AFRICAN DEVELOPMENT BANK

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1 AFRICAN DEVELOPMENT BANK Public Disclosure Authorized Public Disclosure Authorized MULTINATIONAL GREEN MINI-GRIDS MARKET DEVELOPMENT PROGRAMME PHASE 2 PEVP/PGCL DEPARTMENTS June 2017

2 Table of Contents Acronyms... i Table of Contents Introduction Regional Context and Sector Issues Project Description and Rationale Justification for SEFA Intervention SEFA Enabling Environment Grant Objective Project Executing Agency Grant Components/Activities Budget/Cost Structure Outputs and Deliverables of Grant Activities Implementation Schedule Implementation, Procurement and Disbursement Modalities Conclusion & Recommendations ANNEX I - LOGICAL FRAMEWORK FOR SEFA GRANT... I ANNEX II KEY ACHIEVEMENTS AND LESSONS LEARNED... III ANNEX III - RISK MATRIX... V ANNEX IV - BREAKDOWN OF BUDGET (24 months)... VI ANNEX V - PROCUREMENT PLAN... VII ANNEX VI SEFA GOVERNANCE... VIII

3 Acronyms AfDB African Development Bank ARE Alliance for Rural Electrification AU African Union CEMG Clean Energy Mini-Grid DFID Department for International Development (UK) DSM demand-side management ECREEE ECOWAS Center for Renewable Energy and Energy Efficiency ESMAP Energy Sector Management Assistance Program (World Bank) FEI Debt Fund for Energy Inclusion GDP Gross Domestic Product GEF Global Environment Facility GIS Geographic Information System GMGs Green Mini-Grids GVEP Global Village Energy Partnership (now Energy 4 Impact) HIO High Impact Opportunity IEA International Energy Agency IED Innovation Energie Développement IFC International Finance Corporation LEAP Lighting and Energy Access Partnership MDP Market Development Programme NEPAD The New Partnership for Africa's Development PECG Climate Change and Green Growth Department (AfDB) PENP Energy Partnership Department (AfDB) PEVP Power Energy Climate and Green Growth Complex (AfDB) PPP Public Private Partnerships RISE Readiness for Investment in Renewable Energy indicators (World Bank) SE4ALL Sustainable Energy for All SEFA Sustainable Energy Fund for Africa SSA Sub Saharan Africa UNDP United Nations Development Programme UNF United Nations Foundation i

4 Abstract GMG Market Development Programme Phase 2 Task Manager: Daniel Schroth Grant Beneficiary: AfDB (SE4ALL Africa Hub Team) Dept. / Division: Energy Partnerships Dep t (PENP) Grant Amount: USD Project Description: In response to the critical need for rural energy and rural development generally, and specifically to the challenges facing the green mini-grid sector, the SE4ALL Africa Hub at the African Development Bank designed and launched the Green Mini-Grid Market Development Programme (GMG MDP) with grant funding from the Sustainable Energy Fund for Africa (SEFA) in mid The GMG MDP is organized into five work streams or business lines: (1) Market Intelligence aimed at providing stakeholders with better information on potential mini grid markets throughout the continent; (2) Business Development Services provides web-based and personalized technical assistance to GMG developers; (3) Policy Support targets public sector players and the creation of an enabling environment for private sector investments into mini-grids; (4) Quality Assurance aims to ensure that any mini-grids developed will be to a standard sufficient to build a positive reputation for the technologies and business models, to be developed in a second phase of the project; (5) Access to Finance provides financing guidance and financing support tools to GMG developers. The Programme has since become a key source of market information and policy developments on the continent: the GMG Developers Help Desk became the sector s de facto technical assistance and advisory portal after only five months on-line; on the policy front, the GMG Africa Strategy, developed under the GMG MDP, has been adopted as the AU s position on how best to structure at the country-level the policies and regulations fostering private investment into mini-grid businesses; on access to finance, the AfDB s Debt Fund for Energy Inclusion (FEI), also developed with SEFA support and GMG MDP inputs (approved by the Board in December 2016), inter alia envisages financing of mini-grid projects, while the GMG MDP will additionally contribute to the pipeline for FEI and provide TA support for such mini-grid businesses. The first phase of the GMG MDP will reach completion in Q2/Q The 2 nd phase will then begin immediately after to ensure a seamless evolution of activities. Phase 2 of the GMG MDP envisages transforming the MDP into the go to one-stop-shop for minigrids in Africa. This is also a key piece of the Bank s ambitious 100% energy access target by 2025 under the New Deal on Energy for Africa. SEFA Alignment and Role: Cost Structure: Description of Recipient: Bank s Role: Implementation Arrangements: Strategic Alignment: Development Outcomes: This project is aligned with SEFA s mandate under component III to strengthen the enabling environment for private sector investments in sustainable energy and will additionally complement SEFA s activities across its three components - project preparation, equity investments and enabling environment as some of its activities are in the mini-grid space. The breakdown of the Phase 2 grant is of US$ 3 million (Market Intelligence $ , Business Development Support $ , Policy and Regulatory Support $ , Quality Assurance $ , Access to Finance $ and Programme management, communication, and outreach $ ) The GMG MDP will be implemented by the SE4ALL Africa Hub team in the Energy Partnerships Department (PENP). The Bank hosts the SE4ALL Africa Hub in partnership with the African Union Commission, the NEPAD Agency and UNDP and supports African countries in achieving the three objectives of SE4ALL. The GMG MDP contributes to the implementation of the energy access objective and will thus strengthen the Bank s leadership role on energy access. It will also pave the way for an increased participation of the Bank in the financing of projects beyond the grid connected space, building on the success and visibility of Phase 1. Some activities are to be directly implemented by the Bank through in-house capacity on mini-grids. A substantial part of the activities, however, are to be contracted out to the best available skills and expertise using inter alia targeted calls for proposals. The MDP will be implemented in a coordinated manner with the SE4ALL partnership on Clean Energy Mini Grids, including the World Bank (ESMAP), DFID, UNEP and several US Agencies (DOE, USAID, State Dept.). The GMG MDP Phase 2 aligns with the Bank s Energy Sector Policy and contributes directly to the Bank s New Deal on Energy for Africa by contributing to energy security, increased energy access (in particular in rural areas), transition to cleaner energy paths, promotion of innovation to increase financial flows, and promotion of knowledge transfer, research and development. Moreover, the MDP Phase 2 will complement other Bank activities, notably the green credit lines under preparation in several countries and the Debt Fund for Energy Inclusion (FEI), contributing to a pipeline of mini-grid projects that can in turn be supported by FEI, and improving the investment conditions for FEI. The GMG MDP addresses a series of bottlenecks for the scale-up of GMG investments in Africa, enabling investments in clean energy mini-grid projects across the continent. Once in operation, these projects will provide increased access to sustainable electricity for households and businesses, resulting in local economic development, better health services, improved education, and gender empowerment. ii

5 1. Introduction 1.1. Regional Context and Sector Issues It is estimated that 645 million people in Sub Saharan Africa, nearly 60%, don t have electricity. 1 The latest SE4All Global Tracking Framework also highlights that there is a significant urban rural divide, with access to electricity in urban areas in Sub-Saharan Africa amounting to 69% compared to only 15% in rural areas. According to the IEA by 2040, 70% of new rural supply in SSA will be most economically provided by off-grid and mini grids, two thirds of which powered by renewables as a result of falling costs, technological advancements and more efficient appliances. 2 Green Mini-Grids (GMG) are small and independent electricity networks providing renewable power to households, businesses and institutions in rural communities. GMGs generate their power (between a few kilowatts and up to 10MW) from renewable sources of energy, such as solar, wind, biomass and hydropower, as well as hybrid combinations of any of the above, including diesel generators for back-up and peak loads. Mini-grids development escapes the high cost inherent in constructing the long transmission line infrastructure of main grids (on average around USD 15,000 per kilometre), while providing more power than off-grid solar solutions. That additional capacity above what off-grid solutions provide is needed to power energy-consuming productive use appliances, such as mills, pumps and refrigerators, applications critical for economic development. However, the development of GMGs comes with various challenges of a financial, technical and regulatory nature undermining their bankability. Chief amongst these challenges is profitability and therefore financial sustainability, as the business model entails the investment and management of both generation and distribution assets, with power sales directly in rural African environments where households and businesses have limited consumption levels and ability to pay. GMGs require dependable business clients purchasing electricity in order to generate the necessary revenue to be economically viable. In fact, local economic vitality and anchor clients are so important to GMG developers that many seek actively to develop productive use clients in their market areas. Additional challenges include technical development (e.g. developer capacity for designing robust systems and structuring the project financing), policy and regulatory (e.g. cost-reflective tariffs, compensation and/or integration within the main grid when it arrives, quality and safety standards), operations and maintenance (e.g. lack of qualified labour, marketing and consumer service), and currency mismatch (revenues in local currency are exposed to volatility and depreciation undermining equity returns and debt servicing generally denominated in hard currency. All things considered, the rates of return thus tend to be lower relative to more conventional on-grid generation projects, while facing more risks that are harder to mitigate. As such, commercial financing of any mini-grid initiative, particularly through local financial institutions, remains an impossibility as the projects are simply not deemed bankable Project Description and Rationale In response to the critical need for rural energy and rural development generally, and specifically to the challenges facing the green mini-grid sector, the SE4All Africa Hub at the African Development Bank designed and launched the Green Mini-Grids Market Development Programme (GMG MDP) to remove or reduce market barriers and strengthen the ecosystem for the scaling-up of GMG investments in Sub-Saharan Africa. Seeded with USD 1 million grant funding from the Sustainable Energy Fund for Africa (SEFA), the Programme s key value propositions includes: Promoting a pan-african network of expertise on GMGs; Ensuring coherence with SE4All Action Agendas and Investment Prospectuses; 1 Half of those, or 325 million, come from only six countries; Nigeria, Democratic Republic of Congo, Ethiopia, Kenya, Uganda and Tanzania. African Development Bank Group Strategy for the New Deal on Energy for Africa , May Africa Energy Outlook: A focus on energy prospects in sub-saharan Africa, International Energy Agency,

6 Strengthening capacity of developers to develop / operationalize GMG business models; Engaging financiers and supporting the development of suitable financial solutions; Promoting a sound policy and regulatory environment; Providing an interface with leading sector participants and groups. Launched in mid-2015, the GMG MDP has successfully positioned itself over the last two years at the center of the mini-grids movement in Africa. The Programme has become a key source of information about GMG markets and policy developments on the continent and the GMG Developers Help Desk became the sector s de facto technical assistance portal after only five months on-line. The GMG Africa Strategy, developed under the GMG MDP, has been adopted as the AU s position on how best to structure at the country-level the policies and regulations fostering private investment into minigrid businesses. The AfDB s Debt Fund for Energy Inclusion (FEI), also developed with SEFA support and approved by the Board in December 2016, inter alia envisages financing of mini-grid projects, while the GMG MDP will contribute to the pipeline for FEI and provide TA support for the mini-grid businesses financed by FEI. Phase 2 of the GMG MDP envisages transforming the MDP into the go to one-stop-shop for mini-grids in Africa. This is also a key piece of the Bank s ambitious 100% energy access target by 2025 under the New Deal on Energy for Africa Justification for SEFA Intervention This GMG MDP is aligned with SEFA s eligibility criteria and mandate to support activities that create an enabling environment for private investments in sustainable energy in Africa. The SEFAfinanced activities target market barriers to investments and accelerate deployment of commercially viable GMG projects in Africa. The development of Clean Energy Mini-Grids is one of the focus areas under the SE4ALL initiative for which the Bank is playing the lead role for Africa. The Clean Energy Mini-Grids Partnership is galvanizing action on the five interlinked barriers facing the sector, with the engagement of public, private and civil society expertise and resources. The Clean Energy Mini-Grids Partnership, including the co-ordination group, secretariat and wider membership, is the established forum for discussion and coordination of the efforts of development partners to advance the adoption of GMGs. The AfDB is an active member of the Partnership and the GMG MDP was designed from the beginning to be integrated and closely coordinated with the activities carried out in the framework of the Partnership. Phase 2 of the Programme will include more direct support for the strengthening of the CEMG Partnership, solidifying the GMG MDP s position within the DFI community as the central pillar of mini-grid developments in Africa. The GMG MDP Phase 2 aligns with the AfDB s Energy Sector Policy and contributes directly to the Bank s New Deal on Energy for Africa by contributing to energy security, increased energy access (in particular in rural areas), transition to cleaner energy paths, promotion of innovation to increase financial flows, and promotion of knowledge transfer, research and development. Moreover, the MDP Phase 2 complements other Bank activities, notably the green credit lines under preparation in several countries and the Facility for Energy Inclusion, contributing to a pipeline of mini-grid projects that can in turn be supported by FEI. 2. SEFA Enabling Environment Grant 1.4. Objective The GMG MDP (Phase 2) aims to expand the support to mini-grid sector actors (private, public, finance sectors) for the scale-up of investments in commercially viable GMG projects. The programme seeks to remove or reduce market barriers at regional scale and strengthen the ecosystem for the emergence of a thriving GMG sector in Sub-Saharan Africa contributing significantly to the 2

7 objectives of the New Deal. It follows the five business lines that respond to specific barriers for different groups of stakeholders, as in the table below. Table 1 - Business Lines, Barriers and Partners BUSINESS LINE Market Intelligence Business Development Support Policy and Regulatory Support Quality Assurance Access to Finance BARRIERS ADDRESSED Information gaps and asymmetries Lack of Proven Business Models, Unmade Linkages Policy Environment Lack of standard solutions and need for consumer protections Business Models, Access to Finance PARTNERS Project Developers, Public Entities, Business/ Industry Associations Project Developers, Customers/Communities, Business/ Industry Associations Governments, RECs, AU Regulators and Industry associations; RECs, Rural Energy Agencies Financial Institutions, Project Developers, Business/ Industry Associations Partners and beneficiaries: The GMG MDP targets the following groups of partners and beneficiaries: GMG project developers and equipment vendors, including community or private developers and Public Private Partnerships (PPP); Customers/communities, including anchor clients (e.g. telecoms), businesses (e.g. local MSMEs), and community customers (i.e. households and public services); Governments, regional institutions, public sector, public institutions, including public utilities, rural electrification agencies, and local institutions involved in the preparation of laws, regulations, codes and standards for quality assurance and legal frameworks; Business/industry associations involved in supporting and representing their members through advocacy, research, networking and events; Financial institutions involved in the provision of risk, equity and debt capital for GMG projects, as well as risk-mitigation instruments. This includes private investors, local commercial banks, development finance institutions and governments. Phase 2 of the GMG MDP builds on the positive experience and lessons learned from the first phase 3 as well as on an extensive consultation process with CEMG Partnership stakeholders, GMG experts, members of the Energy Access Practitioner Network organized by the United Nations Foundation (UNF), the Alliance for Rural Electrification (ARE) and many others. The comments received helped to shape this MDP grant proposal, to prioritize the activities for this second implementation phase, to avoid duplication and to ensure close coordination with other activities in this area Project Executing Agency The Programme is being Bank-executed through the Sustainable Energy for All (SE4ALL) Africa Hub hosted in the Energy Partnerships Directorate (PENP) of the Power, Energy, Climate and Green Growth (PEVP) complex of the Bank. The Hub has the mission to advance the SE4ALL initiative in Africa, providing guidance and support to African countries and coordination of activities with partners and the global initiative. 3 See Annex II for a review of Key Achievements and Lessons Learned from GMG MDP Phase 1. 3

8 The Hub has an oversight committee composed of AfDB, African Union, NEPAD, UNDP and one representative of the Regional Economic Communities (currently SADC) and it works in close collaboration with the SE4ALL Global Facilitation Team and its Chief Executive Officer (CEO), Ms. Rachel Kyte. The Hub also supports the implementation of the SE4ALL Partnerships, including the Partnership on Clean Energy Mini-Grids to which this proposal will directly contribute Grant Components/Activities The Green Mini-Grids Market Development Programme has been conceived as a multi-phase multi-component initiative for reasons of implementation flexibility and capacity. The Bank s experience in GMGs has been building-up through the implementation of the first phase, and the Bank is now recognized as one of the institutions leading on advancing the GMG sector in Africa. The phased approach allows for a much greater degree of flexibility to adapt to the changing landscape, assuring a gradual implementation of the activities in parallel with increasing internal knowledge and experience, in close coordination with the actions carried out by other SE4ALL partners, and with the developments at the regional and national levels. Phase 2 of the GMG MDP takes into consideration the programmes of other stakeholders providing support to the nascent GMG sector in Africa, such as Power Africa, GIZ, the World Bank/IFC, the EU and others. Planned Phase 2 activities include specific collaborations with Power Africa, ESMAP and GIZ, as well as support for the increased sustainability and utility of the CEMG Partnership. Phase 2 activities also respond to additional sector needs identified during the implementation of Phase 1. Several of the Phase 2 activities outlined below are country-specific and the impact of certain activities make most sense if carried-out in conjunction with others. Naturally the Programme will prioritize highimpact countries (i.e. countries with large numbers of non-electrified citizens) and countries with emerging GMG sectors. Additionally, the Programme will target countries whose Governments have demonstrated commitment to enabling private sector investment into the GMG sector, as evidenced by a Government s clear support for the GMG Africa Strategy. The GMG MDP Phase 2 will be implemented through five (5) components, also know as business lines (BL): BL1: Market Intelligence: Under phase one, the GMG MDP gathered mini-grid market intelligence on five countries Burkina Faso, Cameroon, Ethiopia, DRC and Mozambique (some of these research projects are to be completed during Q1 2017). These countries were selected based upon experience with or potential for mini grids, while ensuring some regional balance. Generally, this market intelligence consists of main-grid rollout plans, population centers and densities, distribution of renewable energy resources, dominant economic sectors and potential anchor clients, and details of mini grid policy frameworks. The information is made available through the GMG Help Desk, in the form of maps, raw data, and analysis, as well as packaged into country market intelligence reports. For the second phase of the GMG MDP the following activities are proposed: 1. Expansion of this market intelligence gathering in new countries as well as regularly updating the information from countries already analysed. The information contained in these reports, notably Global Information System (GIS) reports, will be made available through the GMG Help Desk. The second phase will prioritize high-impact countries (countries with large numbers of non-electrified communities), with high mini-grid potential, and seek synergies with related activities, such as SEFA GMG country programs where policy and regulatory frameworks are being developed but there is a lack of market information. The analysis will also inform the Bank s activities at country level under the New Deal on Energy for Africa 4

9 2. Beyond these country-specific market intelligence studies, however, there remain gaps in market information such as resource mapping for small hydro and biomass potential. These gaps were identified on several occasions while conducting the initial market assessments, with the consultants recommending further in-depth studies to fill these gaps (an example is the absence of site-specific information on small hydropower potential in Ethiopia). Such studies either do not exist or are outdated and incorrect. On the other hand, some few countries have benefited from hydro resource mapping, such as the Small Hydro Resource Mapping in Tanzania report commissioned by ESMAP. In West Africa, ECREEE began in late 2016 a program to begin mapping small hydropower resources in its member states, beginning with Guinea and Sierra Leone. These studies are valuable to small hydro project developers and should be encouraged. Similarly, there is a lack of specific information relative to biomass energy resources in most countries. The Programme will not duplicate efforts to inventory RE resources conducted by ESMAP, IRENA or other development partners but rather fill some of the remaining gaps. 3. The issue of lack of market information on the size of the African, regional or country GMG markets, the number of mini-grids and their financing remains a major constraint for the sector s development. For example, in a country such as the DRC it is known that private sector mini grids have emerged in the absence of a viable public utility, but the ownership models, size, clientele and economics are widely unknown. The development and regular update of GMG market data is therefore a key priority. The data will permit stakeholders to follow the evolution of the GMG sector over time, monitoring specific KPIs. Through the GMG MDP, a database on GMG sector indicators will be constructed and a methodology for its continuous updating and maintenance will be adopted. The Energy Sector Management Assistance Program (ESMAP) of the World Bank Group is also currently building a methodology and database related to mini-grids. The GMG MDP will collaborate closely with ESMAP on developing this GMG market data system, potentially with the MDP developing the system for Africa and ESMAP applying the same or similar system in Asia and Latin America. The two partners could then periodically jointly produce a report on the State of the Global GMG Sector. Key to the sustainability of this activity will be identifying an institution that will take ownership and responsibility for the GMG database. For example, for the off-grid sector in Africa, similar market data is collected and maintained by the Global Off-Grid Lighting Association (GOGLA), however it remains to be determined whether GOGLA or a different institution is the most appropriate owner of the GMG database. Another option is for this GMG database to become the responsibility of the Clean Energy Mini-Grids (CEMG) Partnership and available on their website. The GMG MDP is exploring opportunities to increase its support of the CEMG Partnership, and this may prove to be an activity that fits well with the Partnership s role of promoting the GMG movement and providing evidence of the sector s progressive development. Further to this interest in increasing support to the CEMG Partnership is creating stronger links between the Partnership s website and the GMG Help Desk, which by their natures should be inherently complimentary. BL2: Business Development Services: The second phase of the Business Development Services business line will see a continuation and expansion of the support services to mini-grid developers. The following activities are proposed: 4. The Programme proposes to continue to maintain the GMG Developers Help Desk, develop and upload new knowledge products, provide country-specific information and offer technical assistance (both through the website as well as more personalized in-depth TA assignments). The website and TA approach also need to be evaluated on a cyclical basis to make improvements where necessary. Specifically, under Phase 2 the country-specific information on the Help Desk, notably on issues related to licensing and permitting questions, will be expanded 5

10 building on the Tanzania example. 4 The Help Desk interface needs an alternative French language option. 5. Information related to thriving economic sectors and potential anchor clients is also of critical value to GMG project developers. Similarly to the methodology described above relative to renewable energy resources, the GMG MDP will commission an analysis of the gaps in information related to countries local economies and anchor clients. Based on this gap analysis, the Programme will engage consultants to map countries productive use options and anchor clients. Data for these mappings will be sourced from relevant private sector actors and their industry associations (e.g. telecoms, tourism, agro-processing). The GMG MDP will develop an approach to assist mini grid developers in stimulating the productive use of electricity in their market areas. Obviously, GMGs profitability improves as sales of electricity increase with static fixed costs and variable costs increasing only modestly. This is especially true for hybrid solar-diesel mini-grids, which aim to increase daytime energy consumption relative to night-time consumption, when storage and diesel fuel increase costs. Building on the experiences of the Rockefeller Foundation in India and some of the early movers in the GMG sector in Africa, the Programme will develop a best practices methodology on how to seed local electricity demand. The methodology will likely include community economic assessments (that may focus on irrigation, agro-processing and cold storage), local community engagement and locally available business development services and microfinance. The methodology will then be refined through an action-research element with existing GMGs, whereby the Programme provides support in exchange for data sharing. In parallel, GMG best practices relative to demand-side management will also be documented, building on the Global Lighting and Energy Access Partnership (Global LEAP) s research into the global off-grid efficient appliance market. Similarly to a GMG s aim to increase daytime demand for electricity, the GMG also aims to decrease night-time and peak demand, when diesel generators are frequently deployed to top-up solar power captured and stored during the day. Diesel fuel is the most expensive variable cost for a hybrid solar-diesel GMG, so efforts to control this cost also improves profitability. A best practices demand-side management (DSM) methodology will be combined with the productive use methodology, with the results packaged into knowledge products and tutorials available on the GMG Help Desk. The methodology will also be applied through an action-research activity with existing GMGs, whereby the Programme provides support in exchange for data sharing. The Programme is discussing collaborating with Power Africa on the development of these productive use/demand-side management best practices, with Power Africa focusing on GMGs in Zambia while the GMG MDP focuses on GMGs in Nigeria. The Programme s focus on Nigeria will also bring it into closer collaboration with the GIZ and its mini-grids programme in that country. 6. In response to the urgent need for Africa to address the human resource capacity gap in the energy sector, the African Development Bank is supporting in collaboration with the Association of Power Utilities of Africa (APUA) and the Agence Française de Développement (AFD) four training institutions as Training Centres of Excellence in Electricity : The Eskom Academy of Learning (South Africa) The Kafue Gorge Regional Training Center (Zambia) The Institute de Formation pour l Electricité et le Gaz (Algeria) The Centre des Sciences et Technologies en Electricité (Morocco) These training centres are primarily owned and operated by their countries national utilities (for example, Eskom in South Africa). The GMG MDP will assist these centres in offering training 4 Developed under support by the IFC, the Tanzanian GMG help desk can be consulted at 6

11 programs in mini-grid development and operation for the benefit of GMG developers and their staffs throughout Africa. In addition to these four centres, there will likely be a need for at least a fifth training centre - and maybe more - that focuses more specifically on private sector GMG training and provides greater regional and linguistic balance (e.g. there is no Centre of Excellence in West Africa and none providing training in Portuguese). The Programme will conduct a human resources and training needs assessment amongst the emerging companies in the GMG sector to pinpoint what are the specific skills lacking. Simultaneously, the Programme will engage in discussions with the different Centres of Excellence and other vocational training institutions to measure their willingness to offer capacity building to the green mini grid employees. If the assessment uncovers specific needs that can be filled through training, and for those Centres of Excellence and vocational training institutions interested in providing GMG training, the Programme will subsequently develop the components of a GMG curriculum, in collaboration with the GIZ, ESMAP and other development partners engaged in training in the sector. BL3: Policy and Regulatory Frameworks: The following activities are proposed under the policy and regulatory business line: 7. The Programme will provide knowledge products and TA services to public sector institutions (Ministries, regulators, rural electrification agencies, etc.) involved in the development of GMG policy and regulatory frameworks. Already under the GMG MDP s Phase 1, policies, strategies, acts, laws, regulations and other public instruments relative to GMGs in Africa have been catalogued. In addition, there exist a number of other documents that are valuable, such as the Mini-grid Policy Toolkit 5 and Policies and Regulations for Private Sector Renewable Energy Mini-grids 6. The Programme will create a GMG Policy Help Desk linked with the GMG Developers Help Desk. Assistance to public sector actors will be provided both through the helpdesk, as well as through more personalized in-depth TA assignments. An example of the kind of TA that could be provided via the GMG Policy Help Desk could be helping a Ministry to develop GMG auctions. The GMG MDP will cooperate with existing policy support providers, such as the Clean Energy Solutions Centre Ask an Expert service to ensure complementarity. The GMG MDP Phase 2 will follow up and monitor implementation of the GMG Africa Strategy through the GMG Policy Helpdesk, endorsed by the AU Energy Ministers in March The document builds consensus amongst energy ministries and regional bodies and includes a minimum number of recommended policy positions, for example that GMG developers have the latitude to fix cost-reflective tariffs (or receive cross-subsidy up to that level), and that they merit fair compensation for their investment in the case of the arrival of the main grid into their market area. Early implementers of the GMG Strategy will determine the GMG MDP s principal focus countries under Phase 2 for in-depth assistance through the Policy Helpdesk. 8. The GMG Gap Analysis 7 commissioned by the Programme under Phase 1 recommended that mini grid developers look into alternative billing methods, specifically the possibility of charging power consumers airtime instead of for kilowatt-hours. Increasingly, more stakeholders in the energy sector argue that mini grid tariffs must reflect the real cost of generating and distributing power in order to be sustainable. The GMG MDP Phase 2 will study the feasibility of alternative billing methods, for example the sale of airtime units instead of kilowatt-hours, which would result in an inability to compare the prices of main grid power with 5 European Union Energy Initiative Partnership Dialogue Facility (EUEI PDF), International Renewable Energy Agency, Available for reference on the GMG Help Desk 7

12 mini grid electricity. 8 PAYG business models frequently combine solar power provision with access to highly efficient appliances, and the pricing schemes followed by many PAYG companies are based upon what consumers currently pay on average for their energy products and services (kerosene, batteries, phone charging, etc.). For GMGs, one option to consider might be the bundling of wireless internet services (super wifi) with electricity so that the GMG is genuinely offering a bundled utility service. Also related to GMG policy development, but independent of the GMG MDP, are the SEFA GMG country programmes. The country programmes work with governments to develop GMG enabling environments (policies, strategies, regulations, etc.). Programmes are currently underway in Mozambique, Rwanda, Niger and the Gambia, and in the pipeline for the DRC, Burkina Faso, Sao Tome & Principe, Angola and Nigeria. The MDP will seek synergies with the country programmes to enhance impact. BL4: Quality Assurance: Under the quality assurance business line the following activities are proposed: 9. The Isolated Community Power Quality Assurance Framework (QAF) is nearing completion (by the Global LEAP initiative) and elements of the QAF are about to undergo a consultation process and pilot testing in India and Tanzania (the latter under the IFC s GMG project). The GMG MDP Phase 2 will work with relevant national institutions in one African country (likely to be Nigeria) to adapt and implement the QAF. 9 The target country should be one that is relatively advanced in terms of their mini-grid legal and regulatory framework. The QAF s monitoring and reporting includes both technical and commercial KPIs. The QAF is designed to be implemented simultaneously from the bottom up at the community level with the mini-grid developer and from the top down with the regulator at the national level. The Programme s approach will be based upon building the capacities of the several actors identified under the framework (regulators, Ministries, rural energy agencies, utilities, mini-grid developers, investors, customers and CBOs) together, side by side, through a combination of workshops and field application. The IFC s approach in Tanzania has revolved around the formation of two consultative groups, one for the public and one for the private sector actors. A common set of standards and reporting is then the product of negotiations between the two groups. Implementation of the QAF in any country involves an 8-step process: I. Specify project goals (for example hours of power availability, number of connections or revenue generated) II. Develop reporting and measurement requirements III. Develop performance, measurement, and reporting plans and procedures IV. Develop a project or programme QA verification process V. Develop project documentation VI. Implement QA verification process VII. Implementation of the electrification / mini-grid deployment project i. Community needs assessments ii. Design power system iii. Determine rate structure iv. Install power system v. Implement power monitoring system vi. Power system commissioning 8 Some years back the off-grid solar market was slow to develop until the Pay-As-You-Go business model was introduced. PAYG is essentially an alternative method of purchasing solar energy, and perhaps a similar business model breakthrough could catapult the GMG sector. 9 The Programme has been discussing with Power Africa the possibility of collaborating on introducing the QAF, with the Programme targeting one West African country while Power Africa targets one East African country, and both share information and experiences. 8

13 VIII. Collection and analysis of long-term system operational data Global LEAP has drafted detailed implementation guidelines that will be used by the GMG MDP and its consultants. The GMG MDP will engage a consulting firm to conduct the QAF capacity building. A concerted effort should be made to select correctly the companies, institutions and individuals to be trained. The MDP is exploring cooperation on the QAF implementation with Power Africa. BL5: Access to Finance: In the 1st phase of the MDP, IED was hired to assist in reflecting upon and developing appropriate GMG financing tools that the Bank could potentially offer to project developers. The following assumptions in relation to Phase 2 were made: Debt and results-based financing (to subsidize rural community connection fees) are the missing links in GMG finance. Corporate equity appears to be moving into the sector, while grants for project preparation and a share of CAPEX are also available from various sources; Commercial banks will be reluctant to lend to this sector in the short or medium term, until business models have proven track records; There are currently between ten and twenty GMG developers looking to acquire debt of around $10 million each for working capital if the terms are advantageous (in terms of loan tenor and interest rates); Flexibility as to the currency of loan disbursement and reimbursement would contribute to mitigating currency risk. Also recently in December 2016 independent of the GMG MDP but supported by a SEFA grant the Bank approved the establishment of the Facility for Energy Inclusion (FEI) targeting off-grid projects, mini-grids and small grid-connected IPPs with project costs as low as $10 million. The Bank has committed $100 million to the $500 million Fund. The GMG MDP will have a natural symbiotic relationship with the FEI, generating pipeline for the Fund while providing technical assistance to GMG investments. The FEI is currently in its procurement and set-up phase and is likely to be operational by the end of With these Phase 1 findings in mind, and with the establishment of the FEI, we propose the following activities for the 2nd phase of the MDP. 10. The GMG MDP proposes to work towards capitalizing a results-based financing (RBF) grant fund with support and in collaboration with donors and foundations (possibly including Rockefeller Foundation, DFID, USAID, etc.). The RBF would be provided based upon new power connections and at an amount relative to the QAF tier quality of electricity service provided by the mini-grid (e.g. Tier 1 grids would receive smaller grants than Tier 3 grids). Grants would likely range between $200 and $500 per connection, depending on the tier. The purpose of these RBF grants is to subsidize power connections for rural households, so that the modest incomes of these households do not represent a barrier to GMG growth. Based upon lessons learned elsewhere (such as in Tanzania and Kenya) the GMG MDP will design this RBF facility, draft an action plan and conduct outreach to potential contributors. The GIZ has a good deal of experience implementing RBF funds and the GMG MDP will look toward this experience and collaboration. 11. Integrating commercial banks into the GMG sector is a key objective of the Access to Finance business line. Commercial bank involvement enhances the sustainability of the GMG finance sector and would serve the smaller and local GMG developers. In addition to proven GMG business models with payment track record, commercial banks would likely need three types of assistance before they would actively engage in GMG finance. Firstly, they would need an understanding of the sector acquired through capacity building and training. This could be 9

14 provided by a consulting firm, with the training introduced gradually on a country-by-country basis, beginning with the countries most advanced in enabling the mini grid sector and focusing initially notably on those countries with existing or upcoming credit lines that can benefit the mini-grid sector (i.e. the AfDB is preparing credit-lines for small-scale renewables and energy efficiency in several African countries). A capacity needs assessment and development of a training program would be a pre-requisite to any specific capacity building activities involving the commercial finance sector, and this needs assessment and training program development will be an activity under GMG MDP Phase 2. Secondly and thirdly, the other two forms of assistance that commercial banks are likely to require to engage with the GMG sector are firstly, money to lend (a line of credit, for example), and secondly, partial credit guarantees. 12. Most companies manufacturing the equipment required of a GMG solar panels, turbines, gasifiers, meters, etc. are located outside of Africa, primarily in Europe, the US, China and Japan. These companies are in competition to get their products on the market, and the off-grid rural electrification market in Africa represents a potential frontier for these companies, worth seeding for future growth. Many of these companies would be willing to provide supplier credit of their equipment to trustworthy GMG developers. In parallel, many of these companies national governments support their export through export credit programs. The GMG MDP proposes to study the potential scope for financing GMG debt through supplier and export credit arrangements. This potential source of debt was not examined under the GMG finance supply and demand study conducted by IED. If this study concludes that there is ample potential to foster regular supplier and/or export credits for GMG developers, this could subsequently lead to the development of a matchmaker activity under the GMG MDP. Additionally, to further develop Africa s economies in general, and clean energy sectors specifically, it is desirable that renewable energy technologies begin to be manufactured and assembled on the continent. In fact, solar panels are being assembled currently in Senegal and Mozambique, solar batteries are made in Kenya, and solar lantern manufacturing has recently been launched in Burkina Faso and Mali. Manufacturing in Africa is also to the benefit of the foreign company making the investment, providing them with competitive cost advantage by reducing associated shipping expenses and gifting tax privileges. To this end, while working to facilitate supplier and export credit arrangements, the GMG MDP will look to identify opportunities to foster foreign investment into clean energy technology manufacturing. Programme Management, Communication and Outreach The daily operation of the MDP is managed by a long-term consultant in a Programme Officer role. The Programme Officer works under the direct supervision of the SE4ALL Africa Hub coordinator, who is the task manager for this project. The project has developed a communication and outreach plan that is being implemented by the project team. The dissemination of the results of the initiative is being achieved through a GMG document series and through communication instruments put in place in-house by the SE4ALL Africa Hub team and will closely link to overall communication efforts under the New Deal on Energy, including the development of a web infrastructure and social networking, the hiring of a dedicated communication consultant and the utilization of external communication channels set up by the CEMG Partnership Secretariat and by the SE4ALL Global Facilitation team. The project is being implemented in close coordination with the CEMG Partnership and with ESMAP/World Bank, who is responsible for the implementation of the DFID-financed Action Learning and Evaluation component. The project also benefits from coordination with the results of the DFIDfinanced Mini-Grid country activities in Kenya and Tanzania, and has begun collaborating with a further DFID-funded GMG initiative in the Democratic Republic of Congo (the ESSOR Programme). DFID is also supporting GMG development in Mozambique and Sierra Leone. 10

15 1.7. Budget/Cost Structure The cost of the first implementation phase was US$ 1 million, of which US$ 959, (96%) has been contracted to date. The contracted amount is expected to be completely disbursed by the end of Q The cost of the second implementation phase is calculated to be US$ 3 million, representing the increase in scope and scale from the first phase s US$ 1 million budget. DFID has earmarked part of its contribution to the SEFA for financing of Phase 2 of the GMG MDP. DFID has communicated that the level of support requested in this grant request is in line with its expectations. The budget breakdown is presented in Annex IV. Table 2 - Budget / Cost Structure # Activities Total In US$k BUSINESS LINE 1 MARKET INTELLIGENCE 1 Conduct national market assessments Conduct small hydro and biomass resource mappings Continuously monitor sector market data 200 BUSINESS LINE 2 BUSINESS DEVELOPMENT SUPPORT 4 Maintain and expand GMG Developers Help Desk and technical assistance provided 500 Conduct mappings of productive use and action-research activities relative to productive use and demand-side management 6 Support Training Centers of Excellence in Mini-Grids 100 BUSINESS LINE 3 POLICY AND REGULATORY SUPPORT 7 Provide advisory/helpdesk services to policy makers Conduct feasibility study on alternative billing methods (to mitigate tariff debate) 100 BUSINESS LINE 4 QUALITY ASSURANCE 9 Introduce Quality Assurance Framework in selected countries 350 BUSINESS LINE 5 ACCESS TO FINANCE 10 Design of RBF facility in support of GMG rural consumer connections Conduct commercial financiers capacity needs assessment and subsequent training program linked to envisaged green credit lines Conduct study of supplier and export credit arrangements and promote local manufacturing 150 PROGRAMME MANAGEMENT, COMMUNICATION, AND OUTREACH 13 Programme management 300 TOTAL 3,000 Further, it is worth noting that the multiplicity of activities proposed under the Programme s Phase 2 will not result in a concurrent multiplicity of implementing partners. The Programme will group together related activities under four sub-contracts in order to facilitate coordination and ensure greater consistency and quality of products and services Outputs and Deliverables of Grant Activities The outputs and deliverables for the second phase of the GMG MDP are highlighted in Table 3 below. 11

16 1.9. Implementation Schedule Table 3 - Activities and Outputs # Activities Outputs and Deliverables BUSINESS LINE 1 MARKET INTELLIGENCE 1 Conduct national market assessments Market opportunity country data and analysis for ten countries published online 2 Conduct small hydro and biomass resource mappings Mappings published online 3 Continuously monitor sector market data Market data current and available online BUSINESS LINE 2 BUSINESS DEVELOPMENT SUPPORT Maintain and expand GMG Developers Help Desk Developers Help Desk operational 4 and technical assistance provided Help Desk regularly evaluated and improved Help Desk supports at least 30 developers Conduct mappings of productive use and actionresearch Mappings published online 5 activities relative to productive use and demand-side management Case studies on action-research activities and best practices published online 6 Support Training Centers of Excellence in Mini- Training needs assessment delivered Grids GMG training curriculum delivered BUSINESS LINE 3 POLICY AND REGULATORY SUPPORT Provide advisory/helpdesk services to policy makers Policy makers Help Desk operational 7 Help Desk regularly evaluated and improved Help Desk supports at least 10 countries 8 Conduct feasibility study on alternative billing Feasibility study delivered and published online methods (to mitigate tariff debate) COMPONENT 4 QUALITY ASSURANCE Introduce Quality Assurance Framework in selected Reports detailing the implementation of Quality 9 countries Assurance Framework in two countries available online COMPONENT 5 ACCESS TO FINANCE 10 Design of RBF facility in support of GMG rural RBF facility design delivered consumer connections Conduct commercial financiers capacity needs Financiers capacity needs assessment delivered 11 assessment and subsequent training program linked to envisaged green credit lines Financiers training program delivered 12 Conduct study of supplier and export credit Study of supplier and export credit arrangements arrangements delivered The GMG MDP Phase 2 activities will be implemented over 24 months as per the following schedule. Table 4 - Implementation Schedule for Phase 2 Activities # Activities Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q BUSINESS LINE 1 MARKET INTELLIGENCE 1 Conduct national market assessments XX XX XX XX XX XX XX XX 2 Conduct small hydro and biomass resource mappings XX XX XX XX XX XX 3 Continuously monitor sector market data XX XX XX XX XX XX XX BUSINESS LINE 2 BUSINESS DEVELOPMENT SERVICES Maintain and expand GMG 4 Developers Help Desk and XX XX XX XX XX XX XX XX technical assistance provided 5 Conduct mappings of productive use and actionresearch activities relative to productive use and demandside management XX XX XX XX XX XX 12