Looking Beyond Appliances: Systemic Barriers to Minigrid Demand Stimulation

Factor[e] Ventures is an early-stage venture builder focused on technology investments in energy access, agriculture, mobility, and waste in emerging markets.  This piece is a continuation of a series (2017, 2018, 2019) based on our ongoing research into the technology and business models that enable productive use appliances for off-grid utilities in emerging markets.


Minigrids in Africa face a fundamental challenge to achieving commercial viability: low-income, rural customers consume very little electricity. A recently released benchmarking study of African minigrids conducted by the African Minigrid Developers Association (AMDA), Economic Consulting Associates (ECA), and Odyssey Energy Solutions (a Factor[e] Ventures’ portfolio company) reported the median household consumed only 3.5 kWh per month.[1] This translates to only a few dollars of revenue per month from each connection. This problem is not limited to off-grid utilities. 55% of Kenya Power customers, most of whom are rural, reportedly spend less than $3 per month on electricity. For reference, the average rural home in China consumes almost ten times more electricity each month than the median off-grid household in Africa.[2]

Low consumption leads to a vicious cycle where project developers need higher tariffs in order to justify investment in an electrification project. But higher tariffs further depress electricity demand and are often prohibited by regulators. The AMDA report points to initial data from the CrossBoundary Innovation Lab which suggests that lower tariffs result in higher utilization but that average revenue per user (ARPU) actually remains the same. This is likely due to the fact that low-income rural customers have limited household budgets and that, absent intervention, there is a ceiling on their wallet share for electricity. To break out of this cycle, off-grid companies need to either convert non-electricity driven functions (e.g. cooking) over to electricity or power new, productive applications that grow the customer’s wallet while also increasing revenue to the grid.

The revenue problem for off-grid utilities is not new. For years, the minigrid industry has talked about the need for demand stimulation. In 2018, the Rocky Mountain Institute published a report calling for the industry to focus more attention on enabling high-value electricity consumption.[3] In developing our own investment thesis focused on enabling minigrids, Factor[e] Ventures recognized that investing in technologies or business models that help increase average revenue per connection would have a significant impact on the business case for minigrids. Increasing the value customers derive from electricity access is needed both to make minigrids commercially viable and to help rural communities realize the full economic development benefits of electrification.[4] This begs the question: if there is general agreement on the importance of increasing demand through productive use, why is productive use on minigrids still not widespread?


Do we need to invent new electric appliances?

One challenge to productive use may be the availability of affordable and efficient electric-powered appliances that can offer better performance and value than incumbent non-electric solutions. Building on our work profiling income generating appliances in rural communities,[5] CrossBoundary Labs shared work from a coalition of partners, including Agsol and Factor[e] Ventures, to optimize electric maize milling for use on a PowerGen minigrid in Tanzania.[6] While electric maize mills typically cost twice as much as diesel mills, the project was able to improve electric mill performance to be four times more efficient than a diesel mill which resulted in a viable business case.

Grain Millers PowerGen

The first grain mill connected to electricity at a PowerGen site in Tanzania.

While the project showed that the business case could work in Tanzania, a similar project Factor[e] Ventures embarked on with PowerGen in Nigeria, (which we will profile in a forthcoming report on ag-energy nexus opportunities), actually showed that local demand for milling services was significantly less than originally expected. There are two important takeaways from these project experiences. The first is that while there are electric appliance solutions that exist today in applications such as agricultural processing, cold chain, and cooking; the affordability and efficiency of appliance options needs to improve to make the local productive use business case easier to realize.[7] The second and more important takeaway is that appliance technology alone is not sufficient for productive use of energy to scale. The business case for each productive use application is driven in large part by the local market conditions and specific rural development context.

Demand sensor app

A PowerGen agent monitors the performance of the app-linked demand sensor attached to a diesel mill in Rokota, Nigeria. This data is used to understand demand stimulation opportunities for minigrids.

Lessons from history – Demand stimulation in U.S. rural electrification

In 1930, rural electrification in the U.S. faced many of the same challenges that we see in sub-Saharan Africa. Rural areas were predominantly low-income farming communities struggling to make it through the Great Depression. Only 10% of rural areas had access to electricity.[8] Rural customers had minimal exposure to the benefits of electricity and no electric appliances to connect. Furthermore, investor-owned utilities were reluctant to put money into expanding electricity access into areas where high costs and low consumption meant it would be difficult to recoup their investment.

REA Promotion in the 1930's

An example of REA’s promotional literature targeted at rural farmers in the 1930’s.

The success of rural electrification in the U.S. is often attributed to the Rural Electrification Administration (REA) and its policy allowing rural farm communities to create non-profit electric cooperatives. These cooperatives were eligible for low-interest loans to build the infrastructure needed to connect to the grid and provide electricity service to their community. While this program of subsidized government support helped rural cooperatives pull electricity access into hard to reach areas, it was only part of the solution. U.S. rural electrification was ultimately successful because it managed to grow electricity supply and demand in concert. An agency that worked in partnership with the REA and the cooperatives but received less attention was the Electric Home and Farm Authority (EHFA). The EHFA was a retail sales finance company formed by the government with the purpose of “promoting and financing the sale of electric appliances.”[9]

The job of the EHFA was to make electric appliances affordable to buy, affordable to use, and reliable for rural customers. In order to do this, the agency:

  • Ordered in bulk from manufacturers to reduce cost
  • Organized roadshows in rural communities to educate customers on the value of electric appliances and how to use them
  • Simplified distribution by making appliances available for purchase at the local utility
  • Liberally provided low-interest financing to appliance customers.

For customers to be eligible for an appliance loan with the EHFA, they had to purchase electricity from cooperatives who had signed an agreement with the EHFA, guaranteeing that the appliance would be stimulating demand for rural utilities supported by the REA. Between 1934 and 1938, the EHFA financed the equivalent of $200 Million (when adjusted for inflation) worth of appliances and built relationships with 180 municipal utilities and rural electric cooperatives.


The EHFA example applied to off-grid demand stimulation in Africa

The EHFA was not focused on inventing new electric appliances, even though electric appliances in that era were unreliable and inefficient. Instead, the EHFA built the ecosystem for education, marketing, procurement, distribution, and consumer financing necessary to get appliances into homes and businesses of new utility customers. The potential for productive use appliances in markets like Africa suffers from gaps in this same ecosystem. Over the past several years as an investor in technology ventures that enable the minigrid business model, Factor[e] Ventures has had conversations with developers, technology suppliers, funders, and NGO’s working across the off-grid sector in Africa. From these conversations, it is clear that having a working appliance technology with a potential business case is only the first hurdle in this value chain. For productive use appliances to scale in low-income rural markets, there needs to be an ecosystem that connects an end user or entrepreneur with the tools, energy, and financing necessary to realize that business case.

There are numerous gaps in this ecosystem that need to be addressed for productive use of energy to scale. From our conversations with organizations across the sector, we identified four non-technical barriers that are of critical importance.


Four non-technical barriers to scaling productive use of energy in Africa

1) Smart, flexible, asset financing for income-generating appliances

In U.S. electrification, the core function of the EHFA was to provide low-interest financing for electric appliances. The lack of a clear appliance financing solution in African minigrids is a major gap in the ecosystem for productive use. When speaking with mini-grid developers who are running productive use pilots, a consistent question is who finances and manages the appliance loans. The solar home system industry has shown that asset financing to low-income rural customers is a complex business requiring expertise, technology, and field operations in credit risk assessment, rural enterprise development, and portfolio management. Despite owning the customer relationship, most minigrid operators we spoke with would prefer not to manage an asset financing business since it sits outside their core competence as a utility. Appliance suppliers are generally not equipped to take on the asset financing function either as they are either too small and poorly capitalized or too disconnected from the local market. Local banks are also reluctant to take on this type of credit risk without loan guarantees and other forms of technical and operational support. Therefore, in the current ecosystem, it is unclear who will take on this critical function despite it being in the best interest of all parties involved.

There are a few ways this financing gap could be addressed. One option is for minigrids to leverage technology, competency, and capacity from adjacent sectors such as microfinance, PayGo solar home systems, or specialized asset financing business. Some minigrid operators are already testing partnerships with PayGo companies to provide appliance financing services. New asset financing companies like Rent-to-Own in Zambia and EnerGrow in Uganda are emerging with a specific focus on financing appliances for on-grid and off-grid customers. An alternative option is to develop the tools necessary for minigrid operators to manage appliance financing themselves alongside their core business. This could include appliances with built-in “pay-as-you-go” lockout systems, and software systems for managing appliance loans alongside utility service billing. On-bill financing, a concept gaining traction for energy efficiency finance in the US,[10] especially for renters, could be used for the purposes of stimulating productive demand in the rural African context. While consumer and asset finance might fall outside of the minigrid operators’ core expertise as utilities, payments management would not, and the minigrid operators already own the relationship with the end user through the metered connection. In the end, affordable and flexible financing solutions need to be readily available if adoption of productive use appliances is to scale.

2) Marketplace of verified, cost-efficient appliances

In the example of U.S. electrification, rural farm communities had limited exposure and access to electric appliances. The EHFA helped fill this gap by procuring and distributing a variety of appliances through the customer’s local electric cooperative. In comparison, off-grid utilities in Africa are forced to find and verify appliances through their own technology and procurement teams with each developer having specific technical requirements for what appliances will work with their grid architecture. This creates a situation where developers are purchasing small volumes of specialized appliances rather than higher volume appliances that can be used with any minigrid. Developers are also forced to purchase from appliance suppliers who are willing to deliver and support their products in hard to reach rural markets. These combined challenges limit the supplier base and increase cost, negatively impacting the already fragile business case for the appliance.

The Mini-Grid Innovation Lab reported that bulk procurement of energy system components could potentially reduce average cost per connection by 20%.[11]  A similar approach of aggregating demand for appliances could have a significant impact on appliance affordability.  Minigrid operators and customers would benefit from a marketplace of appliances, verified against established standards. If devices can be made interoperable between minigrids, then the marketplace could also serve as a mechanism for aggregating appliance demand within regions, reducing costs and improving supply chain efficiency. An honest broker such as an AMDA, who is able to aggregate demand into bulk purchases and provide last-mile distribution and service similar to what the EHFA offered the U.S. electrification market, would further enable the development of appliance supply chains into rural Africa.

3) Expertise in rural enterprise development

When a rural entrepreneur invests in a productive use appliance for their business, the business case for that application has to succeed and be scalable in the local context. In fact, given the limited electricity consumption in rural households, scalable rural enterprise development built on electricity is critical to unlocking financially sustainable rural electrification. While household applications like electric cooking and refrigeration could improve minigrid ARPU and household income, these applications alone may not be enough to grow the local economy and corresponding community electricity demand.

For electrification to achieve its potential for economic development, it needs to power rural enterprise. The challenge is that developing rural enterprise is not the core focus or competency of a minigrid company whose business is building and operating an off-grid utility. Yet many minigrid developers are having to take on this challenge in order to make progress on demand stimulation. For example, Equatorial Power has built a consortium on Idjwi Island in the Democratic Republic of Congo to pilot a cold chain business. PowerGen and PowerHive are piloting electric maize mills which also means learning about the local market for maize flour and building the business case. (The appliance sensor package and community-scale load estimation methodology that Factor[e] has developed can help.[12]) Across the sector, minigrid companies are experimenting with a variety of business models for enabling productive use. This includes building linkages into agricultural value chains, serving as the primary off-taker for a productive use business, or even owning and operating a productive use business themselves.

Sunkofa is a newer mini-grid developer working in West Africa that is specifically targeting a high proportion of productive use connections on each of its grids. They are tackling the problem of enterprise development directly by partnering with local agro-processing cooperatives who have the necessary local expertise, finding agri-value chain partners to further enable the productive use business, and investing in an internal team focused explicitly on evaluating productive use business cases.

When taking on the evaluation, financing, and even the operation of a productive use business themselves, minigrid developers are essentially taking on the entire challenge of rural economic development. That is a difficult endeavor. While the approach is understandable to test the potential of demand stimulation at a specific site, it poses challenges to scale, particularly as these operators grow from dozens to hundreds and then thousands of sites where each site has its own set of local market conditions. Expertise in evaluating rural entrepreneurs and SME opportunities traditionally resides with local organizations agricultural cooperatives, microfinance, or even the PayGo sector. In order for minigrids to power scalable rural enterprises, the sector needs to tap into the expertise and resources of these organizations. Off-grid utilities and appliance manufacturers need to find the right business model partnerships with rural enterprise development organizations and the entrepreneurs they support since they are often best positioned to evaluate and finance the scalable businesses capitalizing on access to electricity and appliances.


Solar irrigation pump

Irrigation represents a demand stimulation opportunity that has not yet been seized for rural communities.

4) Development finance to build the nascent market for electricity demand

In the U.S. rural electrification example, the EHFA created the ecosystem to support electric appliance adoption when no such ecosystem existed. The specific functions that the EHFA fulfilled can inform aspects of what rural electrification in Africa needs to scale electricity. However, it is important to acknowledge that the EHFA was a publicly funded agency of the U.S. government. As a result, the EHFA, like the REA and rural electric cooperatives, was able to invest in the market for rural appliances when the market was too small and too risky for the private sector. Addressing the ecosystem barriers to off-grid demand stimulation in Africa faces a similar problem with scale. The number of minigrids on the African continent is growing quickly in recent years, but there are still only a few thousand operating on the continent today. Even with a few thousand minigrids planned, the overall market opportunity for productive use appliances is small. This serves as a disincentive for private sector companies, especially potential partners from adjacent sectors, to organize and solve the complex ecosystem problems impeding scale up of productive use. There is a strong argument for national or multilateral development bank support to help build this market like the EHFA did in the United States. Development finance support for productive use of energy supports a rural economic development function. This support is necessary in the near term to grow both supply and demand for electricity and to achieve the end goal of sustainable economic growth from electrification.



For rural electrification to eventually achieve commercial viability and its potential economic development impact, the sector needs to increase consumption and revenue from customer connections. Because low-income, rural customers have limited spending flexibility, the best way to increase consumption and revenue is through appliances that improve incomes by providing higher value to end-users or a community than incumbent non-electric solutions. There are still technical improvements that need to be made to improve the affordability and efficiency of productive use appliances. However, if the ecosystem for evaluating, financing, marketing, and developing productive use applications is incomplete, productive use appliances will struggle to scale regardless of their business case or technical capabilities. Developing this ecosystem requires strong financing providers, an efficient marketplace for appliances, and expertise in local enterprise development. Meeting these needs presents both a challenge and an opportunity. Unlike the United States which relied exclusively on government agencies to build this ecosystem, the modern off-grid sector can leverage partnerships, entrepreneurship, and innovation to finally solve the demand side of rural electrification.



Factor[e] would like to thank all the organizations who contributed their insights and experience for this piece including the CrossBoundary Innovation Lab, the Green Mini-Grid Facility- Kenya, I-DEV International, Efficiency for Access and the Low Energy Inclusive Appliances (LEIA) Program, PowerGen Renewable Energy, Sunkofa Energy, and the Rocky Mountain Institute.



[1] “Benchmarking Africa’s Minigrids”, AMDA and ECA, August 2020.

[2] Yu Yang et al 2017 IOP Conf. Ser.: Earth Environ. Sci.81 012063

[3] McCall, Margaret and Santana, Scarlett, “Closing the Circuit – Stimulating End-use demand for Rural Electrification”, Rocky Mountain Institute, 2018.

[4] Lee, Kennth; Wolfram, Catherine; Miguel, Edward; “Electrification and Economic Development: A Microeconomic Perspective”, May 2017.

[5] https://www.factore.com/wp-content/uploads/2019/01/Mar-2019-Appliance-Presentation_rfs.pdf

[6] https://nextbillion.net/milling-on-mini-grids-africa-maize/

[7] https://www.sun-connect-news.org/de/articles/technology/details/the-problem-with-productive-use-appliances/

[8] https://www.electric.coop/our-organization/history/

[9] Coppock, Joseph; Government Agencies of Consumer Installment Credit, National Bureau of Economic Research, 1940, pp. 93 – 107.

[10] https://www.energy.gov/eere/slsc/bill-financing-and-repayment-programs

[11] https://minigrids.org/5-years-on-from-the-launch-of-green-mini-grids-africa-whats-been-achieved-and-what-have-we-learned/

[12] https://www.factore.com/income-generating-appliances-data-collection-and-research