Making mini-grids work in sub-Saharan Africa

Volts

More than half a billion people on the African continent lack access to electricity, and the number is only growing. In this episode, Tombo Banda of CrossBoundary’s Mini-Grid Innovation Lab discusses the longstanding barriers to electricity access in sub-Saharan Africa, why current business models haven’t been effective, and the mini-grid innovations that could turn the tide.

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David Roberts

Hundreds of millions of people in Africa lack access to electricity, which means they lack access to the fundaments of modern life. What’s more, that number — which has been regularly lamented for as long as I can remember — is rising, not falling.

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Many of the places lacking electricity have no expectation of a large, high-powered, centrally administered grid — the kind Americans take for granted — arriving anytime soon. So the best answer for providing power right now is mini-grids: small, self-contained grids, usually composed of solar panels and batteries, that can provide rudimentary electricity service at the village level.

Tombo Banda

But people have been talking about bringing mini-grids to Africa for decades, and progress on the ground has been, to put it charitably, slow. Why is that? What’s holding them back?

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To dig into these questions I contacted Tombo Banda, a Malawi native with advanced degrees in engineering who now works at CrossBoundary, an advisory firm that collaborates with businesses and governments to unlock capital for sustainable development. Specifically, Banda heads up CrossBoundary’s Mini-Grid Innovation Lab, experimenting with new business models that can bring mini-grids to scale. We’re going to discuss the state of mini-grids in Africa, the barriers that have held them back, and the kinds of innovations that can unlock their potential.

All right, then, with no further ado, Tombo Banda, welcome to Volts. Thank you so much for coming.

Tombo Banda

Thanks for having me, David. This is exciting.

David Roberts

Yes, I'm so excited to get into this subject, and I want to start before we get into the specifics of particular mini-grids with just some context about why they're so needed. What's the sort of kind of addressable market here of people in sub-Saharan Africa who lack electricity access?

Tombo Banda

Sure thing. So, in sub-Saharan Africa, over half a billion people still don't have electricity access in the year 2024.

David Roberts

Half a billion?

Tombo Banda

Over half a billion. So, upwards of 500 million. And that number is growing.

David Roberts

I feel like I've been hearing about this for years. Is that number going down, or is it getting worse?

Tombo Banda

Well, it's getting worse. And the reason for that is, well, population's growing. You know, urbanization is growing and the infrastructure is not keeping up with population growth and the needs of communities, people, industries, and countries. So, yeah, it's a bit depressing, right? Because you think, like, surely by now we'd be a bit further along. But, you know, the World Bank reports that at current rates by 2030, we will not achieve universal electrification. And you know a good, I think, 200 million people will remain without electricity at current rates of progress.

David Roberts

Huh. Here's kind of a big picture question before we get into it, which is, what is the long-term vision for these mini-grids? I'm wondering what is the sort of relationship between these mini-grids and the kind of main grid, a big grid, a centralized grid. Is the idea that these mini-grids are put in place as a sort of stopgap measure, waiting until the main grid arrives? And is it the idea that the main grid expands and eventually absorbs them? Or is the idea that they themselves expand and connect to one another and become a main grid?

Or are they a sort of quasi-permanent solution? Do you know what I mean? What do we expect for these mini-grids in 20 or 30 or 40 or whatever years?

Tombo Banda

Yeah, absolutely. So, how most countries in sub-Saharan Africa now think about their electrification is through least-cost planning, and that is usually done through geospatial modeling. So, if a country is thinking through how it's going to electrify its communities and its population, it'll look at its topography, it'll look at where urban centers are and figure out what is the best and least-cost way of electrifying, you know, everybody and connecting everyone. There's the existing grid which has, you know, bigger generation centers and distribution networks that are connecting, you know, nearby communities and nearby industries. But there's also those isolated areas where, you know, mini-grids are more suitable.

And there's also other areas where, you know, smaller solar home systems are more suitable. So, if you think about it in these terms of least cost, then you can establish, "Okay, this is how all this goes." But to your question, what happens then in 20 to 30 years? I think what's exciting about sub-Saharan Africa at the moment is we are really building this future grid now, which is more a network of interconnected "main grid", mini-grid, solar home systems, electric cars, charging networks for electric buses. And it's going to be this interwoven mesh of nodes of generation consumption, all connected by a distribution network.

That's where I believe it's going. I don't believe there's going to be a giant, main, centralized grid later. It's going to be this interwoven network.

David Roberts

Which will be kind of a new thing in the world. That will be something no country has done.

Tombo Banda

Yeah, it will. And I think that's what's quite cool about the opportunity we have. Right? Because we can build for that future now because we don't have a legacy old big grid. We can build this smarter, nimble, more suited grid that is interwoven and distributed.

David Roberts

Really interesting. So, to help us sort of envision one of these things, one of these mini-grids. Talk about the typical size of one of these things, how big is it, what are the parts, and how many people are hooked up to one typically?

Tombo Banda

Yeah, so I always describe a typical mini-grid as a small generation unit. You know, typically 50 kW can be 50 kW to 100 kW, up to 200 kW solar panel array connected to a distribution network that is connecting about 200 households, 20 businesses or so. And usually, it has a backup system, a small diesel generator or battery pack that helps kind of balance out the cost. And that is really the typical mini-grid that we see in the sub-Saharan African context. But of course, you know, you have mini-grids that are hydropowered and bigger, smaller. But typically, you know, this is what we're seeing rolled out.

David Roberts

And do they typically have batteries? And is the rate of them having batteries, is that going up? Like, are batteries getting more popular to use in them?

Tombo Banda

Yes, I mean, standard, they do have batteries. So the solar panel array plus the batteries plus the backup system, the quantity of battery is what fluctuates. So that is a balance of cost, right? Because batteries are a costly part of it. And so you can balance that with having a diesel generator. But of course, that spoils the renewable element of the whole picture. So you want to minimize that. But it is still helpful when you want to balance the cost of the system.

David Roberts

And so who typically owns these things? Like, what's the development model? Are these third-party developers? And if so, are they African developers or are these developers from outside the country? What's the typical sort of model of ownership?

Tombo Banda

Super interesting question. So, at present, it's typically third-party developers. And the picture of who these developers are has been evolving over time. So, I think, you know, if you go back five, six years at the beginning of mini-grids taking off as a commercial venture rather than just a community NGO kind of installation, you'd find quite a few of the mini-grid founders might be, you know, startup entrepreneurs who have come from different countries and are looking to kick off this energy access business, you know, which they see as impactful and potentially also profitable. Now, you have a lot of third-party developers who are from local communities, local businessmen who also see the opportunity in providing electricity access to their communities and building a business out of it.

And I'd say the third model that is evolving now is more an asset co-opco model, where you have an asset co-company that is raising bigger amounts of money and buying or developing mini-grid assets that are operated by developers at the local level through an operator agreement where they pay them a fee and revenues come back to the asset core. And I think that's where the industry is heading more generally. And full disclosure, that's the model that is being pursued by CrossBoundary Access, which is a unit in the company that I work for, CrossBoundary. But we think generally that's where the market is going to tend.

David Roberts

Is that just because that's where the money is? I mean, is that why things are moving in that direction? It's a bigger pool of capital?

Tombo Banda

Yes. So, at present, the number needed for investment is around $91 billion, right? To achieve energy access.

David Roberts

The $91 billion is an estimate of the total investment needed in mini-grids to get electricity to everybody in Africa who doesn't have it? That's what that number means?

Tombo Banda

Correct. The World Bank estimates that we need about 160,000 mini-grids, and that's the number that gets us there.

David Roberts

Oh, 160,000 of them. Just for context, roughly how many are there now? How close are we to that?

Tombo Banda

We are so far, we have about 3000. 3000 as per the last big count. And we also have a problem that we can't see mini-grids from space, but that's a different problem. So, it's difficult to count exactly how many there are, but from the records that we have from country level, we think there's about 3000. These are commercial mini-grids. And so, you know, 157,000 to go, right, in six years. So, yeah, it's really a lot.

David Roberts

One more question about ownership, because one of the things I wonder, obviously, when people think about developing sub-Saharan Africa, one of the things you want to avoid is exploitation. And I'm just wondering about, are there like community ownership models at all being talked about? Like, is there a way of keeping some ownership in the community, building some assets in the community, building some wealth in the community through ownership of these things? Is that on the table at all?

Tombo Banda

Yeah, so, David, I'm in two minds about this and let me explain myself. So in my first mind, if you look globally, historically, electricity is a common public good that is provided usually with a lot of subsidy, usually developed at a loss, with the realization that this is just a core enabler to development and to progress. And so we must have it. So, in the United States, in Europe, in Asia, you know, this has been something that, you know, government has led, and only at a mature stage, the private sector has come in to play this commercial role.

So historically, that has worked. So now, when we come to the African continent, I have a similar view in the sense that, you know, if you go — so I'm from Malawi — if you go to any unelectrified community in Malawi and you ask them, "Hey, do you want to build and own and run an electricity utility, a small one, or do you just want to pay your electricity bill every month?" I would guess they just want to pay their electricity bill and get on with it, you know. But there might be some communities, and there are communities to which, you know, bringing that electricity and having an opportunity to own that asset would provide a source of employment, would provide, you know, a sense of ownership, a chance for innovation to do that.

So, I think honestly, by and large, David, it needs to be centrally led and, you know, commercially driven. But there are some contexts which community ownership makes sense. And I know there are models of community ownership also, you know, in Alaska, in Scandinavia, where, you know, the context makes it such that it makes sense for that. So, I do agree that there is an element of, you know, we don't want just, you know, some big PE money to come in from abroad and just, you know, put out this electricity and exploit locals. But, you know, it has to be just a viable government involved process of electrifying communities because I also believe that that is also important.

It can't be just purely commercial. There has to be an element of government involvement in how a country is electrified.

David Roberts

Yeah, I feel like I've heard about the promise of mini-grids in sub-Saharan Africa for decades. It's a very compelling story, compelling idea, but I feel like it's been floating around forever. And as you say, the 3000 of these doesn't seem like it's taken off at scale. So what is the problem? What are the barriers that have kept this model from sort of catching on and growing at the kind of speed you need?

Tombo Banda

Yeah. So, the most fundamental is mini-grids are not profitable. Right? So, as a technology, they're a good fit. They make a lot of sense functionally. They work and they at least cost as we discussed. But they don't make any money usually. So, the return from, you know, rural communities that they're connected with is usually not sufficient to give a lucrative payback to an investor. Therefore, commercially, private money is not interested in investing in that. Where's the balance and how do you make it more profitable? That's partly one of the things I work on at the Mini-Grid Innovation Lab at CrossBoundary is making the mini-grid business model more profitable so that there can be more private sector investment into mini-grids. And why private sector investment into mini-grids?

David Roberts

Isn't the reason — maybe this is a dumb thing to say — but isn't the main reason that they're not profitable simply that there isn't that much wealth in these communities to get out of them? Do you know what I mean? Like, isn't that the basic problem?

Tombo Banda

David, that is 100% correct. That's 100% correct. And you're coming right to the end. And I'm so happy that you have figured it out. And you're like, "Duh." The reason that they don't make any money is because people in their communities are not wealthy and that's a fact. And why they're not wealthy. And that's a whole other system that we have to look at of, you know, what's perpetuating poverty in these communities. So that's a much deeper question.

David Roberts

And it seems like there's a bit of a chicken and egg here too. They need electricity access to do wealth-producing activities, you know, so you can't, they don't have wealth to build the electricity before they have the electricity, I guess, is the way to put it.

Tombo Banda

Exactly. Exactly.

David Roberts

That just seems like a real puzzler of a problem. So, what do you do about that? I mean, what do you do? You can't conjure up wealth in these communities before the electricity gets there. So, how do you solve that chicken and egg problem? How do you boost profits?

Tombo Banda

So, I think there's a bottom-up and top-down way of doing it. My work is kind of focused on the bottom-up way of doing it. What you do is say we're going into a community, we're building a mini-grid, and we're going to figure out ways of increasing the revenues that we get from each consumer in that community. And how we do this is by providing them with electrically powered income-generating machinery that will allow them, you know, if they are farmers, to do agro-processing on our electrically powered machinery, that will make them consume more.

So that's good for us. And the processing will make them make more money, and that's good for them because they can afford to pay for electricity and pay for other things. So, from the mini-grid perspective, we look at income-generating machinery, electrically powered machinery that can be deployed in those communities using financing. So, you know, can we get them to get these machinery on credit so that they can also afford it and really working with the community to provide that? So that's, you know, the bottom-up way of looking at it, to say, "Well, we'll come with the electricity, figure out what business, what businesses can be electrified at the same level of cost as what they're doing presently or cheaper, and what can make them more money."

So that's one way of looking at it.

David Roberts

So, the idea is a business person would take out a loan, buy a machine, use the machine to start a business. The business makes money so it can pay back the loan for the appliance and pay the electricity, pay the mini-grid. So then, the entrepreneur is making some money, the appliance gets paid back, and the mini-grid is making more money. That's the idea there?

Tombo Banda

That's the basic idea. But I think one clarification I would make is, in the bottom-up model, the majority of consumers that end up purchasing income-generating machinery are already existing entrepreneurs that are maybe using an alternative or maybe not using an efficient alternative. So, for example, it could be a mill operator who's using a diesel-powered grain mill. You know, if you can offer him a more efficient, electrically powered mill that's going to help him process, you know, faster in a day at a cheaper cost than diesel, then, you know, that's the typical business that, you know, you would be working with.

There are, of course, new entrepreneurs that, you know, see the opportunity to start new things. You know, there's a lot of, you know, carpenters even, you know, people who just own, you know, bars in communities, you know, who will get TVs, fridges, and, you know, attract more business to their establishments. So it's simple things like that. So converting existing entrepreneurs, and there's also the creation of new entrepreneurs and getting them onto income-generating machinery that they can afford and access through credit, and ensuring that they are reducing costs that they had before and making more profit is generally the sustainable way of ensuring that you have these revenues that can be maintained by the community.

David Roberts

Interesting. So you're just sort of like trying to create more demand for electricity, basically as a way of making the mini-grid more profitable?

Tombo Banda

That's exactly it.

David Roberts

Okay. And you said there was another way.

Tombo Banda

Yeah, so the other way is a more top-down way. Right. So in the method that I described, the onus is really on mini-grid developers to act as the activators in those communities for switching to these electrically powered machinery and getting into more agro-processing, etcetera. But in the top-down way, if electrification and energy access is thought about more holistically in the context of economic development. And I think this is what you were alluding to earlier and thinking through. You know, mini-grids are not profitable because the communities that they are serving don't have, you know, sufficient money.

So, if we think about electrification in the context of economic development, then you think, "Hey, so this community, if we electrify this community, they have, you know, they have timber in the community. They need woodworking shops, and, you know, what does that take? They have a school, they have hospitals. These all need to be electrified. And, you know, these are the vaccine fridges we need in the hospitals to make sure everybody's healthy to then go to school and buy the desks for the school and export doors and window frames to make additional money for the community."

Or, you know, if it's a more agrarian community where they are growing a cash crop that needs to be processed, you know, maybe they are growing mangoes in that village or they're growing — what's a better cash crop actually? Sugar. You know, can we then provide the community or can we set it up such that there's processing, there's access to markets, there's electricity, there's refrigeration, there's all the, you know, other things that are needed to help that community thrive apart from just the electricity provision and looking at it more holistically and coordinating across mini-grid developers, government institutions, community organizations, agricultural cooperatives, and making that a more holistic way of looking at, you know, economic development.

So, I hope that's the direction that we're going rather than, you know, kind of relying on the bottom-up or maybe, you know, there's somewhere where they meet in the middle halfway. But I think that's the two ways to think about it.

David Roberts

Well, that's a matter for policy and regulation, is it not? Are the governments of that region, are they clued in to mini-grids? Are they moving in that direction? Do they get it? I mean, are they moving in that direction that you want them to be moving?

Tombo Banda

I think many are now. So, you know, five, six years ago, the story was different. You know, mini-grids were a new concept to many, including some people in government. I think now there is a greater awareness across governments, across regions. But of course, you know, the level of development, the level of acceptance is different from country to country, from region to region. But I would say the general trend is governments are more clued up to this and governments are more cognizant of this element of needing to think about electricity together with income-generating machinery, productive uses of energy, and tying it into markets.

So, there is greater awareness of that now for sure. So, I think we're moving in the right direction.

David Roberts

One thing that I've heard a lot about the mini-grid market, one of the problems with it is that these deals for development of mini-grids tend to be quite bespoke. Like, everyone is different from village to village. You're building in slightly different ways, you're servicing slightly different, you have a different amount of sort of local labor skill that you can tap into, et cetera, et cetera. That seems to me, that seems like something that's difficult for developers. It just puts a lot of weight on developers. Is there movement to try to standardize this process or is that even a thing that could happen?

Tombo Banda

Yeah, so, David, I'd say that there is movement. There's a lot of innovative solutions out there that are kind of mini-grid in a box sort of setups where you have the containers with all the electrical equipment inside and panels can be set up. And all you have to do is now set up the distribution network. And I think, you know, setups like that and standardizing of setups like that makes it quick and easy to deploy at scale. And I think, you know, what's happening now as well, David, I know we mentioned that we only have 3000 mini-grids or thereabouts, but this huge investment, well, bigger investment going into mini-grids now in the hundreds of millions.

And we're seeing those players who started out as developers with five to ten mini-grids now go into the hundreds of mini-grids scale or level of magnitude. So with that, they learn how to deploy quicker, they know what works. They know the teething problems to be found in specific kinds of communities. And we work with the African Mini-Grid Developers Association. And one of the things that they actually try to do and are working on now is passing on the wisdom from the elders to the new generation of mini-grid developers, because they don't want them to make the same mistakes that they did.

They tried out a whole bunch of things to figure out how to do it right and how to do it most cost-efficiently and how to do it quickly. So, they are also investing their time into training up the new developers that are coming up across different countries on best practices to roll out mini-grids easily, more cheaply, and more efficiently.

David Roberts

Right. Well, one of the other problems I've also heard about has to do with ongoing operation and maintenance. I think in the early days of this, the mini-grid thing, you heard a lot of stories about, like a couple of panels and a battery would get installed and they would just break and there wouldn't be anybody around to fix them, and they just kind of molder. So, what is the typical model? Does the developer operate this thing, or is it a local agency of some kind that operates it and maintains it? How is that typically done?

Tombo Banda

Yeah, so typically, the developer will operate the mini-grid. They will do the operations and maintenance. They'll collect the revenues. They will do the customer service, they will do the community engagement. So, that model is a lot more common, I think. You know, what can be challenging is, you know, if you have big countries, for example, in Sierra Leone, where, you know, sites are far apart, hours apart, it might be tricky and take long to get there. You might not have the maintenance necessarily on the ground, but usually, these systems are monitored remotely and they have a technician, someone looking at the condition of the equipment on the ground.

And if they do see a problem, you know, it might be some hours or a day or two before maybe the right technician can get there to fix it. But usually, it's the developers on these commercial mini-grids who are operating and maintaining to make sure that they're maintaining at least a decent level of service for the communities.

David Roberts

And just a quick question about technology. I just sort of am assuming that these things are pretty standardized at this point and that the pieces are pretty simple. Like solar panels are pretty simple, batteries are pretty simple. Stringing wires to houses is relatively simple. Is there any technological advancement happening or anything exciting to say about the technology? Or is it just, is it good that it's standardized and boring?

Tombo Banda

So, it's good that it's standardized and boring. But, you know, what we try to do is make the mini-grid ever more lucrative for investment, right? And ever more affordable for consumers. So that requires some innovation in the technology to reduce the cost or to get more for less. So, I think in terms of, you know, the panels, not really much innovation going on there and in the batteries, but in terms of innovations to make things cheaper, we are seeing, you know, second life batteries come onto mini-grids, and that can reduce the battery cost significantly.

David Roberts

Oh, yeah, yeah.

Tombo Banda

And these second-life batteries, yeah. You know, come from electric vehicle applications, where they were used in dynamic settings, but now they can be used in stationary settings. So we have some middlemen, I guess, is the right term, who take these EV batteries, disaggregate them, look at the individual cells, make sure they are still performing well and still have sufficient life in them, reconfigure them, snap on a new battery management system, and redeploy these to mini-grid sites. So that's an interesting technology innovation in that the battery chemistry itself is not new, but the application is new, and how it's been set up is new, and it's resulted in a 40% cost cut.

I think another innovation that is interesting for us is smart inverters and mesh grids. Yeah. So, this is basically using the same components, but using software to allow individual units to talk to each other and share power across different consumption centers. So, I would say the core technology remains the same, but how we use it is changing. And the use of software to share power, even track and predict power, is making it interesting. Another one more thing I would talk about is on the metering side, we're doing quite a cool experiment with a local Kenyan company here called PowerPay, who's doing disaggregated, non-intrusive load monitoring for individual households.

And we also want to test that at community level. And simply what this is, David, is actually, it's used in commercial applications, in industrial settings, so you probably know what it is. But using one meter and connecting different loads to that individual meter and then disaggregating where the load or consumption is originating from. So in a house, you'd be able to tell from that one meter that 60% of the consumption was from the cookstove and 40% was from, you know, bulbs. And that's important because, you know, we want to be able to charge things like, you know, cooking tariffs to encourage clean cooking as opposed to, you know, cooking using charcoal or other dirty sources.

David Roberts

Yeah, yeah.

Tombo Banda

And it's also important because, you know, if you think about it on a site level, meters can be up to 10% of a site's capex because developers use smart meters to ensure that they can charge different customers accurately and they can also track what they're actually generating versus consuming. So, they use smart meters, and those are expensive. But if you can use one smart meter across five or six houses and accurately bill those five and six houses because you can disaggregate their loads using AI, that's a cost reduction. So, there is some cool technology stuff happening.

I'd say that the physical hardware is probably the same, but how you use the software and then how you reconfigure those innovations is changing.

David Roberts

Really cool. One more money question. I watched your TED talk. Everybody should go watch it. It's great. But you said you're trying to make these things more profitable. And right now, they're in the 5% to 6% return range, and you want to get them up to the 10% to 12% range to attract more private capital. And I guess I get that. I get why you need those kind of high returns to attract private capital. But is there really, like, on another level, it's bothersome that, like, people are going without electricity because someone can make 6% returns and not 12%?

You know what I mean? Like, that's... Is there no patient capital out there? Is there no pool of, like, sort of infrastructure funding that's more patient and more tolerant of kind of lower, longer-term results? Is there none of that to tap into?

Tombo Banda

David, that's such a great question, and I think the answer is there is, but we're not seeing it fast enough. So in the model I talked about earlier, where it's more asset co-opco, invest in a larger portfolio of mini-grids that attracts the kind of money you're talking about. So infrastructure, patient capital, you know, willing to wait 25 years for a return. So I think the fact that we're evolving towards that sort of model is one of the reasons why there's more money coming to the sector, and we expect more money to come to the sector that way.

But, you know, in the short term, we have seen this need to at least get that return at a more basic level to get the bigger funds, the bigger infrastructure funds interested. The patient capital, concessional capital, the impact capital. You know, sometimes they're satisfied just to get their money back. But, you know, if you want, sadly, if you want, like, some of the pension funds and things like that of the very countries that we're serving to invest in these mini-grids, you know, they do want to see that kind of return sometimes.

So, it's happening, I would say, and I wish it was more. I find it, like, frankly, outrageous.

David Roberts

It's kind of — that's what I was getting at.

Tombo Banda

Yeah, it's outrageous and shocking. And, you know, if you think of a number like $91 billion for an entire continent.

David Roberts

Yeah.

Tombo Banda

That's not a huge number.

David Roberts

I know. That's pretty small.

Tombo Banda

A huge number, yeah. You know, in the global scale, that's, you know, a couple of billionaires knocked off, you know, one and two, probably not even one and two, like, you know, position 19 and 20.

David Roberts

Yeah.

Tombo Banda

And that's a whole continent electrified. So, yeah, it's really not satisfactory, but, you know, we have to work in the context of capitalism, so —

David Roberts

Here we are.

Tombo Banda

We're working to make it more. Here we are.

David Roberts

Well, the last kind of thing I wanted to ask about was the last barrier I hear to a lot of capital coming in is governance. I think one of the reports you sent — I was looking at some of the reports you sent — and one of the reports said that it takes the average mini-grid in Africa 58 weeks to get all the licenses and approvals it needs to build. And this is like, as you say, like a couple of containers. Like, I'm sure in terms of physically building one of these things, you can do it in a couple of days or a week, but like 58 weeks to get through the bureaucracy seems kind of extraordinary.

So, how's that? Is that getting any better? It's sort of, I guess, I mean, two things: One, a regulatory structure that sort of is faster and makes more sense and is more predictable, but also just sort of governance, just general. Can I trust that contracts will be fulfilled and this kind of thing? How big a problem is all that stuff?

Tombo Banda

Yeah, I'll reference again the African Mini-grid Developers Association, who we work with. These two things are top of their agenda to address. So, they work with governments and they work with regulators to streamline these two processes. And I think it definitely has been a challenge for developers, especially in new geographies, where maybe mini-grids are new to the country and regulators are just getting accustomed to it. They have to figure out a whole new tariff regime and tariff models and socialize that internally. The people issuing licenses have never issued that kind of license before. So, in new geographies, there's a lot of firsts.

But I think, you know, similarly to what they do with, you know, developers passing on wisdom. What we've seen now is a lot of standardization across what, you know, regulatory regimes should look like across countries, and countries really cooperating with each other and, you know, not trying to reinvent the wheel, looking at best practices and adopting those as they are, figuring out what their regulatory regime looks like. So there's a lot of talking that's happening between regulators across these countries, which is very helpful for developers and very helpful for mini-grid developers in those countries. But there's still an element of ramping up that has to go.

So that's, that's still not there. But I think in terms of structuring, you know, as long as there is that communication and they're learning from each other and they're not making the same mistakes, we can expect that this improves. And then governance, I mean, this is — I mean, it varies from country to country. I think, you know, there's an element of risk there. There's an element of risk there. But I think, you know, any country, a lot of them, I think the good thing about electricity is most politicians, all governments know the value of electricity. And all governments know that if they electrify communities and increase access, communities are happy and, you know, that can translate to votes.

So they tend to try not to stand in the way of getting electricity votes. And in fact, if they can, you know, say, "Under my watch, look how much electricity access has improved," that's a pro for them. So there's that element that you can rely on governments for. But on the other hand, you know, things always change. You know, there's pressures from other sources that may cause things to change. So it's a risk that, you know, that just has to be mitigated as far as possible.

David Roberts

Is there any particular policy that you would sort of single out as particularly helpful for a country to implement that would make this whole thing go faster? I don't know what the policy environment is like in these places at all. I don't know if there are barriers that could be removed by policy or anything. Or is this mostly just about markets?

Tombo Banda

On the policy side, I'd say a lot of governments blanket. I would say number one is removing the taxes on renewable energy projects. So in most countries, actually, if you import like the panels, the batteries, you know, that stuff tends to be duty-free, tax-free. So I would say maintaining that is essential because that's a cost cut. I would say in countries like Kenya now, you can apply for blanket licenses. So if you are a mini-grid developer and you want to develop a portfolio of say 20 mini-grids, you don't have to apply for 20 licenses.

You can apply for one license for your portfolio. So things like portfolio licenses help. This is a really big one. Actually, David, I am a big believer in subsidies for electricity. So I would say a big policy incentive could be how you think about sources of subsidy for electricity. So, you know, in a typical utility, you have your cross subsidies from your industrial customers who will be cross-subsidizing the lower paying ones. In mini-grids that happens to some extent, right, because you have the businesses who are really holding up the business and paying most of the bill.

But you know, there's also just the element of straight-up subsidy. And you know, actually before this podcast, I was looking up subsidies in the US and there are so many subsidies that you guys enjoy for electricity.

David Roberts

Really, really are. We just passed a bunch more.

Tombo Banda

And then, one that caught my eye was the Low Income Home Assistance Program subsidy. So, that basically pays low income, that helps low-income households to cover their electricity bill. If there was a straight policy or an understood policy across most governments that all consumers of electricity require some level of subsidy, I think the level of deployment of mini-grids would shoot up immediately because that delta of just covering the revenues really makes up for all this other work that you have to do in developing businesses and making sure you pick the most economically viable communities first. I will rewind all my answers and say that is the top policy recommendation I'll make.

David Roberts

Excellent. Okay, final question. Your job is your team develops sort of innovations in business models for these mini-grids and tests them out and tracks them, and then tries to expand on the ones that work, etcetera. So, I thought, by way of a last question, I would just ask, is there a particular innovation that you have developed or tried, a particular trick you've tried, or a thing you've figured out that worked particularly well that you're particularly proud of? Anyone you'd want to single out?

Tombo Banda

Oh, shout outs. I have to be clear, we work through developers and other technology providers and kind of quarterback the process of trying these innovations and tracking the data and making the analysis to figure out what works and doesn't work. So, the most high impact innovation far and away is appliance financing, David. And I think that's what we were talking about earlier. When you provide appliances and income-generating machinery on credit to end users, and there's a bunch of developers across different countries, it's almost standard now that they provide that as part of their offering. When they bring a mini-grid to a community. So, it's hard to single out a single individual there.

But I think a couple of cool technology providers I'd like to give a shout out to. The first is a company called SLS Energy in Rwanda. I spoke about second-life batteries earlier. So, they take second-life batteries from, well, one of their sources is a cool electric two-wheeler company called Ampersand. So, they take old batteries from electric motorbikes that were in use in Rwanda, and they're converting them to second-life batteries for mini-grids and for telco towers. And so, I think they're doing a very cool job. And I like, you know, as a Malawian, I like kind of homegrown solutions, and these are an indigenous Rwandan company doing that.

So, I like working with them. Another company I'd like to shout out that I think we're doing cool stuff with is a company called PowerPay here in Kenya, and they are an Internet of Things company. They're the company that is developing the meter that does non-intrusive load monitoring to disaggregate loads at household level and site level. So, they developed the AI algorithm, they are training it within their lab, so they're quite cool and they're doing cool stuff. So yeah, I'd like to give those two companies a shout out.

David Roberts

Awesome, thank you so much, Tombo. This has been absolutely fascinating, super, super educational for me. Thank you for taking the time.

Tombo Banda

Thanks so much, David. I appreciate it.

David Roberts

Thank you for listening to the Volts podcast. It is ad-free, powered entirely by listeners like you. If you value conversations like this, please consider becoming a paid Volts subscriber at volts.wtf. Yes, that's volts.wtf. So that I can continue doing this work. Thank you so much and I'll see you next time.