Mini-Grids for the Sustainable Electrification of Rural Areas in Sub-Saharan Africa: Assessing the Potential of KeyMaker Models

Abstract

Solar hybrid mini-grid systems possess the potential to substantially support electrification in sub-Saharan Africa. While their technical reliability has been proven, their financial viability is achieved only by heavy subsidization as of now. Due to the growing importance of results-based financing, we ask whether newly developed business models leveraging on the value added of electricity supply in rural areas (such as the KeyMaker Model) bare the potential to substantially reduce amount of grants required to finance the initial capital investment and thus contribute to a sustainable form of development. The principle of the KeyMaker Model is based on utilizing the locally supplied mini-grid electricity to establish a local agro-processing project, the revenues of which are an additional income stream for the mini-grid operator, while the project creates an end-market for the local farmers to sell their produce. We have developed two scenarios (without and with KeyMaker Model) for four rural villages in Nigeria as a case study to scientifically assess the potential of KeyMaker Models. We simulated and optimized the mini-grid systems using the software tool HOMER. We then assessed their financial viability. Our analysis demonstrates grant finance requirements ranging from 82% to 99% of the total investment for the base-case mini-grid projects without consideration of the KeyMaker Model. We find that a well-selected KeyMaker Model such as cocoa bean processing reduced the grant requirement by 68 percentage points, while processes based on maize, palm oil and cassava processing achieved reductions of 36, 26 and 8 percentage points, respectively. Hence, we conclude that the value added by the introduction of new local business models bares the potential to reduce grant requirements for the socially and economically necessary electrification across the Global South.

The Business Model for Access to Affordable RE on Economic, Social, and Environmental Value: A review

“…-micro-and mini-grids provide first-time electricity access in previously unconnected areas [89]; -warm electrification refers to the practice of connecting individual solar power systems to create low-voltage micro-grids [90]; -for example, efficient use of electricity in the workplace [11]; -seeds of electrification, whereby prosumers replace diesel use by selling excess electricity to nearby homes and businesses [91]; -energy cost savings, decarbonization of distributed generation, and innovative financing for prosumer business models are the three primary value propositions for decarbonizing the grid [19]; -energy efficiency and digitalization, for instance, can lead to the creation of virtual power plants for prosumers, which can then be used for energy management and to generate income [92]; -battery storage for electricity in conjunction with micro-and mini-grids to meet peak demand or store energy produced locally [93].…”

“…To compensate, they are willing to pay more for electricity generated by conventional means [87]. There is evidence that productive electricity use can boost rural economies, albeit to varying degrees [11]. Several studies have found that users are more receptive to value propositions when they include promises of increased household income from sources like energy crop cultivation, employment in bioenergy supply chains, and improved living conditions [109][110][111].…”

“…Researchers have found that mini-grids can be financially viable if they focus on increasing demand, which reduces the levelized cost of electricity (LCOE). In Nigeria, for instance, the LCOE of solar mini-grids ranged from USD 1.2/kWh to USD 1.4/kWh for non-productive uses and from USD 1.1/kWh to USD 1.4/kWh for productive services, such as running high-load machinery [11]. When prosumers switched from self-generation and consumption to selling excess electricity generated by solar systems to neighboring households, the Levelized Cost of Energy (LCOE) decreased by 4% [91].…”

“…Consumer selection for this product is based on financing to encourage absorption and promote renewable energy [8][9][10]. The development of this renewable energy business model can also provide benefits and business opportunities to increase renewable energy and company revenues [11][12][13]. In addition, the development of this business model can apply regulations and adapt to the environment, as shown by the decarbonization of power plants [14][15][16].…”

Analysis of Private Mini-Grid Development for Rural Rwanda

“…Furthermore, there is a lack of knowledge about potential revenue from non-electricity sales, and income from complementary services is more diverse and poorly documented [39]. Research is needed to assess synergies between BMs and sectors, such as agriculture value chains and applications [40]. Developers document their innovations' learning outcomes, but they do not share them with actors outside their organization.…”