Under community-based models, local communities own, manage, operate and maintain mini-grids. These communities usually receive external help with financing, design and installation. Often, the developer or another outside organization provides technical capacity building, and a public entity or donor provides grants or other financial assistance. Once the mini-grid is installed, the community assumes responsibility for tariff collection and operations and maintenance. Community electricity cooperatives and other local organizations often play this role.

Community-based ownership models are common in developing countries where private companies and utilities lack the capacity or incentive to electrify remote communities. In remote rural areas, where tariffs won’t cover investment costs, community-based ownership may be the only option.

Community-based ownership is more likely to succeed alongside programs that promote productive uses of energy. By creating or growing enterprises, community members can increase their incomes. Over time, customer demand and ability to pay increase, making the mini-grid more financially sustainable.

Local communities in countries around the world own and operate mini-grids. In India, the West Bengal Renewable Energy Development Agency (WBREDA) creates local cooperatives and beneficiary committees to serve as its partners in mini-grid development. As of 2016, communities own and operate more than 23 mini-grids throughout West Bengal. In Indonesia, the government-led Green PNPM program involved local villagers in operating and maintaining micro-hydro projects.

In the private-sector model, a private investor pays to construct, operate and maintain the mini-grid. Funding often comes from private equity and commercial loans.

Private entrepreneurs typically get involved in countries where the government supports mini-grid energy development. Private-sector models are most common in countries with supportive policies and simple licensing procedures where investors can access credit, financing and subsidies and where bilateral donors and/or non-governmental agencies provide technical assistance. Government incentives in a supportive environment include concessions and output-based subsidies.

In Tanzania, for example, the government is working to attract private investment in mini-grids by creating a framework of policy, regulatory, legal and financial support instruments for the private sector. This framework has achieved cost-reflective tariffs and increased the amount of capital provided by local banks.

Regulations governing mini-grids influence which ownership models will work. In countries that have regulations, private actors must follow rules governing technology, taxes, quality assurance and other aspects of mini-grid development. Meeting regulations can be expensive. If a government designs regulations poorly or fails to enforce them, high transaction costs might deter entrepreneurs from participating in mini-grid markets.

In countries without regulations for mini-grids, the lack of transaction costs can make projects financially viable. In Cambodia, for example, effective deregulation has created a successful environment for private mini-grid operators.

On the other hand, the absence of regulations can cost investors more if private companies must navigate informal regulations. In Somalia, where the sector is largely unregulated and private companies set tariffs, the price that consumers pay for power is often very high. Deregulated environments also increase the risk of negative impacts on the environment, health and safety.

Involving the private sector in mini-grid development can be challenging since small-scale, remote projects are not usually profitable. Creative approaches, however, can make mini-grid investment financially attractive. In particular, private companies have used the anchor load approach, community clustering approach and private-private partnerships to implement successful projects.

Anchor Load Approach (Anchor-business-community Model)

In the anchor load approach, the developer secures a commercial client with predictable, guaranteed energy demand to supplement demand in the beneficiary community. A mini-grid operator might sell the bulk of the electricity to a telecommunications tower or factory, for example, and sell the remaining energy to residences. By diversifying sources of revenue, an anchor customer can make an otherwise risky project financially viable. Investors can forecast and plan more effectively. Involving a reliable commercial client can provide economic justification for supplying power to poorer households.

The anchor load approach runs the risk, however, of prioritizing anchor customer needs over community energy needs. Projects can also fail if the anchor customer goes out of business and stops purchasing power from the system. With careful planning, though, the anchor load approach can result in successful mini-grid projects. Decentralized Energy Systems of India (DESI Power) and Haiti Earthspark both used the anchor-load approach to develop viable mini-grid projects.

Community Clustering Approach

The community clustering approach groups villages with similar needs for a shared mini-grid project. The mini-grids serving these communities may not necessarily be connected to each other, but by clustering the villages, the developer can use a single management structure. This is less expensive than managing each village’s project separately. Clustering communities may also facilitate financing, since funding is more readily available for larger projects.

In India, for example, the Chattisgarh Renewable Energy Development Agency uses a cluster approach to operate and maintain successful mini-grid projects in remote areas.

Private-private Partnerships

Multiple private companies can also work together on a mini-grid project. One actor may generate the power while the other distributes it. Sharing project activities protects assets in the event of one party’s bankruptcy. Many small power producers in Tanzania use this approach.