Though mini-grids offer a promising way to electrify remote communities across the African continent, no business model has proved widely successful and scalable across sub-Saharan Africa.
The Keymaker model (KMM), implemented in Tanzania by JUMEME, followed a privately owned, for-profit approach, involving developing commercial fish-processing activities alongside electricity generation.
Under the KMM, the mini-grid company develops productive activities relying on natural resources and supply chains already available in the community, in partnership with local workers and entrepreneurs. Accordingly, revenue not only accrues from the sale of electricity, but also from the sale of agricultural products such as fish or maize. The availability of reliable electricity and management competencies provided by the mini-grid developer also unlocks local opportunities so far underutilised in the community
The mini-grids initially charged costrecovery tariffs that could cover operational and replacement costs, the share of investment costs not covered by grants, and could also deliver a profit for private investors. These tariffs were significantly higher than those charged by the national utility Tanzania Electric Supply Company (TANESCO).
To expand and diversify revenue sources, JUMEME started two commercial activities in parallel to the mini-grid: the commercialisation of Tilapia (freshwater fish), enabled by the availability of deep freezers powered by the mini-grid, and aquaculture, ids.ac.uk where fish grow in floating cages in the lake and electricity is used in water pumps, freezers, and milling machines for fish food pellets. JUMEME also planned to control the fish food supply value chain by partnering with a local entrepreneur who would process grain with mills and extruders to produce pellets to feed the fish. Alongside this, the research team supported some male and female entrepreneurs– such as millers, tailors, and fish traders – with electrical equipment and training to improve the productivity of their businesses or create new ones.
The KMM finally struggled to reach financial sustainability due to governmentimposed tariff reductions, cash flow problems, and management deficits.
It is hard to say if the KMM model would have been viable and scalable had the initial tariffs remained. But some lessons can be learned about the different mitigation strategies required for different risks.
First, private mini-grids will be harder to implement and scale up in countries with heavily subsidised national tariffs, as these will be taken as a benchmark by customers. Stable and secure consumption subsidies should be considered as part of the revenue generation strategy in this context.
Second, meaningful partnerships with local businesses, and continuous engagement with political representatives and the community are clear risk mitigation strategies.
Finally, having a robust management system and keeping costs to the minimum while providing good quality of supply are also key to scalability
Excerpt of: Decentralised Access to Electricity Through Mini-Grids in Tanzania, Institute of Development Studies (ISD), 2022