The supply side of solar mini grid relies on factors that encourage or hinder developers and investors from entering a market. Solar mini grids are infrastructure projects that provide electricity, require upfront investments, and generate returns over their lifespan (typically upwards of 20 years). They offer a sustainable alternative and can play a transformative role in expanding electricity access in fragile and conflict-affected settings (FCS). However, as with any investment, solar mini grid developers need to be confident about investing in these settings.
Supply-side considerations for solar mini grid developers and investors when entering FCS markets are discussed in more detail in our recent policy toolkit, Improving the supply side for solar mini grids in fragile contexts, along with other related challenges for the scale-up of solar mini grids in FCS as a part of the State Fragilities initiative’s set of publications.
Opportunity - declining costs of key solar components
A promising development for FCS is that the costs of deploying solar mini grids have been continuously declining. According to the Energy Sector Management Assistance Program (ESMAP), the levelised cost of energy (LCOE), which captures capital and operating costs per kilo-watt hour (kWh) decreased by 31% between 2018 and 2021. This reduction in LCOE has been driven by many factors: the declining costs of key components (for example, solar photovoltaics (PV)), technological innovations (for example, in batteries and smart meters), the introduction of geospatial tools and digitalisation for planning and management, economies of scale achieved in associated industries (such as electric vehicles), and through incentivising income-generating consumption especially during daytime hours.
Enabling environment and financing concerns
All FCS, for which data was available, allow the private sector to own and/or operate solar mini grids. However, their domestic business environment is less than conducive. A majority of FCS rank in the bottom quarter of the World Bank’s Doing Business index (when it was last published in 2020).
Moreover, financing is not easy to access as local banking systems lack capital and/or are not mature. International banks may be reluctant to do business in these countries due to financial and reputational concerns, and/or the country may be under economic sanctions. Moreover, FCS contexts are often characterised by real and perceived risks that increase the costs of raising capital for solar mini grids. This, coupled with low demand and low ability of end-users to pay for electricity, makes the financial viability of projects in these settings challenging.
Supply chains amidst fragility and conflict
Solar mini grids depend on well-functioning supply chains for their equipment and end-user appliances (household and productive use), as well as for maintenance, repair and replacement of equipment and appliances. These supply chains are complex because they are further dependent on:
the supply chains of raw materials (especially critical minerals), key semi-finished components (such as semiconductors), and finished products (for example, solar PV), which are interconnected and far-flung; and
the availability of human resources and skills essential for value creation throughout the supply chain.
For FCS, maintaining supply chains is a challenge. During times of unrest, site access problems, labour shortages, and unavailability of equipment and spare parts tend to increase construction and repair times, extending the period needed for developers and investors to recoup their initial investments.
Moreover, the rising global geopolitics around green transitions and the geographical concentration of critical mineral processing and component manufacturing have further raised concerns about the resilience of these supply chains to shocks.
Relevant skills and complementary infrastructure is key
In FCS, governments may have limited resources to provide quality education and skills development opportunities for their citizens, resulting in a gap between the existing skills and capabilities of the population and the needs and opportunities of the labour market. To support the scale-up of solar mini grids, policymakers will need to (i) undertake capacity needs assessments to identify the skills and capabilities required by the solar mini grid sector and to assess existing capacity and capacity gaps, and (ii) implement capacity building efforts that address the capacity gaps that may exist at the policy, project, and community level.
It is also important to acknowledge the role other sectors play as enablers to complement the establishment and sustainable scale-up of the solar mini grid sector. Availability of transport infrastructure such as roads and railways are crucial for transporting solar mini grid equipment and replacement parts, as well as energy-efficient products and appliances. Telecommunications services that allow for mobile or other digital payments of bills are also vital, particularly when project sites are remote. Financial inclusion of end-users and their improved ability to access credit is important for driving business and livelihood activities for increasing electricity demand.
In FCS settings, these enabling and complementary sectors are either missing, damaged or, at best, underdeveloped. FCS policymakers aiming to meet electrification targets may want to prioritise regions with existing complementary infrastructure for faster delivery. However, such decisions need to be weighed sensitively around electricity equity considerations given that areas with lower infrastructure are already historically marginalised and may lead to heightened social tensions.
The role of policymakers, international organisations, and developers
FCS policymakers need to establish relevant policies and regulations that enhance the ease of doing business, provide clear guidance for developers to navigate the process of setting up mini grid projects and streamline the approval process of proposals to reduce timelines. They need to ensure clear communication across various government departments involved in electricity service delivery and define the roles and responsibilities of each. They must proactively engage with development partners and developers to build capacity and expertise across the value chain.
International organisations can encourage the development and scale-up of the solar mini grid sector by facilitating interventions that can help lower the capital and operating costs for developers operating in FCS, such as providing concessional or grant funding to enable them to enter hard-to-reach areas. They can support with financing capacity needs assessments and capacity-building initiatives and ensure that international experience can be coupled with an understanding of country-specific dynamics.
Developers need to proactively build expertise on emerging technologies in the solar mini grid sector, particularly those that can help with cost reduction, such as geospatial planning tools. They could work with governments and international organisations to develop capacity-building programmes that respond to local needs and are sensitive to the domestic context. They must specifically consider the needs of women, young people, displaced people, and other marginalised groups when undertaking capacity-building initiatives.
To learn more, read our policy toolkitImproving the supply side for solar mini grids in fragile contexts and the relatedset of publications investigating key aspects of scaling up solar mini grids in fragile settings.