Solar Power Mini-Grids
Solar Power Mini-Grids
Business Model Description
Put up solar energy plants, including mini-grids using photovoltaic (PV) power generation and distribution assets for sale of electricity, targeting rural population, schools, health clinics and the local growing business sector. Supplying and installing solar home systems to households as an alternative energy source as well as maintenance, including solar geysers, and construction of solar mini-grids both in urban and rural communities. Solar home systems have been upgraded to a technology that installs a grid-tie with the main national grid.
Expected Impact
Raise the standard of living and improve the prospects of income generation in rural households.
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
- Lesotho: Mafeteng Dstrict
- Lesotho: Qacha's Nek District
- Lesotho: Mokhotlong District
- Lesotho: Butha-Buthe District
Sector Classification
Renewable Resources and Alternative Energy
Development need
Lesotho’s energy needs are a major drain to its foreign exchange reserves, yet it has an abundance of clean energy resources that it could utilize to power growth. As of 2016, Lesotho imported all its petroleum needs, some of its fuel wood needs, and 35% of its annual electricity needs (6).
Policy priority
Lesotho Energy Policy aims to create an enabling environment for provision of affordable technologies that contribute to investment and economic growth, as well as to improvement of livelihoods (1).
Gender inequalities and marginalization issues
Lack of access to energy has negative impact for women, particularly in rural areas, who still rely on wood collection for cooking and warming. Lesotho's electricity access rates are 60 percent for urban and peri-urban households and 18 percent for rural households (17).
Investment opportunities introduction
Lesotho’s only functional hydropower plant, Muela, has a capacity of 72 MW falling far short of the demand of more than 200MW. The solar, wind, and hydropower resource potential surpasses its relatively modest energy needs, which presents an investment opportunity in the energy sector, through Independent Power Producers arrangement (1, 6).
Key bottlenecks introduction
Irregular, outdated, and incomplete renewable energy resource and energy baseline studies and limited knowledge and capacity from the institutional to the end-user level hinders renewable energy uptake (6).
Alternative Energy
Development need
Unexploited sunlight in Lesotho, as a source of solar energy for industrialization and household livelihoods, has had implications for the country's socio-economic development. Mountain rural areas, in particular, have low rates of 0-10% of their populations connected to electricity grid compared to differentia connection in other areas of between10 and 85% (2).
Policy priority
The Lesotho Energy Master Plan estimates solar energy at an annual average of 7,520 MJ/m2 per day on horizontal surface. As part of the national sustainable development, one of government's policy objective in the energy sector is to promote the adoption of solar energy technologies (3).
Gender inequalities and marginalization issues
Solar power generation is the most practical option for energy in the rural schools and health clinics. Low investment in solar energy negatively impacts education and health outcomes for the rural populations.
Investment opportunities introduction
Lesotho has potential for solar energy generation at an annual average of 7,520 MJ/m2 per day on horizontal surface, which provides an investment opportunity in the subsector (6).
Solar Technology and Project Developers
Pipeline Opportunity
Solar Power Mini-Grids
Put up solar energy plants, including mini-grids using photovoltaic (PV) power generation and distribution assets for sale of electricity, targeting rural population, schools, health clinics and the local growing business sector. Supplying and installing solar home systems to households as an alternative energy source as well as maintenance, including solar geysers, and construction of solar mini-grids both in urban and rural communities. Solar home systems have been upgraded to a technology that installs a grid-tie with the main national grid.
Business Case
Market Size and Environment
USD 50 million - USD 100 million
Lesotho produces only 72MW of electricity with an estimated demand of 200MW, and closes the gap with imports. In 2021, Lesotho imported USD 34.8 million in electricity, mainly from South Africa (USD 27.9 million) and Mozambique (USD 6.88 million) (18). There is unserved market in the communities outside the Lesotho Electricity Company (LEC) national grid (15).
Indicative Return
5% - 10%
Return from rural electrification historically has low returns as it has a long debt repayment period and OnePower, which started operations in 2015 focusing on electricity services to rural communities, schools, health clinics, and local businesses, achieved ROI of 5 - 10% (15).
Investment Timeframe
Medium Term (5–10 years)
More consumers are being connected to the solar mini-grids in the past few years, which has boosted OnePower's investment returns over the 7 years of its operations (15).
Ticket Size
USD 1 million - USD 10 million
Market Risks & Scale Obstacles
Market - Highly Regulated
Impact Case
Sustainable Development Need
Lesotho imports 35% of its annual electricity needs in spite of having abundant solar, wind and hydropower resources with energy potential that significantly surpasses its needs if developed (6).
Lack of access to energy restricts investment in a number of sectors, such as tourism, which negatively impacts economic growth and development.
Gender & Marginalisation
Rural areas in the mountain regions of the country have least share (0 -10%) of population with access to electricity grid compared to shares ranging between 10 and 85% in other regions (2).
Lack of access to energy negatively impacts education and health outcomes, particularly for children in the rural areas, as well as their exposure to technology developments.
Expected Development Outcome
Solar energy will reduce energy imports and safe the country its foreign exchange reserves, through less imports and potential exports.
Investment in solar energy, with its concentration in the rural areas, will trigger, particularly local investment, and contribute to job creation, economic growth and development.
Gender & Marginalisation
Solar energy will increase the share of rural population with access to electricity grid from 0-10% to 10-20% in the next 3 years, and have positive impact for women, particularly in rural areas, who will do less wood collection as a means of cooking food and create time for other tasks.
Investment in solar will provide energy for rural schools and health clinics with potential to improve education and health outcomes, as well as exposing children to developments in technology.
Primary SDGs addressed
7.1.1 Proportion of population with access to electricity
7.2.1 Renewable energy share in the total final energy consumption
0-10% access to electricity in mountain rural areas and between 10 and 85% in other areas (2).
According to the World Bank, renewable energy consumption (% of total final energy consumption) in Lesotho was reported at 32.29 % in 2021 (20).
In line with SDG 7, by 2030, ensure universal access (14)
By 2030, increase substantially the share of renewable energy in the global energy mix (22).
4.1.2 Completion rate (primary education, lower secondary education, upper secondary education)
Primary education 80% ; Lower Secondary 44%; Upper Secondary 32% in 2021 (12).
In line with SDG 4, by 2030, ensure that all girls and boys complete free, equitable and quality primary and secondary education (13).
Secondary SDGs addressed
Directly impacted stakeholders
People
Gender inequality and/or marginalization
Planet
Corporates
Public sector
Indirectly impacted stakeholders
People
Gender inequality and/or marginalization
Planet
Corporates
Public sector
Outcome Risks
Rural electricity tariff rates may be higher compared to subsidized electricity consumption in the urban areas and sustain existing regional inequalities (9).
New electricity connections have the potential of shifting resources away from other critical household budget line items, particularly for low income households.
Impact Risks
The relatively higher cost of electricity from the mini-grids could cut short the impact of the investment, particularly on the rural population.
If the electricity supply equipment is not properly maintained, its frequent breakdowns can reverse the impact over time.
Impact Classification
What
Electricity from solar power mini grids improves household livelihoods and empowers the communities, as well as creating job opportunities.
Risk
Higher electricity tariff may not be sustained by the rural households, and together with poor maintenance of equipment, may reverse the impact of the investment.
Contribution
Electricity improves household livelihoods, empowers women, contributes to children's education and provides basis for jobs and economic growth.
Impact Thesis
Raise the standard of living and improve the prospects of income generation in rural households.
Enabling Environment
Policy Environment
Lesotho Energy Policy encourages private sector investment in the energy sector, particularly distribution of power, by encouraging the private sector and cooperative associations to become Independent Power Producers (1).
NSDP II sets the Government to promote renewable energy in wind, solar, and water, including undertaking feasibility studies to provide information on the potential energy generation sites in the country, which guides potential investor on available opportunities (5) .
Renewable Energy Investment Plan identifies renewable energy technologies and projects that contribute to sustainable economic development. It recognizes the importance of public-private partnerships in the energy sector, particularly through Independent Power Producers (6).
Financial Environment
Financial incentives: Renewable energy attracts concessional debt from climate mandated DFIs and investors, particularly in developing countries. Norfund is providing development financing to OnePower to implement solar-grids in Lesotho. This provides long-term credit for capital intensive investment (15).
Financial incentives: Renewable energy continues to attract interest from international financiers. To improve rural livelihoods and industry, National University of Lesotho, through a grant from Innovate UK is running a project for providing solar energy to rural communities, which is delivered by a local solar energy investor, MOSCET (17).
Fiscal incentives: Value-added-tax (VAT) on electricity is 10% compared to the standard rate of 15% (19).
Other incentives: Government, through the support of the World Bank and European Union, has undertaken feasibility studies of potential sites for solar, hydro and wind energy, which provide critical information and cut research costs for interested investors (21)
Other incentives: To facilitate universal access to electricity, a lifeline pro-poor pricing is implemented with the first 30 monthly units being charged at M 0.96 compared to a standard tariff of M 1.62 per unit (7).
Regulatory Environment
Mini-Grid Power Generation, Distribution and Supply Regulations of 2021 provide guidance to the private sector stakeholders intending to do business on electricity mini-grids, including application fees, licence fees and tariffs (4).
Marketplace Participants
Private Sector
EcoNet, Vodacom, DStv Lesotho, Shaperon, Mahlaseli Energy, Quadrant, Moscet, OnePower.
Government
Lesotho Electricity and Water Authority (LEWA), Lesotho Electricity Company (LEC), Department of Energy (DoE), Lesotho Highlands Development Authority (LHDA), Ministry of Finance and Development Planning, Revenue Services Lesotho.
Multilaterals
European Union, World Bank, African Development Bank, International Energy Agency, Southern African Development Community, International Renewable Energy Agency, Climate Investment Fund, United Nations Capital Development Fund.
Non-Profit
Rural Self-Help Development Association, Lesotho Council of Non-Governmental Organization, Development Peace Education.
Target Locations
Lesotho: Mafeteng Dstrict
Lesotho: Qacha's Nek District
Lesotho: Mokhotlong District
Lesotho: Butha-Buthe District
References
- (1) Government of Lesotho, Lesotho Energy Policy (2015 - 2025)
- (2) Government of Lesotho, Mapping Subnational Poverty in Lesotho, 2021
- (3) Government of Lesotho, Energy Master Plan 2007
- (4) Government of Lesotho, Mini-Grid Power Generation, Distribution and Supply Regulations of 2021
- (5) Government of Lesotho, National Strategic Development Plan 2018/19 - 2022/23
- (6) Government of Lesotho, Renewable Energy Investment Plan 2017
- (7) Lesotho Electricity and Water Authority. https://www.lewa.org.ls/quality-of-service-and-supply-standards/#
- (8) OnePower Lesotho. https://1pwrafrica.com/
- (9) Pascalinah Kabi, The solar kiosks powering Lesotho’s rural communities, 2023. https://www.eco-business.com/news/the-solar-kiosks-powering-lesothos-rural-communities/
- (10) Electricity use and affordability among rural households in Lesotho, 2017, M. Mpholo., et al.
- (11) Energy and the poor - Unpacking the investment case for clean energy 2020, UNCDF and UNDP
- (12) Lesotho Education Fact Sheets 2021, UNICEF
- (13) World Bank, Rebuilding education systems after COVID-19, 2023. https://datatopics.worldbank.org/sdgatlas/goal-4-quality-education
- (14) United Nations, Global indicator framework for the Sustainable Development Goals and targets of the 2030 Agenda for Sustainable Development. https://unstats.un.org/sdgs/indicators/Global%20Indicator%20Framework%20after%202023%20refinement_Eng.pdf
- (15) SDG Investor Map OnePower Stakeholder Consultations, June 2023
- (16) SDG Investor Map - Stakeholder Validation Workshop Report, 2023
- (17) SDG Investor Map MOSCET Stakeholder Consultations September, 2023
- (18) World Data, Energy consumption in Lesotho. https://www.worlddata.info/africa/lesotho/energy-consumption.php
- (19) Revenue Service Lesotho. https://www.rsl.org.ls/tax-rates
- (20) Trading Economics, Lesotho - Renewable Energy Consumption (% Of Total Final Energy Consumption), 2023. https://tradingeconomics.com/lesotho/renewable-energy-consumption-wb-data.html#:~:text=Renewable%20energy%20consumption%20(%25%20of%20total%20final%20energy%20consumption)%20in,compiled%20from%20officially%20recognized%20sources.
- (21) SDG Investor Map Department of Energy Stakeholder Consultations, August and December 2022 and July 2023
- (22) United Nations, Sustainable Development Indicators. https://unstats.un.org/sdgs/indicators/Global%20Indicator%20Framework%20after%202023%20refinement_Eng.pdf