isbyprovidingaccess toaffordable financing to

71

developersinlocalcurrency,whichtheFGNisstarting

todowiththesupportofSEforALL.

• Mini-griddevelopersinNigeriafocusheavilyonPUE.

Technicalandfinancialassistancecanbeprovidedto

mini-griddeveloperstostimulatePUEandrevenue-

generatingactivitiesinmini-gridcommunities(e.g.,

intheformofequipmentfinancing).178

• InNigeria,theREAiscollaboratingwithdevelopersto

178 ThisisalreadybeingpursuedunderWP-6oftheRREPwithfundingfromtheFCDO.179 Carlin,K.,“GrowingtheMini-GridMarketinSub-SaharanAfrica,”RockyMountainInstitute,(20March2017):https://rmi.org/growing-minigrid-

market-sub-saharan-africa/

findinnovativewaysofreducingcostsandimproving

service.Opportunitiesincludereducedimportduties

on solar products and components, integrated

hardwareandsoftwarepackages,improvementsin

modularcapacity,developmentofspecializedlocal

projectdevelopmentandmanagementexpertise,

aggregatedfinancingsolutions,andafocusonend-

useserviceinsteadofpowerconsumption.179

72

Long-term Vision and Market Certainty

• Goingforward,withsupportfromUNOPS,theFCDO

andotherdevelopmentpartners,itisrecommended

thattheGoSLdevelopsandimplementsacoherent

long-term strategy that builds upon the strong

foundation of the RREP and the existing regulatory

frameworkandalignstheprioritiesofallmarketactors

—government,developers,endusers,andfinanciers

—toexpandmini-gridelectrificationinthecountry.

This can be in the form of a master plan but should

includeclearnationaltargetsformini-gridexpansionin

thelongterm.Thiswillprovideclarityandpredictability

tomini-gridmarketplayers–notablyforinvestorsand

companieswhoneedtoconsidermulti-yearplans

involvingsignificantcapitalexpenditureorborrowing.

• SierraLeonehasalreadyestablishedastrongand

supportivepolicyandregulatory framework,and

developershavepraisedthecountry’srobustenabling

environment.Yeta long-termvisionisneededto

providefurthermarketcertainty,fosterprivatesector

participation,de-riskandmobilizemini-gridfinancing,

andstimulatemarketdevelopment.

• Giventhatalackofaccesstoaffordablefinancing

is a recurring challenge in themarket, it is also

180 USAIDCEADIR:https://www.climatelinks.org/resources/renewable-energy-lending-west-africa181 “EnsuringthatRegulationsEvolveasMini-GridsMature,”WorldBankEnergySectorManagementAssistanceProgram,(2019):https://openknowledge.

worldbank.org/bitstream/handle/10986/31773/Ensuring-That-Regulations-Evolve-as-Mini-Grids-Mature.pdf?sequence=1&amp%3BisAllowed=y

recommended that futuremini-grid programme

designsincorporateTAfordeveloperstohelpthem

accesscapitalandalsoworkwiththecommercial

bankingsectorinSierraLeonetodevelopmini-grid

lendingcapacityinlocalcurrency.Thiseffortcanbuild

ontheUSAID-fundedClimateEconomicAnalysisfor

Development,Investment,andResilience(CEADIR)

programme,whichengagedwithlocalcommercial

banksfrom2016to2018todeveloptheircleanenergy

lendingcapacity,withafocusonthestand-alonesolar

and mini-grid market segments.180

Evolutionary Regulation

Evolutionaryregulationinvolvesdesigningaregulatory

frameworkthatevolvesasthemarketdevelops.This

includes defining the market growth phases and

spellingout,inadvance,theregulationsthatwillapply

ateachstage.Thisapproachallowsoperatorsgreater

initialfreedomthroughlight-handedregulation,with

regulation gradually becoming more stringent as

the market matures.181SierraLeoneshouldconsider

adoptingaflexibleandevolutionaryapproachtomini-

griddevelopment(Table 11).

TABLE 11Evolutionary Regulation for Mini-Grid Market Development

STAGE 1: START-UP PHASE STAGE 2: GROWTH PHASE STAGE 3: MATURE or LOCALIZED MARKET DOMINANCE PHASE

• Light-handedregulationisapplied• Onlyregistrationisrequired• Operatorstosettheirtarifffreely,undera“willing buyer, willing seller”regime

• Regulation of technical standards is limited to that of safety and grid-compatibility

• Governmentmayconsiderimplicitsubsidiesandviability-gapsubsidiese.g.,theuseofcapitalsubsidy,taxexemptionsetc.

• Regulator notes that existing mini-gridsaregaining‘marketpower’andmoredevelopersarecomingonline;this is when tighter regulation of tariffs andservicestandardswillkickin

• Market entry regulation will still be throughsimpleregistration

• Regulatorcannowsettariffsatalevelestimatedtobethecostofserviceofanefficientnewentrant/operator(similartoincentiveandbenchmarkregulation)

• Regulatormaysetminimumservicelevelsbutleavetheregulationoftechnical standards unchanged

• Governmentmayprovidecapital-costand connection subsidies

• Characterizedbyregulationoftariffsandfurthertighteningofservicestandards

• Regulatorusesindividualandspecific,cost-basedtarifflimits,becauseanefficientnew-entrantpricecouldleadtomonopolypricingand rent

• Regulatormayoptforgrid-levelservicestandardstoensurethatserviceforallcustomersisequal

• Governmentmaycontinuetoprovideconnection subsidies for low-income customers

• Governmentmaydecidetoprovideenergy subsidies to reduce the cost of electricity for all mini-grid customers or align mini-grid tariffs withthenationalgridtariff(e.g.,nationaluniformtariff)

Source:WorldBank,2019.

73

Table 12 providesasummaryofrecommendationsinrelationtomini-gridpolicyandregulatoryframework

development, tariff-settingandsubsidymechanism

design.

TABLE 12Recommended Regulatory, Tariff-Setting and Subsidy Mechanisms for Sierra Leone


GoSL policymakers should…

Policy and Regulatory Framework

• Developandimplementacoherentlong-term strategythatbuildsuponthestrongfoundationoftheRREPandtheexistingregulatoryframeworkandalignstheprioritiesofallmarketactors—government,developers,endusers,andfinanciers—tode-riskandmobilizemini-gridfinancingandexpandmini-gridelectrificationinthecountry.Thiscanbeintheformofa‘master plan’butshouldincludeclear national targets for mini-grid expansion in the long term.Thiswillfosterprivatesectorparticipationandprovideclarityandpredictabilitytomini-gridmarketplayers,notablyforinvestorsandcompanieswhoneedtoconsidermulti-yearplansinvolvingsignificantcapitalexpenditureorborrowing.

• Expand internal capacity of the MoEand/orcreateeitheraseparatedirectorate within the MoE or an entirely new rural electrification agency dedicated to managing the rollout of a national mini-grid programme,withalong-termvisionandtargetsinordertoprovideclarityandpredictabilitytomini-gridmarketplayers

• Adoptpolicyandplanningapproachesthatcreateopportunitiesfordeveloperstotakeadvantageofeconomies of scale(withfixedcostsspreadoverfarlargervolumesofkWhsold)toreducecostsandexpeditemarketdevelopment(i.e.,allowforabottom-up approachtocoexistinthemarket)

• Developandimplementprogrammesprovidingtechnicalandfinancialsupporttomini-griddeveloperstostimulate PUEandrevenue-generatingactivitiesinmini-gridcommunities,whichprovidesanchorclientsformini-gridpowersupplyandincreasescustomerincomelevelsandpurchasingpower(seeSection IV)

• Streamline import duty exemptionsforsolarequipment,includingtheadoptionofclearguidelinesforallrelevantpublicinstitutions;considerexpandingtheexistingimportdutyexemptionstocoverancillaryequipmentsuchasdistributionequipment,invertersandbatteriestofurtherreducedevelopmentcosts

• Implementpolicymeasurestoensure standards/qualityofequipmentintheoff-grid/mini-gridsector• SupportlocalmarketgrowththroughcollaborationwiththeRenewableEnergyAssociationofSierraLeone(REASL)(e.g.,tocertifyandtrainlocalentrepreneurs),astheuseoflocalsuppliersandengineerswillreduceprojectdevelopmentcosts

Tariff Setting • Utilizeavailablesupportingdatatoproposeabenchmark returnonequitybasedonexistingmarketconditionsinSierraLeone(orfinancingopportunitiesformini-gridsinternationally)tosimplifythetariffreviewprocessandprovideaclear market signal to developersontheprofitabilityoftheirpotentialinvestments

• Makeexplicittherequiredsubsidytoreachacertaintariff(e.g.,viaRBF,perkWhor%capexsubsidies),thatwouldprovideclaritytotheprivatesectorandclearbenchmarksforgovernmentoncostsofdecentralizedelectrificationvs.centralgridexpansion

Subsidy Mechanisms

• Adoptanup-front cash grant/RBF hybrid scheme(asopposedtoan‘in-kind’subsidy)toreduceprojectdevelopmentcostsandpotentiallylowertariffs;thehybridstructurewillreducedevelopers’up-frontcapitalconstraintswhilealsoensuringqualityofserviceasdevelopersarefullypaidbasedonthedeploymentandverificationoftheconnections;thevalueofthesubsidyshouldbehighenoughtoachievetariffreduction

• Adoptasimplified, streamlined and consistent process acrossallrelevantpublicagenciestoreduce complexityandtheamountoftime/resourcesrequiredofdevelopers

• Adoptaframework contractthatcanbeusedonanongoingbasistostreamlineprojectapprovalsandsavetimeandreduceprojectdelays/costs

• Designsubsidyprogrammestoensure quality of constructionbymakingdevelopers/subsidyrecipientsresponsibleforinstallingandtestingallmini-gridassets(undertheRREP,issuesduringtheconstructionphaseofWP-1sitesledtoanincreaseinO&Mandprojectdevelopmentcosts)

• Incorporatelong-term maintenance of mini-grids in subsidy design• ProvideTAtodeveloperstohelpthemaccessavailablefinancing• Utilizedata analytics and e-procurementtoincreasetransparencyandspeedofprojectdelivery• Considerhowsubsidieswilleventuallyberemoved;a3-phase approachcanbeadoptedtograduallytransitiontowardsasustainablemarket(seeFigure 16)

Long-term Market Sustainability

• Developandlaunchalong-termrollingfundprovidinglocal currency debt financingtothemarket(muchliketheNigeriaInfrastructureDebtFund),whichwillhelpaddressaccess-to-financingchallengesandenablemini-gridbusinessestogrow/reducetariffs.

• ProvideTA and capacity building for the local commercial banking sector in Sierra Leonetodevelopmini-gridlendingcapacityinlocalcurrency.ThiseffortcanbuildontheUSAID-fundedCEADIRprogramme,whichengagedwithlocalcommercialbanksfrom2016to2018todeveloptheircleanenergylendingcapabilities,withafocusonthestand-alonesolarandmini-gridmarketsegments.

• Promote EaaSbusinessmodels,whichhaveproventobeeffectiveinothernascentandearly-stagemini-gridmarkets.UndertheEaaSapproach,mini-gridoperatorsofferend-userenergyservicesratherthanfocusingonpowerconsumption/sellingkWh,withservice-basedtariffscustomizedtoreflecttheactualelectricityconsumptionneedsofconsumersbasedonthedesiredusageofagivenenergyapplianceand/ortimeofuse.Therearewide-rangingbenefitstothisapproach,includingitssimplicity,improvedqualityofserviceandpredictabilityofrevenuesandexpenses,amongothers(seeAnnex 1).

74

PART IIPRODUCTIVE USE OF ENERGY AND SITE SELECTION

75

PRODUCTIVE USE OF ENERGY AND MINI-GRIDS

4.1 Productive-Use Applications and Business Models in the Mini-Grid Sector

Formini-griddevelopers,generationcapacityutilization

remainsanongoingchallenge.Sustainedeconomic

activitythatreliesongreatercapacityutilizationensures

morestablerevenuesformini-gridoperators;hence,

operatorsoften try toarrange funding tosupport

productiveuseofenergy(PUE)applicationsthatwill

stimulateelectricitydemand (e.g., to finance the

purchaseofnewagriculturalprocessingequipment,

182 Agenbroad,J.etal.,“Mini-GridsintheMoney:SixWaystoReduceMini-GridCostsforRuralElectrification,”RockyMountainInstitute,(2018):https://rmi.org/wp-content/uploads/2018/12/rmi-seeds-minigrid-report.pdf

183 Mini-GridsforHalfaBillionPeople,WorldBankESMAP,2019.

waterpumps,etc.).Duringthesiteselectionprocess

fornewmini-grids,developerstypicallyprioritizesites

with ‘anchor loads’or those thathaveproductive

users of electricity able to meet set minimum demand

thresholds.182 As illustrated in Figure 17,asthePUEincreases,itbecomesmoreeconomicalformini-grid

operatorstoproduceelectricity,thusimprovingthe

long-termfinancialviabilityoftheproject.Moreover,

localbusinessesbenefitfromswitchingfromexpensive

diesel generators to more affordable mini-grid

electricity.183

FIGURE 17Change in Daily Load Profile and LCOE from Increases in the Productive Use of Electricity

100

80

60

40

20

0240 12 1863 9 15 21

22% LOAD FACTOR 40% LOAD FACTOR 80% LOAD FACTOR

PE

RC

EN

TAG

E O

F P

EA

K L

OA

D

LCOE = $0.55/kWh

LCOE = $0.42/kWh

LCOE = $0.35/kWh

Source:WorldBankESMAP.

NOTE:LCOE=LevelizedCostofElectricity

76

Increasingtheaveragerevenueperuser(ARPU)ofa

mini-gridiscrucialinimprovingitseconomicreturnsand

subsequentlyattractingprivateinvestment.However,this

isdifficultinruralareaswherelowgenerationcapacity

utilizationremainsanongoingchallengeduetoresidential

customers’limitedpowerdemandandabilitytopay.

Toaddressthis,developersareincreasinglytargeting

PUEcustomerssuchassmallbusinessesandindustrial

userswithhigherandmorepredictablepowerdemands

than residential customers.184 Revenue from these

productive-useactivitiescanalsogeneratelocaleconomic

development and growth, which in turn improves

communities’abilitytopayforelectricityprovidedby

the mini-grid.185

InSierraLeone,wheremostofthepopulationlivesin

ruralareasandengagesinsubsistenceagriculture,mini-



agriculturalvaluechain.Todate,themostcommon

ruralproductive-useactivitiespoweredbymini-gridsin

Sub-SaharanAfricaincludelocalindustries(agriculture,

livestockandfishing), lightmanufacturing (welding,

carpentry,etc.),commercialandretailservices(lighting,

entertainment,barberingandtailoring),andmedium-scale

184 StateoftheGlobalMini-GridsMarketReport2020.185 Borgstein,E.,Wade,K.,andMekonnen,D.,“CapturingtheProductiveUseDividend,”RockyMountainInstitute,(April2020):https://rmi.org/

insight/ethiopia-productive-use/186 Avila,E.,“ProductiveUseReport:ProductiveUseReport:EvaluationofSolarPoweredAgriculturalTechnologiesforProductiveUseApplications,”

AccesstoEnergyInstitute(A2EI),2020:https://a2ei.org/resources/uploads/2020/09/A2EI_Productive_Use_Report_Agricultural_Technologies.pdf187 “PoweringProductivity:LessonsinGreenGrowthfromtheEEPAfricaPortfolio,”EEPAfricaandNordicDevelopmentFund,(2020):https://eepafrica.

org/wp-content/uploads/2019/12/EEP_PUE_Digital-new.pdf

productionfromsmallfactoriesorintensiveagricultural

processing(drying,grinding,millingandthreshing).It

isworthnotingthatevenwithinexpensivesolarpower

available,manyoftheseagriculturalprocessingfunctions

maynotbecost-effectivesolutionsinruralareasdueto

supplychainandotherlogisticalconstraints.186Developers

areadoptingvariousbusinessmodelstoincorporateand/

orstimulatesuchproductiveusesofelectricity.

TheEnergyandEnvironmentPartnershipTrustFund(EEP

Africa),acleanenergyfinancingfacilitymanagedbythe

NordicDevelopmentFund(NDF),hascategorizedthree

maintypesofPUEbusinessmodels(Figure 18):187

• Energy Supply Model:Thisisthesimplestmodelinwhichmini-griddevelopersonlysupplyelectricityto

productive-usecustomers.Operatorsoftendesign

mini-gridstoaccommodateaprimaryofftakerorto

convertexistingusersfromdieseltoelectricity.

• Business Acceleration Model:Underthismodel,themini-griddevelopercombineselectricitysupplywiththe

provisionofappliancesandequipmentthroughdirect

salesorfinancingtocustomers.Insomecases,thiscan

alsoincludebusinessdevelopmentsupportassociated

withtheproductive-useapplication.Thisapproach

77

hasproventoboostrevenuegenerationforboththe

developerandtheenduser.Forexample,inNigeria,

GreenVillageElectricity(GVE)hasexperimentedwith

financingproductive-useequipmentsuchasgrinder

motorsandhasbeenabletoincreaseutilizationto74

percentofpeakcapacityforitsmini-gridbyproviding

loansforsoft-startelectricmotors,andthecompany

expectsfurtheradoptionwillraisethatto90percent.188

188 Agenbroad,J.etal.,“Mini-GridsintheMoney:SixWaystoReduceMini-GridCostsforRuralElectrification,”RockyMountainInstitute,(2018):https://rmi.org/wp-content/uploads/2018/12/rmi-seeds-minigrid-report.pdf

189 “Off-GridElectricityinAfrica:MarketReviewandOpportunities,”ITPEnergised,(August2019):https://www.sun-connect-news.org/fileadmin/DATEIEN/Dateien/New/Off-Grid-Electricity-Access-in-SSA-Japan-and-UK-Opportunities.pdf

• Supplier-Offtaker Model:Underthismodel,mini-griddevelopersfillthedemandgapbyestablishing

andoperatingcommercialand/orindustrialactivities,

servingastheprimaryofftaker.Initiatingaproductive

activitybasedonalocalcommodity(suchasproducing

iceforfisherman)thatsupportsrevenuegeneration

canbemoreprofitablefortheenergysupplierthan

providingenergytoconsumers.

FIGURE 18Mini-Grid Developer Productive-Use Business Models

Financing

Technology

Human resources

User inputs to design &

management

Installed generation plant

Mini-grid distribution

network

Light manufacturing

Grinding, milling, husking, threshing

Expelling

Drying, smoking, preserving

Irrigation

Refrigeration

Illumination & services

Waste products

Products Marketing & Sales

Sales

User financing

Appliances

MINI-GRIDS

Building human capital

ENERGY SUPPLY MODEL

BUSINESS ACCELERATION MODEL

SUPPLIER-OFFTAKER MODEL

INPUTS GENERATION/MANUFACTURING DISTRIBUTION PRODUCTIVE

USE OUTPUTS MARKETDISTRIBUTION

HIGHER INTENSITY(over 2.5kW)

LOW INTENSITY(up 2.5kW)

Source:EnergyandEnvironmentPartnershipTrustFund(EEPAfrica).

4.2 Expanding Mini-Grids and Promoting Electricity Access for Productive Use

The successof thepay-as-you-go (PAYG)business

model in the off-grid market for stand-alone systems

hasextendedbeyondhouseholdownershipand is

beingadaptedforuseinmini-gridswithbusinesses

nowadaptingthemodeltoserveotherruralandoff-

grid sectors. This includes commercial and industrial

sectors,suchasagriculture,wherepaymentsforsolar

irrigationpumps(poweredbysolarmini-grids)canbe

tailoredtoagriculturaloutput,makingtheimproved

technology more affordable without the need for large

capitalinvestments.Thebusinessmodelalsoprovidesa

securecustomerformini-griddevelopers,creatingregular

incomeandleavingopentheopportunityforadditional

servicesandaccesstobeprovidedtothelocalcommunity

fromexcessenergysupplies.189

AsSierraLeone’smini-gridsectorcontinuestoevolve,

PUEwillbeincreasinglyimportanttoitsgrowthand

long-term commercial sustainability. Once fully

operational,mini-gridscanprovideawiderangeof

income-generatingopportunities.Tradeisfacilitated

78

greatlybytheavailabilityofelectricity,asretailshops

canbeopenlongerhoursandsellmoreproducts.Local

entrepreneurscanutilizepowertodevelopandgrow

ruralenterprisesinareassuchasagriculturalproductive

use,ruralcoldchainsinfoodandhealthsystems,and

InformationandCommunicationsTechnology(ICT)such

asmobilephonechargingandinternetaccessservices,

among others.

UnderWorkPackage6(WP-6),theRuralRenewableEnergy

Project(RREP)focusesonprivatesectordevelopmentand

PUEasakeydriverofelectricitydemandinruralmini-grid

communities,withgrantfundingmadeavailablebythe

FCDOforthispurpose.Followingsubstantialoutreach

tocommunities,arequestforproposalsthatclosedin

March2020receivednearly50applicationsacrossfive

190 Hunt,S.,“5yearsonfromthelaunchofGreenMini-GridsAfrica–what’sbeenachieved,andwhathavewelearned?”Mini-GridsPartnershipNewsletter,(May12,2020):https://minigrids.org/5-years-on-from-the-launch-of-green-mini-grids-africa-whats-been-achieved-and-what-have-we-learned/


categories–InclusiveBusiness(largecompanies),Rural

BasedBusinesses,CommunityGroupEnterprises,Youth

Groups,andTraining/BusinessDevelopmentService

Providers.190

WinchEnergyhasformedseveralkeypartnershipsto

developlocalenterprisesandexpandproductive-use

applications in itsWorkPackage1 (WP-1)mini-grid

communities.Forexample,thecompanyhaspartneredwith

EasySolartoofferconsumerselectricalappliancesavailable

on microcredit and is working with the telecommunications

operatorOrangetoexpandaccesstomobilemoney

servicesinitscommunities.Inaddition,WinchEnergyhas

installedMobilePower(MOPO)batterysystems(Box 1)tobenefitpeopleinthecommunitywhohaveyettobe

connectedtothemini-gridsandplanstopilotanelectric

vehicleprogrammeusingthistechnologyinQ12021.191

FIGURE 19Estimated Off-Grid Solar Cash Market Potential for the Productive-Use Sector in Sierra Leone

$80M

$70M

$60M

$50M

$40M

$30M

$20M

$10M

$5M

$400K

$300K

$200K

$100k

0

CA

SH V

ALU

E (

USD

)

112,343

3,336

581

VALUE ADDED APPLICATIONS

CONNECTIVITY/ICT APPLICATIONS

SME APPLICATIONS

TOTAL UNITS

Source:GreenMaxCapitalAdvisors;WorldBank-ECREEERegionalOff-GridElectrificationProject:SierraLeoneReport,2019.NOTE:Theestimatedcashvalueandnumberofunitsareannualizedtoreflecttypicallifespanofoff-gridsolarsystems.Valueaddedapplications:smallholdersolarpumping/agriculturalirrigation,solarmillingandsolar-poweredrefrigerationConnectivity/ICTapplications:mobilephonechargingenterprisesSMEapplications:barberingandtailoringruralmicroenterprises

79

BOX 1Mobile Power Battery Rental Platform

MobilePower(MOPO)isaUK-basedcompanythatdevelopsandoperatesportableenergydistributionsystems

fortheoff-gridmarketinSub-SaharanAfrica.Ithasdevelopedapay-per-chargerentalmodeltosupplybattery

poweratapriceaffordabletolow-incomehouseholdsandbusinesses.Therentalplatformrequiresnodeposit,has

nocreditchecks,requiresnofixedpaymentstructure,andbatteriescanberentedonadailybasis.Theapproach

consistsofsellinganddeployingMOPOhubs(typicallypoweredbysolarpanels)wherebatteriesarechargedand

thenfieldagentstakecareofdistributingthemtocustomers.Thefieldagentspre-purchaseactivationcreditsfrom

MOPOusingmobilemoney,whilecustomerspaytheagentusingcash,mobilemoneyetc.Theagentusesthe

creditstoactivatethebattery,andoncetherentalperiodiscomplete,theagentcollectsthebatteryandreturnsit

tothehubforanewcycle.InSierraLeone,MOPOhubsarealreadybeingusedtosupplyelectricitytoschoolsin

off-gridareas,whileWinchEnergyplanstopilotanelectricvehicleprogrammeusingthetechnologyinQ12021.192

Source:MobilePower.

192 https://www.mobile-power.co.uk/#home;and“Off-GridElectricityinAfrica:MarketReviewandOpportunities,”ITPEnergised,(August2019):https://www.sun-connect-news.org/fileadmin/DATEIEN/Dateien/New/Off-Grid-Electricity-Access-in-SSA-Japan-and-UK-Opportunities.pdf

193 Kyriakarakos,G.,Balafoutis,A.,andBochtis,D.,“ProposingaParadigmShiftinRuralElectrificationInvestmentsinSub-SaharanAfricaThroughAgriculture,”Sustainability,12,(2020):https://www.mdpi.com/journal/sustainability

194 Cabanero,A.,Nolting,L.,andPraktiknjo,A.,“Mini-GridsfortheSustainableElectrificationofRuralAreasinSub-SaharanAfrica:AssessingthePotentialofKeyMakerModels,”Energies,13,(2020):https://www.mdpi.com/1996-1073/13/23/6350

4.3 Assessment of Agricultural Productive Use in Sierra Leone and Nigeria

Theagriculture-energynexusiscriticaltosupportingrural

economicdevelopment.Off-gridsolarapplicationscan

supportawiderangeofproductiveapplications(e.g.,solar

waterpumping,agriculturalprocessing,millingequipment,

refrigerationetc.)togenerateeconomicactivity,increase

productivity and transform rural livelihoods. This is

particularlytrue inSierraLeone,whereamajorityof

thepopulationlivesinruralareasandtwo-thirdsofthe

country’slabourforceengagesinsubsistenceagriculture.

Agricultural practices, especially for smallholder

farmers,canbenefitfromawiderangeofoff-gridsolar

technologies,includinginwaterpumpingandirrigation,

agriculturalprocessingandcoldstorage. Improved

irrigation increases yields and smallholder farmer income.

Solar-poweredrefrigerationandcoolingequipmentcan

servemultiplepurposes,includingiceproductionfora

wide range of industries and cold storage of agricultural

produce,whichcanreducelossesandincreaseoutput.

Cerealcropslikemaize,sorghum,milletandriceprovide

anopportunityforvalueadditionthroughhullingor

milling,whilesolardryingofcoffeeandcocoaandpalm

oilprocessingareproductive-useapplicationsthatcan

greatlybenefitruralfarmers.193 Off-gridcommunities

typically use equipment that is poweredbydiesel

generators;thus,thereisaneedforpolicyandfinancial

interventionsinordertoraiseawarenessofthebenefits

andlong-termcostsavingsassociatedwithswitchingto

equipmentpoweredbycleanenergy,aswellastofinance

theup-frontcostofpurchasingequipment.

4.3.1 Sierra Leone

In2019,UNOPScommissionedafeasibilitystudyled

byINENSUSGmbH(usingitsKeyMakerModel(KMM))

to identifyproductive-usehotspots (30kWsystems

andabove), suchas foodprocessing, cold storage

applicationsandfisheries,withtheobjectiveofhelping

RREPoperatorsidentifyanchortenantstosupportthe

long-termsustainabilityoftheiroperations.TheKMMis

aconceptdevelopedbyINENSUSaimingtoimprovethe

economicsofamini-gridprojectbyunlockinglocalmarket

potential.UndertheKMM,operatorstypicallyprocure

rawmaterialsfromthelocalcommunity,processthemto

producefinalgoodsusingtheelectricityfromtheirmini-

grids,andsellthemtoagivenmarket,usuallyinurban

areas where demand is high.194Thevirtueoftheconcept

reliesonleveragingthestablesupplyofelectricityfroma

mini-gridandestablishingmini-gridprojectmanagement

structuresinordertoenteranagriculture/farmproduct’s

valuechain,usuallyattheprocessingandtradingstages

(see Figure 18).

Astablesupplyofelectricitycandirectlyincreasethe

qualityofprocessedagriculturalproductswhilereducing

80

theirtransportcosts.Mini-gridoperatorsarealsoable

tosecuredemandformini-gridenergyconsumptionif

farmersestablishlocalagricultural-processingprojects.

Suchprojectsnotonlycreateanendmarketforthelocal

farmerstoselltheirproduce,butalsocreateanadditional

incomestreamforthemini-gridoperators,whiledriving

themtooperatemorecost-efficientlyandsustainably.

195 “JUMEME’sbusinessmodelformini-gridsreapingmultiplebenefitsinTanzania”,SustainableEnergyforAll,(27May2020):https://www.seforall.org/news/jumemes-business-model-for-mini-grids-reaping-multiple-benefits-in-tanzania

196 “RuralRenewableEnergyProject-ProductiveUseFacilitation:ValueChainAssessmentforOperator1–PowerGenLimited,”InensusGmbH,(2December2019).“RuralRenewableEnergyProject-ProductiveUseFacilitation:AssessmentofpotentialproductiveuseapplicationsforOperator2–WinchEnergyLimited,”InensusGmbH,(27December2019);and“RuralRenewableEnergyProject-ProductiveUseFacilitation:AssessmentofpotentialproductiveuseapplicationsforOperator3–PowerLeone(SL)Ltd.,”InensusGmbH,(27December2019).

197 NOTE:ThedistinctionbetweenWP-1andWP-2sitesisnoteworthy,asonlyWP-1mini-gridswereinoperationduringthetimeofthissurveyactivity(WP-2siteswerestillunderconstruction);seeAnnex 2 for more details.

TheKMMhasbeentestedbyasubsidiaryinTanzania,

themini-gridoperatorJUMEMERuralPowerSupply

Ltd.195In2019,INENSUSsupportedtheRREPthrough

anassessmentofpotentialPUErevenuestreamsforrural

mini-gridsacrossseveralkeyagriculturalsectorsofSierra

Leone.196Someofthekeyfindingsfromthesestudiesare

summarizedinTable 13.

TABLE 13INENSUS KMM Feasibility Assessment of Agricultural PUE Applications in Sierra Leone, 2019

PUE Activity Location Work Package Business Scenario Expected Results

Rice milling and processing

Mathoir WP-2Purchasing a small-scale mill atthecapacityof25.33MWh/year.Themillwouldoperate8hours/day,7days/week,9months/year.

• 1.3 tons of milled rice daily with a small-scaleprocessingcapacityof300kg/hour.

• IncreasethemarketvalueofricefromUSD0.29/kg(farmgaterice)tothepriceofUSD0.76/kg(processedriceforwholesale).

Palm oil Production Masiaka WP-2

Implementingaplantof5tonsofFFB/dayprocessingcapacity,supplying173tonsofMasankeycrudepalmoilperyear.

• 20-yearprojectIRRof16.5%withapay-backperiodof10years.

• AnnualnetprofitsofUSD13,600oncetheplantisrunningatfullcapacityinyear6.

CassavaProcessing

ForeduguWP-2

Re-start of an already installed 10ton/dayofrawcassavaprocessingplant.

• 20-yearprojectIRRof39.4%andapay-backperiodof3years.

• AnnualnetprofitsofUSD33,300oncetheplantisoperatingatfullcapacityinyear4.

Refrigeration forcoldfishstorage

Conakry Dee,Shenge,Foreduguand Moyamba

WP-2Theproductiveuseofmini-gridelectricitytosupporttheestablishmentofafishcoldstorage chain. The cold storage chainisdesignedtohave6airblastfreezercoldstoragerooms(-30°C)of20ft.

• 20-yearprojectIRRof18.9%,pay-backperiodof10years.

• NetprofitsofUSD6,500fromthefifthyearofoperation.

Source:InensusGmbH.

NOTE:KMM=KeyMakerModel

RREP Mini-Grid Community Field Surveys

In October and November 2020, the GreenMax

consultantteamcarriedoutasurveyactivityofnineRREP

mini-gridcommunitiesacrossbothWP-1andWP-2sites,

involvinginterviewsandconsultationswithcommunity

representatives(chiefs),residentialhouseholds,productive

users(farmers,fishermen,traders,technicians),health

workers,andrepresentativesofreligiousinstitutions,

youthgroups,andothercommunityorganizations.The

surveysfoundthatthemini-gridprojectsarecapable

ofsupportingincreasedproductivity,particularlyinthe

agriculturalsector,namelyriceprocessing,palmoil

production,andrefrigerationforfoodprocessingand

storage.Fieldsurveyswithfarmerscollectedinformation

onpotentialproductive-useapplicationsofmini-grid

electricitytosupporttheiractivities.

Atotalof11farmerswereinterviewedacrossthevarious

communities,includingfiveintervieweesservedbyWP-1

andsixintervieweesservedbyWP-2.197Intervieweeswere

askedavarietyofquestionsrelatedtotheproductive-

useactivitiestheyengagedinandhowtheyfeltmini-

gridelectrificationcouldsupporttheiragriculturalvalue

chainactivities.Theywerealsoaskedaboutbarriers

relatedtoexpandingPUEthroughthemini-grids(e.g.,

81

vis-à-vistheuseofalternativesourcesofpowersuch

asdieselgenerators).Theresultsofthissurveyactivity

arepresentedinFigure 20 and Figure 21.Duetothe

198 NOTE:1USD=SLL10,000

smallsamplesize,surveyresultsarenotrepresentative

and should only be considered as a baseline for future

research.

FIGURE 20Mini-Grid Community Productive Use Survey Results (WP-1)198

DOES THE SOLAR MINI-GRID SUPPORT INCREASED PRODUCTIVITY IN ANY

OF THESE SECTORS?


GRINDING

MILLING

REFRIGERATION

NONE

RICE

PALM OIL

TUBERS/ROOTS

GROUNDNUTS

FISHING

FRUITS

VEGETABLES

HOW MUCH CAN YOU AFFORD TO PAY FOR ELECTRICITY ON A MONTHLY BASIS FOR

YOUR BUSINESS?


YOUR HOUSEHOLD?

SLL 10,000-20,000

SLL 20,000-30,000

SLL 30,000-40,000

SLL 40,000-50,000

SLL 50,000-100,000

SLL 100,000-200,000

SLL 100,000-200,000

SLL 200,000-400,000

SLL 400,000-600,000

ABOVE SLL 600,000

40%

40%

20%

40%

20%20%

20%

50%50%50%

25%

25%

82

FIGURE 21 Mini-Grid Community Productive Use Survey Results (WP-2)199

WOULD SOLAR PV MINI-GRIDS SUPPORT INCREASED PRODUCTIVITY IN ANY

OF THESE SECTORS?


GRINDING

MILLING

REFRIGERATION

NONE

RICE

PALM OIL

TUBERS/ROOTS

GROUNDNUTS

FISHING

FRUITS

VEGETABLES


YOUR BUSINESS?


YOUR HOUSEHOLD?

SLL 10,000-20,000

SLL 20,000-30,000

SLL 30,000-40,000

SLL 40,000-50,000

SLL 100,000-200,000

SLL 200,000-400,000

SLL 400,000-600,000

ABOVE SLL 600,000

50%50%

23%

17%

12%18%

18%

6%

6%

50%

25% 25%

60%

20%

20%

199 NOTE:1USD=SLL10,000

Consultations with rural mini-grid community stakeholders

inSierraLeonefoundthatmillingandrefrigerationare

amongthemostcommonproductive-useapplications,

whilesolarmini-gridelectrificationcansupportincreased

productivityacrossavarietyofagriculturalsectors,led

byrice,palmoil,fish,vegetablesandgroundnutsvia

agriculturalprocessingandcoldstorageapplications.

UnderWP-1,nosubsidieswereprovidedtoencourage

productive use. Productive use is, however, being

83

consideredforWP-2sitesunderWP-6oftheRREP(see

Section 1.1.2).TheFCDOiscurrentlyworkingwithUNOPStoprovidefundingandresourcestoreduceconnection

fees forpotentialproductive-use customers and to

subsidizethepurchaseofproductive-useequipmentfor

localcommunities.Inthiscontext,responsesfrommini-

gridcommunityintervieweesservedbyWP-1differed

fromWP-2communityrespondents,giventheincreased

emphasisonPUEforWP-2sitedevelopment.

When asked about what factors discouraged new

productive-usecustomersfromconnectingtoasubsidized

mini-grid,WP-1communityendusersindicatedthat

high tariffswere themainbarrier.Someproductive

usersalsostatedthatthemini-gridconnectionpoint

wasfarfromwheretheyperformagriculturalactivities,

whichposedlogisticalchallenges.Incontrast,WP-2

communityendusersviewedtariffsaslargelyappropriate

andweregenerallymorepositiveabouttheprospect

ofusingmini-gridpowertosupplytheirproductive

activities.Instead,theirmainconcernsweresurrounding

equipmentfinancingandtrainingneededtoexpandPUE

applications.

HOURS OF ELECTRICITY REQUIRED FOR PRODUCTIVE USE AT NIGHT

HOURS OF ELECTRICITY REQUIRED FOR PRODUCTIVE USE IN THE DAY

1-3 HRS

3-6 HRS

6-9 HRS

9-12 HRS

33%

22%22%

78%

45%

BothWP-1andWP-2endusersexpressedadesirefor

anincreaseinthehoursofelectricitysupply,suggesting

thatperhapsmorehoursofelectricitysupplywouldbe

necessarytosupportproductive-useapplications.This

wasparticularlytrueforeveninghours,whereelectricity

notonlyprovideslightingbutalsorefrigeration.The

challenge,ofcourse,isthatsolarmini-gridsmustrelyon

batterystorageand/ordieselfueltoprovideserviceat

night(whichismoreexpensive).

AsummaryofthekeyfindingsfromtheWP-1andWP-2

mini-gridcommunitysurveysispresentedinTable 14.

84

TABLE 14RREP Mini-Grid Community Field Surveys

IndicatorFeedback from Stakeholder Interviews

Lessons Learned RecommendationsWork Package 1 Work Package 2

PUE activities

• Rice milling and processing: Interviewees engaged in rice milling indicated that while mini-gridsand/oroff-gridelectrificationcouldsupportincreasedproductivityinricemilling,theywerenotcurrently using the electricitysuppliedbymini-gridtosupportproductiveuseduetothe high tariff

• Fish processing: Respondentsindicatedthattheyanticipatedcommencingfishprocessingandstorageonce the mini-grids expandedtosupportthefisheriesvaluechain

• Refrigeration for food storage:Respondentsindicated that once the mini-grid was developed,solar-poweredcoldroomscouldsupportvariousagriculturalsectors,suchasfisheries,cassavaandpotatoharvesting,fruitandvegetablestorage,etc.

• Palm Oil: WP-2respondentsanticipatedthatpalmoilprocessingcouldpotentiallyutilizemini-grid electricity

• Rice milling and processing: TheINENSUSGmbHstudyindicatesthatregions with large-scale rice productionwouldachievereasonablefinancialreturnsfrominvestinginmini-grid-poweredricemill.

• Fish processing: In Tanzania,JUMEMELtd.pilotedaKMMprojectinthefishingsector.Theprojectinvolvedbuildingthe mini-grid to offer powertolocalresidents,but also running a business thatboughtfishfromlocalfishermen,processingandfreezingthemon-siteusingitsownelectricity,andthensellingthefrozenfishtodistributors for sale across Tanzania.200 Mini-grid operatorsinSierraLeoneare considering a similar programme.

• Food storage: The Cooling-as-a-Service(CaaS)model201 currently implementedinNigeriashowsthatsolar-poweredrefrigeration and cold rooms can cut food waste by50%andsave460tonsofCO2 emissionsperyear.CaaScanalsobedeployedinSierraLeone’sruralenergy market.

• Rice Processing and milling: ProvidePUEequipmentfinancingtoruralfarmerstosupportelectricityuptakeandinvestinmini-grid-poweredmillsforfarmers.Thecommunityexpressedinterestbutlackstheup-frontcapitaltoaccessthemachinery. A lease-to-own modelcouldovercomethis barrier.

• Fish processing: ProvidefinancingtosupportdesignandimplementationofKMMpilotprojecttodemonstrateviabilityofPUEapplicationsinthefishingsector(e.g.,fishdrying;coldstorageetc.)

• Refrigeration: Ensure that the mini-grid can provideenoughhoursofelectricitysupplyforrefrigeration;providefinancingforcommunity-ownedfreezerthatcanbeutilizedbyfarmingandfishingcommunitiesforcold storage

• Palm Oil: Make the investmentintheprocessingbusinessandrefocuseffortstoimprovethe yields of existing farms

Electricity tariff

• Tariff is seen as too high and a barrier to PUE

• Nosubsidiesavailableto reduce tariff

• Customers are expectingtocommencenewproductive-useactivitiesoncemini-gridelectricityisavailable

• WP-2customersseeno barriers to switching theirPUEapplicationsfrom diesel fuel to mini-gridpower(potentialbarrierfromoperatorperspective;e.g.,startingcurrentfordiesel-poweredmillingmachines might be problematicforthemini-gridtohandle)

• WP-2customersareinterestedinequipment-financingsupporttohelptransitiontheircurrentPUEapplicationstomini-gridsupply

• WP-2intervieweeshad more community sensitizationaroundPUEvis-à-visWP-1.

• WP-2productive-usecustomers needed financingsupportforequipmentandnecessarytraining in order to mechanizeprevioussmall-scaleproductive-useactivitiesintobusinessactivitiesthatcouldgenerate additional revenue.

• Ensure that future mini-griddevelopmentincludesextensivecommunityengagement and sensitizationaroundissueofPUE

• Provideequipmentfinancingandtrainingforproductive-usecustomers


201 “Whatisservitization,andhowcanithelpsavetheplanet?”WorldEconomicForum,(20November2020):https://www.weforum.org/agenda/2020/11/what-is-servitization-and-how-can-it-help-save-the-planet/

https://www.weforum.org/agenda/2020/11/what-is-servitization-and-how-can-it-help-save-the-planet/


85

4.3.1.1 Smallholder Water Pumping and Irrigation

Solar-poweredirrigationtechnologyallowssmallholder

farmerstoswitchfromexpensiveandpollutingdiesel-

poweredpumpstosustainable,renewablepower.Sierra

Leonesuffersfrompoorwateraccess,particularlyinthe

dryseasonfromDecembertoApril.Irrigatedagriculture

islimitedbylowawarenessandknowledgeofimproved

agronomicpractices,whichhasinturnlimitedtheuptake

ofmechanizedtoolsandequipmentsuchassolarwater

pumps.Whiletherehasbeenarecentshifttowardssolar

waterpumpingtechnologyattheinstitutionallevel,the

domesticmarketisstilllargelydominatedbylow-quality

waterpumps.202Therelativelyhighcostofmini-grid-

202 “Off-andWeak-GridSolarApplianceMarket:SierraLeoneCountryProfile,”EfficiencyforAccess,(September2020):https://storage.googleapis.com/e4a-website-assets/EForA_CountryProfile_SierraLeone.pdf

203 WorldBankRegionalOff-GridElectrificationProject(ROGEP):SierraLeoneReport,ECREEE,2019.

poweredsolarpumpingsystemsisakeybarrierthat

inhibitsuptakeofthistechnologyamongsmallholder

farmers.Moreover,awareness-raisingcampaignsand

associated training is badly needed at the rural farm

level,whichishardtosustainwithoutsupport,e.g.,

fromorganizationssuchastheInternationalFundfor

AgriculturalDevelopment(IFAD).

AGISstudyundertakenin2019fortheWorldBank

RegionalOff-GridElectrificationProject (ROGEP)203

foundthatthere iswidespreadaccesstothewater

tableforsurfaceirrigationinSierraLeone(Figure 22).Todate,thisvastirrigationpotentialremainsalmost

entirelyuntapped.

FIGURE 22Area Suitable for Surface Irrigation and Identified Settlements Suitable for Off-Grid Solar Pumps

Source:EnergioVerdaAfricaGISanalysis;SierraLeoneWashDataPortal;BritishGeologicalSurveyBureauofStatistics;WorldDatabaseonProtected Areas.WorldBank-ECREEERegionalOff-GridElectrificationProject:SierraLeoneReport,2019.

86

AcasestudyinUganda(Box 2) found that there was a

strong economic case for small- to large-scale farmers to

adoptsolarirrigationinordertogrowhighvaluecrops.

Regular,consistentwateringwithanirrigationsystemcan

improveyields,andallowsfarmerstocapitalizeonhigher

marketpricesthatoccurduringdryseasons.Pilotprojects

demonstratedthatsolarwaterpumpingforirrigationenables

higheryieldsforhorticulturalcropsthathaveshorter-term

204 “ProductiveUseofEnergyinUganda:LearningfromtheUgandaOff-GridEnergyMarketAccelerator(UOMA),”UgandaOff-GridEnergyMarketAccelerator;USAID,(October2020):https://uoma.ug/wp-content/uploads/2020/10/UOMA-PUE-white-paper.pdf

205 PowerforAllFactsheet:Mini-gridsproductiveuseofenergy(PUE)inagriculture:https://www.powerforall.org/application/files/9615/9302/4971/FS_Mini-grids_productive_use_of_energy_PUE_in_agriculture3.pdf

206 “RuralRenewableEnergyProject-ProductiveUseFacilitation:AssessmentofpotentialproductiveuseapplicationsforOperator2–WinchEnergyLimited,”InensusGmbH,(27December2019).

growingcycles,suchastomatoes,kale,cabbage,beans

andonions.Solarirrigationenablessuchcropstoutilizethe

hightemperatureofdryseasons,allowingfarmerstohave

threeharvestcyclesinayearwhenusingsolarirrigation.

Asaresult,operatorstodatehavemainlysoldtomedium-

tolarge-scalefarmers,ortosmallholderfarmerswhogrow

high-valuehorticulturalcropsasopposedtosmallholder

farmerswhogrowstaplecropssuchasmaize.

BOX 2Solar Irrigation for Ugandan Farmers

Increasedinstancesoferraticandunpredictableweatherpatternsduetoclimatechange(e.g.,drought,heavy

rainfall,changinggrowingseasonsetc.)reducefarmerproductivity,particularlyatthesmallholderlevel.InUganda,

thistrendhaspromptedthegovernmenttofocusdevelopmentinitiativesonprovidingsustainableandaffordable

irrigationforoff-gridruralsmallholderfarmers,whomakeup80percentoffarmersinthecountry.Withdecreasing

capitalcosts,solarwaterpumpsaregraduallybecomingacost-effectiveandsustainablesolutionforruralfarmers

toreducetheirrelianceonrain-fedagricultureanddieselalternatives.Althoughmostsolarwaterpumpingsystems

todatehavefunctionedasstand-alonesystems,solarwaterpumpingandirrigationtechnologiesthataresuited

forcommercialandindustrialapplicationscanbenefitfrommini-gridpower.204

Source:UgandaOff-GridEnergyMarketAcceleratorandUSAIDPowerAfrica.

4.3.1.2 Agricultural Processing

Usingmini-gridsinagriculturalvaluechainsprovides

anopportunity for ruralcommunities toboost local

economies.Someagriculturalactivitieshaveshowngreat

potentialtoeffectivelybenefitfrommini-gridsinSierra

Leone,suchasmilling,palmoilprocessing,cassavaroot

productionandcoldstorage.205

Rice Milling

WhileSierraLeonehasacomparativeadvantageinrice

productionrelativetootherneighbouringcountries,

itlackstheinfrastructuretoensurehigh-qualityrice

processing.Asa result, thecountry is traditionally

animporterofriceduetothelowquantityoflocally

processedrice(whichismanuallyprocessedbysmall-

scalefarmers).TheINENSUSGmbHstudyindicatesthat

regionswithlarge-scalericeproductionwouldachieve

reasonablefinancialreturnsfrominvestinginmini-grid

poweredricemills,whenreasonableassumptionsare

considered.TheKMMbusinesscaseidentifiedMathoir

as a strategic location to consider future establishment

ofariceprocessingenterprise.Themini-gridsystem

tobedevelopedwouldallowaccesstoelectricityto

powertheloadimpliedbyaKMMoperatingeighthours/

day,sevendays/week,ninemonths/year,producingan

estimated 1.3 tons of milled rice daily with a small-

scaleprocessingcapacityof300kg/hour.Ontopof

theadditionalrevenuestreamfromthericevaluechain

enabledbythePUE,therearetheaddedbenefitsof

reducedtransportcostsandsavingsintime.Thiswould

helpSierraLeoneachieveeconomiesofscaleinproduct

trade,aswellasfacilitatelinkagesbetweenruraland

urbancentresandhelpittooutperformmetropolitan

orinternationalcompetitors.206AsummaryoftheKMM

feasibility assessment of this rice milling business case

studyispresentedinFigure 23.

https://www.powerforall.org/application/files/9615/9302/4971/FS_Mini-grids_productive_use_of_energy_PUE_in_agriculture3.pdf

https://www.powerforall.org/application/files/9615/9302/4971/FS_Mini-grids_productive_use_of_energy_PUE_in_agriculture3.pdf

87

FIGURE 23Rice Milling Value Chain

RICE PRODUCERS

Small-scale farmers Large-scale producers

FBO/ABCCollectors/assemblers

Hand parboiling

Machine millingHand pound

Wholesalers

Retailers

Export market School FeedingUrban consumersRural consumers

Source: INENSUSGmbH.

207 “RuralRenewableEnergyProject-ProductiveUseFacilitation:AssessmentofpotentialproductiveuseapplicationsforOperator3–PowerLeone(SL)Ltd.,”InensusGmbH,(27December2019).

Palm Oil Processing

PalmoilprocessingisacommercialindustryinSierra

Leonethatisalreadybenefittingfrommini-gridpower

(Box 3). The INENSUS study identifiedMasiakaasacommunitywiththehighestpotentialforapalmoil

KMMproject.Fieldinterviewsconductedwithruralfarm

ownersinMasiakawhoown150acresofpalmfruitfarms

revealedsignificantinterestinthedevelopmentofapalm

oilpressingbusinessthatcouldbeelectrifiedbyamini-

grid.Atpresent,annualyieldsinSierraLeoneof7.6tons/

hectarewouldallowforthe150-acrefarmlandtoproduce

approximately50.5tonsoffreshfruitbunch(FFB)/year,

whichwouldnotproduceenoughofareturntocoverthe

largeup-frontcapitalinvestment(givenoperationalcosts,

itisestimatedthatapproximately9,600tonsofFFBwould

needtobesourcedonanannualbasistopresentaviable

businesscase).Thepalmoilbusinessisoneofrelatively

lowmargins,andthusrequireslarge-scalecapacitiesto

leadtoprofitableoutcomes.207AsummaryoftheKMM

feasibilityassessmentonthepalmoilbusinesscasestudy

ispresentedinTable 13.

88

BOX 3Mini-Hydro Palm Oil Processing Plant in Sierra Leone

InthetownofYeleintheTonkoliniDistrict,SierraLeone,a250kWpmini-hydropowersystempowersapalmoil

processingplantalongwithacommunityof300households.Thepalmoilplanthasimprovedthefinancialcase

forthepowerplantasananchorclient,buyingone-thirdoftheelectricitygenerated.Thepowerplanthascreated

severalpermanentlocaljobsandsuppliesaffordablepowertothelocalcommunity.208

Source:TUDelftTechnology,PolicyandManagement.

208 Janse,2019.209 “RuralRenewableEnergyProject-ProductiveUseFacilitation:AssessmentofpotentialproductiveuseapplicationsforOperator3–PowerLeone

(SL)Ltd.,”InensusGmbH,(27December2019).

Cassava Value Chain

Cassavaanditsderivedproductshavebeenidentified

by theGovernmentofSierraLeone (GoSL)asakey

croptoincreaseexport-basedrevenuesforthecountry.

Increasingcassavarootproductioninrecentyearshas

ledtoSierraLeonebecominganetexporterofcassava

anditsderivativesacrosstheWestAfricanregion.The

produceisexportedeitherasfood,starchoranimalfeed.

Cassavaproduction(intons/year)isgenerallyhighestinthe

districtsofMoyamba,BoandBonthe,whileyieldspeakin

Bontheatmorethan800kg/year,followedbyMoyamba,

Bo,TonkoliliandPujehun(between400and800kg/year).

Thecorrespondingvaluesaregenerallybetween200and

400kg/yearinPortLokoandKambia,andthelowestin

thedistrictsofBombaliandKonoatbelow200kg/year.

Processingandtransportingcassavaproducts(Figure 24)inSierraLeoneremainanexpensivebusinessduetoa

widespreadlackofsuitableprocessingmachinery,small-

processingcapacitiesandpoorroadconditions.Sincethe

rawcassavarootcannotbestoredformorethantwoor

threedays,alackoflarge-scaleorautomaticprocessing

equipmentmeansthatfarmersmustgenerallyrelyon

small-scalediesel-poweredmachinestoprocesspartof

the root and gari in order to be able to store it.

INENSUSidentifiedthepossibilityofsupportingalarge-

scalecassavaprocessingprojectatastrategiclocation

selected to trail the route used by traders of gari and

othercassavaderivativesfromtheepicentresofgariin

thecountry.Withaprocessingcapacityof10tonsof

cassavarootprocessingperday,itisdesignedtooperate

eighthours/day,sixdays/weekandtwelvemonths/year.

Whileapromisingbusinessopportunity,theprojectis

likelytorequiretheparticipationofanexternalinvestor

withaccesstofinancing.Althoughmini-gridelectricity

willnotdirectlyfeedtheprocessingplant,thelocal

presenceofPowerLeoneinForeduguwouldallowfor

theoverheadandmanagementcost-sharingstructures

betweentheelectricityandagro-processingprojects

thatcharacterizetheKMMapproach.Alternatively,the

projectcanbeconsideredasastand-alonecommercial

andindustrialsolarproject.209AsummaryoftheKMM

feasibilityassessmentofthecassavaprocessingbusiness

casestudyispresentedinTable 13.

89

FIGURE 24Cassava Value Chain

DIR

EC

T C

HA

IN A

CTO

RS

SUP

PO

RTS

MFI

SLARI

Extension Sierra Leone Grassroots Agency

BAFCO SARD-SC IITA USAID

Cassava project UPoCA

Processors and traders

Planting material

Fertilizer

Fabricators

Individual producersIntermediaries

Wholesalers

Consumers

Processors

Farmers’ organizations

Retailers

Final distributors and consumers

Input suppliers and services

Production

Reg

ional m

arkets (Lib

eria & G

uinea

NATIONAL LEVELREGIONAL LEVEL


210 CaaSFactsheet:http://countoncooling.eu/wp-content/uploads/2020/01/CaaS_Factsheet.pdf211 GlobalInnovationLabforClimateFinance–CoolingasaService:https://www.climatefinancelab.org/project/cooling-service/

4.3.1.3 Cold Storage and Refrigeration

Theprovisionofruralcoldchainshasveryhigheconomic

developmentco-benefits.Ruralcoldchainprojectscan

improvetheincomeofsmallholderfarmers(orfishermen)

byreducingwasteandcanimproveaccesstohealth

servicesbysecuringeconomicdeliveryofmedicinesand

vaccines.Casestudieshavefoundthatsolar-powered

refrigerationandcoldroomshavethepotentialtocut

foodwasteby50percentandsave460tonsofCO2

emissionsperyear.Coolingsystemsintegratedwith

community mini-grids can also be used where larger cold

chainapplicationsexist,suchasforicemanufacture.

Cooling-as-a-Service

Cooling-as-a-Service(CaaS)isapay-per-servicemodel

forcleancoolingsystemsthateliminatestheup-frontcost

ofcleancoolingequipmentforcustomers,whoinstead

payperunitofcoolingtheyconsume.Thetechnology

provider installs, maintains and operates cooling

equipment,recoveringcoststhroughperiodicpayments

made by the customer.210Endusersarethusincentivized

toconsumeenergyefficiently,whiletechnologyproviders

areincentivizedtoinstallandmaintainthemostefficient

equipmentpossible.Moreover,financialserviceproviders

havethesecurityofowninganoperatingassetunder

aCaaScontractwithacustomer.TheCaaSbusiness

model(Figure 25)ischeapforcustomers,profitablefortechnologyprovidersandreducesharmfulrefrigerant

emissions.211

90

FIGURE 25Cooling-as-a-Service Business Model

COOLING EQUIPMENT

BANK

TECHPROVIDER

Sale of operating cooling

equipment

Payment from sale

Leaseback of equipment

Lease payments

CUSTOMER

CaaSservice

CaaS payment($ per ton of refrigeration)

Source:GlobalInnovationLabforClimateFinance.

212 Ibid.213 “Whatisservitisation,andhowcanithelpsavetheplanet?”WorldEconomicForum,(20November2020):https://www.weforum.org/agenda/2020/11/

what-is-servitization-and-how-can-it-help-save-the-planet/ 214 “TheWorld’sBananaGiantisAwake,”Danfoss,(26February2019):https://www.danfoss.com/en/about-danfoss/news/cf/the-world-s-banana-

giant-is-awake/

ItisestimatedthattheCaaSmodelcansavecustomers

morethan20percentofcoolingcosts,whilereducing

emissions from electricity use and coolant leakage by

upto49percent.Themodelalsoopensupvastmarket

opportunitiesfortechnologyandfinanceproviders.To

date,theKigaliCoolingEfficiencyProgramme(K-CEP)

andBaselAgencyforSustainableEnergy(BASE)have

madesignificantprogresstowardsinitialimplementation

oftheCaaSbusinessmodelintheDominicanRepublic

andJamaicaandarepursuingthreetofourlargerflagship

implementationprojectsinIndia,MexicoandSouth

Africa.212NigeriaisalsopilotingaCaaSbusinessmodel

wherebyfarmerscanusecoolingequipmentprovidedby

themini-gridserviceprovider.213

Rural Cold Chains in Agriculture and Fishing

Solarrefrigeration,coolingandprocessingequipment

alsoenablestradersandlivestockfarmerstoselldairy

products,whilecoldstorageofagriculturalproducecan

reducelossesandincreaseoutput(Box 4).Cold rooms

andiceproductionarealsovaluableinvestmentsforthe

fishingindustry(Box 5);inSierraLeone,RREPmini-grid

operatorsarecurrentlyexploringoptionstolauncha

freezer-leasingprogrammetohelpmini-gridcustomers

storefishinordertoenterthesector.

BOX 4Cold Chain Solutions for Indian Banana Farmers

Indiaisthegloballeaderinbananacultivation.In2013,Danfoss,aDanishmultinationalmanufacturingfirmthat

offersenergysystemmanagementservices,partneredwiththeIndiangovernmentandtheConfederationof

IndianIndustrytoformataskforcethataimedtodelivercoldchainsolutionstobananafarmersinordertoreduce

postharvestlosses.Withsupportfromlocalindustryassociations,thetaskforceconductedafeasibilitystudyof

thebananasectortoassesshowcoldchainscouldbeutilizedtoreducelossesandboostexportrevenue.The

study’sfindingshelpededucatefarmersoncoldchaininfrastructureandtechnologies,resultingina300percent

increaseinfarmerincomeanda20percentreductioninpostharvestlosses.By2018,Indiabeganexporting

bananastoEurope.India’sgovernmentisnowexploringhowcoldchainsolutionscanbeappliedtosupport

otheragriculturalcrops/sectors.214

Source:Danfoss.



91

BOX 5JUMEME Fishing Industry Pilot Project in Tanzania

InTanzania,JUMEMELtd.pilotedaKeyMakerModel(KMM)projectinthefishingsector.Theprojectinvolved

buildingthemini-gridtoofferpowertolocalresidents,butalsorunningabusinessthatboughtfishfromlocal

fishermen,processingandfreezingthefishon-siteusingthebusiness’sownelectricity,andthensellingthefrozen

fishtodistributorsforsaleacrossTanzania.Usinglessonsfromthepilot,JUMEMEhasexpandedandnowhas12

mini-gridsinoperationonLakeVictoriaislands,connectingroughly5,000customersandsupplyinganareaof

roughly80,000peoplewithelectricity.Afurther11mini-gridsarecurrentlybeingcompleted,providingafurther

5,300connections,andthecompanyisplanningathirdscalingphasethatithopeswillstartconstructionbythe

end of 2020.215

Source:SustainableEnergyforAll.


216 “RuralRenewableEnergyProject-ProductiveUseFacilitation:AssessmentofpotentialproductiveuseapplicationsforOperator3–PowerLeone(SL)Ltd.,”InensusGmbH,(27December2019).

Theprevailingchallengesacross the fisheriesvalue

chain (Figure 26) inSierraLeoneareasa resultofpoormanagementoffisheriesandinputsupplies,high

postharvestlossesduetoinefficientprocessingmethods

andlackofcoldstorage(withestimatesstatingthatup

to50percentofcaughtfishislost),transportchallenges,

unevenmarketinformationbetweenfishermen,cold

storageownersandtraders,andlimitedaccesstocredit.

Theartisanalfishvaluechainiswherelossesarethe

highest.About80percentofthefishissoldrawand

traderssmokeiton-siteorkeepitfreshdependingon

thedistancetotheirnextsellingpoint.216

https://www.seforall.org/news/jumemes-business-model-for-mini-grids-reaping-multiple-benefits-in-tanzania

https://www.seforall.org/news/jumemes-business-model-for-mini-grids-reaping-multiple-benefits-in-tanzania

92

FIGURE 26Cold Storage for the Fisheries Value Chain

Input suppliers for artisanal production

(limited)

Input suppliers(e.g. mangrove

wood)

Artisanal and semi-industrial fishesIndustrial fleet

Iced/frozen fish companies &

agentsFisherwomen

Smoked fish processors

Agents Wholesalers

Cold store operators

Wholesalers & semi-wholesalers

Retailers/traders

Global export markets

Domestic consumers

Regional export markets (Guinea & Liberia)

VC SUPPORTERS & INFLUENCERS

MFMR (regulation,

policy, research extension, food

safety and standards

NGOs, development

projects

Transporters

CBOs (e.g. traders

associations)

Financial service

providers

Fresh fish flow Iced fish flows Smoked fish flows


217 “RuralRenewableEnergyProject-ProductiveUseFacilitation:AssessmentofpotentialproductiveuseapplicationsforOperator2–WinchEnergyLimited,”InensusGmbH,(27December2019).

StudiescarriedoutbyINENSUSanalyzedthefeasibility

ofacoldstoragebusinessplaninSierraLeone’sfisheries

sector. The business case study estimates that a cold

storageroomof20ft.(providingapproximately30m3

ofcoldstoragecapacity)capableofmaintainingindoor

temperaturesat-30°CwouldcostapproximatelyUSD

5,846.WithashipmentcostofUSD2,500,therequired

up-frontcapitalwouldbeUSD8,346.Byapplyingthe

annuitymethodwithsomeassumptions,anannualleasing

feeofUSD1,505wouldhavetobepaidbythecommunity

tothemini-gridoperatorandtheownershipofthecold

room would be transferred to the community by year

six.Assuming1tonofmeat/fishcanbestoredperm3 of

spaceandassumingarotationofoneweek,1,440tons

ofmeat/fishcouldbestoredthroughouttheyear.Such

acoldstorageroomhasadailyelectricalconsumption

of59kWh.Provideditruns24/7,thisleadsto21.6MWh

ofmini-gridelectricityconsumptionperyear.Atatariff

ofUSD0.51/kWh,coldstoragewouldgenerateayearly

additionalrevenuestreamofaboutUSD30,000.217 A

summaryoftheKMMfeasibilityassessmentofthiscold

storagebusinesscasestudyispresentedinTable 13.

4.3.2 Nigeria

Thereareseveralongoingprogrammesandinitiatives

targetingPUEinNigeria:

• The Energizing Economies Initiative (EEI),launchedin2017,isaFederalGovernmentofNIgeria(FGN)

93

initiativeimplementedbytheRuralElectrification

Agency(REA)thataimstosupportthedeployment

ofoff-gridelectricitysolutionstomicro,smalland

mediumenterprises(MSMEs)ineconomicclusters

(markets,shoppingcentresandagricultural/industrial

complexes)throughprivatesectordevelopers. In

thenowcompletedpilotphaseof this initiative,

usingspecificindustryindicatorssuchaspopulation

density,trade,employmentsustainabilityetc.,the

REAidentifiedandselectedthreecatchmentareas

throughoutNigeriaforimmediateintervention.Major

activitiestakingplaceintheselectedclustersinclude

clothingandshoesproduction,printingandfabrication

oftoolsandmechanicalparts,mid-scalemanufacturing

anddistributioncompanies(DisCos).TheREAdetails

end-to-endbestpracticeforelectrifyingeconomic

clustersthatcanbesummarizedinfivekeysteps:(i)

identifytheopportunity;(ii)assessfeasibility;(iii)set

upstructure;(iv)build;and(v)operate.218

• The Nigeria Electrification Project (NEP) has a mini-

gridcomponentthataimstosupportthedevelopment

ofprivatesectormini-gridsinunservedareaswith

targetstoelectrify300,000householdsand30,000

localenterprises.219InDecember2019,thefirstmini-

gridwascommissionedundertheNEP(byPowerGen

RenewableEnergy)inRokota,afarmingcommunity

inNigerstatewhoseeconomicactivitiesincludeshea

butterfarming,palmfruitfarmingandsmalltrade.220

The NEPmini-gridprogrammecanbedescribedasasupply-sideinitiative,becauseitdirectlyassists

suppliersofelectricityandassumesthatbenefits(in

theformofincreasedaffordability)willtrickledownto

consumers.InasurveyconductedinGbamuGbamu,a

villageinOgunStatewhereamini-gridwentonlinein

February2018,membersofthepopulationindicated

thatequipmentfinancingwastheonethingthatwould

enablethemtotakefurtheradvantageoftheclean,

reliableelectricity.TheAfricanDevelopmentBank

(AfDB)-fundedsideoftheprogrammerecognizesthe

importanceofhelpingruralcommunitiesincreasetheir

electricityconsumption,andinthesecondcomponent

oftheBank’scollaborationwiththeREA,allocated

218 EnergizingEconomies:http://rea.gov.ng/wp-content/uploads/2019/02/EEI-Executive-Summary.pdf219 NigeriaElectrificationProject(NEP)SolarHybridMini-GridsComponent:https://rea.gov.ng/minigrids/220 “NigeriaElectrificationProject:RokotaCommunityShinesBrightwithRuralElectrificationSolarHybridMini-GridProject,”RuralElectrification

Agency,(December7,2019):https://rea.gov.ng/press-release-rokota-community-shines-bright-rural-electrification-solar-hybrid-mini-grid-project/221 Dhingra,R.,“HowCanNigeriaUseitsMini-GridPowerSupplytoEmpowerRuralResidents?”CleanEnergyFinanceForum,(July22,2020):https://

cleanenergyfinanceforum.com/2020/07/22/how-can-nigeria-use-its-mini-grid-power-supply-to-empower-rural-residents-second-of-two222 RuralElectrificationAgency:https://rea.gov.ng/interview-look-africa-mini-grid-market-competitive/223 https://rea.gov.ng/ref-energy-agric-nexus/Bolade-Soremekun-RUBITEC-AGROSOLAR.pdf224 https://rea.gov.ng/energy-agric-nexus-workshop/;https://rea.gov.ng/energy-agric-nexus-workshop-27th-november-2019/225 https://www.nsenergybusiness.com/features/electricity-in-nigeria-pyrogenesys/

USD20milliontoperformance-basedgrants(PBGs)

thatwillencourageenergyaccesscompanies to

distributeappliances.Afewexamplesoftheapproved

appliancesincludemaizeshellers,eggincubators,

sewing machines and salon haircutting kits.221

TheREAalsoplanstointroduceanEnergizingAgriculture

Programmefocusedontheproductiveuseofrenewable

energyintheagriculturalsector.Theinitiativeisstillinits

planningstages.222

Severaloff-gridsolarcompaniesarealreadyproviding

PUEproductsinNigeria;forexample,RubitecSolar

Ltd. is currentlyproviding solar-powered irrigation

solutions to its customers.223Localbanksincludingthe

FirstCommunityMonumentBank(FCMB)arealsotaking

aninterestinthismarketsegment.InNovember2019,

theREA,incollaborationwithFCMB,GIZandPower

ForAll,organizedatwo-dayEnergy-AgricultureNexus

Workshop,withtheaimofengagingwithstakeholders

onbestpractices/approachestostimulateeconomic

growth in the rural agricultural sector through off-grid

solarinfrastructuredevelopment.224Inadditiontosolar,

waste-to-energyopportunitiesarealsobeingexploredby

renewableenergydevelopersinfoodprocessingplants

suchascassavaandpalmoil.225

Stakeholderconsultationswithmini-griddevelopersin

Nigeriarevealedthatpriortotheprojectdevelopment

stage, the number of commercial users in a given

community was first determined as they were the

potentialanchorcustomersabletoprovidethenecessary

incomeforthemini-gridtooperate. Incaseswhere

therewasaninsufficientnumberofcommercialusers,

morepeoplewereencouragedtotakeupproductive-

useactivitiesthroughincentivessuchasequipment

financingtoexpeditethepurchaseofproductive-use

appliancesandofferingthelowesttariffplanstothe

highestusersofenergy.Appliancefinancing-programmes

havebeenaneffectivemechanismtobalanceloadby

increasingdaytimeenergydemandandenergyefficiency.

This financingschemehelps themini-gridoperator

optimizedaytimeload,electricitydemandandcapacity

https://rea.gov.ng/energy-agric-nexus-workshop/

94

utilization.226GVEinparticularusescompanyfundsand

donorfundstoprovideequipmentfinancingasapilot

scheme to build a business case that will encourage local

microfinanceinstitutionstoparticipate.

A2020studyconductedundertheNigeriaPowerSector

Programme(NPSP)assessed12agriculturalvaluechains

acrossKadunaandCrossRiverstatesthroughmorethan

250fieldinterviewswithfarmers,processors,andtradersin

over40ruralcommunitiestoidentifypriorityelectrification

opportunitieswithinkeyagriculturalvaluechains.Thestudy

showedthatexpectedloadsfromTier1productive-use

activitiesincludingcassavagrating,ricemillingandflour

millingcanimprovemini-grideconomicsandenablelower

cost-reflectivetariffsforcustomers.Additionalproductive-

226 Mini-GridInvestmentReport:ScalingtheNigerianMarket,RockyMountainInstitute,2018.

useloads(Tier2and3)improvethemini-grid’seconomics

byincreasingthesystemutilizationrateandincreasing

sales.Theanalysisalsofoundthatthereisapositive

andcompellingeconomiccaseforeachTier1activity

analyzed,andwithreasonableassumptionsallcasescan

demonstratepositivenetpresentvalue(NPV).Whileresults

areconsistentlypositive,thedegreeofeconomicviability

ismostcontingentonthevolumeofcropsprocessed.

Figure 27showsthat,relativetoabaselinescenariowitha77kWpsolarPV-dieselhybridmini-gridwithoutadded

productiveuse,mini-gridelectricitytariffsincommunities

withelectrifiedcassavagrating,ricemillingandmaizeflour

millingcanbe8–14percentlower,whilestillearninga15

percentinternalrateofreturn(IRR)formini-gridinvestors.

FIGURE 27Mini-Grid Tariff to Achieve 15% IRR Under Different Productive-Use Scenarios

$0.60

$0.40

$0.20

$0.00

0.60/kWh

0.56/kWh 0.56/kWh0.52/kWh

0.49/kWh

BASE BASE +Cassava

BASE +Maize

BASE +Rice

BASE +PU

MIN

I-G

RID

TA

RIF

F $

/kW

h

PRODUCTIVE-USE SCENARIO

6% 6% 12% 19%

Source:USAIDNigeriaPowerSectorProgramme.

4.4 Summary of Findings

Consultations with rural mini-grid farmers and community

stakeholders inSierraLeonefoundthatmillingand

refrigerationareamongthemostcommonproductive-

useapplications,whilesolarmini-gridelectrification

cansupportincreasedproductivityacrossavarietyof

agriculturalsectors, includingrice,palmoil,fishing,

vegetablesandgroundnuts.Mini-gridelectricitywould

mainlybeappliedtoagriculturalprocessingandcold

storageapplicationsinthesemarketsegments.

InSierraLeone,theabilitytopayformini-gridelectrification

amongruralagrariancommunitiesishighlydependent

upontheseasonalityofincome,cropyieldetc.Thismakes

theutilizationofPUEacriticaltoolgoingforward,asitcan

provideasteadysourceofincomeandhelpincreasethe

purchasingpowerofcommunitiesinthelongterm.

95

DOES THE SOLAR MINI-GRID SUPPORT INCREASEDPRODUCTIVITY IN ANY OF THESE SECTORS?


GRINDING

MILLING

REFRIGERATION

NONE

FISHING

FRUITS

VEGETABLES

RICE

PALM OIL

TUBERS/ROOTS

GROUNDNUTS

8%

46%

38%

8%

27%

14%

9%14%

14%

4%

18%

227 McCall,M.andSantana,S.,“ClosingtheCircuit:StimulatingEnd-UseDemandforRuralElectrification,”RockyMountainInstitute,(October2018),https://rmi.org/insight/closing-the-circuit/

228 PowerforAllFactsheet:Mini-gridsproductiveuseofenergy(PUE)inagriculture:https://www.powerforall.org/application/files/9615/9302/4971/FS_Mini-grids_productive_use_of_energy_PUE_in_agriculture3.pdf

229 “NigeriaPowerSectorProgramme(NPSP)ProductiveUseStimulationInNigeria:ValueChain&Mini-GridFeasibilityStudy,”UnitedStatesAgencyforInternationalDevelopment,(July2020):http://rean.org.ng/media/img/PA-NPSP_Agriculture_Productive_Use_Stimulation_20200728.pdf

Operatorswillalsoneedthesupportofkeypublicand

privatesectorpartnerstoexpandPUE.Severalinterviewed

operators stated that theirpreferencewouldbe to

focusontheircorecompetenceaselectricityproviders,

whileotherpartnersintheagriculturesectorshouldbe

engagedtosupportthesaleofproductive-usemachinery/

equipmentanddevelopmentofassociatedvaluechains

atthelocallevel.Theseprivatesectorpartnershipsand

financingarrangementsarealreadybeingpursuedunder

WorkPackage6(WP-6)oftheRREPwithfundingfrom

theFCDO.

Barriers to Market Growth

• Affordability/high up-front equipment costs:Generally, the biggest barrier to widespread

deploymentofproductive-useapplicationsinSub-

SaharanAfricaisthehighup-frontcapitalcostofthe

equipment/machineryandthelowpurchasingpower

ofruralendconsumersandentrepreneurs.Thisis

particularlytrueinSierraLeoneduetolow-income

levelsamongtheruralpopulation.227

• Access to finance for equipment purchase: A

vastmajority of Sierra Leoneans lack access to

financialservices,asthecountry’sfinancialsystem

isunderdevelopedandcharacterizedbyextremely

lowlevelsofcreditpenetration.Lendingislargely

concentratedoncorporateentitiesandtrade,asbanks

arelesswillingtolendtosmallandmedium-sized

enterprises(SMEs)andtheagriculturalsectordueto

theirhighperceivedrisk.Furthermore,mostpotential

endusersdonothaveverifiablecredithistory.

• High tariffs/electricity costs:Evenincaseswhereconsumers/micro-enterprises are able to afford

productive-useequipment,theymaynotbeableto

affordtheelectricitytouseit.Highmini-gridtariffsmay

makeinvestmentsinequipmentfinanciallyunviable,

discouraginginvestment.Aninadequateassessmentof

powerdemandcanleadtounderuseofthemini-grid,

whichdrivesupcosts.

• Access to equipment/unavailability of equipment in remote areas:Endusersinremotelocationsareoftenunabletoaccesstherightequipment–energy-efficient

andhigh-qualityequipmentthatmeetstheirneedsin

cost,performance,durabilityandpowerrequirements.

Moreover,equipmentsuppliersoftenprefernotto

servelow-incomeruralmarketsduetothehighercosts

ofservingcustomersinremotelocationscombined

withuncertaintyaboutdemandsizeandabilitytopay.

• Limited Technical Capacity: Local technicalknowledgeandskillsarecriticaltotakeadvantageof

electricequipmentforproductive-useapplicationsand

projects.However,localentrepreneursinruralareas

oftenlacktheskillstorunabusiness,whilemini-grid

developerslackadequateknowledgeoflocalrural

agriculturevaluechains.228Asarelativelynewmarket

segmentfortheoff-gridsector,themarketdynamics

ofthePUEmarketarenotyetwellunderstood.There

isalsolimitedavailabilityofqualifiedtechniciansto

maintainsystemsacrossvariouslocations.229

96

• Access to Markets:Productive-usebusinessescannotgrowbeyondacertainsizeiftheydonothaveaccess

toawidermarketfortheirproductsbeyondtheir

communities.Thiswillrequireextensivecoordination

and technicaland financial support fromvarious

publicagencies(e.g.,agricultureministries,energy,

infrastructure,planningetc.)aswellasprivatesector

partners.

Drivers of Market Growth

• Cost Reduction/Fuel Switching: Stakeholderinterviews foundthatproductive-use/commercial

customerswillopttoconnecttomini-gridsifthemini-

gridtariffperkWhislowerthanthecostofelectricity

generated by diesel generators. The resultant

reductioninthecustomers’aggregatecostofenergy

willincreaseprofitabilityandenabletheproductive-use

customers to focus on their core businesses with less

focusonpowergenerationmanagement.

• Reliability/Quality of Service:Reliablepowersupplyiskeyforcommercialcustomers,otherwise,theywill

continuetousedieselgenerators.Therefore,mini-

gridsystemsmustbedesignedtoserveproductive-

useloadswhilemaintainingpowerquality,reliability

andavailability.Athree-phasedistributionsystemis

necessaryforPUEcomparedtosinglephasenetworks

that have lower capital costs, but higherpower

losses.230

• Community Engagement and Incentives Schemes:Theprovisionofwell-designedincentivesiscrucial

tostimulatingPUEduringoff-peakhours,thereby

increasing theefficiencyof themini-grids.Some

recommendedincentivesforSierraLeoneinclude:231

› On-Bill Equipment Financing: To stimulateproductiveusesofelectricity(grainmills,welders,

etc.),low-costloansshouldbeprovidedbythe

mini-gridoperator to supportendusers/local

entrepreneursinacquiringelectricalproductive-

useequipmentandmachineryandstart-upofnew

businesses.Theloansarepaidoffovertimethrough

asurchargeonthecustomers’electricitybills.

› Time of Use/Flexible Tariffs:PUEduringdaytime/off-peakhoursshouldbeincentivizedbyflexible

230 Janse,S.,“Affordableandreliablemini-gridsinSierraLeone,”TUDelftTechnology,PolicyandManagement,(May2019):https://repository.tudelft.nl/islandora/object/uuid%3Ab98a7726-bb05-430f-832c-53282130edeb;andPowerforAllFactsheet:Mini-gridsproductiveuseofenergy(PUE)inagriculture:https://www.powerforall.org/application/files/9615/9302/4971/FS_Mini-grids_productive_use_of_energy_PUE_in_agriculture3.pdf

231 Janse,2019;McCallandSantana,2018;StateoftheGlobalMini-GridsMarketReport2020;and“NigeriaPowerSectorProgramme(NPSP)ProductiveUseStimulationInNigeria:ValueChain&Mini-GridFeasibilityStudy,”UnitedStatesAgencyforInternationalDevelopment,(July2020):http://rean.org.ng/media/img/PA-NPSP_Agriculture_Productive_Use_Stimulation_20200728.pdf

232 “TheMarketOpportunityforProductiveUseLeveragingSolarEnergy(PULSE)inSub-SaharanAfrica,”DalbergAdvisors,LightingGlobalandWorldBank,(2019):https://www.lightingglobal.org/wp-content/uploads/2019/09/PULSE-Report.pdf


time-of-use(TOU)-basedtariffstomanageload

profilesandensuretheefficiencyofthemini-grid.

› Awareness Campaigns and Education:Creatingawarenessandeducationforwould-beequipment

purchasers/localentrepreneursandaccessible

market information formini-grid providers is

crucial. Potential end users should be educated to

optforenergy-efficientandsoft-startappliances

(applianceswithmotorsthatrequirelesselectricity

tostartupandtorun)thatreducepeakloadsand

operationalcostsofthesystem.


A2019studycarriedoutbyDalbergAdvisorsandthe

WorldBankofthemarketopportunityforProductive

UseLeveragingSolarEnergy(PULSE)inSub-Saharan

Africa identifiedeightareas inwhichgovernments,

developmentpartnersandtheprivatesectorcanwork

together tobuild theoff-gridsolarproductive-use

market(Figure 28).232TheGoSL,withassistancefrom

itsdevelopmentpartnersandtogetherwiththeprivate

sector,shoulddevelopandimplementpoliciesand

programmestopursuetheseinterventionsandspurt

growthoftheproductive-usesector.RollingoutPUE

inmini-gridcommunitiesonalargescalewillrequire

extensivecoordinationacrossvariouspublicagencies

(Ministry of Energy (MoE),Ministry of Agriculture

and Forestry,Ministry of Planning and Economic

Development,Ministry of Local Government and

RuralDevelopment(MLGRD))aswellasprivatesector

partners,includinginthelocalfinancialsector(e.g.,

SierraLeoneAssociationofMicrofinanceInstitutions)

toimproveaccesstolocalcurrencyfinancingforthe

PUEsector.

LocaloperatorWinchEnergyhas already formed

severalkeypartnershipstodeveloplocalenterprises

andexpandPUEinitsWP-1mini-gridcommunities.

ThecompanyhaspartneredwithEasySolartooffer

consumerselectricalappliancesavailableonmicrocredit

andisworkingwiththetelecommunicationsoperator

Orangetoexpandaccesstomobilemoneyservicesin

its communities.233

97

FIGURE 28Key Interventions to Support Development of the Productive-Use Sector

Support to selected value chain aggregators through technical assistance

(TA) and finance to extend PULSE products to farmer groups

Technical assistance and investment to support technology upgrading and

skills transfer

Patient capital, working capital and grants to support set-up, growth and scaling

Work alongside PULSE innovators to provide business management, market entry and

growth strategy advice

Develop minimum product standards, especially for emerging DC appliances and

service levels for post-sales support

Develop detailed use cases across a range of products, provide annual PULSE surveys

and market analysis

Work with existing value chain actors and donors to expand the awareness of solar products, focused on emergent products

Policy papers, research and lobbying to enhance regulatory environment at interface

between off-grid and agriculture

Demand generation/aggregation Technology and innovation

Access to finance Business development support

Quality assurance Market intelligence

Consumer education Policy development

Source:DalbergAdvisors,LightingGlobalandWorldBank.

234 AsimilarapproachhasbeenconsideredforWP-2sitesinSierraLeone.

Applicable Lessons/Recommendations from Nigeria

• Nigeria EEI and NEP: UndertheEnergizingEconomiesInitiative(EEI),Nigeria’sREApursuedanend-to-end

approachforelectrifyingcommercialhubs/economic

clusters;undertheNEP,theREAanditsdevelopment

partners rolledouta successfulPUEequipment-

financingscheme(inpartnershipwithPowerGen).

Together,theEEIandtheNEPofferablueprintthe

GoSLcanfollowtoidentifysuitablecommercialand/

oragriculturalhubsthatcouldbenefitfrommini-grid

electrification,followedbytheselectionandcareful

integrationofappropriatePUEequipmentthroughan

appliance-financingmechanismwithongoingbusiness

developmentsupport(Figure 29).• Community Sensitization and Engagement:

Community engagement is a key feature of the

NEP.Futuremini-griddevelopmentinSierraLeone

willrequireextensivecommunityengagementand

sensitizationaroundproductive-useapplications,

includingconsumereducationonwhat/howappliances

interfacewiththemini-grid,aswellasfinancingfor

equipmentandassociatedtrainingonPUEproducts

andservices.

• Tariff Structure:InNigeria,somedevelopersofferproductiveusersandcommercialusers(whogenerally

consumemorepower)alowertariffthanresidential

customersasanincentivetoincreaseelectricityuptake

andPUEactivities,particularlyduringthedaywhen

itismoreaffordableforsolarmini-gridoperatorsto

produceanddistributeenergy.234

• Need for Financing and Technical Assistance (TA):There is generally a much greater need for targeted

financingandTA interventions to scale-upPUE,

particularlytohelplocalbusinessesgrowandexpand

theiraccess toawidermarket for theirproducts

beyond their communities.

98

FIGURE 29Roadmap for PUE Equipment and Appliance Integration into Mini-Grid Development235

Identify the right agricultural/business activity

Determine what value-added process is needed

Appliance/equipment selection

Identify and sell appliance/equipment to users

Consumer finance

Delivery, installation and training

After sales service

Ongoing business support

Source:KenyaGreenMini-GridFacility.

235 “ProductiveUse,AccesstoFinanceandPartnerships,”KenyaGreenMini-GridFacility,(10December2020):https://www.gmgfacilitykenya.org/index.php/news-media/item/85-invitation-to-productive-use-access-to-finance-and-partnerships-webinar

99

MINI-GRID SITE SELECTION

5.1 Site Selection Criteria

Theselectionofsitesfordevelopingmini-gridprojects

variesbycountryandissubjecttotheobjectivesand

focusofelectrificationpolicyandregulation.Several

approachesexist, includingpublic/government-led,

privatesector-led,orpublic-privatepartnership(PPP)

schemes(seeSection 2.1),withthecollectiveaimofincreasingenergyaccessconnections,stimulatingthe

productiveuseofenergy(PUE)andpromotingrural

economicdevelopment.

Mostpublicsector-ledmini-gridprogrammesfocuson

meetingelectrificationtargetsandaretypicallyfunded

eitherthroughgovernmentbudgetsand/orwithsupport

fromdevelopmentagenciesandpartners.Assuch,the

primaryenergyaccessindicatorsfromthepublicsector

perspectiveincludethenumberofbeneficiariesofa

givenprogramme,thenumberofhouseholdconnections

achieved,andtheextenttowhichelectrificationhas

improveddevelopmentoutcomes(e.g.,economic,health,

sustainable/low-carbongrowthetc.)

Privatesector-ledinitiativesarecommerciallydriven,

withmoreattentiononcostrecoveryinordertoservice

projectdebtobligationswhilealsoseekingareturnon

investments.Hence,privatedevelopers focusmore

onselectingsitesthatwillensuresufficientelectricity

demand through potentialanchorcustomers, household

connections,andPUEtoprovidethenecessaryincome

forthemini-gridtooperate sustainably.

5.1.1 Sierra Leone

InSierraLeone,theRuralRenewableEnergyProject

(RREP)beneficiarycommunitieswereselectedin2016by

asteeringcommitteeledbytheMinistryofEnergy(MoE)

basedonanationwidelistofvillageswithcommunity

236 MinistryofEnergy-RuralRenewableEnergyProject:http://www.energy.gov.sl/home/rural-renewable-energy-project/237 Stakeholderinterviews,2020.

healthcentres(CHCs)providedbytheMinistryofHealth

andSanitation(MoHS)inthewakeoftheEbolacrisis

(seeSection 1.1.2).236Thesteeringcommitteeapprovedthefinalsitesaccordingtoaseriesofpredefinedtechnical

criteriatoensureanequitabledistributionperdistrict

nationwide. The criteria considered for the selection of

sitesincluded:237

• ExistenceofaCHC

• Sizeofthecommunitywithrespecttohouseholds,

businessesandpopulationdensity(aminimumof250

structureswasrequiredinordertoensureeconomic

viability)

• ThedistanceofthecommunitytotheCHC(toreduce

thecostofusingmediumvoltagelines)

• The distance of the community to any existing or

plannedtransmissionlinesand/ortheexistenceor

planforanyotherelectrificationproject.

The criteria for selecting mini-grid sites were the same for

bothWorkPackage1(WP-1)andWorkPackage2(WP-

2);however,theWP-2siteswereplannedtobeserved

bylargermini-gridsystems(between36and200kW)as

anincentivetotheoperatorsfinancingthispartofthe

project.Solarirradianceismostlyuniformthroughout

SierraLeonesothemostcriticaldeterminantsforsite

selectionwerepopulationdensityandplannedfuturegrid

electrification.

Recognizingtheneedforaconsultativeapproachtothe

implementationoftheRREP,aformalInter-Ministerial

CooperationAgreementwassignedbetweentheMoE,

MoHS,andtheMinistryofLocalGovernmentandRural

Development(MLGRD).ThisAgreementprovidesfor

collaborationonoversightactivities,includingmonitoring

andevaluationofprogrammeoutputsandresultsandthe

establishment of local by-laws and regulations to ensure

localsupportforruralelectrification.

100

Animportanttakeawayfromthemini-gridsiteselection

processinSierraLeoneisthatlessemphasiswasplaced

ondemand-sideconsiderationsduringinitial (WP-1)

siteselection,whichprioritizedsupplyingelectricity

totheCHCs.Incontrast,WP-2focusedmoreonPUE

opportunities,withseveralstudiescommissionedby

UNOPStosupportthethreeoperatorsinthisregard.

Wheninterviewed,mini-gridoperatorshighlightedthe

importanceofidentifyingproductiveuserswhenassessing

electricitydemandinagivencommunity,withparticular

focusontheenergyend-useactivitiesofthebusinesses

inthecommunity.Generally,operatorsalsofocuson

communityaccessibility,incomelevelsandpurchasing

powerofresidents,populationsizeanddensity,relative

security,andlevelofsupportfromlocalauthoritiesand

stakeholders.Aboveall,operatorsseektoidentifyanchor

clientsorcustomerswhorelyonpowertocarryoutdaily

activitiesandarealreadyusingalternativesourcesof

energy(e.g.,dieselgenerators),asthisrepresentsan

opportunityforfuelswitchingandcostsavings.

5.1.2 Nigeria

TheFederalGovernmentofNigeria(FGN)hasadopted

adecentralized,privatesector-ledapproachtoelectrify

thecountry’s ruralandunservedpopulation.Under

theNigeria Electrification Project (NEP)mini-grid

component,aresults-basedfinancing(RBF)mechanism

(seeSection 2.2.2)provides financial incentives forthedevelopmentofidentifiedoff-gridsiteswithhigh

customer density characteristics that are best suited

for mini-grid electrification. The Rural Electrification

Authority(REA)siteselectionprocesspromotesprivate

sectordevelopmentofthesesitesbyprovidingclarity

andreducingriskforoperators.Atthecommencement

oftheminigridprogrammein2017,theREAsupporteda

detailedsurveythatprioritizedover200siteswithdemand

ofatleast100kWacrossfivestates.Theassessment

238 Babamanu,2019.239 Ibid.

utilizedgeoreferenceddatatoassessthefollowingkey

parametersforsiteselection:238

• Sufficientload/density

• Productive-use,daytime,andflexibleloads

• Supportivelocalandstategovernment

• Community engagement

• Accessibility

Among10,000sitesidentifiedforpotentialmini-grid

electrification,aninitial500siteswereshortlisted,and

then200sites(withatleast100kWofdemand)were

prioritized for subsequentanalysisbasedon these

criteria.Detailedsurveyswerethencarriedoutinthese

communitiesusingacomputer-aidedpersonalinterview

apponamobiledevice.TheREAsurveysassessed

community/institutional,householdandcommercial

endusersandcoveredawiderangeofdata/indicators

(Figure 30).

Followingthesupply-sideanalysis,theREAledarobust

community-engagementprocesstoanalyzedemand

factors,aswellastosecurethebuy-inofcommunity

stakeholdergroups.Theseincludedcommunityleaders,

women’sgroups,youthgroups,schools,healthcare

facilities,religiousorganizations,communityservice

organizationsandelectricityusersassociations.The

communitysurveyexaminedproductive-usepotential

andassociatedloadprofiles,existingenergysources/type

ofself-generation(e.g.,dieselgeneration)andlevelsof

communityincomeandwillingnesstopay(WTP).The

REA also embarked on community awareness-raising

campaignstomobilizeandsensitizeruralcommunities

acrossthecountrytoformElectricityUsersCooperative

Societies(EUCSs).Communitiesareexpectedtoown,

operate andmaintain their electricity networks in

collaborationwithprivatecompaniesproviding the

know-howrequiredtooperatesuchsystemseffectively

andefficiently.239

101

FIGURE 30Mini-Grid Site Selection under the Nigeria Electrification Project

10,000Potential sites identified

500Sites visited on

the ground

100+Sites prioritized for initial development

REA survey data includes:• Number of households, shops, productive

loads, and other institutions• Appliances, productive loads, time of use• Estimated load profile• Existing self generation (size and number

of units)• Fuel price and availability• Cellular service (providers and reliability)• Current income and willingness to pay• GIS data for villages and potential

customers

Source:NigeriaRuralElectrificationAgency.

240 Stakeholderinterviews.

Wheninterviewed,privatedevelopersindicatedthat

theNEPprovided sufficient consideration for the

commercialviabilityofsites,andthatwiththeREA’s

support,theyhavebeenabletosuccessfullystreamline

sites fordevelopment.Akeyconsideration insite

selectionfordevelopersinNigeriaisproximitytothe

nationalgrid.Developerswanttoensurethepotential

mini-grid site is reasonably far away from the main grid

(averageofminimum10–15km)andalsonotpartof

thecurrentexpansionplansofdistributioncompanies

(DisCos),whichhavecontroloftheterritories.Thiswill

ensurethatareasonableamountoftimewillpassfor

developerstorecouptheirinvestmentsandavoida

quickevacuationofsitesduetogridextensionstothe

potentialcommunity.

Following the first rollout ofmini-grids inNigeria

supportedbyGIZincollaborationwiththeREA,most

developersnowtake intocarefulconsideration the

potentialcommercialactivitiesthatacommunitycan

undertake to increase electricity demand and generate

income.Developersnowcarryoutdetailedsurveysof

potentialmini-gridcommunitiestoassesswhatproductive

activitiesexist,particularlyintheagriculturalsector.

Surveysconsideredagriculturalpractices,includingwhat

kindofcropsareplanted;whetherananchorbusiness

orclientcanbeservedinthecommunity;whetherany

relevantcooperativesexistinthecommunity(e.g.,for

farmers,electricityuserassociationsetc.);willingnessand

capacityofuserstopayforpowergenerated;andhow

readily accessible and secure a site is for logistics and

movementofassets.240

5.2 Summary of Findings

Asummaryoffindings,coveringbothdemand-sideand

supply-sidefactorsinmini-gridsiteselectionispresented

in Table 15.

102

TABLE 15Mini-Grid Site Selection Criteria

Mini-Grid Site Selection Approach Lessons Learned Recommendations

Sierra Leone (RREP)• TheGoSLProjectSteeringCommitteewas

established to select RREP sites based on the followingcriteria:

› ExistenceofCHCs › Sizeofthecommunitywithrespecttohouseholds,businessesandpopulationdensity(min.250structures)

› ThedistanceofthecommunitytotheCHC(toreducecostofusingmediumvoltagelines)

› The distance of the community to any existing or plannedtransmissionlinesand/ortheexistenceorplanforanyotherelectrificationproject

• DemandassessmentcarriedoutbyMoE/UNOPSin2016across68communitiesyielded1,950respondents,providingsufficientdatatoindicateaffordability

• RREPprojectdevelopersidentifiedthefollowingkey indicators when assessing the commercial viabilityofpotentialmini-gridsites(underWP-2):

› Populationdensity › Community accessibility › Incomelevelsandpurchasingpowerof

residents › OpportunitiesforPUEbasedonenergyend

use of businesses in community › Levelofsupportfromlocalauthoritiesand

community stakeholders

Sierra Leone (RREP)• Animportantlessonfromthisprocessisthatlessemphasiswasplacedondemand-sideconsiderations during initial (WP-1)siteselection,whichprioritizedsupplyingelectricitytoruralCHCsinthewakeoftheEbolacrisis.Whiletheprovisionof electricity to critical social servicesisimportant,strategiesto mitigate high tariffs may be neededifthesesiteshavelowdemand.

• Incontrast,WP-2focusedmoreonPUEopportunities,withseveralstudiescommissionedbyUNOPStosupportthe3operatorsinthisregard

• Governmentsshouldseektoselectoptimalsitestomaximizefinancialviabilitybypursuingthefollowingmeasures:

• AdoptanIEPapproach241 to designandimplementrobustand methodical mini-grid site selectioncriteria(andmakethisavailabletodevelopers)

• UtilizeGIS/georeferenceddataand other consumer and market intelligence tools to identify denselypopulatedareaswithhighestpotentialforelectricitydemand

• Conductextensivecommunity-levelengagementtoproperlyassesslocaleconomicactivity,raiseawarenessandsensitizecommunities

• Analyzeexistingexpenditureonenergysources/alternativestodetermineabilityandWTPformini-grid access

• Engage with local community to focusonpotentialopportunitiesforPUE

• Adoptgeo-tagsurveymethods as well as other data managementtools(e.g.,toprovidedemandforecastinginformationtodevelopers)

• Considersupportoflocal/districtandstategovernmentauthoritiestoidentifypossibleareaswheresitescanbeclusteredtobenefitfrom economies of scale in constructionandoperations

• Solicitinputfromwiderangeofcommunitystakeholders,includingwomen’sgroups,youthgroups,andotherassociationsoflocalentrepreneurs

Nigeria (NEP)• TheREAidentified10,000potentialsitesusingGISdatatoassessthefollowing:

› Sufficientload/density › Productive-use,daytime,andflexibleloads › Supportivelocalandstategovernment › Community engagement › Accessibility

• Next,theREAcarriedoutdetailedsurveysof200communitieswithatleast100kWofdemand,usingamobileapptoassessthefollowing:

› Numberofhouseholds,shops,productiveloads,andotherinstitutions

› Appliances,productiveloads,TOU › Estimatedloadprofile › Existingself-generation(sizeandnumberofunits)

› Fuelpriceandavailability › Cellularservice(providersandreliability) › CurrentincomeandWTP › GISdataforvillagesandpotentialcustomers › Geo-tagsurvey

• Finally,theREAledacomprehensiveefforttoraiseawarenessamongidentifiedcommunitiesandtomobilizeandsensitizeruralcommunitiesacrossthecountrytoformtheEUCS

• TheREAutilizedtheOdysseydatamanagementplatformasatoolfortrackinghundredsoffeasibilitystudies,connectionsandprojectperformance,andprovidingdemand-forecastinginformationtodevelopers

Nigeria (NEP) • Projectdevelopersidentifiedthe

following key indicators when assessingthecommercialviabilityofpotentialmini-gridsites:

› Distancefromthemaingrid(atleast10–15km)

› ExclusionfromtheexpansionplansofDisCosforatleast5years

› LevelofPUE/income-generatingactivitiesinthecommunity

› Existing energy sources and typeofself-generation(dieselgenerator)

› AffordabilityandWTPtariffs

Source:SierraLeoneMinistryofEnergy;NigeriaRuralElectrificationAgency;stakeholderinterviews.

241 See:https://www.seforall.org/interventions/electricity-for-all-in-africa/integrated-electrification-pathways

103


TheNigerianmini-gridsectoroffersapromisingcase

study formini-grid development, as it is currently

witnessingrapidgrowth,drivenbytheprivatesector.

TheREA’sfocusoncommercialviabilityofmini-grids

andtheflexibilityforprojectdeveloperstocollaborate

withitandprovideinputsintosite-selectioncriteriais

drivingexpansionandinvestmentintothesector.The

NEPisalsoworkinghardtoengagewithandsensitize

communities,includingtopromoteproductiveactivities,

increasingemploymentandincomeandinturnenabling

localcapacityandWTP.242

SierraLeonecanadoptasimilarmodeltosupportprivate

sector-ledgrowthandexpansionofthemini-gridsector,

with a focus on both connections and the commercial

viabilityofsites.TheMoEandtheElectricityandWater

RegulatoryCommission(EWRC)canseektoexpandtheir

internalcapacityand/orcreateaseparateREAtomanage

therolloutofanationalmini-gridprogramme,including

detailedsiteassessmentsandcommunity-sensitization

initiativesastheywereconductedundertheNEP.Some

ofthekeyinnovationsfrommini-gridselectioninNigeria

thatSierraLeonecanadoptincludetheutilizationofGIS/

georeferenced data and other consumer and market-

intelligencetools,243andtheimplementationofanational

datamanagementplatform(e.g.,Odyssey)toprovide

informationtodevelopers(e.g.,demandforecasting,tariff

calculationetc.).

Onthedemandside,moreemphasisshouldbeplaced

onproductiveactivitiestosupporttheenduseofmini-

grid electricity. Electricity demand assessments currently

focusmoreonpersonalconsumptionatthehousehold

level(e.g.,lightingandphonechargingetc.),whichmay

leadtolowerlevelsofelectricityuptakeforprojects.

Developersneedbothfinancialandtechnicalassistance

242 Mini-GridInvestmentReport:ScalingtheNigerianMarket,RockyMountainInstitute,2018.243 Off-gridenergyservicescompaniesareincreasinglymakingmoredemand-sidedataavailablethroughcustomerandmarketinsights.Forexample,

Nithioprovidesdataoncustomercreditworthiness,expenditurepatterns;Fraymoffersadvancedgeospatialdatasolutions(see:http://www.nithio.comandhttps://fraym.io)

244 TheNEPachievedthisbyestablishinganElectricityUserCooperativeSocietyineachmini-gridcommunity.245 IntegratedElectrificationPathways:https://www.seforall.org/interventions/electricity-for-all-in-africa/integrated-electrification-pathways

fromthegovernmentand/ordevelopmentpartnersto

supportrobustassessmentsofproductive-usepotential

duringthesiteselectionprocess.

Thereisalsotheneedtoconsiderincorporatingappliance

financingforhouseholdsandsmallandmedium-sized

enterprises(SMEs)intomini-gridbusinessmodelsto

ensureproperuseoftheelectricityprovided.Furthermore,

providingbusinesssupportservicestoSMEsontheuse

ofapplianceswillincreaseproductiveactivities,stimulate

electricitydemand,andthusincreasetheiroverallcapacity

topayforelectricityconsumed.Ratherthanonlyselling

kWh,theEnergy-as-a-Service(EaaS)businessmodel(see

Annex 1)canenhancethecommercialviabilityofmini-gridprojects,butalsorequiresanincreasedfocuson

communityawarenessandsensitization.244

In2019,SEforALLlaunchedtheIntegratedElectrification

Pathways(IEP)initiative–asetofintegratedplanning

approachesandpolicymeasuresthatsupportusinggrid,

mini-gridandoff-gridtechnologiestoprovideelectricity

access.ThefourIEPprinciplesinclude:245

• Place access to electricity in the context of sustainable

developmentandhumanneeds

• Consideralltechnologicalapproachesanddelivery

models

• Relyonhigh-levelcommitmentandsupportforan

inclusive,coordinatedplanningprocess

• Includesupportivepolicymeasuresthatfacilitate

investmentandaremarketenabling

ByadoptinganIEP,SierraLeonecansupportmini-grid

developmentbyaddingtransparencyonwherethegrid

islikelytoextend,andbypursuingarigorous,data-

drivenanalysisofwheremini-gridsaremostappropriate

comparedtoalternatives.

104

RECOMMENDATIONS FOR FURTHER RESEARCH

In addition to the recommendations and lessons learned

sharedinthisreport,afewareas/topicsrecommendedfor

furtherresearchtosupportmini-gridmarketdevelopment

inSierraLeoneareincludedbelow.

• Database of mini-grid market information:Mini-gridelectrificationrequiresdetailedquantifyingof

energysupplyanddemand.Currentlyavailabledata

donotincludeanexhaustivelistofprojectsorproject

detailssufficienttoestablishanaccuratebaseline

forthispurpose.Toscaleupmini-griddevelopment,

theGovernmentofSierraLeone(GoSL)cansupport

thedevelopmentofadatabaseofexistingoff-grid

electricityprojectsthatincludesdetailsrelatedto

electricitysupply(e.g.,peakavailablecapacityand

servicepotential;informationonfixedandvariable

project costs, execution details, and operating

constraintssuchasintermittentpowergenerationfrom

renewableenergysources),correspondingelectricity

demand(end-userdemandprofiles,willingness/ability

topayetc.),andtechnologyoptions.Thedatabase

canbepartofabroaderMinistryofEnergy(MoE)

initiativetopromotethepublicationofopen,easily

accessible,andup-to-datemarketinformation.This

canalsoserve tohelp theElectricityandWater

RegulatoryCommission(EWRC)monitorandtrack

tarifflevelsbyconductingbenchmarkingexercisesof

servicepricesindifferentserviceareastoanalyzehow

tariffsevolveovertimeandinturntopreventservice

providersfromoverchargingmini-gridcommunities.

TheGoSL can seek out support from regional

partners,suchasECREEE,whichhasdevelopeda

similardatabase(ECOWREX).Oncethedatabaseis

246 https://www.crossboundary.com/category/energy-access-news/open-source/

established,itwouldneedtoberoutinelyupdated

(e.g.,by theMoE)asnewmarketdatabecome

available.

• Support pre-feasibility studies and community-engagement campaigns to further expedite market development: TheGoSLanditsdevelopmentpartnerscanprovidefundingfordetailedpre-feasibility

studiesonmini-gridsitestosupporttheirprioritization

(includingdatasheetsandinteractivedatabasesthat

canbemadeavailabletotheprivatesector).Studies

should focus on increasing outreach and engagement

withruralcommunitiesinordertoanalyzeaverage

abilityandwillingnesstopay(WTP)basedonend-

usergroups(e.g.,households,smallandmedium-

sizedenterprises(SMEs)andproductiveusers)across

differentserviceareas.Theobjectiveofthisresearch

willbetoprovidebetterinformationtoprospective

developers on the electricity demandprofile of

communities(andtoidentifypotentialanchorclients

and/orproductive-useenergy(PUE)opportunities),

whatkindoffinancialsupportisneededbywhich

endusers,andwhatcorrespondingfundingmaybe

availableeitherdirectlyprovidedbytheGoSLandits

developmentpartnersorthroughpartnershipswiththe

localfinancialsector(e.g.,concessionalloans,credit

lines,guaranteesetc.).

• Crossboundary Energy Access recently launched

anopen-sourceapproachtoincreaseinvestmentin

infrastructurecapitalformini-gridsinAfricathrougha

newprojectfinancingmodel.246Thisisaninnovative

areaofknowledge-sharingthatcanbeexploredfurther.

ANNEX

105

MINI-GRID BUSINESS MODELS

Overview of Mini-Grid Ownership and Business Models

Ownership/BusinessModel ImpactonGovernment/Utility ImpactonPrivateSector ImpactonRetailCustomers Advantages Disadvantages

PUBLIC OWNERSHIP MODEL

Government/nationalutilityisdesignatedastheownerandoperatorofallmini-gridassets,responsibleforgeneration,distribution and retail sales

• Governmenttypicallyrelieson cross-subsidies from national grid customers tofinancemini-griddevelopment

• Nosignificantrolefortheprivatesector(unlessaBuild-Operate-Transfer(BOT)modelisutilized)

• Lowercostofelectricitythanalternatives(e.g.,kerosene,dieselgenerator)formini-grid customers

• Highertarifffornationalgridcustomers due to cross-subsidies

• Lowertariffsformini-gridcustomers due to cross-subsidies

• Publicutilityhasproventechnicalexpertisefromoperatingthenationalgrid

• Public utility has access to governmentfundingformini-griddevelopmentinremote areas

• Public utility is already known to customers

• Requireslargersubsidiesand/orhighertariffsfornational grid customers

• Cancreateafinancialburdenfor utility due to high cost ofoperatingmini-gridsinremote areas

• Canslowthepaceofmini-gridelectrification(speedofdeliverydependsoncapacityofpublicutility)

PRIVATE AND COMMUNITY OWNERSHIP MODELS

Mini-gridsareownedandoperatedsolelybyprivatesectororcommunity actors

• Businessmodelrequireslight-handedgovernmentregulation(inlinewithregulatory regimes that promoteprivatization)

• Governmentcanprovidepublicgrants,subsidies,andloanguaranteestosupportprivatesectordevelopment

• Iftariffiscost-reflective,easesburdenonpublicfundsorcross-subsidies,buttariff affordability is an issue

• Firstmoversneededasprivatesectorinteresttoserviceremoteareasmaybelimited without some form of governmentsupport

• Bankability is a concern due to high transaction costs(permits,licensing,procurementetc.)

• Highrevenueriskexposure(tariffnegotiation,non-payment)

• Moreexpensiveelectricity• PrivatesectortoencouragegreaterPUE

• If mini-grid is community-owned,requiresextensiveongoinginvolvementofcommunity

• Privatesectorismoreefficient;canacceleratethepaceofmini-gridelectrification

• Lowersubsidyrequired• If mini-grid is community-owned,cangeneratejobsforlocalentrepreneursandcommunity members

• Highertariffsforcustomers• Rarelycommerciallyviablein

rural areas without funding supportfromgovernment

• Requiressignificantregulatorycapacitytomanage/oversee

• If mini-grid is community-owned,challengesrelatedto lack of local technical andmanagerialcapacitynecessarytooperateandmaintain mini-grid system

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Ownership/BusinessModel ImpactonGovernment/Utility ImpactonPrivateSector ImpactonRetailCustomers Advantages Disadvantages

HYBRID OR MIXED OWNERSHIP MODELS

Publicandprivatesectoractorsownandoperatemini-gridsthroughpublic-privatepartnership(PPP)arrangements

Hybrid Model 1:Public Ownership/Private Management Model

Government/utilityplans,financesandimplementsamini-gridprojectuptothecommissioningstage;operationisthenoutsourcedtotheprivatesectorthrougha concession or management contract,inwhichtheprivatedeveloperisresponsiblefor the management and operationofthemini-gridsystem,includinggeneration,distribution and retail sales of electricity to mini-grid customers

• IfthereisO&Mbyconcession,thenthereisopportunityforcost-reflectivetariffs,whichwould ease burden on publicfundsorcross-subsidies

• Doesnotneedtorecovercapitalinvestment

• Maybeexposedtorevenuerisk from collection of tariffs

• Tariffspotentiallylower(vs.fullyprivatemodel)becausegovernmentwilldevelopand own the infrastructure assets

• Encourages the participationofprivatesector actors that may notnecessarilyhavethecapacitytodevelopmini-gridprojectsindependently

• Effectivemethodofdistributingresponsibilitiestooptimizegovernmentandprivatesectorcapacities(andthusovercomelimitationsassociated with other models)

• Lowercostofcapitalandhence slightly lower tariffs

• Possibleconflictsoverlargecapitalmaintenanceworks,reinvestmentsandupgrades

Hybrid Model 2: Private Generation/Public Distribution Model (PPA Model)

Privatesectorbuilds,ownsandoperatesmini-gridgeneration assets and sells powertothepublicutilityunder a Power Purchase Agreement(PPA);publicutilityownsandoperatesthedistribution assets and retail sales of electricity to mini-grid customers

• If utility charges below cost-reflectivetarifftocustomers,willrequiresubsidies from the governmentorcross-subsidies from national grid customerstofinancemini-griddevelopment

• PrivategenerationisexpectedtobemoreefficientandhencecheaperduetoincentiveoffixedPPA tariff

• PPAreducesrevenuerisk• Loweroperatingcostsandpotentiallyeasierpermittingandlicensingproceduresmakeprojectsbankable

• Potentially lengthy contractualprocessesassociated with PPA can be mitigatedbystandardizedPPAdevelopedbyregulator

• Lowercostofelectricitythanalternatives(e.g.,kerosene,dieselgenerator)for mini-grid customers

• Highertarifffornationalgrid customers due to cross-subsidies

• Retail customers must relyfullyonpublicutility(limitedinteractionbetweentheprivatesectorandendusers/demandside)

• Encourages the participationofprivatesector actors that may notnecessarilyhavethecapacitytodevelopmini-gridprojectsindependently

• Effectivemethodofdistributingresponsibilitiestooptimizegovernmentandprivatesectorcapacities(andthusovercomelimitationsassociated with other models)

• Easiestandquickestwaytoinvolveprivatesector

• NoprecedentofPPAsforsupplierstomini-grids

• Requiressignificantregulatorycapacitytodevelopinterconnectionrules,astandardizedPPAfor mini-grid sector etc.

Hybrid Model 3: Split-Asset Model

Governmentprocuresandowns the distribution assets ofthemini-grid,whiletheprivatedeveloperownsthe generation assets andisresponsibleforthemanagementandoperationofthemini-gridsystem,includinggeneration,distributionandretail sales of electricity to mini-grid customers

• Functionallythesameasafullyprivatemodel,withthepotentialforlowercost-recoveryduetogovernmentfunding the distribution networkcapex

• Splitofdistributionandgeneration assets reduces theinvestmentcostsforthedeveloper

• Tariffspotentiallylower(vs.fullyprivatemodel)becausegovernmentwillfundthedistributionnetworkcapex

• PrivatesectortoencouragegreaterPUE

• Privatesectorismoreefficient;canacceleratethepaceofmini-gridelectrification

• Lowersubsidyrequired• Lowercostofcapital(vs.fullyprivatemodel)shouldleadto lower tariffs

• Requiressignificantregulatorycapacitytomanage/oversee

• Possibleconflictsoverlargecapitalmaintenanceworks,reinvestmentsandupgrades

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MINI-GRID POLICY, REGULATORY AND INSTITUTIONAL LANDSCAPE IN SIERRA LEONE AND NIGERIA

Government of Sierra Leone Institutional Landscape of the Mini-Grid Sector

KeyRole(s):PolicyFormulation,PolicyImplementation,Regulation,and Administration

InstitutionName Description

PolicyFormulation MinistryofEnergy(MoE) • TheMoEdevelopsandimplementsenergysectorpolicies,projectsandprogrammesandoverseesfunctionsacrosstheentireenergysupplychain

MinistryofFinance(MoF) • TheMoFoverseesmanagementoftherevenueandfinancesoftheGoSL

EnvironmentalProtectionAgency(EPA)

• TheEPAwasestablishedtoprotecttheenvironmentofSierraLeoneandeffectivelymanageitsnaturalresources.In2019,theagencyreleasedtheGuidelinesforEnvironmentalandSocialImpactAssessmentsofRenewableEnergyTechnologiesandMini-Grids

NationalPublicProcurementAuthority(NPPA)

• TheNPPAperformsoversightfunctionsandadvisestheGoSLonPublicProcurementmanagement

Regulation SierraLeoneElectricityandWaterRegulatoryCommission(SLEWRC)

• EstablishedbytheSierraLeoneElectricityandWaterRegulatoryCommissionAct,theSLEWRCregulatestheutilityserviceprovidersintheelectricityandwatersectors;developedthemini-grid regulations247

Implementation Public-PrivatePartnership(PPP)Unit • ThePPPUnit’smandateistopromote,facilitateandstreamlinetheinception,negotiationsandimplementationofallpublic-privatepartnershipagreementsbetweenpublicauthoritiesandprivatepartners

247 Inparticular,theEWRCisresponsibilityforgrantinglicensestoanyentityengagedinthefollowingactivitiesintheelectricitysector:thesale,provision,arrangementorotherwisesupplyofaccesstoelectricity;construction,installationoroperationofanyfacilityforthesale,provisionorsupplyofelectricity;transmission,wholesalesupply,distributionorsaleofelectricity.

108

Summary of Mini-Grid Policies, Laws and Regulations in Sierra Leone

Name Type Description OriginatingAgency

NationalEnergyPolicy,2009 Policy • ThisoutlinesthepoliciesrequiredtoachievetheGoSL’sgoaltoprovidemodernenergyservicesforitscitizens. Ministry of Energy and WaterResources

NationalElectricityAct,2011 Act • RevokedthepreviousNationalPowerAuthority(NPA)Actof1982andunbundledtheNationalPowerAuthorityinto2newentities–theElectricityGenerationandTransmissionCompany(EGTC)responsibleforgenerationandtransmissionathighvoltagelevels(161kV),andtheElectricityDistributionandSupplyAuthority(EDSA)responsibleforelectricitydistributionandtransmissionatlowervoltagelevelsof33kVandbelow.EDSAalsoactsasthesoleofftakerforelectricityfromIPPsandentersintoPPAs(backedbytheMoF).

GoSL

SierraLeoneElectricityandWaterRegulatoryCommissionAct,2011

Act • EWRC’smandateastheindustryregulatorincludesgenerationlicensing,tariffdetermination,andthedevelopmentofregulationsfortheelectricityandwatersectorsinSierraLeone.Itdevelopedandachievedtheratificationofthemini-gridregulations.248

GoSL

NationalRenewableEnergyActionPlan(NREAP),2015

Plan • NREAPsetsoutstepstoachievetherenewableenergytargetsoftheGovernmentofSierraLeone. MoE(withsupportfromECREEE)

RenewableEnergyPolicy,2016 Policy • TheRenewableEnergyPolicydefinesamongothers,targetsforrenewableenergycontributiontothegenerationmix.Italsorecommendsoff-gridgenerationasthepreferredelectrificationsolutionsforruralareaswith low demand density.249

MoE

EnergyRevolution,2016 NA • Governmentinitiative(supportedbytheFCDOandUNOPStopromotethesolarhomesystem(SHS)market. GoSL

FinanceAct2017 Act • Providesfor(amongothers)eliminationofimportdutiesforqualifyingsolarequipment,andtaxwaiversforsolarandenergy-savingequipmentthatmeettherelevantInternationalElectrotechnicalCommission(IEC)globalqualitystandards.250

GoSL

ElectricSectorReformRoadmap(2017–30),2017

Roadmap • SetsoutaroadmaptoachievethevariousenergypoliciesalreadydevelopedbytheMinistry.Itaimstoidentifythemostimportantactionsrequiredintheshort,mediumandlongtermthatwillsuccessfullydeveloptheelectricitysectorandexpandelectricitygenerationandaccessinordertosupportGoSLpolicygoals.251

MoE

Mini-GridRegulationsratified,2019 Regulations • DraftregulationswereissuedbytheEWRCin2017andratifiedin2019.Theregulationsprovideguidanceforparticipantsandintendingparticipantsinthelocalmini-gridsector.

EWRC

EPA Guidelines for Renewable Energy Technologies and Mini-Grids,2019

Guidelines • GuidelinesissuedbytheEPAin2019thatestablishsimplifiedlicensingproceduresforrenewableenergyprojectsandmini-grids,includingreducedcostsforEPAlicensesformini-gridprojects(dependingonthesizeoftheproject).252

EPA

248 AfDBGreenMini-GridMarketDevelopmentProgramme-Mini-GridMarketOpportunityAssessment:SierraLeone,2019.249 RenewableEnergyPolicyofSierraLeone,2016.250 TheFinanceAct2017,GovernmentofSierraLeone,2017.251 SierraLeoneElectricitySectorReformRoadmap,2017-2030.252 “GuidelinesforEnvironmentalandSocialImpactAssessmentsofRenewableEnergyTechnologiesandMini-Grids,”EnvironmentalProtectionAgencySierraLeone,(May2019):http://epa.gov.sl/wp-content/uploads/2019/09/

EPA-RE-and-mini-grid-guidelines_DRAFT.pdf

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Federal Government of Nigeria Institutional Landscape of the Mini-Grid Sector

KeyRole(s):PolicyFormulation,PolicyImplementation,Regulation,and Administration

InstitutionName Description

PolicyFormulation FederalMinistryofPower • PolicymakingarmoftheFederalGovernmentwiththeresponsibilityfortheprovisionofpowerin the country

FederalMinistryofEnvironment • Developsenvironmentalregulations,actsandpolicies

EnergyCommissionofNigeria • Carriesoutoverallenergysectorplanningandpolicyimplementation

FederalMinistryofFinance • GovernmentbodyresponsibleformanagingthefinancesoftheFGN;asthisMinistryhassupervisoryoversightoftheNigerianCustomsService,italsoultimatelydeterminestheimportdutypoliciesthatimpacttheoff-grid/mini-gridsector

Regulation NigerianElectricityRegulatoryCommission(NERC)

• IndependentregulatorybodyauthorizedtoregulatetheelectricpowerindustryinNigeria;developedthemini-gridregulations

Implementation NigerianElectricityManagementServicesAgency(NEMSA)

• Carriesoutthefunctionsofenforcementoftechnicalstandardsandregulations,technicalinspection,testingandcertificationofallcategoriesofelectricalinstallations,electricitymetersand instruments.

RuralElectrificationAgency(REA) • ImplementingagencyoftheFGNtaskedwithelectrificationofruralandunservedcommunities;administerstheRuralElectrificationFund(REF)withitsmandatetofundruralelectrification,anddevelopsprogrammesandsupportingframeworkssuchastheEnvironmentalandSocialManagementFramework(ESMF)fortheWorldBankNEPProgram

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Summary of Mini-Grid Policies, Laws and Regulations in Nigeria

Name Type Description OriginatingAgency

NationalElectricPowerPolicy(NEPP),2001

Policy • ThegoaloftheNEPPwastheestablishmentofanefficientelectricitymarketinNigeriathroughthetransferoftheownershipandmanagementoftheinfrastructureandassetsoftheelectricityindustrytotheprivatesector.253 It also identifiedtheprimaryobjectiveoftheNigeriaRuralElectrificationProgrammeastheexpansionofaccesstoelectricityasrapidlyascanbeaffordedinacost-effectivemanner.254TheNEPPsettheagendaforthe2005EPSRA.

FGN

NationalEnergyPolicy,2003 Policy • Definedastheblueprintforthesustainabledevelopment,supplyanduseofenergyresourceswithintheeconomy.255

• Identifiedsolarandsmallhydroashavingpotentialtopowerruralcommunitiesaswellasencouragedtheuseofoff-gridgenerationsolutionstosupplypowerinremoteorisolatedareas.ItrecommendedthecreationofanREFtofacilitateelectrificationinruralareas.

Energy Commission of Nigeria

ElectricPowerSectorReformAct2005

Act • TheActprovidesfortheformationofcompaniestotakeovertheobligationsofthedefunctNationalElectricPowerAuthoritywiththeaimofdevelopingacompetitivepowermarket.256ItestablishedtheNERC,andtheREAwithitsRuralElectrificationFund(REF).

FGN

RuralElectrificationPolicy,2005 Policy • DefinestheNigeriangovernment’spolicies,goalsandobjectivesregardingruralelectrification.ThePolicysetsenergy access targets and timelines.

FGN

PowerSectorReformRoadmap,2010

Roadmap • TheRoadmapoutlinedthegovernment’splantoacceleratethereformsmandatedundertheEPSRA2005.Itwasprimarilyon-gridfocusedandtargetedpowergenerationfromcoal,hydroandnaturalgas.

ThePresidency–FederalRepublicofNigeria:PresidentialAction Committee onPower(PACP)andPresidential Taskforce on Power

NationalPolicyonRenewableEnergyandEnergyEfficiency(NREEEP),2015

Policy • TheaimsoftheNREEEPincludethecreationofaframeworktoaddressthechallengesofinclusiveaccesstomodernandcleanenergyresources,improvedenergysecurityandclimateobjectives,andsettingtimelinesandgoalsforrenewableenergycontributiontothecountry’senergymixandtargetsforenergyefficiency.

FederalMinistryofPower

RegulationforMini-Grids,2016 Regulation • RegulationsguidinganddefiningtheminigridmarketinNigeriaanditsvariouscategories. NERC

RuralElectrificationStrategy&ImplementationPlan(RESIP),2016

Plan • Setsouttheplanforaruralelectrificationmarketthatiscentrallycoordinated[bytheREA],demanddrivenandmarket oriented.257

• TheRESIPproposesaframeworktobeimplementedbytheREAfordevelopingandfinancingruralelectrificationincludingmini-grids.Itencouragesprivateparticipationandpublic-privatepartnerships.

FederalMinistryofPower,WorksandHousing

RuralElectrificationFund(REF)–OperationalGuidelines,2017.

Guidelines • DefinestheoperationalguidelinesfortheREFpursuanttotheEPSRA2005.ItsetsoutaframeworktoawardgrantsforrenewableenergyprojectsbytheFundanddefinesthelistoftechnologieseligibleforfundingbytheREF.

REA

253 NigeriaEnergyRegulatoryCommission:https://nerc.gov.ng/index.php/home/nesi/401-history254 RuralElectrificationStrategyandImplementationPlan(RESIP),2016.255 NationalEnergyPolicy,2003.256 ElectricPowerSectorReformAct2005.257 RuralElectrificationStrategy&ImplementationPlan(RESIP),2016.

111

MINI-GRID COMMUNITY ENGAGEMENT

Theobjectiveofthemini-gridcommunitysurveywas

tobetterunderstandtheperspectivesandexperience

ofeachRREPcommunity,tolearnabouttheirviews

regardingthebenefitsofmini-gridelectrificationwithin

thecontextofproductiveuseanddevelopment,andto

identify barriers that currently exist so that strategies can

bedevelopedtoovercomechallengesandapplylessons

learned going forward.

Community survey activities included focus group

258 https://twitter.com/InfracoAfrica/status/1318870360910139397

meetingswithvillagechiefsandvariousmembersof

thecommunity,combinedwithdirectobservationsof

themini-gridsiteandsurroundinghomes,businesses

and productive-use applications. The sites were

split intofourgeographical lots.OffGridPower(SL

Limited)—nowapartnershipbetweenWorldHope

InternationalandPowerGen—wasawardedtwolots,

andWinchEnergyandEnergicitywereawardedonelot

each.Atotalofninecommunitiesweresurveyedacross

sixdistrictsduringOctober2020.

No. Region District Chiefdom Community Operator RREPWorkPackage

No.ofcustomers

Productive-useactivities

1 SOUTH PUJEHUN SOWA BANDAJUMASOWA PowerGen 1 138 1

2 SOUTH PUJEHUN PEJEWA FUTAPEJEH PowerGen 1 64 0

3 SOUTH BO BUMPENAGWA BUMPEH PowerGen 1 194 4

4 SOUTH BO TIKONKO TIKONKO PowerGen 2 172 Nodata

5 EAST KONO SANDOR KAYIMA PowerGen 1 161 7

6 NORTH PORTLOKO KAFFUBULLOM CONAKRYDEE Energicity 1 201 3

7 NORTH KAMBIA MAGBEMA ROKUPR Energicity 2 Nodata Nodata

8 NORTH TONKOLILI MALALMARA MARA WinchEnergy 1 108 Nodata

9 NORTH TONKOLILI YONI MATHOIR WinchEnergy 2 Nodata Nodata

Summary of Findings:

TheWorkPackage1(WP-1)installationsofthemini-

gridswereviewedasgenerallysuccessful.Theirrole

wasclearlydefinedbyUNOPSandoverall,community

enduserswishtocontinuehavingaccesstothepower.

Localoperatorshavedevelopedstrongrelationshipswith

theircommunitiesandcustomers,whichenablethem

tooperate,repairandmaintainthesystems.Payment

collectionismanagedonpre-paidmetersandprocessed

viaamobileapp.Themainbarriersoperatorsfacerelate

tothesizingofthemini-gridthattheyinheritedandtariff

structuring,whichisregulated.

TheWorkPackage2(WP-2)installationsofthemini-grids

arebettersuitedforhigher-consumingcustomers,astheir

largersizewillprovideamorefeasibleelectrification

option.Thetariffcostremainsthemainconcernfor

theseendusers,althoughitisworthnotingthatwiththe

exceptionofthemini-gridatTikonkoinBoDistrict,which

wascommissionedbyPowerGeninOctober2020,258 all

WP-2siteswerestillunderconstructionduringthesurvey

activity(onlyWP-1siteswereinoperation).

Someof themainbenefits identifiedby surveyedcommunitiesinclude:

• Development benefits such as improvement in

healthcare (e.g., emergencyoperations that can

happenthroughthenight)andeducation(lightingfor

schoolsallowsclassestotakeplacelaterintheday).

• Jobcreationandbusinessopportunities.

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• Economicbenefitssuchassmalltraderscannowsell

colddrinks;foodpreservationnowexists.

• Costsavings,improvedhealthoutcomesandpollution

mitigation from replacementof kerosene,diesel

generatorsandbatteries,aswellas reduction in

deforestation(bioenergy).

• Socialbenefitssuchasprovidingentertainmentnights,

socialgatheringscannowhappenlater,religious

gatheringscanhappenearlier,e.g.,earlymorning

prayers.

Someof thekeychallenges identifiedbysurveyedcommunitiesinclude:

• Economicconstraintsasthemini-gridsareservingvery

low-incomecustomers,mostofwhomarereceiving

electricityaccessforthefirsttime;affordabilityoftariff

wasthemostcommonchallengeidentified.

• It was noted that the cost is considerably higher than

forgrid-connectedcustomers(e.g.,somebusinesses

indicatedthattheycouldnotaffordtousethepower

fromthemini-gridtoruntheirfreezersasitwastoo

expensive).

• Socio-cultural and financial literacy constraints

highlightedtheneedforcontinuedsensitization,

communityengagementandeffectivemessaging

onhow to utilize electricity from themini-grid

system,anunderstandingofloadcapacityusage,

what appliances can and should not be used

andappliancewattageloadsetc.(e.g.,noirons,

microwaves).

• Technical constraints such as varying weather

conditions,batteryreplacementsetc.can impact

qualityofservice(i.e.,downtimeofthesystem),which

canvaryfromafewhourstoafewdays.

• Seasonalityandcropyieldsalldirectlyimpactthe

abilityofcustomerstopaytheirbills.

• MorecapacitybuildingisneededonthetopicofPUE;

anchor loads that use daytime energy can be catalysts

forexpandingthesizeandeconomicimpactofmini

grid-systems(specificallywithWP-1)sites.

Communitydiversitysuchasdifferenthomesizesand

businessesresultsinvaryingrequirements,whichinturn

affectstheavailabilityofpowerthemini-gridcanprovide

withinitsstoragecapacity(whichcanleadtodowntime

forthemini-gridtorecharge).

KEY

No. Community

1 BANDAJUMASOWA

2 FUTAPEJEH

3 BUMPEH

4 TIKONKO

5 KAYIMA

6 CONAKRYDEE

7 ROKUPR

8 MARA

9 MATHOIR

Source:AdaptedfromMapofSierraLeone(Political),Worldometer.

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RESEARCH METHODOLOGY AND ANALYTIC FRAMEWORK

SIERRA LEONE

Activity Deliverable Researchquestions Analysis Researchmethods/sourcesofdata Preliminarylistoftopicstoaddressinquestionnaires Keyinformants/interviewees

Existing mini-grid programmes(includingtariff- forming methodologies and structures,tarifflevels,productive-useperformance,anddriversandbarriersforexpansion)

Questionnaireandintervieweelist;evaluationcriteriaoftheresults to assess existing mini-gridprogrammesinSierraLeone

Doesthecurrentenergypolicyandinstitutionalframeworksupportfurthermini-gridandoff-gridprojectexpansion?

• Aremini-gridandoff-griddevelopmentsupportedbyanationalpolicyframework?

Analysis: Analyzeoff-gridregulatoryframework.Investigatethenationalframeworkofmini-gridandoff-gridelectrification

• WorldBankRISEdatabase259• ECREEE-ROGEPSierraLeonereport260• Surveysandinterviewsofmini-gridstakeholders(developers/operators,industryexperts,donors/financiers,policymakersandregulators)tobeadministeredviateleconferenceinterviews

• Surveyofruralmini-gridcommunityendusers in the districts where mini-grids are currentlyinoperation(RREP)261 in order toassesswhetherthequalityofservicemeetsenergyneedsofthecommunities,includingforproductive-useapplications

• Consumerprotection• Duediligence• Regulatorycapacity• Regulatoryoversight• Availability/lackofappropriatedatafor

decision-making etc.• National-leveltariffsetting• Regulation/oversightofdeveloper-proposedtariffs

• Regulate rates only in the case of customerdisputes

• Otherpolicyandregulatoryissues

Public sector stakeholders:• MinistryofEnergy(MoE)• NationalPowerAuthority(NPA)• SierraLeoneElectricityandWaterRegulatoryCommission(SLEWRC)

• Electricity Generation and Transmission Company(EGTC)

• ElectricityDistributionandSupplyAuthority(EDSA)

• PublicPrivatePartnership(PPP)Unit(OfficeofthePresident)

• RenewableEnergyAssociationofSierraLeone(REASL)

• MinistryofAgriculture,ForestryandFoodSecurity

Private sector/other stakeholders:RREPmini-gridoperators(WinchEnergy,PowerGenandEnergicity)Otherinternationalmini-griddevelopersactiveinthemarketLocaloff-grid/mini-gridindustryexperts

Are the current mini-grid tariffs considered too high or at an appropriatelevel?Why?Whatkindofmeasuresaretakentoalleviatethecostissue?Whatarethebarrierstoachievinglowertariffs?Whatarethesuccessfulaspectsofthecurrentmini-gridprogrammeanditspolicymakingprocess?Whataspectscanbeimprovedfurther?

Analysis: Investigatelessonslearnedfromthecurrentprogrammeandthepastpolicymakingprocessandwhataredriversandbarriersforimprovementingeneral

• Doesthecurrentregulatoryoversightmechanismcontributetohightariffsordoesitalleviatethecostissue/lowerthecosts?

• Analysis:Investigatethecurrentregulatoryoversightmethod,itsprosandcons,andcomparetoalternatives

• Dothecurrenttariffformulaandmethodologiescontributetohightariffsordotheyalleviatethecostissue/lowerthecosts?

• Analysis:Investigatethecurrenttariff-settingmethod,itsprosandconsandcomparetoalternatives

• Interviewsof publicofficials,policymakers,and regulators

• Surveysandinterviewsofmini-gridstakeholders

• Surveyofruralmini-gridendusersinRREP communities

• Consumerprotection• Duediligence• Regulatorycapacity• Regulatoryoversight• Availability/lackofappropriatedatafordecision-making;etc.

• National-leveltariffsetting• Regulation/oversightofdeveloper-proposedtariffs

• Regulate rates only in the case of customerdisputes

• Restrictionsontarifflevels• Nationaltariffsettingmethodology(uniformnationaltariffmethod;avoided-costtariffmethod;cost-reflectivetariffmethodbyprojectcategory/class;cost-reflectivetariffmethodbyproject(cost-plusmethod)

• Capex-productcosts;capex-process/developmentcosts;capex–EPC/supplierselection;capex-installationcosts;opex;riskpremium;permittedreturn;lackofrealcostdata/information

259 https://rise.worldbank.org/country/sierra-leone260 http://www.ecreee.org/sites/default/files/ecreee_rogep_sierra_leone_final_report.pdf261 https://www.unops.org/news-and-stories/stories/access-to-energy-giving-sierra-leone-the-power-to-change

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SIERRA LEONE


• Dohighcostsofmini-griddevelopmentcontributetohightariffs?Whichcomponentsofthecostsneedtobereducedandwhatarethebarriers?

• Analysis:Investigateandcomparecoststructureandcomponentcostsoftheexistingmini-gridprojectsinSierraLeoneandNigeria,andexaminepossiblecausesandcomponentsofhighcosts

• Doespaymentstructureoftariffscontributetohightariffsordoesitalleviatethecostissue/lowerthecosts?

• Analysis: Investigateifanypartsofpaymentsareexcessiveintariffs,andwhetherpaymentstructuresarealignedwithrealconsumptionpatterns

• Energy-basedpayments(kWh);demand-basedpayments(kW);flat/fixedpaymentsregardlessofconsumption;pay-as-you-go(PAYG)payments(pre-charge)

Isthemini-gridperformingwell?

• Doesthemini-griddeliversatisfactoryquantityofpower?

• Analysis: Investigatewhethertheexistingmini-gridprovidesservicestosatisfyTier2(min4hours/day,min50W,min200Wh/day)andabove

• Doesthemini-griddeliversatisfactoryqualityofpower?

• Analysis:Investigatewhethertheexistingmini-gridprovidesservicestosatisfyTier2andabove(numberofguaranteedhoursperday;durationoftheelectricity;frequencyofoutages;SAIDI;SAIFI)

• Dothemini-gridusagesfitcommunityneeds/demandsandhowproductivearethey?Whataretheirproductive-useimpacts?

• Analysis: Investigatewhetherthecurrentmini-gridprojectsfitrealneeds/demandsofusers

• Isthecurrentbiddingprocesscontributingtolowercostandbetter-qualityservicesofmini-grid?Didyouencounteranydifficultiesand/orbarriersinthebiddingprocess?Ifso,whatkinds?

• Analysis: Investigatethebenefitsandissuesofthecurrentbidding/selection(EPC/OEM/developers)process

• Arethereanyqualityassuranceschemes,policyorregulationsforthemini-griddevelopmentprocessaswellasoperationprocess(technicalstandardssuchasgridcodes,safetystandardsandmonitoringandevaluationframework)?

• Analysis: Investigateanyqualityassuranceschemes(technicalstandardssuchasgridcodes,safetystandardsandM&Eframework)thatexisttomaketheprojectstobedevelopedandoperatedtoofferTier2andaboveservicesandproductive-useimpacts

• Whatkindofcriteria/metricsareusedtochoosemini-gridprojectsites?Dotheyconsiderproductive-useandotherdemand-sidefactors?

• Analysis: Investigatebothsupply-sideanddemand-sidefactors used to choose mini-grid sites

• Surveysandinterviewsofpublicofficials(policymakersandregulators)andothermini-gridstakeholders(developers/suppliers,operators,endusersandindustryexperts)

• Technicalissues,includingqualityofequipment,projectdesignandplanning,engineering,installationandoperation

• Standardsandoversightonproductsandservices(lackof)

• Misfitbetweensupplyanddemandsintermsofbothquantityandrequiredusages

• Biddingdesignandimplementationoftheproviderselectionarelessthanoptimaldueto:lackofparticipants;lackoftechnicalstandardsandlicensing;mismatchbetweenlocalproduct/serviceproviderswithrequiredlevelsofqualifications;lackoflocalindustrycapacity,etc.

• Lackofduediligenceoverthebiddingprocess

• Riskallocationafterprojectcommissions• Lackofauditingschemes

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Doesthecurrentpolicy/regulatoryframeworkconsiderlong-termgridintegration?

• Arethereanypolicyandregulatoryconsiderationstoaccountforwhenthegridnetworkarrives?Howaremini-gridandoff-gridprojectsintegrated?

• Analysis:Investigatewhethereconomic,technicalandsafety regulations such as tariffs and grid codes etc. consider smooth integration of mini-grid and off-grid projectsintonetworkinthefuture

• Surveysandinterviewsofmini-gridstakeholders(developers,operators,andpolicymakersandregulators)

• Regulatoryprovisionsinplacetoaddressarrivalofgrid

Whatarethedriversandbarriersofmini-griddevelopmentandutilizationtoachieveTier2andaboveaccessandcreateproductive-useimpacts?

Analysis: Investigatewhatfactorsareperceivedasdriversandbarriersfrombothsupplyanddemandsides


• Lackofquantityofpowerservices• Lowqualityofservices• Lowusability• Complexprocessofdevelopment• Complexprocessofconnection

Surveytoassesstheexisting subsidies offered tomini-gridplayersfortheirrespectiveprojectsinSierraLeone

Questionnaireandintervieweelist;evaluationcriteriaofthe results to assess the existing subsidies offered tomini-gridoperatorsfortheirrespectiveprojectsinSierraLeone

Dotheirsubsidiesalleviatehighcostsandhightariffsofmini-gridenough?

• Doanyproducersubsidiesinplacehelpreducehighcostsandhightariffimpacts?

• Analysis: Investigatewhetheranykindofproducersubsidies,andifso,whethertheyareeffectivetoalleviatehigh costs and high tariffs

• Doanyconsumersubsidiesinplacehelpreducehightariffimpacts?

• Analysis: Investigatewhetheranykindofconsumersubsidies,andifso,whethertheyareeffectivetoalleviatehigh tariffs


• Directgrantstoreducecosts(assets;technology-specific;location-specific;capacitybuilding)

• Non-grantsubsidies(taxbreaks;importdutyexemption;accelerateddepreciationofassets,softloan;andloanguarantees)

• RBF• Connection subsidy• Consumptionsubsidy• Cross-subsidies between mini-grid

customers and national grid customers• Cross-subsidies between different

segments of mini-grid customers• Tariff subsidies

Whatdotheexistingsubsidiestarget?

• Dothesubsidiestargetgenerationassets/costsordistributionassets/costsorboth?

• Analysis:Investigatewhichpartofthecostreductionthatthesubsidiestargetandevaluatewhetherthetargetsalignwithhighcostsparts

• Surveysandinterviewsofpolicymakers,regulators,mini-griddevelopers/operatorsandindustryexperts)

Aretheexistingsubsidiessustainable?

• Whatarethefundingsourcesofanyexistingsubsidies?

• Analysis: Investigatewhethertheexistingsubsidyprogrammeshavelong-termsustainability

• Arethereanysunsetclausesfortheexistingsubsidies?Ifso,whatkindofclausesareattached?

• Analysis: Investigatewhethertheexistingsubsidyprogrammeshavelong-termsustainability

• Dotheexistingsubsidiesaffect/distortthemarketandpricesignals?

• Analysis: Investigatewhethertheexistingsubsidiescanaffectmarketformation/transformationnegativelyorpositivelythroughpricingsignalmodification


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SIERRA LEONE


HavetheexistingproducerandconsumersubsidiessupportedtocreateaccesstoTier2oraboveandproductive-useimpacts?

• Whatarethedriversandbarrierstoachievethese2elements?

• Analysis: Investigatetheimpactsoftheexistingsubsidiesonproductiveusages


Concisedeskresearch,surveyandinterviewsofpractitionersregardingmini-grids with solar PVusedforagriculturalusages

Whattypesofagriculturalusagescanbepromotedbymini-gridandoff-gridwithsolarPV?

• Whichagriculturalsectorscanincreaseproductivitybymini-gridoroff-gridPVelectrification?

• Analysis: InvestigategeneralagriculturalusageexamplesinAfrica and their user context

• Cananyofthefollowingsectorsincreaseproductivitybymini-gridoroff-gridPVelectrification?Ifso,whichvaluechainactivities(cultivationandharvest,production(postharvest),processing,andmarketing)canbenefit?

• Rice• Palm oil• Cocoa• Coffee• Cassava• Groundnuts• Peppers• Vegetables• Fruits• Livestock

• Analysis: InvestigateSierraLeone’sagriculturalsectorstructureandcharacteristicsandtheirfitstomini-gridandoff-gridelectrification;investigaterealneedsanddemandsforelectrificationinSierraLeone’sagriculturalsector

• Analysis: Investigatetheexistingmini-gridcommunityforsuccessfulagriculturalproductiveusagesandissues

• Arethereanyothersectorsthatmaybenefitfrommini-gridandoff-gridelectrification?Ifso,whichvaluechainactivitiescanbesupported(cultivationandharvest,production,postharvest,processing,andmarketing)?

• Desktopresearchandliteraturereview• Surveysandinterviewsofagriculturalsectorstakeholders(mini-gridcommunityagriculturalproducers,generalcropproducers,publicofficials,industryassociationsetc.)

• PublicationssuchasWB,UN,SEforALLandotherorganizations,developmentagencies,andNGOsetc.

• Whichagriculturalusageshavebeenenhancedbymini-gridandoff-gridsolarPVprojects?

• Whichvaluechainactivitiesinwhichagriculturalsectorhavebenefittedandhow?

• Analysis: Investigatetheexistingproductiveusagesenhancedbymini-gridprojectsandtheirimpacts

• Surveysandinterviewsofagriculturalsectorstakeholders(mini-gridcommunityagriculturalproducers,generalcropproducers,SierraLeoneofficials,industryassociations)

• RREPprojectdashboards

WhatisrequiredtoadvanceagriculturalPUE?Whatarethecurrentbarriers?

• Whatarethe(minimum)technical,financialandknowledgerequirementstointroduceelectrificationintothosevaluechainsidentifiedabove?Whatarethebarriers?

• Analysis:Investigatekeyspecsneededtoadvancemini-gridandoff-gridelectrification,whatiscurrentlymissingtoimplementthemandhowtoovercomethebarriers?

• Surveysandinterviewsofagriculturalsectorstakeholders(mini-gridcommunityagriculturalproducers,generalcropproducers,SierraLeoneofficials,industryassociations)

• Desktopresearchandliteraturereview

• Lackofpowerspecs• Lackoffundingandfinancingmechanisms• Lackofpolicysupportandincentives• Lackoflocalcapacity• Lackofmeanstoaccesspotentialdemand• Lackofmarket/demand/industrysizes;lackofsupplychain,needtoenhancetheentirevaluechainnotoneorafewactivities,etc.

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SIERRA LEONE


WhatarethedriverstoadvancetheirPUEinthosepotentialsectors?

• Whataretheimportantfactorstodrivefasterintroductionofelectrificationintothosesectors/valuechainsidentifiedabove?

• Analysis: Investigatekeydriversandbarriersforelectrificationandproductiveusages

• Surveysandinterviewsofagriculturalsectorstakeholders(mini-gridcommunityagriculturalproducers,generalcropproducers,publicofficials,industryassociations)

• Desktopresearchandliteraturereview

118

NIGERIA

Activity Deliverable Researchquestions Analysis Researchmethods/sourcesofdata Preliminarylistoftopicstoaddressinquestionnaires

Keyinformants/interviewees(seeSectionIIIforcontactinformation)

Existing mini-grid programmes(includingtariff-forming methodologies and structures,tarifflevels,productive-useperformance,anddriversandbarriersforexpansion)

Questionnaireandintervieweelist;evaluationcriteriaofthe results to assess existing mini-grid programmesinNigeria

Doesthecurrentenergypolicyandinstitutionalframeworksupportfurthermini-gridandoff-gridprojectexpansion?

• Aremini-gridandoff-griddevelopmentsupportedbyanationalpolicyframework?

• Analysis: Analyzeoff-gridregulatoryframework.Investigatethenationalframeworkofmini-gridandoff-gridelectrification

• WorldBankRISEdatabase262• ECREEE-ROGEPNigeriareport263• Surveysandinterviewsofmini-gridstakeholders(developers/operators,industryexperts,donors/financiers,policymakersandregulators)tobeadministeredviateleconferenceinterviews



• Regulate rates only in the case of customer disputes

• Otherpolicyandregulatoryissues

Public sector stakeholders:• RuralElectrificationAgency(REA)• NigeriaElectricityRegulatoryCommission(NERC)

• EnergyCommissionofNigeria(ECN)• FederalMinistryofPower(FMP)• AdvisoryPowerTeam(APT)• FederalMinistryofEnvironment(FME)• TransmissionCompanyofNigeria(TCN)• NigeriaBulkElectricityTrader(NBET)• NationalPowerTrainingInstituteofNigeria(NAPTIN)

• StandardsOrganizationofNigeria(SON)• NigerianElectricityManagementServicesAgency(NEMSA)

• NationalEnvironmentalStandardsandRegulationsEnforcementAgency(NESREA)

Private sector/other stakeholders:• Mini-griddevelopersinNigeria(includingmembersoftheMini-GridDevelopersAssociation):• A4&TPowerSolutions• ACOBLighting• Arnergy• AjimaFarms• CREDC• DarwayCoast• GVEProjectsLtd.• GOSolarAfrica• HavenhillSynergyLtd.• NayoTropicalTechnologyLtd.• RubitecSolarLtd.• WavelengthIPS• CESEL• TrustSynergyInfrastructures

• Otherinternationalmini-griddevelopersactiveinthemarket

• Localoff-grid/mini-gridindustryexperts• NGOs/Foundationse.g.,HeinrichBoell• RenewableEnergyAssociationofNigeria(REAN)

• DistributionCompanies(DisCos)• GenerationCompanies(GenCos)

Are the current mini-grid tariffs considered too high or at an appropriatelevel?Why?Whatkindofmeasuresaretakentoalleviatethecostissue?Whatarethebarrierstoachievinglowertariffs?Whatarethesuccessfulaspectsofthecurrentmini-gridprogrammeanditspolicymakingprocess?Whataspectscanbeimprovedfurther?

Analysis: Investigatethelearningfromthecurrentprogrammeandthepastpolicymakingprocessandwhataredriversandbarriersforimprovementingeneral

• Doesthecurrentregulatoryoversightmechanismcontributetohightariffsordoesitalleviatethecostissue/lowerthecosts?

• Analysis:Investigatethecurrentregulatoryoversightmethod,itsprosandcons,andcomparetoalternatives

• Dothecurrenttariffformulaandmethodologiescontributetohightariffsordotheyalleviatethecostissue/lowerthecosts?

• Analysis:Investigatethecurrenttariffsettingmethoditspros,andconsandcomparetoalternatives

• Dohighcostsofmini-griddevelopmentcontributetohightariffs?Whichcomponentsofthecostsneedtobereducedandwhatarethebarriers?

• Analysis:Investigateandcomparecoststructureandcomponentcostsoftheexistingmini-gridprojectsinSierraLeoneandNigeria,andexaminepossiblecausesandcomponentsofhighcosts

• Doespaymentstructureoftariffscontributetohightariffsordoesitalleviatethecostissue/lowerthecosts?

• Analysis:Investigateifanypartsofpaymentsareexcessiveintariffs,andwhetherpaymentstructuresarealignedwithrealconsumptionpatterns

• Interviewsofpublicofficials,policymakersand regulators

• Surveysandinterviewsofmini-gridstakeholders



• Regulate rates only in the case of customer disputes

• Restrictionsontarifflevels• Nationaltariffsettingmethodology(uniformnationaltariffmethod;avoided-costtariffmethod;cost-reflectivetariffmethodbyprojectcategory/class;cost-reflectivetariffmethodbyproject(cost-plusmethod)

• Capex-productcosts;capex-process/developmentcosts;capex–EPC/supplierselection;capex-installationcosts;opex;riskpremium;permittedreturn;lackofrealcostdata/information

• Energy-basedpayments(kWh);demand-basedpayments(kW);flat/fixedpaymentsregardlessconsumption;pay-as-you-go(PAYG)payments(pre-charge)

262 https://rise.worldbank.org/country/nigeria263 http://www.ecreee.org/sites/default/files/ecreee_rogep_nigeria_final_report_.pdf

119

NIGERIA

Activity Deliverable Researchquestions Analysis Researchmethods/sourcesofdata Preliminarylistoftopicstoaddressinquestionnaires

Keyinformants/interviewees(seeSectionIIIforcontactinformation)

Isthemini-gridperformingwell?

• Doesthemini-griddeliversatisfactoryquantityofpower?

• Analysis:Investigatewhethertheexistingmini-gridprovidesservicestosatisfyTier2(min4hours/day,min50W,min200Wh/day)andabove

• Doesthemini-griddeliversatisfactoryqualityofpower?

• Analysis:Investigatewhethertheexistingmini-gridprovidesservicestosatisfyTier2andabove(numberofguaranteedhoursperday;durationoftheelectricity;frequencyofoutages;SAIDI;SAIFI)

• Dothemini-gridusagesfitcommunityneeds/demandsandhowproductivearethey?Whataretheirproductive-useimpacts?

• Analysis:Investigatewhetherthecurrentmini-gridprojectsfitrealneeds/demandsofusers

• Isthecurrentbiddingprocesscontributingtolowercostandbetter-qualityservicesofthemini-grid?Didyouencounteranydifficultiesandbarriersinthebiddingprocess?Ifso,whatkinds?

• Analysis: Investigatethebenefitsandissuesofthecurrentbidding/selection(EPC/OEM/developers)process

• Arethereanyqualityassuranceschemes,policyandregulationsformini-griddevelopmentprocessaswellasoperationprocess(technicalstandardssuchasgridcodes,safetystandardsandmonitoringandevaluationframework)?

• Analysis:Investigateanyqualityassuranceschemes(technicalstandardssuchasgridcodes,safetystandardsandmonitoringandevaluationframework)thatexisttomaketheprojectstobedevelopedandoperatedtoofferTier2andaboveservicesandproductive-useimpacts

• Whatkindofcriteria/metricsareusedtochoosemini-gridprojectsites?Dotheyconsiderproductive-useandotherdemand-sidefactors?

• Analysis:Investigatebothsupply-sideanddemand-sidefactors used to choose mini-grid sites


• Technicalissues,includingqualityofequipment,projectdesignandplanning,engineering,installation,andoperation

• Standardsandoversightonproductsandservices(lackof)

• Misfitbetweensupplyanddemandsintermsofbothquantityandrequiredusages

• Biddingdesignandimplementationoftheproviderselectionarelessthanoptimaldueto:lackofparticipants;lackoftechnicalstandardsandlicensing;mismatchbetweenlocalproduct/serviceproviderswithrequiredlevelsofqualifications;lackoflocalindustrycapacity,etc.

• Lackofduediligenceoverbiddingprocess• Riskallocationafterprojectcommissions• Lackofauditingschemes

Doesthecurrentpolicy/regulatoryframeworkconsiderlong-termgrid-integration?

• Arethereanypolicyandregulatoryconsiderationstoaccountforwhenthegridnetworkarrives?Howaremini-gridandoff-gridprojectsintegrated?

• Analysis:Investigatewhethereconomic,technicalandsafety regulations such as tariffs and grid codes etc. consider smoothintegrationofmini-gridandoff-gridprojectsintonetwork in the future

• Surveysandinterviewsofmini-gridstakeholders(developers,operators,andpolicymakersandregulators)

• Regulatoryprovisionsinplacetoaddressarrivalofgrid

Whatarethedriversandbarriersofmini-griddevelopmentandutilizationtoachieveTier2andaboveaccessandcreateproductive-useimpacts?

Analysis:Investigatewhatfactorsareperceivedasdriversandbarriersfrombothsupplyanddemandsides

• Surveysandinterviewsofpublicofficials(policymakersandregulators)andothermini-gridstakeholders(developers/suppliers,operatorsandendusers)

• Lackofquantityofpowerservices• Lowqualityofservices• Lowusability• Complexprocessofdevelopment• Complexprocessofconnection

120

Indicator/EvaluationCriteria Description ScoringMethodology Scoring

Affordability Arecurrentpolicyandregulationsaffordablefor• Policymakersandregulators(i.e.,cantheysustainahealthygovernmentbudget)?

StronglyAgreeAgreeDisagree

Samplesize(respondents)=nAssignedScores:StronglyAgree(a1)=10=MaxScoreAgree(a2)=5Disagree(a3)=0Numberofrespondentswithassignedscorea1=na1

Numberofrespondentswithassignedscorea2=na2

Numberofrespondentswithassignedscorea3=na3

Score (relative to Max Score) = ∑3

i = 1(ai × nai) (n × Max Score)

Arecurrentpolicyandregulationsaffordablefor• Suppliers(cantheysustainaprofitablebusiness)?


Arecurrentpolicyandregulationsaffordablefor• Endusers(aretheyaffordableforenergyusers)?


Cost Effectiveness and Efficiency Docurrentpolicyandregulationsdoenoughtoincentivize:• Policymakersandregulatorstobeconsciousaboutprojectdevelopmentcosts?


Docurrentpolicyandregulationsdoenoughtoincentivize:• Supplierstolowertheirproject/product?


Docurrentpolicyandregulationsdoenoughtoincentivize:• Enduserstouselessenergy?


Equity and Fairness Docurrentpoliciesandregulationsaddressequityconcernsacross:• Spatial/geographicalareassuchasruralvs.urban?


Docurrentpoliciesandregulationsaddressequityconcernsacross:• Socialclass(incomeclass)?


Docurrentpoliciesandregulationsaddressequityconcernsacross:• Gender?


Drive/Incentivize Market Development Docurrentpoliciesandregulationsdoenoughtoincentivize:• Supplierstoenterthesectorandprovidequalityprojects/products/services?


Docurrentpoliciesandregulationsdoenoughtoincentivize:• Energyuserstoconnectorswitchtoamini-grid/off-gridproject


121


Level and Quality of Services • Dothecurrentpolicyandregulationsencouragehigherquantityofservice? StronglyAgreeAgreeDisagree

• Dothecurrentpolicyandregulationsencouragehigherqualityofservice? StronglyAgreeAgreeDisagree

Productive-Use Applications • Dotheseservicesalsoprovideelectricitytosupportproductive-useapplications? StronglyAgreeAgreeDisagree

• Doestheadventofsolarelectricityfromthemini-gridsystemimprovevaluechainactivities(cultivationandharvest,production,processing,storageandmarketing)oftheagriculturalsector?


Simplicity (easiness or burden to design in terms of amount of additional workload ofstaff;amountofinformationrequired;thenumberofseparateprocessesanddecisions;standardizationetc.)

Arecurrentpolicyandregulationseasyfor• Policymakersandregulatorstodesign?


Arecurrentpolicyandregulationseasyfor• Supplierstodesigntariffproposal(ifitisrequiredbyregulators)?


Simplicity (easiness or burden to implement,in terms of the amount of additional workload ofstaff;amountofinformationrequired;thenumberofseparateprocessesanddecisions;standardizationetc.)

Arecurrentpolicyandregulationseasyfor• Policymakersandregulatorstoimplement,manageandsupervise?


Arecurrentpolicyandregulationseasyfor• Supplierstoimplementandmonitorprojects/products/services?


Technological Neutrality/Business Flexibility Docurrentpolicyandregulations:• Encouragediversebusinessmodels?


Docurrentpolicyandregulations:• Encouragediversetechnologiesordiscouragecertaintypesoftechnologiessuchashighcapexrenewableprojects?


Long-term Predictability Docurrentpolicyandregulationsprovidelong-termcertaintyandpredictabilityof:• Policyandregulatoryenvironmenttosupply-sideplayersandenergyusers?


Docurrentpolicyandregulationsprovidelong-termcertaintyandpredictabilityof:• Businesstousers?


122


Transparency and Clarity Docurrentpolicyandregulationsprovidetransparencyandclarityof:• Policyandregulatoryenvironmenttosupply-sideplayersandenergyusers?


Docurrentpolicyandregulationsprovidetransparencyandclarityof:• Businesstousers?


Integration with National Grid Network Docurrentpolicyandregulationsposedifficultytointegratethemini-gridprojectswiththearrivalofthenationalelectricitynetwork,for:• Policymakersandregulatorstoneedtochangeregulations?


Docurrentpolicyandregulationsposedifficultytointegratethemini-gridprojectswiththearrivalofthenationalelectricitynetwork,for:• Supplierstoneedtochangetariffcharges,billingandmeteringmechanism(s)?


Docurrentpolicyandregulationsposedifficultytointegratethemini-gridprojectswiththearrivalofthenationalelectricitynetwork,for:• End-users’needtoacceptchanges/increaseoftariffs?


Gender Considerations Genderinclusiveness:• Docurrentpoliciesandregulationsspecificallyaddressgendermainstreaming?


Genderinclusiveness:• Docurrentpoliciesandregulationsspecificallyaddressgenderinclusion?


Standards and Quality Standardsandsafety:• Docurrentpoliciesandregulationsspecificallyaddressdisposalofsolarsystemcomponents?


Standardsandsafety:• Docurrentpoliciesandregulationsspecificallyaddresssafetystandardsformini-grids(e.g.,overcurrentprotection,systemcontroletc.)?


123

STAKEHOLDER CONTACT LIST

Belowisalistofallofthekeystakeholdersthatthereport’steamconsultedwithduringthecourseoftheassignmentinSierraLeoneandNigeria.

SIERRA LEONEOrganization NameofContact Position/Title

Ministry of EnergyRobin Mansaray Head,RenewableEnergyandEnergyEfficiency

NgoziBeckley-Lines Project Manager


Brima Bah Head,EconomicRegulation

KelciseSesay Head,ElectricityRegulation

UnitedNationsOfficeforProjectServices(UNOPS)

JasminRoberts TeamLeader,TechnicalAssistanceandCapacityBuilding

EuniceDahn Programme Analyst

EzekielKamangulu TechnicalTeamLeader

LeslieMhara SeniorProjectManager,RREP

Ariful Islam MonitoringandEvaluationSpecialist

NicholasM.Gardner SierraLeoneCountryManager

WinchEnergy PierreJohnson CountryManager,SierraLeone

PowerGenRenewableEnergy/Off-GridPower(OGP)

Michael Corbishley NewMarketImplementation,SierraLeone

FemiCoker CountryManager,SierraLeone

EnergicityJoePhilip VPofEngineeringandOperations

SamuelKamanda ProjectManager,EnergicitySL

WesternAfricaOff-Grid-REASL SamuelZoker CEO

FLSGroup-REASL LeahFatmattaSuma DirectorofOperations

PujehunDistrictChief PCLahaiAKSowa2 ParamountChief,BandajumaSowa

PujehumDistrictChief PCSulimanBKoroma ParamountChief,FutaPejuh

BoDistrictChief AugustineL.Moiwo Chief,Tikonko

BoDistrictChief PCJosephTommyKposawa ParamountChief,Bumpeh

KambiaDistrictChief Pa.AlimamyKamara ChiefdomSpeaker,Rokupr

PortLokoDistrictChief PaAdikalieSorieSuma TownChief,ConakryDee

TonkoliliDistrictChief PaAlmamyJamesFulah SectionChief,Mara

TonkoliliDistrictChief AlimamiKoroma TownChief,Mathoir

KonoDistrictChief AmaduSokoyama SectionChief,SandorKayima

NIGERIAOrganization NameofContact Position/Title

RuralElectrificationAgency(REA)AhmadSalihijo ManagingDirector

SuleimanBabamanu NEPProjectLeader

NigeriaElectricityRegulatoryCommission(NERC) Dr.AbdusallamYusuf Assistant General Manager

GVEProjects IfeanyiB.Orajaka ManagingDirector

RubitecSolar BoladeSoremekun CEO

A4&TIntegrated Ayodeji Ademilua CEO

124

KEY DEFINITIONS

BUILD-OWN-OPERATE (BOO): Apublic-privatepartnership(PPP)agreementinwhichthegovernmentgrantstheright

toaprivatecompanytodesign,build,operateandmaintain

aproject.Theprivatecompanyretainsownershipofthe

projectandisnotrequiredtotransfertheprojectbackto

thegovernment.Althoughthegovernmenttypicallydoes

notprovidedirectfundingfortheprojectunderthismodel,

itmayofferotherfinancialincentivestotheprivatecompany

(e.g.,taxexemptions,subsidiesetc.).

BUILD-OPERATE-TRANSFER (BOT): A PPP agreement

inwhichthegovernmentgrantstherighttoaprivate

companytodesign,build,operateandmaintainaproject

foragivennumberofyears,afterwhichtheprojectis

transferredbacktothegovernment.Inthecontextof

mini-gridprojectdevelopment,undertheBOTmodel,

themini-gridoperatorobtainsrevenueseitherthrougha

feechargedtothegovernment/utilityorthroughtariffs

chargedtocustomersdependingonwhichbusiness/

ownershipmodelisapplied(seeAnnex 1).

CONCESSION: A concession agreement is a contract

thatistypicallyawardedtoaprivatecompanythrough

acompetitivebiddingprocessthatgrantsthecompany

rightstofinance,design,build,operateandmaintain

aprojectwithinagovernment’s jurisdiction, subject

toparticularterms.Concessioncontractsareusually

focusedonoutputs (i.e., thedeliveryofaservice in

accordancewithperformancestandards)andcoveran

entireinfrastructuresystem,inwhichtheconcessionaire

maytakeoverexistingassetsaswellasbuildandoperate

newassets.Theconcessionairewillpayaconcessionfeeto

thegovernment,whichwillusuallybering-fencedandput

towardsassetreplacementandexpansion.Inthecontextof

mini-gridprojectdevelopment,thegovernment(regulator)

delineatestheserviceareatobecoveredbyamini-grid

264 WorldBankPublicPrivatePartnershipLegalResourceCenter:https://ppp.worldbank.org/public-private-partnership/agreements/concessions-bots-dbos#BOT_Projects;and“PracticalGuidetotheRegulatoryTreatmentofMini-Grids,”NationalAssociationofRegulatoryUtilityCommissioners(NARUC),UnitedStatesAgencyforInternationalDevelopment(USAID),2017:https://pubs.naruc.org/pub/E1A6363A-A51D-0046-C341-DADE9EBAA6E3

license—theconcession—andgrantsthelicensee

exclusiverightstodevelop,operateandmaintainassets

forthegeneration,distributionandretailsaleofelectricity

toendusersinthedesignatedserviceareaforagiven

numberofyears(usuallyabout20years,orlongenough

tofullyamortizeallassetsunderthespecifiedtariffregime).

Theconcessionusuallycomeswithfavourableterms,such

asfinancialincentives,preferentialtariffarrangements,

or a guarantee that no other entities will be allowed to

operatemini-gridsinthesamearea.Regulatorscanalso

issuecompetitivebidsforconcessionschemes,whichallow

developerstobidforlargerand/ormultipleserviceareas

andtoaggregatemini-gridprojects.Suchflexibilitycan

helpdevelopersreducecostsandimproveprofitability

byincreasingefficiencyinanumberofareas,including

planning,financing,administration,equipmentsupply,

andoperationandmaintenance(O&M).Assetownership

typicallyrestswiththegovernment,althoughthisvaries

dependingonwhichbusiness/ownershipmodelisapplied

(seeAnnex 1).Attheendoftheconcessionperiod,allrightsinrespecttoprojectassetstypicallyreverttothe

government;alternatively,developersmayhavetheoption

forrenewaloftheconcessionattheregulator’sdiscretion.264

COST-REFLECTIVE TARIFF: Atariffthatreflectsthefullcostofprovidingelectricitytocustomers,includingthe

installation,maintenanceandoperationofamini-grid.

Cost-reflectivetariffsenableoperatorstorecovertheirfull

costsandearnareasonablereturnontheirinvestments.

Cost-reflectivetariffscanalsobesupportedwithsubsidies

(e.g.,intheformofaconnectionsubsidyforendusers,a

capitalsubsidyformini-gridoperators,oracross-subsidy

scheme).ThistopicisexaminedinSection IIIofthisreport.

DESIGN-BUILD-OPERATE (DBO): A PPP agreement in

whichthegovernmentgrantstherighttoaprivatecompany

125

todesign,build,operateandmaintainaproject–withthe

governmentretaininglegalownershipoftheassets.DBO

projectsdifferfromconcessionagreementsinthattheydo

notrequiretheprivatecompanytofinancetheprojectorto

bearitscommercialrisk.Inthecontextofmini-gridproject

development,theDBOmodelissimilartotheBOTmodel,

withthekeydifferencebeingthatthegovernmentfinances

theinitialconstructionofthemini-grid,thussignificantly

reducingriskfortheprivatedeveloper.Thedocumentation

foraDBOisalsosimplerthanaBOToraconcession

agreement,essentiallycomprisingaturnkeyconstruction

contractplusanoperatingcontract,withoutanyfinancing

documentsrequired.265

265 WorldBankPublicPrivatePartnershipLegalResourceCenter.266 “Multi-TierFrameworkforMeasuringEnergyAccess,”WorldBankESMAP:https://www.esmap.org/node/55526267 Cleary,K.andPalmer,K.,“Energy-as-a-Service:ABusinessModelforExpandingDeploymentofLow-CarbonTechnologies,”

ResourcesfortheFuture,(December18,2019):https://www.rff.org/publications/issue-briefs/energy-service-business-model-expanding-deployment-low-carbon-technologies/

ELECTRICITY ACCESS: Thereisnouniversaldefinitionofelectricityaccess.TheMulti-TierFramework(MTF)

developedby theWorldBank is used tomeasure

electricityaccessalongacontinuumofservicelevels

(tiers), rather thanasahouseholdconnectiontoan

electricitygrid.Asillustratedinthefigurebelow,theMTF

categorizesaccessaccordingtoaseriesofindicators,

including capacity, availability/duration of supply,

reliability,quality,affordability,legalityandhealth/safety.266

ThefocusofthisstudyisonTier2access(andabove)–

definedasaminimumoffourhoursofelectricity/day,

50Wand200Wh/day.

Source:WorldBankEnergySectorManagementAssistanceProgram(ESMAP).

ENERGY-AS-A-SERVICE (EaaS):EaaSisabusinessmodelwherebycustomerspayforanenergyservicewithout

havingtomakeanyup-frontcapitalinvestment.EaaS

modelsusuallytaketheformofasubscriptionforelectrical

devicesownedbyaservicecompanyormanagementof

energyusagetodeliverthedesiredenergyservice.267

LEVELIZED COST OF ELECTRICITY (LCOE): TheLCOEcombinesamini-grid’scapitalandoperatingcostsinto

asinglecostperunitofenergy(typicallyexpressedin

USD/kWh).LCOEprovidesavaluableandappropriate

benchmarkforassessingthecostofmini-gridelectricity,as

itconsidersinitialcosts(suchasequipmentandinstallation

126

costs),operationscosts(suchasstaffandfuelcosts),and

equipmentreplacementoverthelifetimeofthemini-grid.

TheLCOEisequivalenttotheminimumaveragetariffat

whichelectricitymustbesoldtocoverprojectcosts.268

MINI-GRID: Amini-grid (ormicro-grid) is a powergenerationsystemthatisabletosupplyasmallcommunity

with electricity through a distribution network and

typicallyincludesanenergystoragedevice(battery),

powerconversionequipment(inverter)andcanoperate

in conjunction with a diesel generator. Mini-grids can

bepoweredbyrenewableenergysources(solar,wind,

hydropower,bioenergyetc.),dieselfuel,orsomehybrid

ofthesetechnologies.Bymaximizingtheuseofrenewable

energysources,mini-gridscanreduceenergycostsand

improvethereliabilityofenergyaccess inremoteor

isolatedareas.Mini-gridsofferanalternativetocostlygrid

extensionsandareoftenthecheapestelectrificationoption

fordenselypopulatedareasnotnearthegrid.Mini-grids

canbedesignedtodeliverdifferentlevelsofserviceand

can be isolated/stand-alonesystemsorinterconnected

with the main grid. The International Energy Agency

estimatesthatmini-gridscanprovideelectricityaccessto

approximatelyone-thirdofthepopulationinSub-Saharan

Africa currently without electricity through 2030.269

268 “Mini-GridsforHalfaBillionPeople:MarketOutlookandHandbookforDecisionMakers,”WorldBankESMAP,(June2019):https://openknowledge.worldbank.org/bitstream/handle/10986/31926/Mini-Grids-for-Half-a-Billion-People-Market-Outlook-and-Handbook-for-Decision-Makers-Executive-Summary.pdf?sequence=1&isAllowed=y

269 TrackingSDG7:TheEnergyProgressReport2020:https://www.irena.org/publications/2020/May/Tracking-SDG7-The-Energy-Progress-Report-2020

270 Mayer-Tasch,L.,“PromotingProductiveUseofEnergyintheFrameworkofEnergyAccessProgrammes,”GIZ,(4December2013):https://sustainabledevelopment.un.org/content/documents/4738mayer.pdf

271 “ProductiveUseofEnergyApplicationsinOff-GridEnergySystems:Workshop,”GreenMini-GridFacilityKenya,InnovationEnergieDéveloppement,AFDandUKAID,(2July2019):https://www.gmgfacilitykenya.org/index.php/gmgreources

PRODUCTIVE USE: Productive-use energy (PUE)canbroadlybedefinedastheutilizationofenergyin

agricultural, commercial and industrial applications

toproducegoodsorprovideservices.Inanoff-grid

community,energycanbeusedeitherforconsumption

(by households or for community purposes) or for

productiveuses.PUEhasthepotentialtoincreasethe

impactofelectrificationbyenhancingproductivityand

improvingincomegenerationforruralcommunities.In

thecontextofmini-gridelectrification,PUEstimulates

electricity demand and leads to higher electricity

consumption,whichincreasestheviabilityofmini-grids

byhelpingthemoperatemoreefficiently,costeffectively

andsustainably–especiallywherehigherconsumption

hasnomajoreffectoninvestmentcosts.270PUEalso

increases local income generation by allowing mini-grid

communitiestoproducevalue-addedproducts,preserve

goodsfromspoilageandincreasecropyields,among

otherbenefits.271Theprimaryfocusofthisreportison

agricultural PUE,giventhatamajorityofthepopulationinSierraLeoneisengagedintheagriculturalsector.Mini-



agriculturalvaluechain.Thistopicisexaminedindetail

in Section IV ofthisreport.

127

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