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Nicholas Institute for Environmental Policy Solutions
December 2020

Lessons for Modernizing Energy Access Finance, Part 2 – Balancing Competition and Subsidy: Assessing Mini-Grid Incentive Programs in Sub-Saharan Africa

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Lessons for Modernizing Energy Access Finance, Part 2 – Balancing Competition and Subsidy: Assessing Mini-Grid Incentive Programs in Sub-Saharan Africa Cover
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Rapid technology development and falling hardware costs have made mini-grids a potentially game-changing platform for enabling universal electrification. With the capacity to power commercial and industrial loads and provide 24/7 service, mini-grids can bring reliable grid-level service to places that are unlikely to be serviced with a stable connection in the near future. Of the roughly 800 million people globally without access to electricity, mini-grids could represent the least-cost option for meeting the electricity needs of 490 million by 2030. In response, governments and development partners are putting in place support programs to accelerate the scale-up of mini-grid deployments. These support programs aim to reduce risk and improve returns for private developers and lower connection costs for rural populations.

This policy brief summarizes a review of 20 such mini-grid incentive programs in sub-Saharan Africa, 17 of which are still being implemented. The programs analyzed primarily used one of two mechanisms to stimulate investment:

auction programs that invite developers to submit bids for the construction and, in most cases, the operation of mini-grids at specific sites, typically awarding an up-front capital subsidy to the selected developers; and

results-based financing (RBF) programs that have a set subsidy per connection that is paid to developers after verification that a household or business has been connected.