Promoting Productive Use of Energy in Uganda

Whether for an irrigation system, milling machine, refrigerator, or ice-maker, solar-powered productive use of energy (PUE) applications — technology that uses energy as a direct input in the production of goods or services — have enormous potential to improve the lives of those who live and work in agricultural communities without access to the national grid. USAID’s Mission in Uganda partnered with USAID INVEST and Open Capital to better understand the promise and challenges of scaling PUE technologies in Uganda.

This article was first published as a three-part series on Power Africa’s Medium page. Read the original articles here.

Fishing boats on Bukasa Island, Lake Victoria. (Photo: Open Capital).

By Benjamin Butcher, INVEST Activity Associate

Most days, the fishing communities of Uganda’s Ssese Islands are in a race against time.

It starts the moment the fishers haul nets full of tilapia and Nile perch onto their boats and ends only when they sell their catch at the mainland markets, some 50 kilometers across Lake Victoria. If the clock runs out, their catch will spoil, and their income will be lost.

Food waste in Uganda is a huge problem. As much as 40 percent of post-harvest production, whether crops or fish, goes bad before it reaches the market. The biggest challenge for fishing communities is a lack of cold storage.

Andrew Ssentongo, founder of GRS Commodities, lends a hand during the installation of solar panels on Bukasa Island. (Photo: GRS Commodities)

Fishers from Bukasa Island relied on expensive ice transported from the mainland. Andrew Ssentongo, Founder of GRS Commodities, a local off-grid energy company, explains that the problem had become so acute that, “by the time the boat arrived back at the island at 6 p.m., 30 percent of the ice loaded onto it at 2 p.m. had already melted.”

There were no alternatives. With only a single diesel generator on the island, the fishers were forced to use expensive diesel and inefficient ice to keep their catch cold. In a country where approximately 88 percent of the population lives on less than $5.50 a day, electricity can really boost economic livelihoods.

Electricity can provide refrigeration and cold storage solutions to improve the economic livelihoods of not only fishers living in island communities. Farmers also suffer from an inability to irrigate fields, which hinders crop yields and makes farms highly susceptible to changing weather. At the same time, a shortage of rural agri-processors, such as milling machines that require electricity, forces smallholder farmers to travel long distances to process their crops.

Whether for an irrigation system, milling machine, refrigerator, or ice-maker, solar-powered productive use of energy (PUE) applications — any technology that uses energy as a direct input in the production of goods or services — have enormous potential to improve the lives of those who live and work in agricultural communities without access to the national grid.

USAID’s Mission in Uganda partnered with USAID INVEST, an initiative that mobilizes private capital for development results, to better understand the promise and challenges of scaling PUE technologies in Uganda. Working in partnership with Open Capital, a management consulting and financial advisory firm focused on Africa, USAID found that when coupled with the right enabling environment, off-grid solar companies can develop and market innovative solar PUE technologies with the potential to transform the off-grid economy in Uganda.

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.”

Ice produced on Bukasa Island is used to preserve the day’s catch until it can be sold at market. (Photo: GRS Commodities)

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 grant support from Power Africa facilitating 25 percent ownership, 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.

A commercial ice-making facility serves as the anchor load for the Bukasa mini-grid. (Photo: Open Capital)

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.

Productive Use of Electricity for Development: Expanding Access in Uganda

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.

Bukasa Island, Lake Victoria. (Photo: Open Capital)

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.”

USAID and Power Africa understand that consumer financing and consumer awareness is crucial in making off-grid solar PUE commercially viable.

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.

Donors should fund pilot programs and research to develop commercial proofs of concepts for innovative new off-grid solar technologies. (Photo: Open Capital)

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.”

INVEST, a USAID initiative, mobilizes private investment for development goals. It drives inclusive growth and sustainable development in emerging markets.

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