CrossBoundary Access expands to Madagascar

From the newsletter

CrossBoundary Access, a blended finance platform for mini-grids, is making its first expansion outside Nigeria. It has partnered with ANKA, an impact- and innovation-driven group based in Madagascar, to establish a $20 million mini-grid portfolio in Madagascar. The partnership will involve financing, building and operating the mini-grids.

• Madagascar's national electrification rate stands at just 36%, with only 15% of the rural population connected. This, together with a clear regulatory framework, makes it an attractive market for investment in mini-grid electrification.

• The cost of building mini-grids saw a 20% reduction between 2020 and 2024. This was driven by factors such as falling solar prices. Projected cost reductions by 2030 are set to make them the most affordable option for rural areas.

More details

• CrossBoundary Access has secured at least $35 million since 2022 and plans to deploy $150 million in blended project finance over the next three years to bring power to one million people in Africa. The partnership with Anka gives them the advantage of market knowledge from a local player who understands it best.

• Africa's electrification efforts have largely relied on the grid. But this is becoming more expensive as the grid is extended to rural areas. The cost per connection becomes high because of the distance from the grid and the land terrain. This positions mini-grids as a primary electrification solution, particularly for remote and dispersed communities where grid extension is economically unfeasible.

• But the slow pace of regulatory approvals remains a significant impediment to the mini-grid sector's growth. For instance, obtaining a generation licence can take three to 40 weeks, and tariff approval can take up to 39 weeks. Only a few countries such as Madagascar, Cameroon, Uganda, and South Africa have a relatively mature policy and regulatory space, with the entire process taking less than 20 weeks.

• Achieving the World Bank’s projection of 9,000 additional mini-grids in Sub-Saharan Africa by 2030 implies a need for 1,500 regulatory approvals annually. However, the sector's overall immature policy will limit the speed of growth. Investors also need guarantees of protection in case grid extension reaches their area. But this is lacking in many countries. Nigeria and Kenya are some that have introduced mini-grid regulations that provide investors with an exit strategy if the main grid expands into their operational areas.

• On the financing side, the cost of capital remains high. But progress is being made with emergence of new financial structures, including blended finance, extended credit, and escrowed grants, which are supplementing traditional funding. These innovations will be key in unlocking commercial capital and reducing reliance on conventional sources.

• The recent launch of Mission 300 and the Zafiri platform, which plans to utilise mini-grids and metro-grids to provide power to commercial entities, is a welcome move. Their use of a blended finance structure could help de-risk and catalyse private sector investments in the mini-grid sector.

Our take

• A shift in regulatory approaches is needed to achieve the World Bank’s ambitious target of 160,000 mini-grids for Africa. This new approach must prioritise cutting project approval timelines and simplify procedures to allow easier market entry for developers.

• Simultaneously, addressing inefficiencies within the supply chain, along with burdensome import duties and restrictive tax policies, will be critical for further reducing the costs associated with mini-grid development and deployment. 

• In addition, Mission 300 should serve as a central mechanism for facilitating a more timely disbursement of the concessional funding already pledged to the mini-grid sector.