The Energy and Environment Partnership Trust Fund (EEP Africa) outlines, through various business models herein, that for energy access to stimulate economic development, it needs to be combined with efforts to develop productive use and income generation opportunities in rural communities.
The article appeared in ESI Africa Issue 1-2021.
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In line with this outlook, productive use of energy (PUE) – commonly defined as agricultural, commercial and industrial activities powered by clean energy and having direct input into the production of goods or provision of services – has over the years been gaining momentum as the outcome is far too great to go unnoticed.
Load forecasting refers to the accurate prediction of the power demand within a given planning time frame. There are three load forecast time frames, with each forecast horizon playing a critical role in the overall planning of the business, as can be seen in Table 1.
EEP Africa, a clean energy finance facility managed and hosted by the Nordic Development Fund (NDF) with funding from Austria, Finland and NDF, has been active in promoting PUE projects in Southern and East Africa.
As the focus on clean energy solutions for productive use has increased, the Fund has supported early stage innovation with a view towards demonstrating both impact and viability for other investors. The productive use solutions that have been financed are diverse, ranging from providing solarpowered illumination to community markets to developing biogas-powered minigrids and refrigeration units. When they were initially financed by EEP Africa, most of the projects (almost 80%) were in a pilot or demonstration phase but many have now become market leaders in productive use.
Common productive use applications
Solar PV is frequently used for productive use applications because the cost of PV modules has decreased by over 80% since 2009 (IRENA, 2019). However, a variety of clean energy technologies are being used to meet productive needs. This is due to the minimum generation capacity required for some productive use activities, such as welding (3-7.5 kW). The most common productive activities supported by EEP Africa financing are light manufacturing, agriprocessing, illumination and service provision.
One of the key lessons learned from the projects is that growth in rural electricity demand can be both a gradual and a long-term process. Stimulation measures are often required to achieve commercial viability within a feasible timeframe. Increasing demand through PUE is of particular importance to the viability of minigrids and stand-alone systems designed for productive purposes. The business models adopted by the developers of EEP Africa projects have evolved to meet these challenges at various points along the value chain.
For minigrids, efforts often focus on identifying a primary offtaker and, especially for solar PV minigrids, increasing productive use applications during the day to even out the demand curve. For standalone systems designed for a particular activity, such as solar irrigation or refrigeration, efforts focus more on addressing barriers to market penetration in the local value chain. This may include scalable modular units that offer flexibility to the end user, as well as innovative financing or payment options.
As with any business, no one size fits all. Each endeavour encounters unique challenges. EEP Africa examined three successful business models for minigrid solutions and stand-alone systems. Each business model is then described in case studies from the EEP Africa portfolio.
Women entrepreneurs using clean energy
The role of women in productive use is evident across the value chain. Women have long been recognised as important end users of energy. In addition to that, they are influential in the uptake of energy and in the delivery of services that make use of energy.
When Absolute Energy, an investment platform that has received funding from EEP Africa, developed a solar minigrid in Uganda, 40% of their women customers initiated the subscription for a connection to their household or business. Almost half (49%) of their customers are women who own a business that requires electricity. Women as productive users are particularly represented in the service sector and auxiliary functions, such as retail, hairdressing, food preparation, and tailoring. However, EEP Africa project developers found that the engagement of women in PUE is limited due to the following factors:
- Lack of access to finance for capital investment in their businesses
- Lack of management skills to develop and implement a business expansion strategy
- Limited ability to market the products and services they offer
- Cultural norms and personal safety
- Lack of role models
The challenge is that addressing these barriers falls outside the core competencies of most project developers in the energy sector. This increases the importance of partnerships and development financing in incorporating activities to address these barriers in core project designs.
In 2019, EEP Africa held a call-forproposals with the theme of Promoting Gender Inclusion, Female Leadership and Opportunities for Women across the Clean Energy Sector in Southern and East Africa. The call attracted 285 applications and a combined financing request of €97 million ($118 million). The applications included a diverse set of innovative business models covering 12 clean energy technologies and 14 countries.
One of the successful applicants in the gender-themed call was Solar Sisters. In collaboration with CLASP, their project, Unlocking Productive Power Through Women-Led Distribution Networks, which began implementation in 2020, is piloting the distribution of high-quality, energy efficient productive use appliances through female sales agents. The project is also providing business development support and upfront financing to local entrepreneurs using their equipment.
Evolving business models for minigrids
The increasing importance of stimulating end user demand in rural offgrid areas is reflected in the evolution of the business models adopted by minigrid developers since EEP Africa was launched in 2010. During the past decade, incorporating provisions for productive use in minigrid system specifications has become a core feature of project design. But the level of engagement by the energy service provider depends on which model they adopt and where they position themselves in the local value chain.
The evolving business models for minigrids in terms of productive use can be broadly described as follows:
1. Energy supply model: The energy service provider produces and supplies reliable and affordable electricity to consumers via a small distribution grid. The minigrids are designed to accommodate a primary offtaker or to convert existing users from diesel to electricity. Potential primary offtakers are largely linked to local agricultural production and operations are site specific.
2. Business acceleration model: The energy service provider combines energy supply with appliances and equipment, through direct sales and/ or financing. In some cases, this is combined with targeted business development support. This has been shown to boost revenue generation for both the developer and the user.
3. Supplier-offtaker model: The energy service provider fills the demand gap by establishing and operating a commercial or industrial activity, serving as the primary offtaker. Initiating a productive activity based on a local commodity (such as producing ice for fishermen) that supports revenue generation can be more profitable for the energy supplier than providing energy to end consumers.
To showcase some of the success stories, three of the 22 project case studies from the EEP Africa portfolio are listed below, highlighting some of the milestones of these progressive business models.
Technology: Biogas using Induced Blanket Reactor
Country: South Africa
Project developer: Renen Energy Solutions Pty Ltd.
Project name: Midlands Biogas Project
Installed capacity: 0.035MW electricity; 0.15MW heat; scale of solutions 0.05 – 1MW (60% capacity factor)
Description of project
Renen Energy Solutions are pioneering the case for biogas as a viable energy solution that is underexploited for commercial purposes. The electricity generation potential of commercial biogas is estimated to be approximately 148GWh, based on estimates of feedstock sources from the wineries industry, pig farms, poultry slaughterhouses, and from agricultural and agro-processing waste.
The company defined a business model that links the supply of feedstock for biogas electricity and heat production with the demand of commercial offtakers in the region. With EEP Africa’s support, Renen established a project that demonstrates the benefits of biogas solutions in providing reliable electricity and heat for electricity, dairy processing and oil refining.
The livestock farmers and abattoirs in the area supply the feedstock for the operations of the plant. The biogas is either consumed or sold. The seedling nursery is a direct customer for the electricity; the technical college students receive piped biogas to their accommodation facilities. The nursery is a direct customer for the compost and fertiliser derived from the effluent, and is considering distributing the compost to their customers after drying and packaging it.
Drivers of success
- Identifying a single offtaker and defining system requirements to meet a known demand.
- Knowledge of farming and the resources offered by the farmers helps identify the optimal design. The supply chain for animal or plant waste must be consistent, linked to the operation of the individual farm or surrounding area.
- The quality of the feedstock is closely controlled and monitored.
- The solution requires a diverse set of skills from agricultural management to biomechanical engineering. By maintaining a proprietary stake in the facilities, installed in partnership with the farmer, Renen can guarantee the future sustainability of the technology.
Technology: Solar units with integrated monitoring
Countries: Tanzania and Kenya
Project developer: REDAVIA
Project name: Rental Solar Power for Food Processing in Tanzania
Installed capacity: 3.8MWp, of which 1.0MWp is in Tanzania
Description of project
The concept promoted by REDAVIA is the versatility of a solar farm to provide medium-scale energy infrastructure to on- and off-grid SMEs and off-grid communities. Through EEP Africa, REDAVIA installed two community systems and a system supplying a poultry farm to demonstrate the concept and further refine its business model.
Drivers of success:
- Robustness and reliability of the solar farm technology as well as 24/7 availability of service by the site technicians convinced initially doubtful village customers that solar can power processing machines.
- Including women who are engaged in the value chain through farming, selling or cooking food produce.
- Incentivising energy use in the community, e.g. evaluating a customer’s energy and payment profile and making an offer that best suits the customer
Project developer: Fondazione ACRA-CCS
Project name: Hydroelectric Energy in Lugarawa, Tanzania Installed capacity: 1.7MW
Description of project
In its second project with EEP Africa financing, ACRA developed a 1.7MW hydro plant in the Ludewa region of Tanzania to take advantage of the abundant water resources to bring clean energy access to rural communities. The plant is designed to electrify 20 villages, including 4,000 households and multiple SMEs.
The access to appliances is being provided through a competitive application for grant financing. Local entrepreneurs must describe the business case behind their concept and contribute 15% of the cost of the appliance. Excess production will be exported to the grid.
Drivers of success
- The production of electricity from hydropower mitigates the challenge of limited capacity as there is significant potential.
- The project link to TANESCO provides an additional revenue stream by exporting electricity to the grid.
- The partnership with Energy 4 Impact contributes resources and experience in working with business development in rural areas.
- Commodities produced in the area are in demand outside the region, including sunflower oil and timber.
Project developers are increasingly integrating innovative measures to stimulate the productive use of energy to achieve financial sustainability. In combination with the right resources, financing and access to markets, this approach to clean energy generation can significantly boost green growth and position local economies to grow at pace and scale while avoiding fossil fuel-based greenhouse gas emissions.
Declining technology costs and expansion of distributed energy solutions and business models further support this trend and are rapidly opening up viable green growth pathways to households in rural and off-grid communities.
This article is based on the POWERING PRODUCTIVITY Lessons in Green Growth report published by the Energy and Environment Partnership Trust Fund.