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Solar Mini-Grids

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Solar Mini-Grids

Country
Sector
Most major industry classification systems use sources of revenue as their basis for classifying companies into specific sectors, subsectors and industries. In order to group like companies based on their sustainability-related risks and opportunities, SASB created the Sustainable Industry Classification System® (SICS®) and the classification of sectors, subsectors and industries in the SDG Investor Platform is based on SICS.
Renewable Resources and Alternative Energy
Sub Sector
Most major industry classification systems use sources of revenue as their basis for classifying companies into specific sectors, subsectors and industries. In order to group like companies based on their sustainability-related risks and opportunities, SASB created the Sustainable Industry Classification System® (SICS®) and the classification of sectors, subsectors and industries in the SDG Investor Platform is based on SICS.
Alternative Energy
Indicative Return
Describes the rate of growth an investment is expected to generate within the IOA. The indicative return is identified for the IOA by establishing its Internal Rate of Return (IRR), Return of Investment (ROI) or Gross Profit Margin (GPM).
< 5% (in IRR)
Investment Timeframe
Describes the time period in which the IOA will pay-back the invested resources. The estimate is based on asset expected lifetime as the IOA will start generating accumulated positive cash-flows.
Medium Term (5–10 years)
Market Size
Describes the value of potential addressable market of the IOA. The market size is identified for the IOA by establishing the value in USD, identifying the Compound Annual Growth Rate (CAGR) or providing a numeric unit critical to the IOA.
85% of the Malawi's population is not connected to the main grid, and the country seeks to provide 13,500 residential connections through off-grid mini-grids by 2023
Average Ticket Size (USD)
Describes the USD amount for a typical investment required in the IOA.
USD 500,000 - USD 1 million
Direct Impact
Describes the primary SDG(s) the IOA addresses.
Affordable and Clean Energy (SDG 7) Reduced Inequalities (SDG 10)
Indirect Impact
Describes the secondary SDG(s) the IOA addresses.
Responsible Consumption and Production (SDG 12) Decent Work and Economic Growth (SDG 8) No Poverty (SDG 1)

Business Model Description

Produce, deliver, install, finance and maintain solar mini-grid systems solutions for peri-urban residential and commercial end users, unlikely to be connected to the grid, using innovative pay-as-you-use/pay-as-you-go end user payment models.

Expected Impact

Increase access to off-grid electrification and reduce carbon emissions through renewable energy solutions for consumptive and productive use.

How is this information gathered?

Investment opportunities with potential to contribute to sustainable development are based on country-level SDG Investor Maps.

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Country & Regions

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Country
Region
  • Malawi: Countrywide
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Sector Classification

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Sector

Renewable Resources and Alternative Energy

Development need
Only 16% of Malawians have access to electricity - with a worryingly declining trend - compared to a world average of 91% (11). At the same time, deforestation is at an all-time high and 96% of Malawians are cooking with firewood or charcoal (22).

Policy priority
Malawi has recently launched it's long-term Vision MW 2063 and the second pillar of Industrialisation focuses on inter alia Investment in Power Generation and Access to electricity. The Government is committed to increasing Malawi’s generation capacity by 1000 MW by 2025 (1).

Gender inequalities and marginalization issues
Energy poverty, one aspect of broader economic poverty, has distinct gender characteristics that disproportionately affect women and girls. Women and girls are often primarily responsible for collecting fuel and water at the community level. Also, poor women tend to participate in the informal economic sector (for example the food sector), which relies strongly on biomass as its main energy source, which, in turn, does not feature heavily in national energy policies and priorities. Indoor pollution from the burning of solid fuels is a serious health problem for women and girls (35). Only 7.5% of female headed households use electricity for lighting compared to 12.9% of male headed households (12).

Investment opportunities introduction
The Government has classified the energy sector among the priority industries, with entitlement to special incentives. It has also opened up the energy sector to both public and private sector investments to ensure that power deficiencies are addressed with a view to ultimately improve access to electricity in the country. In this regard, there is an Independent Power Producer (IPP) framework that helps to promote and incentivize investments in power production, sustain purchase costs for power from independent producers and thus encouraging wider participation (4).

Key bottlenecks introduction
Malawi has a high population density, and the current population growth rate of 2.8% is outpacing the rate of electrification. According to the 2018 Doing Business Report, procedures, time, cost to get connected to the electrical grid, the reliability of electricity supply, and the transparency of tariffs in Malawi are ranked extremely low (169th out of 190 countries) and below the Sub-Saharan African average (10).

Sub Sector

Alternative Energy

Development need
Malawi's electrification rate is only 16% and with the goal of universal access by 2030, there is a big development need for off-grid solutions. Progress for SDG 7 is stagnant and indicators are currently off target (6).

Policy priority
According to Malawi's Renewable Energy Policy, mini-grids are the most economically viable technology solution in areas with a population which has a density above 250 inhabitants per square kilometre and are situated more than 5km from the medium-voltage grid line. This represents more than 4.5 million Malawians or 27% of the people currently living without electricity in the country (26).

Gender inequalities and marginalization issues
Rural communities are often left behind in the electrification process as shown in the gap in access to electricity rate between urban (42%) and rural (4%) households (27).

Investment opportunities introduction
With a high demand for off-grid electrification and 3.7 million households not connected to the grid, tax exemptions from the Government and many development programs that subsidize the initial step for mini-grids, there is a significant market of 16 million un-electrified people in Malawi (43).

Key bottlenecks introduction
Misconceptions about the reliability of solar panels, lack of access to finance and to trained maintenance personnel are some bottlenecks Malawi faces regarding alternative energy.

Industry

Solar Technology and Project Developers

Pipeline Opportunity

Discover the investment opportunity and its corresponding business model.
Investment Opportunity Area

Solar Mini-Grids

Business Model

Produce, deliver, install, finance and maintain solar mini-grid systems solutions for peri-urban residential and commercial end users, unlikely to be connected to the grid, using innovative pay-as-you-use/pay-as-you-go end user payment models.

Business Case

Learn about the investment opportunity’s business metrics and market risks.

Market Size and Environment

Critical IOA Unit
Describes a complementary market sizing measure exemplifying the opportunities with the IOA.

85% of the Malawi's population is not connected to the main grid, and the country seeks to provide 13,500 residential connections through off-grid mini-grids by 2023

The estimated Malawi population with electricity is 3.4 million people. The estimated 2022 population is approximately 4,435,000 households, leaving 3.7 million households (16.6 million people) without grid or off-grid service. Of those, 4,545,807 people, currently without electricity, live in areas with a population density of more than 250 inhabitants/km2 that are more 5km away from an MV line. (28). Approximately 3,843 public facilities do not yet have access to electricity service. Grid and off-grid access will need to grow at an average rate of 607,567 connections per year to reach universal access by 2030, with a peak growth rate of 1.17 million connections in 2028 (24).

Off-grid sources of energy such as mini-grids and solar energy contribute approximately 6% percent to national energy access (37). Between grid extension and the provision of pico solar services in rural areas, the target is for 100% of the population to have at least Tier 1 electricity service by 2030 (33). The target for 2030 off grid mini-grids is 13,500 residential connections (38).

The potential market for mini-grids is large, with over 85% of the population not connected to the main grid. The total population without access is almost 17 million (28). 65% of Malawi's adults and 60% of households would pay more than 20% of their monthly income to buy 1 kWh per day, or 365 kWh per year, at the 2020 grid tariff of MWK 17,520 (USD 10.41) and MWK 24,455 (USD 14.53). 8% of households would pay 146% of monthly household income, and another 10% would pay 58% of monthly household income (15).

Indicative Return

IRR
Describes an expected annual rate of growth of the IOA investment.

< 5%

Generally in in Sub-Saharan Africa, Type 2 (100 – 1000 kW with a public element where one authority is in charge of implementation of projects and a corporation is in charge of operation and maintenance) or Type 3 (< 100 kW and used in small but densely populated areas covering small radiuses with low voltage distribution) mini-grids can offer equity IRRs of 12-18%. However, the relatively low incomes in Malawi mean the expected returns will be lower (17), and no mini-grid has been fully privately funded in Malawi so far (10).

Community Energy Malawi (CEM) operates a solar mini-grid at Sitolo Village. The project is supported by United Nations Development Programme (UNDP) and the Malawi Department of Energy. The UNDP-Global Environment Facility (GEF) provided grant funding of USD 300,000 plus an additional USD 100,000 for technical assistance and staffing, local capacity building and village awareness creation (28). The Government of Malawi through the Ministry of Energy supported the project by being the conduit for UNDP funding and providing technical support in terms of grid design. The Malawi Energy Regulatory Authority (MERA) also provided regulatory assistance (18).

Investment Timeframe

Timeframe
Describes the time period in which the IOA will pay-back the invested resources. The estimate is based on asset expected lifetime as the IOA will start generating accumulated positive cash-flows.

Medium Term (5–10 years)

Mini-grids in Kenya feature a 7+ year payback period (19).

Ticket Size

Average Ticket Size (USD)
Describes the USD amount for a typical investment required in the IOA.

USD 500,000 - USD 1 million

Market Risks & Scale Obstacles

Capital - Requires Subsidy

Energy from a the Sitolo minigrid operated by Community Energy Malawi (CEM) at fixed tariff was being sold at USD 0.18/kWh for households, USD 0.19/kWh for businesses, and USD 0.09/kWh for social gatherings as of 2022. There is a one-time connection fee of MWK 20,000 (USD 11.88) (20). This tariff is possible with grant funding, however, capital for investment is a key challenge in Malawi as feasibility energy business models are difficult to pitch to Malawian banks, and financial players tend to be risk averse. Interest rates in Malawi are extremely high, with banks regularly charging in excess of 40% (28).

Business - Business Model Unproven

Determining the ability and willingness to pay of customers is an inherently difficult process. High uncertainty exists with determining the expected electricity demand of previously unconnected communities and considerable variation can exist between relative wealth levels in the village (28).

Business - Supply Chain Constraints

Exchange rate fluctuations have impacted Malawi's renewable energy projects finances, especially when components are purchased from abroad (28).

Business - Supply Chain Constraints

The majority of energy projects in Malawi are currently funded by overseas donor grants. Prolonged donor funding could distort markets and hinder private sector initiatives (28).

Impact Case

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Sustainable Development Need

Only 11% of Malawians have access to electricity, which is far below the average for Sub-Saharan Africa of 42.8%. This low rate of electrification leads to the widespread use of candles and paraffin for lighting, thereby creating health risks and limitations for the use of productive time (6).

Malawi's available peak capacity for grid electricity stands at 285 MW, including 55 MW of emergency diesel generation. This is well below the peak demand of 350MW (28).

Gender & Marginalisation

With only 3.9%, Malawi's rural areas have significantly lower electricity access rates, compared to 48.7% in cities (6). Marginalised communities, including women, girls and other disadvantaged groups, are most likely to suffer from the lack of electricity access.

Malawi has one of the lowest electricity access rates in the Southern African Development Community (SADC), with an electricity use per capita of 85 kWh compared with 169 kWh in eastern Africa. Access to energy is an enabler for development and a lack of energy is a barrier to economic empowerment and poverty eradication (28).

Expected Development Outcome

Solar mini-grids increase productivity in rural areas, and providing access to electricity, offer an opportunity for rural economic development.

Gender & Marginalisation

Solar mini‐grids can significantly reduce women’s drudgery and save them time, particularly in female‐dominated labour‐intensive agricultural and food processing activities through uptake of electrical appliances, such as water pumps, grinders, mills, blenders, refrigeration and in a few cases, electric stoves (42).

Solar mini-grids will power area lighting which will enhance security at night especially for women and girls who can be targets for sexual assault. (28)

Primary SDGs addressed

Affordable and Clean Energy (SDG 7)
7 - Affordable and Clean Energy

7.1.1 Proportion of population with access to electricity

7.2.1 Renewable energy share in the total final energy consumption

Current Value

10.7% in 2016 (6).

7% (2016) (6).

Target Value

100% by 2030: 45% by grid, 10% by mini-grids and 45% by off-grid devices (21).

50% by 2030 (6).

Reduced Inequalities (SDG 10)
10 - Reduced Inequalities

10.1.1 Growth rates of household expenditure or income per capita among the bottom 40 per cent of the population and the total population

Current Value

N/A

Target Value

10% by 2030 (6).

Secondary SDGs addressed

Responsible Consumption and Production (SDG 12)
12 - Responsible Consumption and Production
Decent Work and Economic Growth (SDG 8)
8 - Decent Work and Economic Growth
No Poverty (SDG 1)
1 - No Poverty

Directly impacted stakeholders

People

The general population benefits from affordable and easily accessible energy options, which bring about environmental, education and productive benefits. From rural solar-traders utilising small solar panels and batteries, to industrial processes utilising large-scale power plants, renewable energy can help to create jobs and achieve prosperity.

Gender inequality and/or marginalization

Clean, affordable energy sources for lighting enable women to run small productive business and children can study in a safer environment.

Planet

The environment benefits from the use of renewable energy options at scale.

Corporates

Engineering, Procurement and Construction contractors for the development of solar mini-grids benefit from increased procurement. Other solar equipment, minigrid operators and maintenance companies benefit from increased purchases.

Public sector

The Government benefits from reduced pressure on the national electricity grid.

Indirectly impacted stakeholders

People

Rural households obtain job and generation opportunities through the commercialisation of services facilitated through the development and maintenance of mini-grids.

Corporates

Retailers of home appliance products and electronic goods and lighting see positive uptake in goods.

Public sector

The additional productivity from access to energy results in greater economic activities.

Outcome Risks

Battery systems (like what would be required in a mini-grid system) in an area without a system for recycling or disposal can lead to significant soil and groundwater contamination, with noticeable public-health impacts (45).

Poor community participation and buy-in from inception of a mini-grid can affect issues such as security of the site and equipment (46).

Impact Risks

Mini-grids without subsidies would require a cost-reflective price for the electricity supplied to the people and could possibly make the electricity unaffordable for the majority of the individuals in rural areas who are unlikely to be connected to the grid for the foreseeable future (28), including costly maintenance for rural communities.

Generally mini-grids focus on electrical power for lighting, communications and productive uses, not addressing from the outset the need to reduce firewood and charcoal consumption. The high electrical load of current electric cookers presents a barrier to mini-grid system designers, as the cost per kWh to cook a meal will likely be higher than the equivalent cost of firewood (28), which may mean that the environmental benefit does not materialise.

Impact Classification

C—Contribute to Solutions

What

Solar mini-grids improve access to clean energy for rural communities without a grid connection, reducing carbon emissions and dependence on wood for fuel and lighting.

Who

Off-grid populations who are underserved due to a lack of stable, affordable and clean energy sources. There is also a positive impact on the environment as less paraffin and charcoal are used for lighting and heating.

Risk

The business model is proven but considerations with regards to affordability of the electricity tariff to the communities and the usage profile of community members need to be taken into account.

Contribution

ESCOM needs to triple its annual connection rate from the current average of 35,000 households to at least 100,000 households, prioritizing grid densification to achieve both speed and efficiency and achieve targets set out in Malawi 2063 (48).

How Much

Grid and off-grid access will need to grow at an average rate of 607,567 connections per year to reach universal access by 2030 (47).

Impact Thesis

Increase access to off-grid electrification and reduce carbon emissions through renewable energy solutions for consumptive and productive use.

Enabling Environment

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Policy Environment

Malawi Energy Policy, 2018, seeks to increase access to affordable, reliable, sustainable, efficient and modern energy for every person in the country. It promotes the use of renewable energy technologies and the manufacturing of renewable energy products, such as solar panels (5).

The National Energy Policy acknowledges that renewable energy and mini-grids have not been promoted significantly. Further, rural electrification has so far concentrated on electrifying selected trading or rural growth centres in the districts (5).

Malawi Renewable Energy Strategy (MRES) of 2017 aims to set immediate agenda for action to promote renewables and improve the regulatory, fiscal and legal framework for the sector (35).

Financial Environment

Fiscal incentives: The Government offers zero-rating of solar products and components from import duty as well as excise duty and 16.5% VAT (22, 24).

Financial incentives: Ecokraft is a development finance, sustainable trade and social impact investment intermediary (21.1). It provides de-risked impact investments offerings, de-risked through targeted technical assistance provided during the early stages of a project. During project operation, projects are de-risked through use of a mobile Energy Services Payment tool powered by blockchain technology (28).

Other incentives: The Malawi Rural Electrification Fund obtains revenue from rural electrification levies on energy sales, and is primarily meant for: “the capital cost of rural electrification grid extension and off-grid electrification; the capital cost of solar home system equipment to be acquired for public institutions; and operational and maintenance costs of rural electrification projects, to the extent to which it makes the project viable” (22.1). It hence provides additional capital support for specific mini-grid projects as well as subsidies to make energy costs more affordable to the targeted community.

Other incentives: The Rural Energy Access through Social Enterprise and Decentralisation Project (EASE) from the Scottish Government has provided funding to the tune of USD 1.8 million to address energy poverty in marginalised rural communities in Dedza and Balaka districts (23.1).

Other incentives: The World Bank Group's Malawi Electricity Access Project Includes a USD15 million off-grid component – 70% will be channelled through a debt facility and the remainder will go to results-based grants to distributors (24.1).

Other incentives: The United Nations Development Programmes' (UNDP) Access to Clean and Renewable Energy Project aims to develop clean energy mini-grids that promote productive uses of energy. The UNDP is providing grant funding to the tune of USD 4.8 million (24.1).

Regulatory Environment

Malawi knows mandatory licensing by Malawi Energy Regulatory Authority (MERA) of energy businesses as well as the importation, sale, installation and maintenance of solar products (24, 36). All tariffs are set by the Malawi Regulatory Authority (MERA) as they still the main custodians of mini-grids as no private operator is in a position to do so in the country (10).

The Malawi Minigrid Regulatory Framework provides guidelines for the development and operation of mini-grids in Malawi. This includes a) tariff methodologies and structures for mini-grids to ensure sustainability of operations and alignment with policy on subsidies; and b) sustainability of mini-grid operations when the main grid reaches or extends to the mini-grid supply areas (41).

Malawi Bureau of Standards has adopted an international test standard for photovoltaic (PV) modules but it does not require documented proof of compliance with this standard for solar products imported into the country (24).

Marketplace Participants

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Private Sector

SustainSolar, Enviroearth Engineering Procurement Contractor (EPC), BNG Electrical Contractor, Community Energy Malawi (CEM) Trading Ltd, Ecokraft.

Government

Ministry of Natural Resources, Energy and Mines; Department of Energy Affairs, Electricity Generation Company (ENGECO), Malawi Energy Regulatory Authority (MERA), Malawi Bureau of Standards (MBS), Rural Electrification Division.

Multilaterals

World Bank (ACCESS project), European Investment Bank (EIB) (off-grid solar programme), European Union (EU) (External Investment Plan), United Nations Development Programme (UNDP) (Access to Clean and Renewable Energy Project).

Non-Profit

Energy for All (SEforAll), HIVOS, International Solar Alliance, Global Off Grid Lighting Association (GOGLA), and Savings and Credit Co-operatives (SACCOs).

Public-Private Partnership

United Nations Development Programme (UNDP) under its Access to Clean and Renewable Energy Project aims to initiate an open competitive-based mechanism to select and support the establishment of Public-Private-Partnership (PPP) service delivery platforms for clean energy mini-grids with an emphasis on business models such as Build-Own-Operate (BOO). It is envisaged that clean energy mini-grids with an installed capacity of at least 84 kWp will be supported (25.1).

Target Locations

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country static map
rural

Malawi: Countrywide

With Malawi's access rates to electricity standing at a low 1-4% in rural areas, areas with significant population density that are not connected to the national grid and have significant solar resources are prime locations for mini-grid projects (39). The Northern region of Malawi has the highest potential in terms of solar energy seconded by northern Lakeshore areas and the central region (26.1).

References

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