Business Plan Development for Mini-grids
Introduction to Business Plans
The main aim of a business plan is to convince lenders, investors, or donors to provide financing. These stakeholders require a business plan to evaluate the risk-return profile of a specific project or company/cooperative. A business plan outlines the business idea, the principle road map of development and fully describes the investment opportunity
A comprehensive business plan for the development of a new mini-grid project should consider all the institutional, organizational, financial, and regulatory issues and steps required for its startup and its operation. This includes the organizational structure of the institution, the plans for management and staffing, the power supply procurement, the engineering solutions for the distribution line and the generator design and construction, the financial analysis based on estimates of operating costs and revenues, and the regulatory procedures for registration, licensing, retail power tariffs, etc.
The following sections provide two examples from publicly available literature that gives guidance on developing a business plan for a rural electrification or renewable energy project.
UNEP (2003), Business Plan Content
UNEPs (2003) “REED Toolkit – A Handbook for Energy Entrepreneurs” has a whole chapter on how to write a business plan for energy entrepreneurs. The detailed outline of an energy business plan described in the toolkit is reproduced below (more information can be found in the original report downloadable under http://energyaccess.wikispaces.com/file/view/REED_Entrepreneur_Toolkit1-4.pdf).
Cover and Table of Contents
Business Title, Location, Technology, Size
Contents by Section and Page Number
Disclaimer and Confidentiality Statement
Section 1 – Business Description
In this section of the business plan the product or service to be sold is described as well as the location. The goals for starting the business are presented. Finally, the business structure – retail, wholesale, manufacturing, project development – should be explained as well the ownership structure - how are profits distributed? Any permits or licenses that have or need to be acquired should also be presented. The section need not be long or detailed, but rather clear and concise. The Business Description completed in the Feasibility Analysis can be used in the Business Plan.
Business location and Setting
Product or service to be offered
Goals and Objectives
Business legal and ownership structure
Permits and licenses
Section 2 – Opportunity
Describe and defend in the customers that will buy your product or service. The goal of this section is to prove that there are sufficient customers that are willing and able to buy your product.
Section 3 - Marketing
In this section, the strategy for selling the product or service is presented in detail. This section should have been completed in Chapter 3 and presented in the Feasibility Analysis. Include the following:
Section 4 – Competition
This section is the opportunity to defend why there is and will continue to be demand for your product or service in light of the competitors. It is also extremely important for you to understand your competition and it helps you learn about the market. Use the section created for the Feasibility Analysis including the following:
Names and description of competitors
Strengths and weaknesses
Section 5 – Operations
This section describes how the business will operate. Namely it describes your organizational structure and then how each department will operate. Again use the completed section from the Feasibility Analysis.
Section 6 –Technology
This section describes in detail the technology and energy resource to be used. Explain the process, appropriateness and track record. Use section completed in Feasibility Analysis.
Section 7 – Finance
In this section all of the financial features of the business are presented. The most important financial assumptions of the business are shown, the proposed financial plan is described and an analysis is made of the impact of various changes to the basic financial assumptions.
Worksheet of funds required
Section 8 – Schedule
Write a schedule and timeline of major milestones to be reached. Use schedule from Feasibility Analysis section.
Section 9 – Risk Factors
This section describes the risks that the business faces and how the business plans to deal with these risks. Include the risks with possible mitigation measures.
Section 10 – Impacts
Social, economic and environmental benefits of the business’s implementation, and any other special features of the business, are described in this section.
Economic activity stimulated
Improvements to physical assets
Protection of environmental quality
Pollution avoidance or elimination
The Closing section of this business plan summarizes the businesses’ proposed capitalization plan and what is being requested from lenders and investors.
Complete financial statements
Summary of technical and market studies
Copies of authorization letters and permit approvals
Detailed background and financial information about the sponsor
NRECA (2009), business plan contents
The “Guides for Electric Cooperative Development and Rural Electrification” from NRECA (2009) discusses the purpose, the process and the components of business plans for rural electric cooperatives. The presented information is not only relevant for cooperatives but also for other operator models. The components discussed in the guide are given below, for more detail please refer to the report itself (https://www.nreca.coop/wp-content/uploads/2013/07/GuidesforDevelopment.pdf).
- One paragraph for each major section of the plan.
- Summarize highest level points only
- Project History and Overview
- Establish project background, local conditions and socioeconomic context.
- Describe project scope and current status.
- Introduce any major contextual issues and solutions.
- Market Analysis
- Estimate electricity sales using a “groundup” approach.
- Analyze components and segments of the market, growth and risk.
- Include a table summarizing the initial and projected market.
- Power Supply
- Present power source and transmission supply.
- Identify initial and future power requirements.
- Describe pricing and other financial terms, along with reliability of supplier.
- System Design
- Present key characteristics of distribution system design, in phases if appropriate.
- Describe main system facilities and include a diagram of the electrical system.
- Include a schedule of major components and costs.
- Management Plan
- Describe project ownership and organization.
- Explain governance, audit provisions, and legal representation.
- Present biographies on key people; list staff positions and their salaries/wages.
- Operational Plan
- State the guiding operational philosophies.
- Address enough detail to express competence in operating a electric cooperative.
- Describe major programs or thrusts, especially if different from industry norms.
- Marketing Plan
- State the philosophy of the rural electric cooperative regarding its relationship with customers.
- Show your thorough understanding of the market.
- Explain and list rates segmented by customer class.
- Regulatory Approval
- Identify areas of regulatory oversight and the relevant governmental authority.
- Explain the approval process.
- Report status to date.
- Financial and Economic Analysis
- Perform financial model projections for 10 years and an economic analysis if requested.
- State all major assumptions and have supporting justification on hand.
- Insert a table and describe key results, including project returns and risks.
- Project Implementation
- List concrete steps and demonstrate the ability to execute them.
- Insert a Gantt chart or other graphical representation of steps.
- Show responsibilities, completion targets, and key project milestones.
- UNEP (2003). REED Toolkit – A Handbook for Energy Entrepreneurs. Retrieved from: http://energyaccess.wikispaces.com/file/view/REED_Entrepreneur_Toolkit1-4.pdf
- NRECA, 2009. Guides for Electric Cooperative Development and Rural Electrification”.Retrieved from https://www.nreca.coop/wp-content/uploads/2013/07/GuidesforDevelopment.pdf