15 October 2024: A new study from CrossBoundary’s Innovation Lab shows that reducing electricity tariffs for mini-grid customers in rural Sierra Leone significantly increased energy use. The study focused on “mini-grids” – self-sufficient electricity grids that serve households and businesses isolated from or integrated with the main grid. The Innovation Lab’s analysis suggests that while tariff reduction can drive energy consumption and benefit low-income consumers, it needs to be strategically implemented with supporting policies to ensure mini-grid sustainability.
Tombo Banda, CrossBoundary Managing Director & Innovation Lab Lead, explained the significance of the findings: “Lowering electricity tariffs makes power more affordable for rural communities. We saw average energy use per customer increase by 58% where tariffs were reduced, compared to just 6% in areas without tariff cuts. This demonstrates how making electricity more affordable can boost energy access and economic activity in rural areas.”
However, Banda cautioned that simply cutting tariffs isn’t a complete solution. “Reducing tariffs in countries where currency values are unstable and inflation is high can create challenges for mini-grid operators, especially if they have expenses in foreign currencies. We need additional de-risking measures to help these operators reduce their tariffs confidently.”
The study suggests several ways to support tariff reductions on a larger scale:
- Optimized subsidy programs to maximize impact to end-users and minimize longterm dependency;
- Financial tools such as hedging funds to offset macro-economic risks, such as currency devaluation;
- Increased access to local currency financing for mini-grid projects.
Despite the 41% tariff reduction, revenues per customer did not drop; however, the study found that high inflation and currency devaluation did impact the real value of revenue collected. These economic factors also increased operating costs, which can affect the reliability of electricity supply.
“Our findings underscore the need for a comprehensive approach to developing mini-grids,” Banda concluded. “By making electricity both affordable for rural communities and sustainable for operators, we can unlock the full potential of mini-grids to drive rural electrification and economic growth across Africa.”
For more details on the study and its recommendations, visit: https://crossboundary.com/mini-grid-innovation-insight-harmonizing-tariffs-in-sierra-leone/.
