Clean, reliable electricity for rural communities

Project description

Title: Promotion of Mini-Grids for Rural Electrification (Pro Mini-Grids)
Commissioned by: German Federal Ministry for Economic Cooperation and Development (BMZ)
Country: Uganda
Lead executing agency: Ugandan Ministry of Energy and Mineral Development (MEMD)
Overall term: 2016 to 2020

Context

At around 15%, Uganda’s national electrification rate is a major challenge for economic development and poverty reduction. Low electricity coverage makes everyday activities such as water pumping and irrigation, hairdressing, phone-charging and building slow and laborious. It also seriously affects female-dominated activities and women’s safety. This applies in particular to the 70% of Ugandans who live in rural areas, where electrification is a mere 7%.

A strong national focus on grid expansion has brought positive results to urban areas, but has done little for areas outside the cities. Solar home systems (SHS) have penetrated parts of the rural market, but only suffice for basic lighting and phone-charging. To promote economic activity, there has to be access to the grid, diesel generators or mini-grids. And this requires considerable investment. However, the vague regulatory framework and high up-front costs have limited private-sector interest in off-grid projects. In the absence of an electrification master plan, those developers that do seek government support for their projects are unclear which technology would best serve which villages.

Objective

Improved framework conditions allow for the widespread and decentralised implementation of private- sector renewable energy mini-grids.

Approach

The Pro Mini-Grid approach involves three components designed to identify and support suitable project developers and government actors and so ensure long-term operation and replication in other areas:

Component 1, ‘Strategy and Planning’. Here GIZ works with MEMD to develop a mini-grid strategy that defines stakeholder roles and investigates which rural villages exhibit potential for mini-grid installation. Furthermore, it also calculates the budgetary implications of national rollout. The master plan methodology is scheduled for joint development with Uganda’s Rural Electrification Agency (REA), allowing viable villages to be identified through a precise techno-financial model and ensuring the use of lowest-cost technology. In this way, developers can be sure that future projects will not have a detrimental impact on their concessions.

Component 2, ‘Institutional Instruments’. Selecting license-eligible concessionaires for the installation and operation of mini-grids requires institutional instruments. With project support, REA is to develop a transparent and efficient tender mechanism. This will subsequently be used to identify the best project developer to install the hardware and distribute electricity to the villages. Meanwhile, Uganda’s Electricity Regulation Authority (ERA) is to be assisted to adapt the licensing procedure and thus make it applicable and proportionate to these small projects, including adequate standards for monitoring and compliance.

Component 3, ‘Technology and Use’. Here the tender mechanism is applied to select a concessionaire for the projects’ 40 pilot villages. The chosen company is to invest in generation capacity and, as the electricity provider, must guarantee the distribution of electric power to the villages. REA will finance the grid infrastructure and lease it to the concessionaire while a vocational training programme will build technical and business capacities for mini-grid operation and maintenance.

Component 4, ‘Productive Use’. At village level, customers are to be helped to make productive use of electricity. This will ultimately help make service provision more sustainable. Likewise, rising income levels will help ensure customers can afford the tariffs.

The key to attracting private investment into rural electrification projects is to make sure that customers also think of electricity in economic terms and not just as a means of improving their standard of living. When villages use electricity for business, their incomes increase due to the value added. Electricity thus becomes more affordable, and the operator is able to provide more power on a long-term basis.

And what will happen to the mini-grids when the national grid is extended in future? Distribution infrastructure is built to the same standards to allow for connectivity and the power generator is portable, which means it can be transported to another off-grid village.