C&I energy systems are the most viable power models we see for rural or off-grid industrialisation using renewable energy (RE) in the African context. Unlike the mini-grid market, and the stand-alone productive use of energy (PUE) appliance sector, C&I systems are already finding application in agricultural processing, manufacturing and more, often without need for subsidisation; moreover, unlike rural power grids, C&I systems are highly reliable.
In a wider series on Energy for Rural Industrialisation, GET.transform shares a case study which looks at the synergies between electricity access and economic, commercial, and industrial activity. The focus here is on “Scalable Power Models” with a deep dive into replicable models leveraging renewable energy technologies to trigger growth and development in rural industry in Africa.
While the case-study delves into successful and replicable C&I business experiences, it equally explores key challenges and how these can be mitigated to ensure the sector’s scalability and promotion:
System sizing. The profitability in decentralised renewable energy systems, such as solar PV, strongly depends on the consumption of the highest possible share of the locally produced power: the less solar power consumed, the lower the profitability of the system will be (especially when the option to feed excess power into the national grid is not available, or electrical storage is not a viable solution. The importance of correctly dimensioning the energy system cannot be underestimated in order to allow for maximum utilisation, in consideration of the load profile of the C&I consumer.
Lack of access to inputs, in terms of raw material and skilled labour, is an additional challenge. Unproductive or low-yield farmlands can pose a real risk when it comes to sourcing the required fruit to operate the processing factory on a scale that ensures profitability. Furthermore, lack of skilled labour to operate agro-processing machinery, as well as maintain the deployed energy systems, is a source of risk which the companies have had to manage, especially in the early stages of the respective projects.
Challenging business environments, in the form of unclear legal and regulatory frameworks combined with poor trade infrastructure, add an additional source of risk which rural entrepreneurs must consider, and that African governments can nevertheless positively influence. This may include, for example, having favourable import duty (tax) regimes, smooth customs clearance procedures and processes that facilitate the delivery of equipment on site, etc., to enable steady learning curves and thus ensure a socio-economic stability which enables the investments to be recovered in good time. For this purpose, international donors can provide invaluable support to local governments in the framing of strong industrial policy and regulations.
At the field-level, an underdeveloped road infrastructure and lack of proper storage facilities along the value chain is an additional challenge, especially so when the project sites are remotely located. In this regard, suitable site selection for the project implementation is a strategic decision on the side of rural entrepreneurs which must take place with sufficient field knowledge and, ideally, with the support of a reliable local partner who is well acquainted with the context.
Difficulties with accessing affordable finance, and identifying the right partners are consequences of the above outlined challenges. For instance, Ariya Finergy has acknowledged the initial difficulty of entering new markets in the African context and consolidating its position. On the other side, the high-risk reputation of rural investments in Africa initially challenged Redavia to access the required amounts of credit to finance deployment of the systems. The players manoeuvred their way into their respective African markets by initially accessing either a grant which financed part of the market-entry costs, or accessing patient capital via concessional finance. In this regard, it remains fundamental for governments to develop and enforce conducive policy environments that substantially reduce the risk of investing in RE systems in the rural industrial & commercial sector.