Case studies Publication Date 30 March 2022 Published 30 Mar 2022
Scaling Mini-Grid Program
- Sub-Saharan Africa (SSA) accounts for two thirds of the global electricity deficit. 570 million people lack access to electricity in the region.
- Green mini-grids are powered by a clean energy source - usually solar PV - combined with battery storage and a local smart distribution system. While the market remains in its early stages, innovations in technology and business models, coupled with declining costs, are making them an increasingly relevant solution and up to 30% of Africa’s unconnected population could be provided with electricity via mini-grids.
- The World Bank (WB) through the Global Facility on Mini Grids (GFMG), a global knowledge and technical assistance program.
- The International Finance Corporation (IFC) is a member of the World Bank Group and uses capital and expertise to create markets and opportunities in developing countries.
- Multilateral Investment Guarantee Agency (MIGA) – through providing political risk and breach of contract guarantee instruments.
- The Global Infrastructure Facility, the Green Climate Fund, the Rockefeller Foundation, the Sustainable Renewables Risk Mitigation Initiative (SRMI) and the Governments of Italy and Canada through their energy partnership programs with IFC.
- In many of the emerging market economies where mini-grids would be most effective, the lack of stable public-private partnership (PPP) frameworks and limited institutional capacities combined with demand, currency and political risks, make it hard for stakeholders to plan and develop bankable projects and attract private investment.
- The current mini-grid sector is characterized by small fragmented early-stage market developments, lack of competition, high transactions costs, perceived risks, and cost of capital.
- IFC in close collaboration with the WB, MIGA and in consultation with key market and industry players, has worked on the development and design of the Scaling Mini-Grid (SMG) platform: a set of semi-standardised project preparation requirements, templates, risk mitigation instruments, and stapled financing.
- IFC has signed its first country mandate to be implemented in coordination with the WB and MIGA to provide an estimated USD400 million investment package to connect the Democratic Republic of the Congo’s (DRC) two of the largest and poorest provincial capitals with more than 180MW renewable based electricity.
- The SMG project in the DRC features a number of innovations, including a first-of-a-kind minimum revenue guarantee that aims to help de-risk and unlock further private investments in the space.
Results and impact
- In DRC, SMG’s first country mandate, the platform is currently leveraged to bring clean energy to 1.5 million people, businesses, schools, and clinics by targeting an estimated 180 megawatts of installed solar PV capacity. This is the largest mini-grid transaction under preparation globally for a total investment of USD400 million.
- The ambition of the WBG is to replicate this model in other SSA countries to bridge the electrification gap.
Key lessons learnt
- Striking a balance between standardisation and customisation is key in designing investment platforms. Focusing on standardisation helps ensure bankability and replicability. Consistency across countries can create a single, virtual large-scale market to attract the best global bidders. Yet, template documentation must be quickly tailored to adapt to local needs, country strategies and different regulatory frameworks.
- Focusing on de-risking strategies and instruments lead to lower costs by minimising investor risks and enables the least cost of capital. This optimises capital structure and reduces the current heavy reliance on capital subsidies.