Mini-grids and private investment in rural electrification: Insights from Rwanda's emerging market
Timothy Olaniyi Aluko, Nonjabulo C. Ngcobo, Adeyemi Adebayo
Abstract
Given the current electrification rate of 37.4 %, Rwanda still faces a long road ahead to provide energy access to all by 2030. The annual estimated investment is about USD 70 billion to reach the target of 100 % electrification by 2030 and achieve sustainable energy. Considering the constant constraints on the government's budget, the need for private investments to meet this target is evident in addressing the perceived high investment risks in rural electrification in Rwanda. This paper examines whether diversification through geographical distance and energy source/technology in a portfolio of mini-grids for power can reduce investment risks and increase capital availability and volumes. Quantitative estimation of the cost of financing and derisking effects of the private investment strategies for a hypothetical portfolio in Rwanda was applied as a method of analysis. Findings show that, theoretically, private investment in the energy mix can help lower the cost of capital. A rise in the amount of capital available for Rwanda's rural electrification could result from a fall in the cost of capital, which has a statistically significant link with capital. We highlight the implications of this study for policy and practice and conclude by identifying limitations and providing avenues for further research.