Mini-grids have emerged as a transformative solution for electrifying remote and underserved communities. Particularly in regions such as Sub-Saharan Africa and South Asia, where grid extension is prohibitively expensive or logistically unfeasible, mini-grids offer an efficient, decentralised approach to energy distribution.
Africa is the world’s least electrified continent. Nearly six hundred million people in Africa live without access to electricity. To end energy poverty by 2030, Africa needs at least 160,000 mini-grids. Decentralised utility companies and mini-grids provide the least cost option for electrification for more than half of the unelectrified people in Africa.
The 2024 BAM Report highlights key shifts within the sector. Mini-grid projects are increasing in size and sophistication, with the proportion of Africa Mini-grids Developers Association (AMDA) members’ mini-grids serving residential connections of over 500 customers rising from 8% in 2022 to 30% in 2024.
AMDA, an industry association created by private sector mini-grid developers and operators, development partners, and investors, helps improve political and financial environments for mini-grid companies in Africa.
AMDA’s work involves accelerating minigrid companies’ pathway to scale and profitability to end energy poverty by 2030. From 2022 to 2024, responding AMDA members installed 116 new mini-grid sites in 15 countries.
According to the Benchmarking Africa’s Mini-grids (BAM) 2024 report, almost half of the newly commissioned mini-grid sites (57) were in Nigeria, with another 29 sites in Uganda. Building on prior BAM reports, these additions bring the total number of sites for which data has been submitted to AMDA to 545 out of well over 600 sites built by AMDA members.
Capital expenditure (CAPEX) costs have also declined 20% since 2020, demonstrating growing efficiencies. However, despite these advancements, African mini-grids face higher CAPEX compared to global benchmarks, underscoring the need for enhanced supply chain efficiencies and financial innovation.
Notably, the sector is evolving beyond standalone systems toward interconnected solutions, such as mesh and metro grids, which offer pathways to megawatt-scale deployments. This evolution reflects a growing maturity and a strategic shift to ensure long-term economic sustainability.
The sector must embrace digitalisation, standardised key performance indicators (KPIs), and more streamlined financing mechanisms to realise this potential fully. While technology has advanced and regulatory support is improving, financing remains the most critical bottleneck.
The Financing Gap
Mini-grids—localised energy networks that typically serve clusters of households or businesses—require substantial upfront capital for infrastructure, including generation (often solar or hybrid systems), distribution, and storage. While operational costs may be relatively low, especially for renewable-based systems, the initial investment can range from tens of thousands to millions of dollars, depending on the size and complexity of the system.
According to the International Energy Agency (IEA), achieving universal electricity access by 2030 would require installing thousands of mini-grids, demanding over $25 billion in investment. Yet, current annual investments in mini-grids fall far short of this target.
The financing gap stems from several challenges: the perceived risk of rural markets, long payback periods, limited revenue generation in low-income communities, and a lack of standardised financing models.
Innovative Business Models: Driving Commercial Viability
To attract investors and ensure long-term sustainability, mini-grid developers are adopting innovative business models beyond just selling kilowatt-hours.
1. Productive Use of Energy (PUE) Integration
One of the most promising strategies is integrating productive energy use—applications that generate income for end-users, such as agro-processing, welding, refrigeration, and water pumping. By stimulating local economic activity, developers can improve load factors, increase electricity demand, and stabilise revenues.
Companies like PowerGen and Husk Power Systems have embraced this model by providing electricity, equipment leasing, and financing to support local entrepreneurs. This approach enhances customer retention and raises their ability to pay, making projects more bankable.
2. Pay-As-You-Go (PAYG) and Prepaid Models
PAYG and prepaid systems pioneered in the solar home system (SHS) sector are now being adapted for mini-grids. Through mobile payments, users can purchase energy in small increments, reducing default risk and improving cash flow for operators.
3. Energy-as-a-Service (EaaS)
Under the EaaS model, customers do not pay for electricity infrastructure or energy per se but for access to energy services—such as lighting, water pumping, or internet connectivity. This service-based approach allows developers to bundle energy with value-added services, diversify income streams, and appeal to impact investors focused on livelihood enhancement.
Funding Mechanisms: Unlocking Capital at Scale
Securing capital for mini-grid projects requires a mix of public, private, and philanthropic funding. Innovative mechanisms are helping to reduce risk, increase investor confidence, and channel more funds into the sector.
1. Results-Based Financing (RBF)
RBF programs provide subsidies or grants contingent on verified outcomes, such as the number of connections established or kilowatt-hours delivered. By aligning incentives with performance, RBF reduces the need for large upfront subsidies and attracts private players into rural markets.
For instance, the Global Energy Alliance for People and Planet (GEAPP) and organisations like the World Bank have rolled out RBF programmes across Africa, helping developers reach commercial viability faster and at scale.
2. Blended Finance
Blended finance leverages concessional capital from development finance institutions (DFIs) or philanthropic organisations to de-risk investments and catalyse private sector participation. Instruments include first-loss guarantees, junior equity, and technical assistance.
Companies like CrossBoundary Energy Access use blended finance vehicles to build diversified portfolios of mini-grid assets, pooling risks and offering investors more predictable returns.
3. Carbon Financing
As mini-grids reduce dependence on diesel generators, they generate significant carbon savings, which can be monetised through carbon credits. Platforms like Gold Standard and Verra certify these reductions, enabling developers to access climate finance.
Though the voluntary carbon market has faced scrutiny, interest is building up with growing corporate commitments to net-zero. Mini-grid developers are exploring carbon credits as a supplementary revenue stream, particularly in regions where end-user affordability is a challenge.
4. Green Bonds and Infrastructure Funds
Some governments and private financial institutions are beginning to issue green bonds or create dedicated infrastructure funds to finance clean energy, including mini-grids. These instruments pool investor capital and deploy it across projects, offering scale and efficiency.
India, for example, has seen growing participation from domestic banks and pension funds in mini-grid finance through green bonds underwritten by public sector institutions.
The Role of Digital Technology
Digitalisation is a game-changer in mini-grid financing. Smart meters, remote monitoring, and AI-powered analytics allow developers to optimise system performance, manage load, and reduce operational costs. Significantly, digital platforms also enhance transparency and data collection, which is critical for attracting investors and reporting on impact.
In addition, fintech partnerships are emerging to provide microloans and insurance to customers, creating a more robust ecosystem around mini-grids and improving payment reliability.
Policy and Regulatory Support
For financing models to succeed, they must be underpinned by clear and supportive regulatory frameworks. Governments play a crucial role in setting tariffs, licensing mini-grid operators, and ensuring that grid extension plans do not undermine existing mini-grid investments.
Countries like Nigeria and Tanzania have implemented mini-grid-specific regulations, including tariff-setting mechanisms and grid encroachment compensation, which has given developers and financiers greater confidence.
Scaling with Impact
The momentum around mini-grids is growing, but scalability hinges on aligning business models with financing strategies. Innovative approaches that combine customer-centric services, diversified revenue streams, and risk-mitigated funding instruments are proving most effective.
To unlock mini-grid potential, stakeholders must continue collaborating—governments, private investors, donors, and communities. The pathway to universal energy access is not solely technical but financial, entrepreneurial, and inclusive.
As the global energy transition unfolds, mini-grids may illuminate the way—not only for those in the dark but also for a new decentralised, sustainable development model.