Exploring Off-grid Productive Use of Energy in Uganda
Andrew Ssentongo, Founder of GRS Commodities, had no illusions about how hard it would be to start an off-grid energy company in Uganda.
“It was like crossing the valley of death,” he says.
During GRS Commodities’ early years, he often asked himself, “What can I sell in the next month to earn $1,000?”
At one point, he even sold his car because the company had to raise money. “I didn’t have a car for a year,” he says.
Ssentongo’s story is not uncommon.
“Small, mostly local off-grid energy companies in Uganda often don’t have access to finance in sufficient amounts or at the times needed to sustainably grow their businesses,” notes Harry Masters, Senior Project Leader at Open Capital, a management consulting and financial advisory firm focused on Africa .
To improve access to finance for companies like Ssentongo’s , USAID Uganda, through USAID INVEST and Open Capital, has worked to increase access to finance for off-grid solar companies and their consumers through the Uganda Off-Grid Energy Market Accelerator (UOMA).
UOMA is a neutral intermediary focused on accelerating the growth of off-grid energy access in Uganda, and was borne out of the Scaling Off-Grid Energy: Grand Challenge for Development and a collaboration between Power Africa, the United Kingdom’s Foreign, Commonwealth and Development Office (a Power Africa Development Partner) and the Shell Foundation (a Power Africa Private Sector Partner).
Often, in discussions with potential investors, a chief complaint is that these companies are not “investment ready,” highlighting access to finance as a key missing piece.
What does it mean to be investment ready? Masters explains: “When we say ‘investment ready,’ we are talking about the process that goes into developing and telling a compelling story about a business, through financial modeling and other investor materials, while also providing the data and evidence to back up that story.”
GRS Commodities is a company with a story to tell. Its founder, Andrew Ssentongo, moved back to Uganda in 2009 after leaving home to study bio-energy production and value chains at Wageningen University in the Netherlands.
Upon his return, he recognized the immense demand for electricity in off-grid rural Uganda. “If someone can grow crops or raise animals or catch fish, they will always want to spend money on energy,” he says. “People appreciate a better-quality life. They want to watch TV and listen to music, but it all starts with income.”
Ssentongo realized that using off-grid solar power to increase the productivity of income-generating activities creates a self-reinforcing cycle: it increases income which then creates greater demand for energy, making large-scale solar projects commercially viable.
In 2016, GRS partnered with Absolute Energy, a solar energy investor headquartered in Italy that had recently secured a government license for a solar mini-grid project on Bukasa Island in Lake Victoria. GRS Commodities, with Power Africa member USADF providing grant support for 25% ownership, as well as additional funds for a PUE application and technical assistance from their local partner, and Absolute Energy, with the remaining stakes, successfully launched a 100-kilowatt solar mini-grid on Bukasa Island.
“Our partner brought in the licensing and technical background,” explains Ssentongo. “We led the local implementation process through outreach to customers and discussions with community stakeholders and performed last mile customer connections.”
Absolute Energy designed and constructed the grid while GRS Commodities focused on connecting customers, with last mile connection financing provided by the United Nations Capital Development Fund.
Bukasa Island’s First Mini-Grid: Proving the Model
After the mini-grid was complete, Open Capital, with Power Africa funding, worked with GRS Commodities to develop a commercially sustainable business model tailored to the islanders’ energy needs. Mini-grids can operate on an “anchor-tenant” model where one large demand for energy, the “anchor load,” drives down energy costs for the “tenants,” or the nearby shops and residences with lower energy demands.
Open Capital’s initial financial modeling, with an eye towards validating scalability and viability, determined that a commercial ice-making facility, which provides a much-needed cold storage option for the local fishing industry, was the best fit to serve as the anchor load for the Bukasa mini-grid.
Similar to concurrent efforts to expand electricity on a nearby island, the Bukasa Island mini-grid has created more than 200 electrical connections for households, small businesses, churches, and a community health clinic. Whereas shops and businesses previously had to pay a flat rate for inconsistent electricity from the town generator, now more than 80 small businesses have consistent and affordable electrical connections.
There is vibrancy in Bukasa now, with a thriving business community. There are prominent hair salons and barbershops, shops selling cold drinks and showing soccer games, all of them connected to the mini-grid.
Evidence shows that access to off-grid energy improves peoples’ lives and creates and sustains economic activity. A third of households in East Africa with access to off-grid solar power started new economic activities, generating an average additional income of $46 per month. A study of more than 3,000 solar customers in East Africa also found that 21 new jobs were created for every 100 solar home systems sold, mostly for women in rural areas.