Business Models

A key success to mini-grid systems is the local institutional arrangement on who invest, develop, own, and operate mini-grid projects, particularly renewable energy mini-grids. The core issue here is Ownership and Management. In general, there are four business models for renewable energy mini-grids:

• Utility Model
• Community-based Organization Model
• Private Sector Model
• Hybrid Model

A matrix of rural electrification business models, developed for an ESMAP study on rural electrification subsidy programs in LAC¹ , is presented at this link.  It is intended to provide an understanding of the multi-dimensional nature of business model design for good rural electrification project preparation.

Business models for developing, owning and operating renewable energy mini-grid projects must be adapted to the capacities of the remote communities being served.   Mini-grid systems are generally smaller, more remote and higher risk than most rural electrification projects.  Generally, this means that only local promoters are involved and they have far fewer resources and capabilities than the more regional promoters of rural electrification.

The shift in rural electrification to more private sector involvement has brought improved efficiency, customer service and reliability.  In addition, the shift has to a certain degree removed some of the detrimental politics from the rural electricity supply process.  In particular, private sector companies can be expected to implement renewable energy mini-grid systems when these are more cost-effective in serving remote populations.   However, private sector will always look to increase profits and reduce risks.  Therefore, most private sector businesses will not seek to build renewable energy mini-grid projects unless they have sufficient incentive and the potential returns are commensurate with the risks. 

In some instances, renewable energy mini-grid systems have been implemented as pilot projects by multilateral or bilateral development agencies as a way to establish technology acceptance, enhance capacity building, and promote the implementation of similar projects.  Experience has shown that unless ownership and management issues are clearly defined for these projects, they are unlikely to maintain sustainable operation over a period of time.

¹ ESMAP2005 – Regulatory and Policy Issues for Grid and Off-Grid Electrification in Latin America.