Towards energy leapfrogging in sub-Saharan Africa : exploring strategic investment as a way to increase access to finance among mini-grid energy service companies

Troost, Andre Pieter (2018-03)

Thesis (MPhil)--Stellenbosch University, 2018.

Thesis

ENGLISH SUMMARY : The aim to extend national grids as an avenue for universal electricity access in sub-Saharan Africa failed extensively over the past few decades. The high cost of extending national grids coupled with low electricity demand and inability to pay in rural areas have resulted in 590 million people remaining without access to electricity, 80% of whom live in rural areas. Mini-grids powered by renewable energy are increasingly seen as viable alternatives by virtue of the technology’s lower cost, decentralised and flexible nature and provision of energy services that are on par with that of national grids. The technology especially shows promise in sub-Saharan Africa owing to the vast renewable energy potential in the region. However, a variety of challenges are keeping mini-grid energy service companies (ESCOs) from expanding towards commercial viability. As it stands, mini-grid projects in sub-Saharan Africa are not financially sustainable without the help of grants, which results in an unattractive risk-return profile from an investor’s point of view. This study argues that if the sector is to reach a point where debt and equity investors can generate a return, grants need to be complemented with additional funding to enable mini-grid ESCOs to scale up operations, expand their project portfolios and drive down costs. Thus, the main purpose of this study was to explore the potential of strategic investment as a way of attracting additional funding to mini-grid ESCOs. Data was collected by means of in-depth interviews with executive managers of mini-grid ESCOs that are operational in East- and Southern Africa and private sector companies that were identified to exhibit potential for investing strategically in mini-grid ESCOs. The results indicate that there is a need for strategic investments in mini-grid ESCOs. Electric utilities and independent power producers (IPPs) would be more likely to invest, given the closer proximity of mini-grids to their core business. The study contributes to the evolving best practices of viable mini-grid business models, by recommending that mini-grid ESCOs should build competencies in customer relationship management, rural distribution practices and the extrapolation of rural households’ uptake of electricity and electricity dependent products and services from consumption data to commercial applications. Indeed, the study shows that potential strategic investors attach value to these focus areas, with the implication that when mini-grid ESCOs can demonstrate these competencies successfully, the probability of successfully attracting strategic investment would increase. Considering these implications, the study offers a contribution to the development of pathways to attract investment to mini-grid ESCOs, the achievement of which will facilitate energy leapfrogging in the region.

AFRIKAANSE OPSOMMING : Die poging om nasionale krag netwerke te verleng ten doel van universele toegang tot elektrisiteit in sub-Sahara Afrika het grootliks misluk oor die afgelope paar dekades. Die hoë koste met betrekking tot die verlenging van nasionale krag netwerke tesame met die klein vraag na krag en beperkte vermoë om te betaal in landelike gebiede het daarheen gelei dat 590 miljoen mense in die streek steeds nie toegang tot elektrisiteit het nie. 80% van hierdie bevolking woon in landelike gebiede. Mikro krag netwerke wat krag opwek deur middel van hernubare energie bronne word toenemend gesien as lewensvatbare alternatiewe as gevolg van laer kostes, die gedesentraliseerde en buigsame aard van die tegnologie en die vermoë van die tegnologie om krag te bied wat op dieselfde vlak van gehalte is as nasionale krag netwerke. Die tegnologie lyk veral belowend in sub-Sahara Afrika, gegewe groot hernubare energie potensiaal in die streek. Daar is egter ‘n verskeidenheid van uitdagings wat keer dat die mikro krag netwerk sektor in sub-Sahara Afrika uitbrei tot kommersiële lewensvatbaarheid. Die stand van sake is dat mikro krag netwerk projekte in sub-Sahara Afrika tans nie sonder die hulp van skenkings finansieël volhoubaar is nie, wat lei na ‘n onaantreklike risikoopbrengs profiel vanaf die oogpunt van ‘n belegger. Vir die sektor om ‘n punt te bereik waar leners en ekwiteit beleggers ‘n opbrengs kan verkry, word addisionele bevondsing bykomend tot skenkings benodig. Dit sal dan mikro krag netwerk ontwikkelaars in staat stel om hul bedrywighede te vergroot, projek portefeuljes uit te brei en kosts af te dwing. Die hoof doel van hierdie studie was om die potensiaal te eksploreer van strategiese beleggings as ‘n manier om addisionele bevondsing te lok na mikro krag network maatskappye. Data was versamel deur in-diepte onderhoude te voer met uitvoerende bestuurders van mikro krag netwerk maatskappye wat aktief is in Oos- en Suider-Afrika asook privaat sektor maatskappye wat potensiaal toon om strategies te belê in mikro krag netwerk maatskappye. Die resultate dui aan dat daar ‘n behoefte vir strategiese beleggings in die mikro krag netwerk sektor is. Dit wil blyk asof onafhanklike kragverskaffers die meeste potensiaal toon om strategies te belê in mini krag netwerk maatskappye as gevolg van die nabyheid van mikro krag netwerke aan hul kern area van besigheid. Die studie maak ‘n bydrae tot die ontwikkelende beste praktyke van lewensvatbare mikro krag network besigheidsmodelle, deur voor te stel dat mikro krag netwerk maatskappye kundighed moet bou in kliënt verhouding bestuur, landelike verspreiding praktyke en die uitbou van huishoudings se aanneming van elektrisiteit en elektrisiteit-gebaseerde produkte en dienste vanaf verbruiksdata na kommersiële toepassings. Die studie toon dat potensiële strategiese beleggers waarde heg aan hierdie fokus areas, met die implikasie dat wanneer mikro krag netwerk maatskappye hierdie kundigheid suksesvol kan demonstreer, die waarskynlikheid van suksesvolle aantrekking van strategiese belegging sal verhoog. In hierdie wyse maak die studie ‘n bydrae tot die ontwikkeling van strategieë vir die aantrekking van beleggings na die mikro-krag netwerk sektor, sodat ‘n energie sprong gefasiliteer kan word in die streek.

Please refer to this item in SUNScholar by using the following persistent URL: http://hdl.handle.net/10019.1/103433
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