Mini-Grids: Towards a Scalable Model
Steven Hunt

Thanks for this very helpful note. As I see it, the major challenges are in mainstreaming Type 2 mini-grids -as they have the potential of serving a large number of rural people who will not get grid service in a reasonable period of time. And the service will be similar, if not equal, to grid service.

One major issue that does not appear to have a detailed look in your note is how to ensure that Type 2 (and Type 3) mini-grid developers are able to finance their capital costs. As you know, these are a high share of total costs for GMGs.

The usual two ways to finance capital costs are equity and debt. Here we can broaden this to include capital subsidies, which are a substitute for equity or debt. Higher subsidies reduce the need for equity or debt, depending upon the developer. Depending on how much local debt and equity can be raised, the rest has to be subsidy — otherwise, the GMG will never be constructed.

Further, I think the note overlooks the desirability and need for pre-investment subsidies, which are designed to share the costs (and reduce the risks) of potential developers. This is absolutely critical for local developers, who generally do not have deep enough pockets to adequately explore the possibility of investing in GMGs.