Policy and regulatory issues often hamper the growth of mini-grids, especially issues around tariffs, licensing and the arrival of the national grid.
Many countries in Africa do not have dedicated laws and regulations for private investment in mini-grids and in those that do, the rules are often complicated and unclear.
Most countries in Sub Saharan Africa have uniform national tariffs, which means that household consumers are charged the same tariff regardless of whether they are connected to the national grid or located in remote rural areas served by a mini-grid operator.
The electricity generated from mini-grids is generally more expensive than grid power, which means state-owned mini-grids are cross-subsidised.
Private mini-grids have to make a return on their investment and therefore require cost-reflective tariffs or government subsidies to be viable. Some countries allow cost-reflective tariffs, but many do not and this holds back the growth of private mini-grids.
With the exception of very small mini-grids, tariffs will probably need be authorised by the local regulator.
Licences and permits
Getting licences and permits is another challenge. Licenses may be required for the generation, distribution and supply of electricity.
In many countries,there are no formal rules for mini-grid licences. In others the process of obtaining licences is lengthy, bureaucratic and unclear, and multiple government agencies may be involved.
Most countries currently require a separate set of approvals for each mini-grid which can be very onerous on developers.
In future it may be possible to get approvals for clusters of similar mini-grid sites which will reduce the administrative burden on developers.
A wide range of documents may be required to get a licence approved, including:
Certificates of incorporation;
Land lease or ownership documents;
Environmental and social impact assessments (ESIAs);
Health and safety certificates;
Water use rights (for hydro projects); and
Rights of way
For larger projects, it may also be necessary to have a concession contract or a power purchase agreement (PPA).
The expansion of the national grid is a major concern for private investors
Most African governments provide little information on grid expansion plans and very few have clear rules on how mini-grids will be integrated into the grid and how mini-grid owners will be compensated if the grid arrives.
These risks can be mitigated by selecting mini-grid sites that are located far from the grid or in areas where expansion of the grid is not economically feasible such as islands. However, these regions may not have enough economic activity to support a mini-grid.
Mini-Grid Policy Toolkit: Policy and Business Frameworks for Successful Mini-Grid Roll-outs (2014)