Beyond the grid in Africa
On June 30, 2013, in Cape Town, South Africa, US President Barack Obama announced Power Africa ‒ an initiative to bring together technical and legal experts, the private sector and governments from around the world to work in partnership to increase the number of people with access to power in sub-Saharan Africa.
Rooted in partnerships, Power Africa is working with African governments, the private sector and other partners in sub-Saharan Africa to add more than 30,000 megawatts (MW) of cleaner, more efficient electricity generation capacity as well as increase electricity access by adding 60 million new home and business connections. To date, Power Africa has assisted with the financial closure of transactions expected to install over 4,100MW of new, cleaner power generation capacity when fully online. Power Africa has also made progress toward its connection goals. The additional 4,100MW of power has the potential to enable approximately four million new connections through increased availability of power.
While grid expansion quickly reaches urban and peri-urban areas, the deep rural areas may remain unserved for decades. For this reason, Power Africa is helping to advance off-grid and small-scale solutions (e.g., solar lanterns, solar rooftop systems, mini-hydro, mini-grids) to increase access to underserved areas through Beyond the Grid. Beyond the Grid is a Power Africa sub-initiative that drives private investment in off-grid and small-scale energy solutions to ensure that people living in remote areas also get access to power. This sub-initiative utilizes Power Africa’s innovative transaction-focused model to accelerate transactions and drive systemic reforms to facilitate future investment for off-grid and small-scale renewable energy solutions under 10MW. Beyond the Grid focuses on two strategic priorities driving toward achieving the goal of adding 60 million new home and business connections:
1. Addressing recurring market constraints in the household energy market by increasing access to financing and providing technical assistance.
2. Striving to achieve scalable, cleaner community-level solutions that offer electricity access greater than the first tier of task lighting. Ensuring enabling environments are supportive through regulatory and policy regimes is critical to facilitate private sector success.
First, sustainable, private sector-led business models for off-grid and small-scale energy solutions are beginning to succeed in the marketplace ‒ bolstered by decreasing costs of technology, innovative financing options, and a growing cohort of entrepreneurs meeting the demand of sub-Saharan Africa’s underserved populations. Building on this momentum, Beyond the Grid utilizes the full suite of tools and resources of the many US Government agencies and other donor and private sector partners, working together as part of the Power Africa team to mobilize finance to small-scale energy projects, as well as partner with our international partners to coordinate and leverage activities.
Second, growth and successful scaling of the small-scale renewable energy sector hinges on the public sector providing transparent regulatory and policy regimes that provide clear, predictable rules for project development, investment and operation. However, existing policies and regulatory frameworks are not always primed to support new and emerging business models enabled by rapidly transforming technologies like mobile money.
To catalyze the private sector’s significant resources, Beyond the Grid supports activities that create an enabling environment for development and investment in this space. For example, Power Africa, the World Bank Group, and the Government of Ghana are collaborating on sector reform issues, including tariff reform, private sector participation, and securitization for natural gas and electricity supply chains. In August 2014, the Millennium Challenge Corporation (MCC) signed the Ghana Power Compact, an investment of up to $498.2 million to support the transformation of Ghana’s electricity sector and stimulate private investment, which has bolstered the Electricity Company of Ghana and transparent quarterly updates for cost-reflective tariffs. Ensuring that tariffs fully reflect the cost of producing power is critical to the liquidity of the institutions in the sector and helps attract investors who can be confident that their investments will yield a return.
Tools of the trade
Through the Power Africa Toolbox, Beyond the Grid makes use of services across US-government and other donor partner agencies to fulfill its objectives. For example, the US-Africa Clean Energy Financing initiative (ACEF) and the US African Development Foundation (USADF) have funded companies and projects expected to reach one million new connections. There are many opportunities for Power Africa to work with the private and public sectors, as well as the financial sector, to reach our goals. The following are several examples of such opportunities.
USADF, in partnership with the US Agency for International Development (USAID) and General Electric Africa, supports the Off-Grid Energy Challenge. The Challenge provides $100,000 grants to entrepreneurs and private organizations developing innovative off-grid technologies. The Challenge is entering its third round, having already provided support to 28 small enterprises over the past two years. In addition to providing 11 grants, the third round is also opening entries to three new countries in East Africa ‒ Rwanda, Uganda and Zambia.
The US Trade and Development Agency (USTDA) provides grants for early-stage project development. For example, USTDA has funded feasibility studies for mini-hydro projects in Rwanda and Tanzania, project development support for grid-connected solar in Rwanda, and isolated solar diesel hybrid mini-grids in Lake Victoria in Tanzania.
The Overseas Private Investment Corporation (OPIC) has a long history of working in Africa and supports Power Africa by providing financing and political risk insurance to on-grid and off-grid power projects. In addition, OPIC also seeks to develop new partnerships and processes to support investors.
• OPIC is part of the ACEF program, which provides project preparation support to help get early-stage projects off the ground. This program has committed more than $9 million so far to early-stage solar, wind, biomass and hydropower projects in Tanzania, Rwanda, Ethiopia, Namibia, Kenya, Uganda, Nigeria and Senegal.
• OPIC has developed a new process called the Innovative Financial Intermediary Program (IFIP) to help us support atypical deal structures and propose pooled capital, such as an investment fund, as well as debt financing, such as OPIC’s traditional loans and guaranties.
• OPIC has also developed a new tool called Portfolio for Impact (PI), which essentially helps facilitate highly impactful early-stage projects.
The U.S. Department of Commerce’s Commercial Law Development Program (CLDP) worked with Power Africa’s private sector partners and the African Development Bank to create a book on Power Purchase Agreements (PPAs). This book is facilitating and expediting private investment in renewable energy. CLDP brought together African government lawyers who are directly involved in drafting these documents with the lawyers who represent banks and project developers to come up with a clear guide in both English and French that will help reduce the time it takes to negotiate deals.
The USAID develops the off-grid and small-scale renewable energy sectors through its instruments:
• Development Innovation Ventures (DIV), a competitive grants program for innovative ideas that provides support to innovations that, through rigorous analysis, demonstrate real-world viability and convincing evidence that the private sector will invest in scaling up their scheme.
• The Development Credit Authority (DCA), a facility that provides risk guarantees to financial institutions to ensure that otherwise unsupported enterprises can receive financial assistance.
• Partnerships for Enhanced Engagement in Research (PEER), a competitive grants program which supports development-centered, in-country research and capacity-building in partnership with US-government supported facilities.
• CTI-Private Financing Advisory Network (CTI-PFAN), a facility that provides guidance and financial support to projects in the renewable energy environment, from early stages to financial closure.
• Power Africa Transaction Advisors, who provide project development advisory support to project sponsors in the public and private sectors. This support can extend beyond project-specific assistance to technical advice on national renewable energy programs and regulatory refinement to promote private investment in off-grid cleaner energy solutions, encourage and support rural electrification and reduce restrictions on importation of renewable energy sector equipment.
Beyond the Grid’s current project portfolio of over 100 projects spans the full range of off-grid solutions and small-scale renewable technologies, and touches countries across sub-Saharan Africa. Several examples include:
In Kenya, a biomass project rids the environment of an invasive tree species and generates electricity for a village and local industry. The intention is to expand this program to up to 15 systems which will make use of locally available invasive species or biomass waste, such as macadamia shells, coconut shells and bagasse from other industries.
● In Tanzania, Beyond the Grid is working closely with the government and a project developer to develop a portfolio of several mini-hydropower schemes. Through the Off-Grid Challenge, USADF is supporting mini-hydro and solar mini-grids, as well as a solar lantern franchise focused on the development of women entrepreneurs.
● In Ethiopia, USAID is supporting the development of a mini-grid using a small wind turbine and solar PV; USADF is working on an innovative financing scheme for solar home systems; and USAID PEER is supporting a local university in research on the development of micro-grids.
● In Ghana, USADF is supporting the development of a portable solar charging system for mobile phones, allowing the vendor to set up the system which forms part of his storefront.
● In Liberia, USAID is supporting a run-of-river mini-hydro project and a biomass to biodiesel project using palm oil that will run a small generator.
● In Rwanda, an 8.5MW grid-connected solar PV system has been installed at the Agahozo Shalom Youth Village (ASYV) by Gigawatt Global with support from ACEF. Apart from the supply of electricity, the ASYV is providing jobs, ongoing education in solar PV, and a steady rental income for the solar farm. The system occupies 17 Ha and is shaped like the African continent.
A look ahead for Beyond the Grid
As the cost of solar PV reduces, so too does the ease with which solar home systems can be installed and maintained in remote areas. There is a large market opportunity in sub-Saharan Africa, which makes this technology a natural focus area for Beyond the Grid to rapidly scale up and increase rural electrification. Power Africa is working with partners to develop a targeted effort to scale up household solar solutions.
Power Africa’s over 100 private sector partners have committed more than $20 billion toward specific projects, including $1 billion in commitments under Beyond the Grid to ensure that people living in remote areas have access to power. Beyond the Grid will continue to galvanize collaboration, engage in critical actions to accelerate transactions, and drive systemic reforms to facilitate future investment in off-grid and small-scale energy solutions.