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Complementary Partnerships Expand Impact for Microgrid Developers

Complementary Partnerships Expand Impact for Microgrid Developers

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Since January, Miller Center has been accompanying 6 microgrid developers across Sub-Saharan Africa to create a new energy infrastructure and close the energy gap. This program is part of our Replication and Scaling Initiative focused on spreading best practices to transfer successful know-how. 

We chose develop specific curriculum for microgrids because of:

  • Microgrids are the least expensive way to deliver power for at least 100 million people in Africa, and microgrids can have enormous impact on local economic development by suddenly providing electricity to a whole community

  • There is a growing interest in microgrids including emerging financing vehicles, support organizations, and innovations and cost reductions in technologies such as smart meters and solar panels

  • Our ability to develop curriculum directly from the success and best practices of the 115 clean energy entrepreneurs we have accompanied. 

In launching this program we also had a key partner to support our efforts: Energy 4 Impact, which manages the Green Mini-Grid Help Desk in partnership with INENSUS. The Green Mini-Grid Help Desk, funded by the African Development Bank, is part of SE4All’s Green Mini-Grid Market Development Programme.

Utilizing E4I’s deep research into the local energy sector in Africa, we were able to create interactive webinars monthly for both mentors and entrepreneurs to share and learn. These insights from local experts were key to help both Miller Center team members and mentors learn how to support the entrepreneurs even better. 

We’ve included our 3 biggest takeaways below:

1) Microgrid Developers are doing a lot

Microgrid business models are some of the most complex that many of our executive mentors have seen. Part of the reason is that the off-grid microgrid sector is nascent and developers must provide many discrete and varied services for which reliable contractors do not yet exist: site selection and assessment of electricity demand, engineering and procurement, operational management, and productive use promotion, including upselling productive load equipment like cold storage, refrigeration and other appliances.

Furthermore, many of the developers are also selling commercial solar or creating new business lines dependent on their microgrid such as purifying water, ice making in fishing communities, agricultural processing, etc.

Mercy Rose, Senior Business Analyst at E4I, shared, “the market is very young so people are still trying to figure out what works– [selling] solar home systems [for example] is more stable so that is their safety net as they explore the microgrid world.” 

As the sector grows more niche, organizations may enter the market to provide the services like productive equipment or project management software that support microgrids. 

2) Investment is essential  

Microgrid enterprises begin serving their customers only after installing a significant amount of equipment. Due to the cost of this equipment and the time spent acquiring customers, we found that most of our teams needed to focus on creating a strong financial model. 

Unlike other social enterprises that can subsist in their early years with relatively small amounts of incremental funding, a microgrid enterprise needs substantial capital to launch their first microgrid. And then to grow beyond their first 1-3 microgrids, such enterprises often require $1,000,000+ of capital. While it makes sense that creating infrastructure requires significantly more capital than other social enterprises, this is a significant hurdle for microgrid entrepreneurs. This is compounded by the fact that it takes quite some time to recover costs, especially for entrepreneurs with 1-2 microgrids.

Given the size of investment needs and the risk to set up dozens of microgrids, it became clear that it’s challenging to find the right type of funding for the stage of this sector and these enterprises. Organizations do not want to dilute themselves by giving away too much equity at this early stage, yet debt funding is hard to find for these entrepreneurs.

These findings are mirrored in two different reports that E4I created and shared with our cohort, including:

  • Financial and Operational Bundling Strategies for Sustainable Micro-Grid Business Models - Published in partnership with NREL, this report looks at the various financial bundling methods that micro-grids could employ to achieve sustainable business models. This is particularly interesting since it highlights possible financing options for various micro-grid business structures as well as various stages of project development. 

  • Strategic Investments in Off-grid Energy Access - The second report, published in partnership with Wood Mackenzie, looks at the various trends in strategic financing for off-grid energy companies, including financing models and types of investors. It’s interesting to see certain investors who have traditionally not engaged in this space taking interest in the off-grid energy markets. 

How can we create staggered investments in this sector that allow organizations to find and deploy grant funding to create infrastructure, then take on equity funding as they scale?

3)   Scaling fast vs scaling slow – old rules don’t apply

These microgrid developers were also focused on scaling up very fast, going from pilot systems to raising funding for dozens of microgrids. Through a webinar with E4I, we were able to discuss and learn some of the reasons why this trend toward scaling as quickly as possible is happening, including:

  • Governments, both locally and development organizations like USAID, launch for tenders that request companies supply multiple villages or electrification need for public services such as health clinics and schools.  

  • Investors want to see positive return on investments which isn’t possible with one project/site. Therefore, developers must take into consideration a portfolio of microgrids to provide sufficient return on investment. 

  • Economies of scale functions is important. How you procure materials, contract out sites, organize staff, etc provide improved margins and return on investment. 

E4I shared tips for de-risking this fast scaling including assessing the sites in-person in advance of commitment, ensuring your organizational structure includes a local team to keep local travel and other logistics costs down, and most importantly, hiring engineering procurement and construction contractors who can do construction and the commissioning and help start operations.

These learnings will be utilized to develop even more aligned content for both Miller Center and E4I to share and help support entrepreneurs and the energy access ecosystem as a whole. Check out more insights from Miller Center’s Replication and Scaling Initiative in our newest report linked here.


About the Authors

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Marie has been working as an educator for 10 years. After discovering the concept of social enterprise in 2012, she has been focused on learning about and supporting the growth of the ecosystem through running various education programs at Impact Hub San Francisco and more recently with Miller Center for Social Entrepreneurship. Inspired by her Miller Center work with maternal and child health organizations in east Africa, Marie has also recently trained and now practices as a birth doula through the SF General Hospital volunteer doula program.

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Neal Harrison has seven years experience working on social innovation, entrepreneurship, impact investment and supply chain management in the U.S., the U.K., Canada and Ghana. He has experience in researching and report writing, leading entrepreneurial ventures, and managing international projects in the public, non-profit and social enterprise sectors. He is certified in Project Management Professional (PMP) and hold an MSc in Global Economics and Politics from the London School of Economics. Neal has a passion for economic development and finding sustainable solutions to pressing social challenges. He is particularly interested in entrepreneurship, food systems and environmental issues.

Mercy Leta Rose from Energy 4 Impact

Solve Energy Poverty, Solve Climate Change?

Solve Energy Poverty, Solve Climate Change?

By the end of the recent GSBI in-residence program, I was feeling energized, appreciative, and – on one question – flummoxed. It was a fleeting, rhetorical question: Was my focus solving poverty or solving climate change? I’m a new apostle of simplified messaging, but on this point, ‘both’ still seems the right answer.

“The poor cannot afford poor solutions,” says social entrepreneur Runa Khan. In an era of climate change, none of us can afford poor energy solutions. Happily, clean energy is now nearly universally the most cost-effective way to generate electricity. We do not need to choose between cheap, high-quality and clean. They are the same.

I work in Haiti, building electricity systems in towns that have never before had grid power. I’m often surprised when people separate energy poverty from climate change. I get a good laugh out of my US clean energy friends when I gently tease, “It’s easier to build a ‘town-sized, solar-powered smart grid in rural Haiti than it is in [Washington, DC / Santa Clara / Insert any major grid-connected city name here].” They know it’s true. Of course, I face different challenges, but building something from scratch is always easier than disrupting the status quo. There is no incumbent infrastructure or utility business model in the towns where I work, so I get to collaborate with local and international partners to think through what the best system could be. Building self-contained off-grid utility systems, we get to face many of the ‘big grid’ challenges on a micro scale. Is 100% clean energy possible? Yes. Is storage essential? For solar microgrids, yes. Are clean energy microgrids exciting elements of resilient power systems of the future? Definitely.

First and foremost, building energy access is about solving poverty. Electricity is not sufficient for prosperity, but it is essential. In rural Haiti, families without electricity are spending 10% of their income on kerosene and candles for lighting. (In the US we generally spend less than 0.5% of our income on lighting.) Around the world, over a billion people have no electricity, with tragic consequences. Without electricity, there is very little opportunity.

Solving energy poverty can also help solve climate change. The two issues are linked. “Sustainable energy is opportunity – it transforms lives, economies and the planet,” reads Sustainable Development Goal 7. That Goal is summarized as “affordable, reliable, sustainable and modern energy for all.”

Clean energy microgrids can directly reduce CO2 and black carbon emissions by replacing kerosene lamps and diesel generators. If electric cooking pilots are successful, they can also replace charcoal. Though wick-based kerosene lamps emit only modest CO2, they are significant emitters of atmospheric ‘black carbon’, a strong climate warmer.

EarthSpark takes a ‘  feminist electrification’   approach to energy access, intentionally leveraging the arrival of electricity to benefit women. Here, Rosane Jean-Jacques, a grid ambassador, sells electricity credits from a tablet.

EarthSpark takes a ‘feminist electrification’ approach to energy access, intentionally leveraging the arrival of electricity to benefit women. Here, Rosane Jean-Jacques, a grid ambassador, sells electricity credits from a tablet.

Clean energy microgrids can also chart the course for grid decarbonization. Ironically, important grid innovation may come from remote villages that have not yet seen electricity. Where there is no incumbent infrastructure, there is an opportunity to build energy systems with today's best technologies and business models. These models that leverage clean energy, storage, smart grid, and customer participation can be adapted to inform the evolving utility business models in established markets. For example, both Homer Energy’s microgrid software tool and SparkMeter’s low-cost smart meters were both initially developed for stand-alone microgrids and are now seeing applications in central grids.

Of course, solving energy poverty will not alone solve the climate change crisis. There are many levers we should be pulling simultaneously, only some of which are addressed by solving energy poverty. Indeed, Project Drawdown‘s list of 100 climate solutions rank “microgrids” a lowly #78. But an integrated electrification approach involves not only microgrids but also rooftop solar (#10), clean cookstoves (#21), LED lighting (#33), and empowering women and girls (#6). Economic development enabled by the arrival of electricity can also influence agriculture, forestry, and many other key solutions.

To be sure, if tackling energy poverty did not also address climate change, it would still be worth doing. Regions with high energy poverty, in general, have had almost no role in causing the current climate crisis.  Poor countries should not be saddled with solving global emissions problems, but, because distributed clean energy systems are now cheaper and faster to build than the alternatives, poor countries have the opportunity to leapfrog straight into smart, clean, efficient systems. It just doesn’t make sense to build 20th century power systems in 2018.

Though more and more are getting built, microgrids are not easy yet. From California to Puerto Rico to India, Africa, and Haiti, proponents of microgrids are struggling with technical, participant, and policy challenges. That, to me, is precisely why energy access microgrids are so exciting. Clean energy microgrids are early-stage, but they hold enormous potential. When we solve these challenges and start to mainstream microgrids, we will have made meaningful progress towards solving both energy poverty and climate change.

About Allison Archambault
Allison is president of EarthSpark International, a non-profit organization incubating businesses that solve energy poverty. EarthSpark has built a town-sized, solar-powered smart grid in rural Haiti and has spun off a smart meter company, SparkMeter, which now serves microgrid operators in 22 countries.  She previously worked on large-scale renewable energy siting and grid integration and with an early clean tech company combining distributed energy storage, solar PV, and energy management. She holds a B.A. (hons) from Tufts University and a master’s degree from Johns Hopkins. She is a member of the 2018 GSBI In-Residence accelerator cohort at Miller Center for Social Entrepreneurship.

 


Banner photo (Les Anglais, Haiti): EarthSpark microgrids run on solar power and serve everyone from tiny households to pico-industry in rural towns.

Photo credits: EarthSpark International