The State of the Decentralised Renewable Energy Sector

Xenia Zoller

There are 12 key Sustainable Development Goals (SDGs), which need to be achieved in the decentralised renewable energy sector and the first developments are taking shape.

Big changes are already taking place, including the EU’s External Investment Plan, which helps boost investment in partner countries in Africa and the European Neighbourhood.

Challenges for the Future

African markets are dashing forward, as combined efforts have already lowered the costs per connection for mini-grids by 20% during the last two years. This grants mini-grid firms brilliant perspectives for the future transformation of energy supply and accompanying economic growth. Mini-grids are especially interesting for African countries, as they provide advantages for rural communities in quality and quantity compared to national utilities – mini-grids have been proven to be the most affordable option for rural electrification.

One of the key difficulties in this development is the lack of affordable long-term capital. Two factors are especially challenging: Firstly it is important to consider the country, where potential mini-grid firms are doing business. Unstable political and regulatory environments can make the financial situation difficult through high costs or unavailability. The second problem area lies within the customer base, as financially people with low incomes, are not able or willing to pay for new installations, which lessens economical attractiveness for companies.

Rebecca Symington, Board Member, Alliance for Rural Electrification

The second challenge has already been addressed though, as experience shows that potential customers are keen on reliable and predictable energy services, which they are willing to pay for. Since national grid networks have difficulties providing adequate supply, decentralised renewables have proven to be a viable alternative. Nevertheless it has to be noted that early stage firms still have problems when it comes to advancing their projects beyond pilot stages due to financial troubles. Those need to be addressed, before the pursuit for the SDGs can advance.

Furthering the Development

To improve the situation for determined mini-grid firms the above mentioned challenges need to be conquered. Especially development agencies have the means to bring a new balance to African countries’ finances. The goal is to give more funds to the off-grid sector to tailor resources to the current energy market and its requirements. This way new technologies and approaches will be available to electrify rural areas, granting a better value for taxpayer money. For this, the benefiting mini-grid and off-grid companies will have to address economic, environmental and social development objectives. By doing this, the companies will be able to differentiate from national utility services, who lack efforts in those areas.

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Aaron Leopold, Vice President, Alliance for Rural Electrification

To fund ambitious companies, public investment has to be redirected to off-grid renewables. A cost reduction per connection and kilowatt will be observable in a short amount of time because the mini-grid sector will be able to reach the economies of scale needed for any sector to on the one hand reduce costs, and on the other hand fund more research and experimentation, which will further innovation and improvement compared to the current available energy technology. This will grant new jobs, provided donor efforts and investments will reach the concerned companies.

There are three important steps that need to be taken to make improvements and innovation possible: Key actors need to see the importance of decentralised renewables, since the decisions of individuals stand in the way of making new developments. Those decision makers need to be brought on board, which is where the EU comes into play. The European Union will have to take the role of supporting local communities by making agreements with utilities, ministries and multilateral development banks (MDBs). In addition to the broader national and international scale, it is also important to make new energy utilities affordable, which means they either have to be inexpensive enough for poor people to invest in, and/or those people will need higher incomes. This also calls for financial support. Lastly, mini-grids need to receive the same kind of funding as national utilities. The latter ones are financed through long-term, low interest infrastructure funds.

It is necessary to round out those plans with de-risking tools, which will attract semi-commercial and commercial lenders, who will ensure the funding for companies with successful track records that will work towards their goals for rural electrification and thus for a bright future of the decentralised renewable energy sector.

Aaron Leopold, Vice President, Alliance for Rural Electrification

Rebecca Symington, Board Member, Alliance for Rural Electrification