Talking Points: Chris Kanini, Winch Energy
Winch Energy Ltd is close to completing a large-scale project to build 49 solar PV mini-grids in Sierra Leone and Uganda that will connect over 55,000 people with electricity for the first time. In this Talking Points interview, we talk to VP of business development and mini-grid veteran Chris Kanani about how the sector has evolved over the last decade and what’s now needed to take it to scale.
As someone who has been working in Sub-Saharan Africa’s rural electrification sector for coming up for 10 years you will have witnessed a lot of change. How would you sum up the key developments over the period and what do you feel is needed to scale the mini-grid sector in particular over the years ahead?
The first time I got involved with mini-grids was back in 2012 when I was working as a researcher at the University of Southampton in the UK. The university was installing a 13.5kWp mini-grid in Kitonyoni village, Kenya, as part of its Energy for Development research programme. Although mini-grids had by then captured the interest of researchers, very few private developers were active in the Sub-Sahara African market. There was also a lack of government regulation specific to mini-grids, which made it a risky market for investors, who couldn’t be assured of the conditions of their investment.
A lot has changed over the last 10 years, with many more private developers establishing themselves in the market. Governments are increasingly starting to incorporate solar mini-grids into their national electrification strategies too, which has led to new regulations for the sector. At the same time, more DFI and donor support is coming into the mini-grid space, as well as more private financing.
This trend looks set to continue. The Global Energy Alliance for People and Planet, for example, announced at COP26 last year that it aims to unlock USD100 billion in public and private capital for energy access, with mini-grids an integral part of its distributed renewable energy strategy. More recently, the International Finance Corporation launched its Scaling Mini-grid programme to increase private investment in mini-grid services by working with governments, private sector investors and donors to find solutions to the remaining challenges in the sector.
These sorts of programmes would not have been possible 10 years ago and will undoubtedly help to scale up the sector. In addition, we now have a mainstream consensus on a lot of the debates we were having 10 years ago regarding tariffs and subsidies.
There is of course no room for complacency. Despite these advances, the sector has still not reached the scale needed to provide meaningful impact to the communities we serve. But I am confident that we can build on the learnings from the last 10 years and that we will see a tipping point over the next three years that will see a huge acceleration in the number of mini-grid projects being installed.
Winch’s strategy of rolling out a 49-site portfolio of mini-grids across Sierra Leone and Uganda under one portfolio is bold and ambitious. What have been the key challenges and opportunities of working at this scale and across different markets in Africa? What is it about Winch’s approach that has kept you on track for meeting your targets?
Mini-grid projects can be difficult to execute. For example, they often require many sites to be combined under single portfolios to reach the ticket sizes needed to be economical. Having several locations combined with multiple asset companies, holding companies, operating companies, debt providers, EPC contractors, donors, equity partners and more can make for complex structures to finance. Developers also do not have the benefit of a single power purchase agreement (PPA) and have many licenses and permits that need to be secured before we can start building. There is further pressure from governments and donors who often want projects installed within short timeframes to satisfy their internal requirements. As a result, there can be a lot of moving parts to a mini-grid deal.
In response to this, Winch has built an experienced and skilled team capable of dealing with these many layers of complexity to get deals to financial close. A good example of this is our recent Winch IPP Holdings portfolio funded by FMO, NEoT Off-Grid Africa, Sunfunder and Camco-managed Renewable Energy Performance Platform (REPP). We established the holding company to own the two separate projects we had been awarded in Sierra Leone and Uganda, which meant the ticket size was large enough to interest the lenders.
On the back of these projects, we created a whole framework of bankable contracts, which we are now using to replicate the approach with new projects. As such, Winch has created a structure for financing mini-grid projects going forward, which gets stronger with the more sites we add to the holding company. Our focus now is developing our large pipeline so we can keep delivering projects that can be financed under the same structure.
Of course, getting to this point has certainly been helped by working with very supportive lenders and equity partners, each of which has an appetite to do many more mini-grid projects in Sub-Saharan Africa.
With most of the 49 mini-grids now up and running, what would you say are the key impacts they are delivering at the community level? And do you have any plans to provide additional services to deepen that impact that you would like to highlight to our readers?
Winch is committed to improving the livelihoods of our customers and has so far connected more than 30,000 people to electricity for the first time. In every village we install a mini-grid, for example, we connect schools and health centres, enabling these public institutions to offer improved services which benefits the whole community. In Sierra Leone, we provide the community health centres with free electricity to ensure cost is not a barrier to their energy requirements. Even something as simple as reliable and affordable lighting or mobile phone charging can bring about large impacts to the communities we work in.
And our efforts seem to be paying off. In a recent survey we carried out on mini-grid sites that had been operational for a couple of years in Sierra Leone, 83% of respondents ‘strongly agreed’ that the service had improved their livelihoods, and a further 12% ‘agreed’. It’s a little too early after commissioning to say how our sites in Uganda are faring, but we are hoping for more of the same.
As a company, we are always looking for ways to deliver additional services and deepen our impact. To that end, we have started working with fellow REPP investee, Mobile Power Ltd, to provide over 3,000 portable batteries that can be rented to customers outside of the distribution grid network of our mini-grids. The solar-powered batteries are rented on a 24-hour basis and can power fans, mobile phone chargers and lights.
Winch is also working with various companies in Sierra Leone and Uganda to provide productive use appliances to customers, which can be purchased on a micro-credit basis, and looking at other additional services we can bring to communities such as internet, electric vehicles, cold storage and water pumping. Winch works with productive use providers including AVSI, EnerGrow and EasySolar, who provide small community businesses with appliances such as refrigerators, televisions, milling equipment, hair clippers etc. Our partners source the equipment to ensure the customer receives high quality goods and they offer micro-credit options to remove the high upfront cost barrier.
We believe that mini-grid projects, if done correctly, can act as regional planning tools for governments, where all these additional services and infrastructure can be built upon for the benefit of the community.
In both countries you have been awarded concessions under the national flagship electrification programmes. Each of the programmes are also providing subsidies to bring down the overall project costs and thus improve affordability. How do these programmes compare/differ? And what have been your key lessons from this experience that you will take forward?
Both programs are largely similar in size and structure, provide electricity for approximately 25 communities and offer subsidies to allow us to reduce the tariff. In Sierra Leone, the donor was the UK’s Foreign, Commonwealth and Development Office (FCDO), and the subsidies were in-kind in the form of assets delivered to the project (e.g., building the distribution grids on Winch’s behalf). In Uganda, the main donor was the EU, supported by GIZ, and the subsidies were results-based finance CAPEX subsidies. In both instances, Winch only got paid the subsidies once we hit certain milestones in the installation phase.
It is important that the level of subsidies offered by programs matches the desired tariff structures governments wish to see. This may seem obvious, but quite often I see programs which are under subsidised, leading to high tariffs that are ultimately rejected by regulators. This puts the whole project at risk. I think donors are often cautious about putting in large subsidies as they do not wish to distort the market. However, the main reason we do these projects is to provide social impact. We are providing communities with a basic good, which needs to be affordable to them to maximise the impact we are trying to create.
Sufficient subsidies are the way we can do this. The private sector will always innovate and try to reduce costs and in time these subsidies will reduce; however, the most important thing today is that donors create projects that are workable on the investor side (in terms of return rates) and the government side (in terms of tariff level) – with both elements being considered in the support programme design.
Another point I would like to make here is how donors and governments should be consulting more with private investors and lenders during the design process of any new electrification programme or tenders (i.e., better stakeholder engagement and collaboration). Equity and debt providers are ultimately the ones that developers will approach to finance our projects, so they need to be comfortable with the project. A good example is in the concession agreements we sign with governments, which need to be ‘bankable’ in the eyes of lenders if they are to fund the project. If they are not, then there needs to be better dialogue at the project design stage to ensure the project works for all stakeholders.
How would you describe the process of accessing finance for projects of this nature and why do you believe REPP is a good fit for your company? What have you learned?
The mini-grid market is still relatively nascent and there is still an element of risk associated with it. As developers, we need lenders who are flexible and familiar with our types of projects, who can understand the risks involved and offer appropriate financing. REPP is undoubtedly one of the most experienced mini-grid financiers active in the market today, making them a perfect partner for Winch in what we are trying to achieve. As well as fully understanding the market and its risks, which makes them easy to work with, Camco’s REPP team provides a quick process, which is one of the most important things for Winch due to the pressures we have from governments to deliver projects within certain timeframes.
Whilst ultimately I think the target is to finance mini-grids using project finance principles, I am not sure if the market is at that stage yet. Most mini-grids that are built today are built using equity and may be refinanced after commissioning with debt or sold. The more mini-grids that get built, and the more that developers can prove their ability to deliver, and the more data we collect, the easier it will become in future and the easier it will be to use project finance principles to finance mini-grids. I would applaud the African Minigrid Developers Association (AMDA) and the World Bank for their respective efforts in trying to provide data to benchmark key performance indicators and costs in the mini-grid sector.
Based on your experience, what advice would you give to clean energy developers in Sierra Leone and/or Uganda that are looking to access finance to address energy access problems in remote areas? And are there any notable differences in this regard between West versus East Africa that you would like to highlight?
My main advice is to secure your subsidies for the project first and to target large portfolios. If you approach financiers with a large project, with subsidies secured and license applications submitted, it is much easier at that point to get investors interested. There are plenty of great lenders and investors out there who want to invest in mini-grid projects, but they need sufficient ticket sizes, and they need bankable projects. It can also be quite time consuming and costly to secure financing, so as developers it is in our interest to ensure that the project is large enough to justify the time and money spent. This will also help us reach scale quicker.
Each country is different so special consideration needs to be placed on their specific regulations. I would specifically focus on the tariff expectation of the government and regulators, as in my experience these can vary quite drastically from country to country. This is an important issue as it effects how much subsidy percentage is required for the project. Forming close relationships with the different public stakeholders is also essential. They need to believe in what you are trying to achieve, and their support is vital in delivering successful projects.
Finally, readers may be interested to know that Winch has developed its sites in Uganda under the Peace Renewable Energy Credit (P-REC). Can you tell us more about what this has involved and what additional benefits it has or is anticipated to bring to your company?
P-REC is a great initiative by Energy Peace Partners (EPP) to unlock investment into renewable energy projects in some of the world’s most fragile regions. EPP understands that renewable energy projects deliver a range of positive outcomes contributing to building peaceful and stable societies. However, the communities that should be benefitting from these projects are often the ones losing out.
A P-REC is an internationally traded virtual commodity that provides Winch (or other developers) with funding for every MWh delivered by our projects on the condition that a minimum of 50% of this funding is reinvested back into the community. Winch is working with EPP in Uganda and Sierra Leone, with plans to use the proceeds to fund street lighting projects in the communities, providing safe spaces in the dark and making it easier for some businesses to trade at night. The projects will also provide an additional revenue stream for Winch, which will help us to de-risk our activities and improve our return rates, which could ultimately lead to lower tariffs on our mini-grid projects. We believe the P-REC initiative to be perfectly suited to the off-grid solar market and plan to use it for most of our projects going forward.
[In May 2022, it was announced that Camco had partnered with EPP to manage the P-REC Aggregation Fund to expand renewable energy investment in fragile states in Sub-Saharan Africa.]
(This article appeared on ESI Africa here.)
Read other interviews in the Talking Points series:
- Caroline Frontigny, co-founder of Cameroon-based solar home system developer, upOwa
- Karl Boyce, CEO of Rwanda-based mini-grids developer ARC Power
- Mike Gratwicke, Managing Director of Tanzania-based hydro/wind hybrid distribution network developer and owner, Rift Valley Energy
- Chris Longbottom, co-founder of Mobile Power, a solar-powered battery rental business operating in Nigeria, Sierra Leone, Liberia, Uganda, the Gambia and Zambia.