Productive Use of Electricity for Development: Expanding Access in Uganda
This is Part 3 of a three-part series on Power Africa’s role in expanding access to electricity in Uganda, focused on communities in the Ssese Islands, Lake Victoria.
Seventy percent of Uganda’s workforce is engaged in agriculture. Ensuring that this largely off-grid population can access productive use of energy (PUE) applications, such as solar irrigation, refrigeration, and milling, has the potential to improve agricultural yield and increase individual monthly income, all while connecting smallholder farmers to bigger markets, improving lives, and strengthening the agricultural sector in Uganda.
The work to make solar PUE applications readily available across the country is still at an early stage. While solar PUE companies like GRS Commodities need continued support to access consistent sources of local capital to scale, the PUE customers also need the same access to affordable financing.
“[Solar irrigation systems] are expensive, at least in terms of upfront capital costs compared to existing alternatives,” says Harry Masters, Senior Project Leader at Open Capital, a management consulting and financial advisory firm focused on Africa.
On average, a solar-powered pump and sprinklers cost $725. “You’re selling to farmers; you’re selling to really small businesses. It is an investment, so companies need to either provide systems that are affordable outright or offer financing that makes these systems affordable over time.”
On mainland Uganda, smallholder farmers’ income is largely seasonal. With that in mind, Open Capital engaged with solar irrigation companies to research, develop, and pilot a flexible consumer financing model tailored to the seasonality of income. Farmers repay their loan amount with a payment schedule that considers the growing seasons and associated farmer incomes in Uganda.
With Power Africa funding, Open Capital advised the Ugandan off-grid company GRS Commodities throughout their work with the informal credit institutions and lending groups on the Ssese Islands to formalize the lending process and set up governance structures to better organize lending in areas where formal banks have little penetration.
“If a shopkeeper needs to buy a fridge, and it costs $300, they rarely can afford that upfront cost,” explains Andrew Ssentongo, Founder of GRS Commodities. “[If] they can go to the island’s credit institution and borrow the money and buy the fridge for the shop, two things happen. One, the shop sells a better product, increasing the shopkeeper’s income. Two, more money is spent on electricity, strengthening the mini-grid project.”
As income increases because of access to PUE applications, demand for electricity also rises, strengthening the commercial feasibility of off-grid energy and starting the virtuous cycle anew. In this case, the success of the mini-grid project on Bukasa Island shows investors and governments that new solar projects in off-grid communities are viable.
The private sector, governments, and international development organizations each have a role to play in contributing to the success of this cycle. Off-grid solar operators must continue to tailor products and financing to the needs of the consumer. In Uganda, USAID and Power Africa supported the Government of Uganda to develop a mini-grid regulation that sets out definitions of mini-grids, lays out a robust licensing process and a tariff determination process, presents options for grid arrival and associated compensation, and reporting requirements. This is a great incentive for attracting more private-sector led investments into the mini-grid space.
International development agencies should continue to provide grants and concessional finance to de-risk commercial investment into private companies. Donors should fund pilot programs and research to develop commercial proofs of concepts for innovative new off-grid solar technologies, especially those that prove business models that are anchored around the promotion of productive use of electricity.
Partnerships between the private sector, development agencies, and governments are essential to making the promise of universal energy access a reality, one off-grid community at a time.
For, as GRS Commodities founder Andrew Ssentongo reflected, even when implementing a project on an island, “You can’t work as an island, it is the partnerships and collaborations that make a successful project.”