Mini-Grid Financing

Overview

This financing guidebook for mini-grid businesses was developed to provide guidelines
and recommendations for securing various forms of financing for the most relevant types
of mini-grid businesses and projects in Kenya. It serves to provide an overview of mini-grids and the key financing concepts and procedures that developers should consider
when developing mini-grid projects. 

Successful financing of mini-grid projects requires an understanding of the relationships between different pools of money and diversifying investments to increase resilience and lower risks. Project developers are tasked with attracting the right type of investment depending on their business model and mini-grid stage in the funding cycle. Of importance is the understanding of the contribution and impact of the investors on the development of mini-grids.

This handbook, therefore, eases the understanding of relevant aspects of financing mini-grids and sheds light on the financing process, options and timings for project developers. It presents an overview of business models relevant for mini-grids as well as classic investment cases, giving corresponding illustrations of tariff structures and key considerations for financing methods for each case. Case studies which are drawn from micro-grid, mini-grid and small power distributors projects in Kenya showcase the application of illustrative tariff and financial models and spell out risk abatement alternatives for mini-grids.

The guidebook will be of interest to (prospective) mini-grid developers who seek to get a better understanding of financing a mini-grid in Kenya. It may also serve as a reference to the overall business financing process and be a useful guide for regulators, bilateral and multilateral development partners, as well as investors seeking to gain insights on investments in the mini-grid sector in Kenya. The handbook is the most recent addition to a series of publications by ProSolar for mini-grid practitioners, coming after a practical guide to mini-grid site selection, licensing and sizing. 

While this handbook intends to display the required knowledge for mini-grid financing, mini-grid projects are very site specific. The authors of this handbook, therefore, do not accept any liability for commercial or investment decisions taken on the grounds of the knowledge presented within. 

Table of Contents 

Link of the guidebook: Mini-Grid Financing Guidebook

1. Introduction 10
2. Understanding Mini-Grid Financing 12

           2.1. Basic Finance Principles 12
           2.2. Corporate vs. Project Financing 14
           2.3. The Different Pools of Money in Global Finance 15
           2.4. Types of Financing and their Considerations 21
           2.5. Stages of Financing 23
           2.6. Types and Timing of Financing for Mini-grid Projects 28
           2.7. What Investors Value in Companies they Invest In 30

      3. Kenya Mini-Grid Market Overview 34

          3.1. Market size and relevant actors 34
          3.2. Framework conditions 35
          3.3. Financing Mini-Grids in Kenya 37

      4. Solar-Hybrid Mini-Grid Business Models and Cost-structures 40
         4.1. Case 1 - Micro-Grid 43
         4.2. Case 2 - Isolated Mini-Grid 47
         4.3. Case 3 - Small Power Distributor 51

    5. How to Apply for and Secure Financing for Mini-Grid Developers 56
        5.1. Financing Steps for Mini-grid Developers 57
        5.2. Challenges for securing finance 72

    6. Conclusion 73

    Annex 75

Further Information

This guidebook has been developed as part of a series of handbooks on mini-grids. You can access the other ones in the following <g class="gr_ gr_8663 gr-alert gr_spell gr_inline_cards gr_disable_anim_appear ContextualSpelling ins-del" id="8663" data-gr-id="8663"><g class="gr_ gr_97 gr-alert gr_spell gr_inline_cards gr_run_anim ContextualSpelling ins-del" id="97" data-gr-id="97">webpages</g></g>:

• GIZ - ProSolar. What size shall it be? A guide to mini-grid sizing and demand forecasting. August 2016.
  
• GIZ - ProSolar. How do we license it? Lessons learned from the application for a power generation and distribution <g class="gr_ gr_8693 gr-alert gr_gramm gr_inline_cards gr_disable_anim_appear Grammar multiReplace" id="8693" data-gr-id="8693">permit</g> for the Talek Power Solar Mini-Grid Project. July 2015.
• GIZ - ProSolar. Where shall we put it? Solar mini-grid site selection handbook. June 2014.
• ProSolar 2016 fact sheets: ProSolar project, Mini-Grids Result Based Funding (RBF) project.