Funding innovations to bring electricity where the grid does not reach in Benin

Thinking about it from this point of view, it becomes easier to grasp the sheer impossibility of sustainable long-term economic growth in countries where a large proportion of the population is left without power. Yes, economic growth and development are possible in these conditions, but everyone without access to electricity gets left behind. One could hazard to say that, for development to be truly sustainable and inclusive for all sectors of a society, universal access to electricity is required.

However, there are countries where the majority of the population has no access to electricity whatsoever. The Republic of Benin is one such country: Only one in five people living in rural communities can access electricity. In 2018, the country had a national electricity access rate of 41.5%, lower than the average for sub-Saharan African countries.

Electricity in Benin is mostly provided and centrally managed by several governmental institutions, but the government is struggling to keep pace with the growing demands on its grid, and efforts to expand the grid are hampered by a lack of finances and capacity – specifically expertise.

As such, the solutions to Benin’s electricity shortage must come from the private sector, especially in the form of less expensive, more efficient renewable energy sources. But private sector investment in the electricity sector is limited, and stakeholders and would-be entrants into the sector find it almost impossible to access financing at reasonable interest rates. There is a huge gap between demand and the private sector’s ability to supply.

Addressing the shortfall through investment

In 2017, the Government of Benin and the Millennium Challenge Corporation (MCC) signed a US$375 million Compact agreement (increasing to US$391 million in 2021). The aim was to "develop the production and productivity, generate greater economic greater economic opportunities for households and improve the capacity to deliver public and social services by services by improving the quantity and quality of electricity supply". The Compact also aimed to strengthen Benin's national electricity distribution company, attract private sector and finance investment in electricity production and distribution infrastructure, as well as off-grid electrification for poor and unserved households.

The Millenium Challenge Account – Benin (MCA–Bénin II) was created to implement the Benin Compact programme, accelerating economic growth in the country through investments in the electricity sector.

One of MCA–Bénin II’s four main programmes was the "Off-Grid Electricity Access Project", which aimed to improve access to and availability of electricity for use by public infrastructure, communities, and households; stimulate the market for off-grid electricity; and increase the adoption of energy efficiency measures and the use of energy-efficient appliances and equipment. The programme had three main components: creating an environment conductive to the use of off-grid electricity, energy efficiency, and the Off-Grid Clean Energy Facility (OCEF).

Facilitating clean energy through funding

NIRAS was contracted to manage the OCEF, a competitive Challenge Fund valued at US$32 million. NIRAS managed two rounds of Calls for Proposals, using a state of the art, digital grant management system. Using their experiences running similar funds, NIRAS structured  OCEF to be a result-based fund, which meant that, in addition to a minimum 25% self-funding requirement, beneficiaries (project promoters) only received portions of the grant upon reaching certain pre-determined milestones. These were modified part way through the implementation of OCEF as many of the promoters were struggling to find the not-insignificant funds needed to kickstart their projects, many of which involved the construction of mini-grids and distribution of solar kits to serve the off-grid energy community. The team set aside a starting fund comprising roughly 15% of the total budget to help get things moving as soon as the promoters succeeded in signing the legally required concession agreement with the national authorities, which is the basis for energy production and sales by the private sector. This change contributed greatly to OCEF's success down the line.

OCEF provided funding in four windows:

Window 1: Off-grid energy for essential public infrastructure such as water treatment and pumping facilities, street lighting, hospitals, public health centres, courts, universities, schools, etc. The focus of this window was to install off-grid power generation equipment and accompanying electrical systems, along with establishing an administrative framework for operations and maintenance to ensure continuous delivery of critical services.

Window 2: Decentralised generation and distribution of electricity via mini-grids or micro-grids for community and/or productive use. Under this window, the OCEF particularly supported models that involved an anchor tenant that produces/consumes power for production while also supplying power to the community. While OCEF grants did not fund agricultural equipment directly (e.g. food processing equipment), such equipment could count towards the grantee contribution requirement

Window 3: Household energy systems. This window supported companies that import, sell, distribute, install, and maintain household-level photovoltaic technologies, including solar home kits and other similar products. Companies were encouraged to provide affordable financing terms and convenient payment systems that fit client needs. In addition to solar lighting, applicants to this window were also encouraged to provide solar-powered technologies that may improve the livelihoods or generate time savings for households, particularly women (e.g. solar drip irrigation or mini solar-powered appliances).

Window 4: Energy efficiency measures. This window focused on supporting business models for the deployment of energy efficiency measures to the benefit of public institutions, households, and users in the commercial and industrial sectors. The goal was to support the distribution of energy-efficient appliances and equipment that reduce not only the overall costs for electricity consumers, but also the demand for electricity.

Funding for windows 1–3 was only available if the sites being funded were located at least seven kilometres from the currently existing electricity grid and no expansions were planned for the next ten years. Window 4 funding had no such limitation.

Apart from funding, the OCEF team provided technical assistance to beneficiaries, both during the submission process and after funding, to ensure that the planning, implementation, and monitoring and evaluation of the selected projects were as strong as possible and that environmental, health, social, security and gender aspects were adequately taken into account. In addition to supporting the beneficiaries, the OCEF team played an important role in strengthening the capacity of the Beninese authorities regulating the off-grid and clean energy sector as OCEF’s beneficiaries were the first ever companies to negotiate and obtain concession agreements from the Beninese state.