Viable Mini-Grid Business Models in Sub-Saharan Africa
With 5 years left to meet the 2030 Sustainable Development Goals, 380 million people across the world will need to be connected to mini-grid systems (ESMAP, 2022).
To take steps toward advancing electrification, private developers, public officials and financiers must understand the nuances associated with developing successful mini-grid business models in regions such as Sub-Saharan Africa, where the energy infrastructure gap is felt starkly.
Mini-grids are electricity generation and distribution systems that can function without being connected to the main grid. Their independence is useful for providing power to households and businesses living in rural areas, who are half as likely in SSA to have access to the grid as those living in urban areas (Lee et al, 2022).
Technological Approaches
As prices of solar PV and BESS technology have fallen over the years, the popularity of solar PV and solar-hybrid has soared – in 2024, 59% of all installed mini-grid systems were solar PV systems, a 45% increase from 2018.
These solar PV systems are known as ‘third-generation’ mini-grids and represent an advancement in the sector from the previous generation dominated by diesel and hydropower grids, which together only represented 29% of installed capacity in 2024 (Fajardo et al., 2024).
Ownership and Management
In Sub-Saharan Africa, national electric utilities commonly own and operate mini-grids, often funded by government resources or by DFIs. Public utility models often sell at a loss and prioritise electricity access over financial sustainability (ESMAP, 2022). Private models are prevalent in countries like Tanzania and Nigeria. These models often face the challenge of providing returns to equity investors due to low tariffs throughout the region.
The Tsumkwe hybrid mini-grid in Namibia, operated by the Central North Regional Electricity Distributor, is the main source of electricity for the local community of around 4000 residents (Mehta et al., 2025). Another example of a successful mini-grid is PowerGen’s Kalenge mini-grid, funded in part by Tanzania’s Rural Energy Fund. The Kalenge mini-grid serves a “total of 129 customers, 61% of which are households, 33% are businesses, and 5% are combined households and businesses” (SEI, 2018).
Hybrid ownership bridges the two aforementioned models, with public and private bodies holding different responsibilities within the business structure. Often, the mini-grids are publicly owned and privately operated. Alternatively, the distribution assets may be publicly owned with private developers owning the generation assets (Fajardo et al., 2024). Hybrid models allow public and private entities to share financial and operational risks as well as combine resources to enhance project viability (Havenhill, 2024).
To succeed, however, these models require a strong regulatory framework that enables a clear division of responsibilities through contractual agreements such as PPPs, concessions and PPAs (Fajardo et al., 2024).
Offtake Approaches
Commonly, mini-grid systems are designed to provide electricity to households and small businesses in low-income, rural communities.
Due to limited ability to pay and electricity to demand in such communities, importance is placed upon productive, income-generating uses of energy to help ensure cost recovery and generate stable revenue streams for electricity providers (AfDB, 2024).
Key-Maker Model
Focusing on productive uses, the KeyMaker Model sees mini-grid operators leveraging established local supply chains and resources and supplying electricity alongside processing an electricity-intensive product. This enables mini-grid operators to generate both stable and diversified revenues, bypassing regional household demand constraints (Cabanero, 2020).
Anchor-Business-Consumer
The Anchor-Business-Consumer model is a model whereby mini-grid operators prioritize the offtake of a large industrial consumer, such as a mining company, with a high and predictable load. Electricity is also provided to local productive users of energy and then households.
Though in theory this model can provide operators with stable revenue, businesses large enough to serve as anchors are often not present in the rural communities served by the mini-grids (Energy Catalyst, 2020).
Cost Recovery Models
Mini-grid businesses differ in their approaches to recovering costs, each of them having different implications for the viability of the model.
For-Profit
For-profit models operate without subsidies, requiring cost-reflective tariffs and a focus on larger electricity consumers with higher ability to pay. In rural areas, with low willingness-to-pay (WTP), low ability-to-pay (ATP) and low demand, these models are often unviable.
Subsidies
Partially subsidized models, whereby the developer receives public or DFI funding for investment costs and relies on tariff collection to finance the operational stage, allow for lower tariffs. This expands the mini-grid operator’s ability to provide electricity to low-income customers – often a key condition for subsidy eligibility.
Under fully subsidized models, grants or subsidies fully cover costs, with the business operating directly in line with the desires of the funder. In these cases, tariff price points meets ability to pay of consumers rather than recovering costs. The priority is energy access and social impact rather than financial sustainability (Fajardo et al., 2024).
Financing Mini-Grid Business Models
Grants and subsidies are a common source of funding, with most mini-grids relying on them for at least 30% of investment costs (AfDB, 2024). These subsidies, typically from DFIs and governments, support construction (capex subsidies) and/or increase affordability in low-demand areas (demand-side subsidies).
Results-based financing is another kind of subsidy, awarded to developers during the operational stage with the size of the grant determined by the number of connections achieved by the mini-grid. While these subsidies are necessary for business model viability in many cases, the process of accessing them is often competitive and costly (Fajardo et al., 2024).
Sources of equity investment include impact investors, venture capitalists, commercial investors, DFIs as well as developers themselves. Developers typically employ project financing structures for larger projects and corporate financing structures for smaller ones. In either case, raising equity is often challenging due to the difficulty of demonstrating guaranteed returns, as well as due to many private investors lacking familiarity with mini grids.
For mini-grid businesses, concessional loans from DFIs are the most common source of debt financing. These loans are favourable compared to commercial loans due to being provided at lower interest rates with longer repayment schedules. Commercial banks are often reluctant to lend to mini-grid developers due to perceived risk (AfDB, 2024).
Project-Specific Mini-Grid Business Modeling
Precedence around mini-grid business models in Sub-Saharan Africa suggests financing structures should be project-specific – assessing which ownership model or cost recovery approach can guarantee project viability.
Any investment ready project model must be tailored to the unique structure and demands of the project. In this way, mini-grid modelling must be backed by proven development and financing expertise within these markets.
GIA’s financial modeling follows the FAST standard and is suited to the demands of mini-grid work, with models built for offline testing at remote sites. Our models are customised for each mini-grid project and build for investment due diligence processes. We balance international financing expertise and the requirements of the client to develop bankable mini-grid business models, backed with investor-ready contracting advisory.
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References
- African Development Bank. (2024). Green Mini-Grid Help Desk. Financing. Energy For Impact.
- African Development Bank. (2024). Green Mini-Grid Help Desk. Mini-grid Business Models. Energy For Impact.
- Cabanero, A., Nolting, L., & Praktiknjo, A. (2020). Mini-Grids for the Sustainable Electrification of Rural Areas in Sub-Saharan Africa: Assessing the Potential of KeyMaker Models. Energies, 13(23), 6350.
- Energy Catalyst. (2020). Technical Guide: Mini Grids
- Fajardo, A., Baker, L. H., Sesan, T., Bhattacharyya, S., Kerr, D., Katyega, M., & Barnett, A. (2025). Business models and access to finance for mini grid development in sub-Saharan Africa. Energy for Sustainable Development, 85, 101666.
- Lee, H., Kim, W., Han, K., Kang, H. (2022). AD514: Still lacking reliable electricity from the grid, many Africans turn to other sources.
- Mehta, K., Lwakatare, B., Zörner, W., & Ehrenwirth, M. (2025). Mini-grid performance in Sub-Saharan Africa: Case studies from Tsumkwe and Gam, Namibia. Sustainable Energy Research, 12(1), 30.
- ESMAP. (2022). Mini Grids for Half a Billion People | Market Outlook and Handbook for Decision Makers
- SEI. (2018). Lessons for solar mini-grids from rural Tanzania.
- HavenHill Synergy Ltd. (2024). Understanding the Different Types of Mini-Grids: Utility, Private, Community, and Public-Private Models.
