Rural electrification through mini-grids: Challenges ahead

Highlights: • Mini-grids are promising, but many programs have failed. • We identify key challenges for commercially and community operated mini-grids. • Demand projections are often too high, especially regarding productive uses. • Regulatory issues, payment default and lack of skilled staff are further challenges. • Realistic forecasts of demand and transaction costs can increase viability. -- Abstract: Recent debates on how to provide electricity to the roughly one billion still unconnected people in developing countries have identified mini-grids as a promising way forward. High upfront costs of transmission lines are avoided, and unlike home-scale solar, mini-grids can provide sufficient electricity for productive uses. Indeed, mini-grids play a crucial role in accomplishing the goal of the UN Sustainable Energy for All (SE4All) Initiative to provide universal access to electricity by 2030. This note outlines the challenges the mini-grid sector faces to achieve that potential. To date, few examples of sustainably working mini-grid programs exist. We identify regulatory issues, low electricity demand in rural areas, high payment default rates and over-optimistic demand projections as among the key challenges. Business models that account for high transaction costs in rural areas and that are based on realistic demand forecasts could considerably increase the commercial viability of mini-grids.