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Exploring the Differences and Similarities Between Solar Home Systems and Mini Grids in Africa
- Mar 20, 2023 1:05 pm GMT
It has been a few months since I made the transition from the solar home system (SHS) sector to the mini grid space in Africa. While the two sectors have some similarities, there are also some notable differences that have made my experience in the mini grid space both exciting and challenging.
One of the biggest challenges in the mini grid space is the difficulty in securing up-front financing for projects. Unlike solar home systems, mini grids require significant upfront investment, and it can be difficult to secure financing for these projects. However, the potential benefits of mini grids, such as the potential for productive use of energy and longer lifespan, make the investment worthwhile.
Another difference is the level of community engagement required in the mini grid space. While solar home systems are typically installed on an individual household basis, mini grids require engagement with entire communities, government, and local leaders. This means that effective community engagement is a crucial part of the mini grid development process, and something that companies in this space must prioritize.
As mentioned above, one of the major benefits of mini grids is the potential for productive use of energy. Mini grids can power small businesses, irrigation systems, and other productive activities, providing a more significant impact on economic development compared to solar home systems, which have more limited productive use benefits.
The business models used to deliver energy access also differ. In the SHS sector, companies can be vertically integrated or specialize in one aspect of the value chain, while in the mini grid space, companies can decide to be EPCs or own their assets. In substance, the business model in the SHS sector is more of a sales model, whereas in the mini grid space it is more about project management and finance.
On the other hand, a similarity between the two is the payment process for customers. This can either be done through pay-as-you-go technologies or through the local agent payment process. The latter adds to local employment and can help create jobs in the area.
Another important aspect is that for mini grids, government agreements are essential because companies cannot risk that when the grid arrives, the mini grid that was previously built becomes irrelevant, it needs to be incorporated in that grid so the project attins its IRR. This brings to another characterisitc that mini grids offer vs SHS: grid integration. Mini grids can be stand alone or interconnected creating a win-win-win solution for utilities, companies and end users.
Currently, mini grids are more dependent on subsidies than solar home systems. However, this is not necessarily a negative thing, as subsidies have been used in the process of electrification that occurred in high-income countries in the past. Over time, as the market for mini grids matures and economies of scale are achieved, the need for subsidies is likely to decrease.
It is clear that both solar home systems, mini grids, and grid extension have an important role to play in addressing energy poverty in the region, and I am excited to be contributing to increased energy access in Africa. I am looking forward to continuing to learn and grow in this space.
Has anyone in my LinkedIn network made a similar career transition? What similarities and differences have you noticed? Share your thoughts in the comments below. Also, happy to connect with/advise anybody thinking about this transition!
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