Electricity is central to economic and human development. It is key to the development of agriculture, business, education, healthcare and transportation. However, access to electricity alone is not enough to bring long-term sustainable economic development. The growth in the consumption of electricity is key to ensuring a path to sustainable development.
Communities living in rural areas are desperate to be connected to electricity. To realize the full potential of electricity, rural communities need to be empowered to engage in the productive uses of electricity that would increase their average daily income and quality of life.
Minigrids can be the least-cost solution to electrify populations living in rural areas and close the energy access gap. Nevertheless, without significant loads minigrids are unprofitable and financially unsustainable. Productive uses contribute to increased demand for electricity. As the demand grows, so does the revenue which makes the development of minigrids economically viable. Most costs related to development of minigrids are fixed, and therefore connecting more end users who consume more electricity is crucial for the financial success of minigrid developers and achieving affordable tariffs.
Increasing average consumption of electricity through productive uses can significantly impact both the sustainability of minigrid sites and the living standards of rural populations.
Electric appliances grow the load
Across Africa, it is not uncommon to see many rural homes connected to electricity using it for only lighting or charging a phone, in what could be termed as ‘underusage’ of electricity. Rural populations have limited access to appliances that they can use to engage in the productive uses of electricity to improve their welfare and at the same time increase the load for minigrids. Appliance financing would play a critical role in growing the load in rural areas where appliances are largely out of reach for many people. Unfortunately, many households in rural areas are excluded from the formal financial services. According to the World Bank data, around 45% of people living in Sub-Saharan Africa in 2021 did not own an account with a financial institution or with a mobile money service provider, and therefore could not access formal financial services. Underserved populations frequently have limited financial options and are perceived to be high risk, with low potential for earning lenders a profit.
Minigrid developers can work with local financial service providers to help design consumer finance products for the low-income households in rural areas by sharing data on how the households consume electricity and pay their bills. The data can be used to develop a credit scoring tool to unlock credit facilities that can help low-income households acquire the appliances they need to increase their incomes and quality of life. Electric appliances such as welding machines and water pumps can increase incomes, while refrigerators, water heaters, and televisions improve the quality of life while increasing the load for minigrids at the same time.
Appliance Financing, a study by CrossBoundary Innovation Lab involving AMDA members found that average consumption per user is 48% higher on sites where appliance financing is offered, while the top 20% of appliance financing users consume 16 times more electricity than their counterparts. According to the study, grain mills and cold storage are popular productive uses of electricity in rural areas, with the top 20% of customers who use income-generating machines like grain mills and fridges accounting for 80% of electricity consumption.
Electrification of agricultural activities
As attention grows to the productive uses of electricity, much focus will shift to the role of electricity in mechanizing the agriculture sector. Agriculture is the backbone of the rural economy across the continent, accounting for 53 percent of total employment on average. Increasing electrification of agricultural activities would spur a huge demand for electricity, which would grow the load for minigrid developers in rural areas. To extend the growing season for rural smallholder farmers, electricity is needed to power water pumps for irrigation. Cold storage units address the problem of post-harvest losses for perishable produce and reduce the risk of food contamination. Cold storage solutions require reliable supply of electricity for larger-scale preservation of produce from rural farms. Solar minigrids can provide high-quality uninterrupted electricity, an uptime of 97 to 99 %, to power the cold storage needs of rural economies.
Other than agriculture, e-mobility is accelerating across the continent and can be an anchor load for minigrids. A technical report by the World Bank’s Energy Sector Management Assistance Program (ESMAP) states that the increasing penetration of electric vehicles will result in additional electricity demand in the power system, estimating that it will constitute up to 4% of total electricity consumption during this decade and further rising to 10% by 2040. The report further highlights that in the generation system, electric vehicles deployment will primarily have an impact on the peaking units hence the need to supply the additional power with renewables. Minigrids will be critical to supplying the additional power, especially in rural areas.
Growing skills in the energy sector is critical to increasing the uptake of the productive uses of electricity. Skills training is required to empower populations living in rural areas to participate fully in the productive uses. When people are confidently able to use and operate electric appliances and know that they can easily access technical support, chances of them acquiring those appliances become high.
A study commissioned by Nefco, Scaling Productive Use of Energy Solutions in Sub-Saharan Africa, found that whilst numerous recent productive uses of energy initiatives have resulted in some success, none have yet reached scale. Similarly, minigrid developers have been self-funding their productive use work but there have not been any clear successes across the market that consistently demonstrates load growth, which makes commercial investment elusive.
Investing in rural development is not only key to lifting millions of people out of poverty, but also crucial to meeting the SDGs. The slow pace of rural development across Sub Saharan Africa has led to weak demand for electricity, consequently denying minigrids the much-needed loads. The majority of minigrid developers agree that if rural economic development programs were successful, they would be profitable today, and this would unlock scale. Looking ahead, minigrid productive use efforts should link to rural development programs and work with third party vendors and micro-entrepreneurship training to ensure appliances and local businesses are increasing incomes. Evidence from AMDA members who participated in CrossBoundary’s Innovation Lab shows that asset financing for small productive use appliances grows the load significantly.