This chapter discusses different financing and governance models for sustainable microgrid projects, including community-centric approaches, and reviews the existing policy framework. Targeted microgrid regulations and clearly defined tariffs enhance investment certainty, which contributes to private sector mobilisation. Portfolio approaches can spread risks and improve commercial viability of microgrid projects, allowing support from international development partners in mobilising private investment. Ensuring community involvement, improving microgrid design and planning processes are important success factors for long-term viability of microgrid projects.
Overcoming Financial and Capacity Barriers to Empower Small‑Scale Enterprises in South Africa
Focus on Renewable, Reliable, Secure and Affordable Energy in Mpumalanga and the Western Cape
Abstract
Providing reliable and affordable electricity for all is one of South Africa’s key priorities. As discussed in Annex B, while significant electrification progress has been achieved over the past 30 years, the electrification of the remaining 1.6 to three million South African households requires a multi-pronged approach relying on grid extension, microgrids and standalone solar home systems (SHS). Microgrids can electrify unserved or underserved communities in remote areas where grid extensions are technically or financially unfeasible (typically standalone systems) or within informal settlements as interconnected microgrids. Electricity services are typically provided at higher service levels than SHS, which is necessary to allow for productive uses of energy, often ranging from roughly 50 to 2 000 kWh per household and year (Granville Energy, 2025[6]; Carbon Trust, 2017[7]). Eskom’s microgrid pilot in FIicksburg, for instance, registers around 540 kWh consumption per household and year. Incorporating modular microgrid design, as well as dedicated anchor loads and productive uses of energy (PUE) can help in stabilising and stimulating demand, thereby improving commercial viability of microgrid projects.
Solar powered microgrids appear promising thanks to South Africa’s high solar irradiation and limited seasonality, although site-specific assessments may identify promising potential for other renewable energy sources. Nonetheless, significant challenges in financing and deploying renewable microgrids continue to persist.
Under the leadership of South Africa's Department of Electricity and Energy (DEE), the 2025 Action Plan of the Integrated National Electrification Plan aims to achieve universal electricity access by 2030 through a hybrid approach combining grid connections and decentralised systems (microgrids and SHS). Despite significant electrification progress, persisting challenges include rising electricity demand, a total funding need of ZAR 75 billion to resolve the existing electrification backlog, the majority of which would need to be mobilised from external sources in light of tight public budgets (The Mpumalanga Green Cluster Agency, 2025[1]). Major regulatory transformations in South Africa's electricity sector have improved the enabling environment for microgrid deployment, although there is neither an accepted definition for mini- or microgrids, nor an established regulatory framework including licensing and tariff regime, or technical service quality standards for microgrid assets. Positive changes include the country's market liberalisation process, recent amendments to the Electricity Regulation Act (ERA) relaxing licensing thresholds and removing licensing requirements for embedded generation facilities of all capacities, and the 2024 net billing framework, which are relevant for interconnected microgrids. Nonetheless, microgrids are neither explicitly covered in the ERA or its amendments, nor in the licensing exemptions or registration notices issued, creating uncertainties for the national regulator's current mandate to regulate the emerging microgrid industry.
Developing tariff structures that ensure financial sustainability and affordability for households and SMEs is challenging in many countries, including South Africa. Microgrid tariffs can be two to three times higher than national grid tariffs, placing pressure on community affordability and the long-term viability of microgrid projects (AMP, 2026[2]). National grid tariffs, however, are often not cost-reflective due to cross-subsidisation, which makes it harder for developers to recover investment costs and can require higher levels or grant funding or subsidies to achieve financial viability.
Compared to other African countries, microgrids are an underutilised electrification option to achieve South Africa’s ambition for universal access to electricity by 2030. Different financing and governance models for microgrid projects exist, where strong community involvement and, where feasible, community ownership can ensure that community energy and development needs can be met.
The role of renewable microgrids in South Africa’s electrification efforts, current reforms and the broader enabling environment are presented in Annex F. This chapter focuses on financing models for microgrid solutions and their role in local development, with a view to enabling broad‑based economic diversification.
Attracting private finance for decentralised solutions, including renewable microgrids and standalone systems, usually faces steeper hurdles than for utility-scale investments. The lack of dedicated microgrid regulations, tariff uncertainty and complex permitting processes create market entry barriers and can deter commercial investors. Low and fluctuating initial electricity demand of microgrid users is another major barrier for commercial viability of microgrid projects which threatens the timely repayment of debt. Here, incorporating anchor clients and demand stimulation programmes can contribute to balancing and increasing demand. Without detailed electrification planning and clear microgrid regulations which include provisions for grid encroachment, microgrid developers risk stranded investments when the main grid arrives, thereby impeding private sector participation and investment. While microgrid tariffs have only been defined for singular projects such as the Upper Blinkwater microgrid (Annex G, Case study 2), a dedicated microgrid tariff regime has not yet been defined by NERSA. For grid-tied electricity, tariffs are set by each municipality with approval from NERSA, and can vary significantly per municipality, thereby creating additional uncertainties for potential investors.
Despite significant reductions in capital costs per kWp, initial capital requirements remain high. Land acquisition and generation assets16F1 account for the major share of investment needs, in some cases exceeding 75% of total CAPEX, while distribution infrastructure including customer connections and end-use meters account for roughly 20%. The remaining costs cover general management, insurance and other overhead costs (SEforALL, 2024[3]).
Since 2021, supply chain constraints have raised cable prices in Africa by approximately 55% and lengthened delivery timelines. Nonetheless, price drops in PV panels and batteries have reduced the capital costs per kWp of new microgrid systems in Africa by approximately 35% (Figure 5.1). Increasing standardisation of systems and components has also contributed to reduce cost variation (IEA, 2025[4]). Eskom’s containerised microgrid solution is a good example of standardised and modular system design to reduce microgrid costs.
Decentralised systems have higher technology and performance risks than utility-scale investments, due to low and fluctuating energy demand of microgrid beneficiaries, amongst other factors. Logistics and transport costs are higher in remote and harder to access locations, which is compounded by operation and maintenance challenges related to value chain constraints and the limited availability of skilled technicians, but also the need for specialised equipment.
While renewable microgrids, once commissioned, do not have generation costs, solar and wind systems may face intermittency due to weather variability. The potential for small-scale hydropower projects is less promising in South Africa, and projects are sensitive to seasonal water flows. Nevertheless, renewable microgrid projects are critical for energy equity and local development, providing clean and reliable power where conventional solutions are not viable (Mbistrova A, and Boffo, R, 2025[5]).
The lack of equity is a major barrier to scaling up decentralised solutions, including microgrids and solar home systems. These technologies have the highest capital needs in the early and late growth stages, which are typically characterised by the lowest availability of equity and concessional debt funding (IEA, 2025[4]). Developers and communities who cannot come up with the needed equity have to mobilise either debt or grant funding, the conditions of which often do not match the financing needs and project timelines of microgrids. Many microgrid developers also face significant difficulties in raising debt at affordable rates due to lacking track record, high initial investment needs, low profit margins due to low and fluctuating energy demand and ticket size mismatches. This can be particularly challenging for rural areas.
Capital costs (USD per kWp) of microgrids in Africa, 2021-2025
Note: CAPEX: capital expenditure; kWp – kilowatt-peak (maximum power output under ideal conditions).
Source: (IEA, 2025[4]).
Grant financing is often capped at insufficient amounts or provided with specific limitations for microgrid projects, whereas debt financing is often provided with too short loan tenors for project revenues to yield acceptable returns for microgrid developers (IEA, 2025[4]). Over the past years, results-based financing (RBF) approaches to provide grants have increasingly been used, creating challenges for microgrid developers. As RBF is only disbursed upon achievement of agreed targets, many microgrid developers need to mobilise additional financing to develop and construct microgrids to allow them to meet these targets. While local commercial banks can provide both supply side and demand side financing for microgrids, revenue fluctuations and high-risk perception, as well as limited credit history of end-users combined with often variable and seasonal incomes are common barriers (IEA, 2025[4]). In South Africa, several commercial banks offer financing solutions for renewable energy technologies like grid-scale renewable energy projects or residential solar PV systems (Chapter 2), but very few, including First National Bank, are offering or considering financing for microgrids. Currently implemented microgrid projects in South Africa almost exclusively rely on grant financing from domestic public and international sources.
5.2.1. Financial instruments and business models
A range of financial instruments and business models has been applied for microgrid projects across Africa and internationally, ranging from grants and subsidies, concessional equity and debt including blended finance and de-risking vehicles, to commercial debt, institutional investment, results-based financing, innovative models like crowdfunding and community-based financing, as well as community-based and social business models. Delivery models can vary between public-sector led projects or programmes, public-private partnerships, community ownership and operation, or fully commercially operated systems.
While international experience shows that fully commercial operation of microgrids is hardly achievable, the commercial viability of microgrid projects is influenced by an enabling framework that promotes and facilitates private investment, the capacity utilisation of the microgrid and share of demand from productive uses and anchor loads, and whether or not the microgrid tariff is cost-reflective (AMP and AFUR, 2026[6]). To stabilise demand and stimulate local economic activities, some microgrid developers also sell energy efficient appliances and equipment at preferential conditions. Payment methods for electricity tariffs can vary, from effective approaches through PAYG applications for pre-paid energy bundles, to basic manual collection of household fees as in the case of an initiative in India (Annex G, Case study 3). Cashflows of microgrid operators can be impacted by factors like seasonal revenue streams in agricultural areas, affecting the ability to service debt, cover O&M expenses and set aside savings for repairs.
Experience from UNDP’s Africa Minigrids Programme (AMP) and the African Forum for Utility Regulators (AFUR) suggests that the majority of successfully implemented microgrid projects across countries comprise significant grant or subsidy and concessional components, sometimes covering up to 100% of the initial investment (CAPEX) to allow the developer to focus economic viability on operation and maintenance (AMP and AFUR, 2026[6]). Extensive bilateral consultations with microgrid developers, MDBs and sector experts in Q4 2025 and Q1 2026 further confirmed that microgrid projects across sub-Saharan Africa as well as in South Africa rely to a majority share on grants, subsidies and concessional capital. Serviceable shares of commercial debt were allocated at around 20% of project costs on average, while experience seems to indicate that community equity of up to 10-20% of project costs may be raised through village funds, crowdfunding or other community initiatives.
Note: AfDB: African Development Bank; MDB: Multilateral Development Bank.
Source: OECD Secretariat.
In South Africa, the majority of current microgrid financing is based on public funding from domestic and international sources. In light of limited community equity, a 2024 report on social ownership models in South Africa identified non-conditional grants covering capital costs as well as training and initial operating costs, as viable funding option to enable community ownership of the installation without overburdening the community with debt repayments (PCC, 2024[7]).
Grants and subsidies
Grants and subsidies are mostly provided for the development stage of microgrid projects through government funding, or development partners’ programmes. Grant financing often does not provide enough capital to cover initial CAPEX, or includes specific limitations for microgrid projects, yet has been a crucial component for the viability of microgrid projects. According to AfDB analysis, most microgrids rely on grants and subsidies for at least 30% of investment costs (Global Infrastructure Advisors, 2024[8]), in many cases also at higher shares. In South Africa, the microgrid pilot in Ficksburg, Free State, was fully funded through INEP allocations and Eskom’s own resources for the development and implementation of the project (Annex G, Case study 1). The Upper Blinkwater microgrid project was funded by contributions from a range of development partners, provincial and municipal funds (Annex G, Case study 2). The Industrial Development Corporation (IDC) is a national development finance institution, which employs several funding programmes focused on energy projects. Its Township Energy Fund (Box 5.1) provided grant funding for almost 1 400 MSMEs within townships, small towns and rural areas, including for off‑grid solar PV systems combined with battery solutions and an inverter. Lessons from the Township Energy Fund have been used to design the Energy Resilience Fund set up by Nedbank in partnership with Indalo Inclusive, which may offer funding for renewable microgrids (Box 5.2).
Results-based financing
Results‑based financing (RBF) fits best with the operational phase of microgrid projects, as payments are triggered upon the achievement of predefined and verified outcomes, such as new connections. RBF is, however, often committed during the development phase of microgrid projects. Late disbursement of subsidies, in some RBF programmes across Africa reportedly reaching up to 18 months, and limited transparency around verification and timelines for payment can create significant pressure on working capital (GOGLA, 2026[9]). This requires microgrid developers to raise additional financing to pre-finance the subsidy, i.e. to fund the construction and commissioning phase. This can be particularly disadvantageous for smaller and locally owned companies without substantial equity. Examples of successful RBF models exist, for instance SEforALL’s Universal Energy Facility, which provides incentive payments (grants) to eligible organisations that develop and operate microgrid systems and provide verified electricity connections in currently five countries (SEforALL, 2026[10]). Nigeria’s Electrification Project (NEP) (Box 5.1) and the subsequent Distributed Access through Renewable Energy Scale-up (DARES) project are another successful example. Under DARES, fintech company Odyssey Energy Solutions and British International Investment launched a USD 7.5 million financing facility in 2025 which aims to bridge the gap between commitment and disbursement of the connections-based subsidies. Through an online platform with aggregated procurement and pre-assessed equipment, developers can procure solar and energy storage equipment with minimal upfront investment and flexible payment terms (Odyssey, 2025[11]).
Concessional equity and debt
Concessional capital from governments, development partners and multilateral development banks, including through de-risking instruments, can be essential in unlocking private investment in microgrids. This can be particularly relevant where financial and political risks for private investors are particularly high, and where grid extension is economically or technically not feasible, such as in remote locations, for informal settlements or fragile and conflict-prone areas (IEA, 2025[4]). While concessional equity is currently only provided by very few development finance institutions, the Zafiri Investment Vehicle is currently being established. With an initial capitalisation of USD 300 million, it will provide patient equity financing to companies delivering renewable energy solutions, including mini-grids, solar home systems, metro-grids and clean cooking technologies to support electricity and clean cooking access for at least 30 million people in Africa. The platform is further expected to mobilise additional USD 300 million from commercial investors in the future (Empower Africa, 2026[12]) Risk mitigation instruments such as first-loss and portfolio guarantees reduce lender risk, enabling commercial debt access even for developers without strong track records (Department of Electricity and Energy, 2025[13]). The DEE is planning to establish a finance working group to design a blended finance facility with guarantees and first-loss mechanisms for microgrid deployment (Department of Electricity and Energy, 2025[13]). Financing or risk sharing facilities can be effective mechanisms to pool projects, mitigate risks and enable participating domestic financial institutions to offer more favourable financing conditions. The provision of technical assistance and capacity building support to local financial institutions, project developers and communities can strengthen the effectiveness of such instruments (Bellesi, Denis and Schenk, 2025[14]).
Commercial debt financing
This can include loans from commercial banks and private lenders, but also green bonds and green sukuks17F2. Local commercial banks can provide both supply and demand side financing, where challenges are often linked to a lack of credit history from consumers and developers, as well as variable and seasonal incomes. Debt financing is often provided within too short timeframes for project revenues to yield returns for developers. In South Africa, several commercial banks offer financing solutions for renewable energy technologies like grid-scale renewable energy projects or residential solar PV systems, but very few are offering or considering financing for microgrids (First National Bank, 2026[15]).
Institutional investment
Institutional investors, including pension funds, have limited experience with investments in decentralised solutions and typically invest in large ticket items. This can complicate risk assessment and lengthen the timeframe for deal negotiations, while the aggregation of microgrid projects into investable portfolios to spread and mitigate risks and create better economies of scale appears like a promising approach (IEA, 2025[4]). Examples of institutional investment in microgrid portfolios in Africa include Darway Coast in Nigeria, and OnePower in Lesotho, both of which obtained funding from local pension funds.
In 2022, Nigerian microgrid developer Darway Coast issued the country’s first green bond certified by the Green Bonds Initiative for the development of microgrids in six communities. It obtained green debt in local currency from local pension funds thanks to a local currency guarantee by InfraCredit and first-loss financing by the UK-funded Climate Finance Blending Facility (GET.invest, 2026[16]; IEA, 2025[4]). The World Bank and the Nigeria’s Rural Electrification Agency are backing the model with performance-based grants under the Nigeria’s Electrification Project (NEP) providing USD 600 per connection (Box 5.1).
Innovative funding models
Crowdfunding or energy-as-a-service models can be used to finance or co-finance community-owned microgrid solutions. One successful example is RevoluSolar in Brazil, which raised part of the initial project costs for their pilot solar cooperative through crowdfunding (Annex G, Case study 5). The Clean Energy and Energy Inclusion for Africa Foundation, for instance, provides outcomes-based grants and coinvests with crowdlenders in off-grid solar and green mini-grid companies in Sub-Saharan Africa, combined with technical assistance. Microgrid developer OnePower funds its microgrid projects in Lesotho and Benin through a mix of grants, debt financing, and crowdlending; this includes a USD 1 million bond issued through the crowdlending platform Energise Africa and matched by CEI Africa (Dialogue Earth, 2026[17]).
Nigeria Electrification Project (NEP): Nigeria employed a RBF framework to engage the private sector. It developed a minimum subsidy auction programme for portfolios of pre-selected microgrid sites, where bidders were selected on the basis of their business plan and the amount of the bids subsidy request. Performance based grants, which were funded by the World Bank mean that connection subsidies were deployed after established proof that customers have been connected to reliable power. An output-based fund for SHS was also established. According to Nigeria’s Rural Electrification Agency (REA), more than 200 microgrids were deployed across underserved communities nationwide in 2025 alone. Nigeria’s REA identified three key success factors of the NEP: (i) strong microgrid regulations that provide certainty on tariff setting, grid arrival and community engagement and a simplified investment framework, (ii) private sector engagement and partnerships including through the RBF framework, performance-based grants and minimum subsidy tenders, and (iii) access to data through the Odyssey bit data platform, which helps developers in short and long-term investment planning, and financiers in structuring funding effectively Geo-tagged customer surveys and detailed datasets of off-grid communities allowed to create feasibility profiles for microgrid sites, which are used to evaluate tender bids.. REA is further working to strengthen collaboration with subnational governments, for instance through state-by-state electrification roundtables in 2025, which provided 21 states with data and updates on ongoing electrification projects as well as partnership frameworks.
Sotho Minigrid Portfolio SPV in Lesotho: The project was set up by the private minigrid developer OnePower to electrify a bundle of 11 rural mountain villages and seven health clinics with solar PV minigrids with combined capacity of 1.8 MWp plus battery storage. The project aims to electrify about 30 000 citizens or around 8 000 households, small enterprises and schools through a pay-as-you-go solution. Despite different sizes, the communities have similar consumption patterns. With assistance from the GET.invest financial catalyst programme, OnePower negotiated a concession agreement for a pilot project in Ha Makebe with the Ministry of Energy and Meteorology and supported the financial structuring. The SPV raised 75 million loti each (~ USD 9.3 million) in equity and senior debt financing from the EU-funded Electrification Finance Initiative and the UK-funded Renewable Energy Performance Platform (REPP) in 2022. Funding was made available in local currency, shielding the developer from currency fluctuations. SPV sells electricity at 5 loti per kWh (~USD 0.3), and revenues are used to cover capital costs (via debt repayment) and operating costs.
Note: RBF: results-based financing; REA: Rural Electrification Agency; NEP: Nigeria Electrification Project; REPP: Renewable Energy Performance Platform; SHS: Solar Home Systems; SPV: Special Purpose Vehicle.
To spread risks of singular microgrid projects and improve commercial viability, public sector electrification programmes can foresee the aggregation of multiple projects into larger microgrid portfolios.
As unelectrified communities in Mpumalanga and other provinces are typically located in remote areas with low population density, attracting and scaling up private investment in microgrids requires considerations for aggregating several microgrid projects into investable portfolios with a better financial viability and lower risks than individual projects. This will require an in-depth assessment of the currently unelectrified communities including expected load profiles, socio-economic parameters (income levels, affordability and willingness to pay), their location and geospatial characteristics. These aspects are expected to be addressed in the currently ongoing assessment under the AMP, supported by AfDB.
5.2.2. Community-based financing models
Community-based financing models can bridge existing financing gaps while fostering inclusive growth and social benefits (OECD, 2025[24]) They often combine a mix of funding sources, where public funding through grants, subsidies or concessional loans and philanthropic funds provides the bulk of capital needed. This is then complemented by innovative funding models such as crowdfunding, community equity and partly commercial debt.
In South Africa, community ownership and involvement in microgrids is frequently discussed in the context of different social ownership models (PCC, 2024[7]; Lehmann-Grube K., 2025[25]). While there is no commonly accepted definition of social ownership, it is proposed to address structural inequality problems by reducing the concentration of wealth, improving access to resources and labour opportunities for a more equitable society (Lehmann-Grube K., 2025[25]). This can take the form of “pro-poor and pro-people programmes based on human needs, including but not limited to co-operative ownership” within communities of socially and economically disadvantaged people (PCC, 2024[7]). South Africa’s “Just Transition Framework” calls for “diversely owned renewable energy systems”, while the JET IP allocates ZAR 1.65 billion for the piloting of social ownership projects (The Presidency, Republic of South Africa, 2022[26]).
Equity contributions give the community a financial stake in the project and a direct role in decision making for project development, ownership and management. Community equity can be raised through village funds as in the case of Muara Enggelam (Annex G, Case study 4), through local cooperatives and innovative instruments such as crowdfunding platforms, for instance in the case of RevoluSolar in Brazil which successfully established solar cooperatives in Brazilian favelas (Annex G, Case study 5). In South Africa, Stokvels as community-based savings and credit associations could be used to mobilise community equity towards microgrid projects, where community ownership and involvement could ensure the sharing of benefits among community members and reinvestment in repairs or grid expansion. Such models ensure community buy-in but often require technical support, including standardised templates for scalability (Mbistrova A, and Boffo, R, 2025[5]).
Given the typically long payback periods and limited willingness and ability to pay in many off-grid communities, grant-based financing will continue to play a critical role in covering capital expenditure. Linking such grants to clearly defined sustainability milestones, such as the creation of maintenance funds and the establishment of formal community governance structures, can help secure the long-term viability of these projects while strengthening accountability and local ownership (Mbistrova A, and Boffo, R, 2025[5]). Fiscal incentives including tax breaks can encourage communities to operate and maintain microgrids effectively by ensuring that financial benefits remain within the community. Together with revenues from electricity sales, such financial incentives can be used to directly benefit the community, to fund equipment replacement or system expansion, to support community-owned enterprises or other priority initiatives of the community.
In its Community-Centric Minigrid Toolkit, the Africa Minigrids Program (AMP) proposes design principles for community-centric minigrids as systems that are designed, governed and potentially co-owned in close partnership with the host communities (AMP, 2025). These can be applied irrespective of the delivery model yet need to be adapted to address the specific community needs, priorities and context:
Community ownership or co-ownership, meaning that the community invests financially or contributes land, labour or other resources to the minigrid and holds formal or informal stakes in the project to strengthen accountability and long-term commitment.
A governance structure which empowers the community to participate in decision making on tariff setting, service oversight and reinvestment planning. This may be implemented through bodies like Community Power Committees and aims to enhance transparency and trust.
Benefit sharing mechanisms: Revenues, profit or utility are shared with the host communities and can be reinvested in priority community projects such as water access, education or local enterprises. This helps create visible returns and social impact.
Social and environmental safeguards (SES), including gender-responsive planning, implementation and monitoring practices to ensure an active involvement of women, youth and marginalised groups as well as equitable access to energy benefits.
Safeguards for community investment, in the form of transparent financial and institutional mechanisms such as joint bank accounts, bylaws and community mandates.
Major barriers to the implementation of socially owned renewable energy (SORE) in South Africa include regulatory barriers, sometimes lack of formal land tenure, limited or no community equity, loss of revenue to municipalities, lack of community buy-in and concerns from various stakeholder groups (PCC, 2024[7]). Social ownership models can take different forms. The PCC proposed two models for renewable or hybrid microgrids in rural villages or urban informal settlements, organised as microgrid cooperatives or community trusts (PCC, 2024[7]). Other research considers cooperatives, public entities or trade union-led socio-economic development projects as social ownership models across sectors (Lehmann-Grube K., 2025[25]). Under the latter definition, however, a microgrid project in Gauteng, where the municipal utility owned and operated the microgrid, was not considered as community-owned or operated by the electrified community itself. This was in part due to the fact that the utility governance structure did not provide direct access to decision-making in operations and maintenance (Lehmann-Grube K., 2025[25]).
Examples of cooperatives that have successfully electrified rural communities exist in Bangladesh, the Philippines and several countries in South America (SEforALL, 2024[3]). Electric cooperatives are also emerging in sub-Saharan Africa, for instance in Liberia, Uganda and Zambia (NRECA International, 2023[28]). Operation and maintenance (O&M) responsibilities typically lie with local community committees. Technicians are often selected from the local community and paid through the collected tariffs.
Many project examples of social ownership or community ownership of microgrids are designed to electrify energy-poor communities and achieve broader socio-economic benefits. Their financing structure typically includes grants and concessional capital to cover a large share of CAPEX (RMI, 2025[29]). In light of limited community equity, the PCC report, for instance, suggests non-conditional grants, covering capital costs as well as training and initial operating costs as funding option for community-owned microgrids in South Africa to avoid overburdening the community with debt repayments (PCC, 2024[7]).
Analysed case studies
Note: The full case studies are available in Annex G. INEP: Integrated National Electrification Programme; VoE: Village-owned enterprise; O&M: operation and maintenance.
Source: Compiled by the OECD Secretariat.
Success factors for community-centric microgrids
Based on literature research and the analysis of South African and international microgrid project examples (Annex G), long-term financial and structural sustainability of such initiatives, however, hinges not only on the availability of grant and concessional financing, but also on a range of additional success factors (SEforALL, 2024[3]; NRECA International, 2023[28]; PCC, 2024[7]; Lehmann-Grube K., 2025[25]; RMI, 2025[29]), including:
Strong and continuous community involvement from the initial project conception, including through partnerships between developers, government institutions with a mandate for electrification, communities and other involved actors. This not only serves to ensure an accurate assessment and planning of electricity demand and load profiles, ability and willingness to pay, but also community support for the development and continuous operation of the microgrid.
This can usefully result in a microgrid design which reflects the community’s energy demand, and its willingness and ability to pay.
Modular system design and smart technologies enable significant cost savings by reducing CAPEX, allowing more efficient grid operation by flexibly matching supply and demand, allowing for predictive maintenance, and enabling capacity expansion once demand increases.
Innovative system and tariff design, as for instance in the climate smart village initiative in India, can enable the community to financially and technically benefit from bringing in external consumers (higher revenue generation and more stable demand).
Social cohesion and trusted leadership within the community can be helpful to ensure adequate representation and participation of different groups and sharing of benefits among community members.
As several examples of community-centric microgrids demonstrate, the utilisation of established community governance structures that can operate and maintain the system entrepreneurially, and balance day-to-day operations with long-term strategic decision-making (e.g. shares of revenues directly benefitting community members vs. generating savings for necessary repairs, modernization and expansion).
Robust governance and financial oversight frameworks are important to ensure a sustainable setup of village-owned enterprises and utilities, as well as accountability and transparency.
Access to land and existing economic activities within the community improve the commercial viability of microgrid projects and community co-benefits, as for instance in Muara Enggelam, Indonesia or the climate smart villages in Jharkand, India. Communities without any significant economic activity would likely require additional support measures to incentivise demand and create and sustain new businesses, including through financing, technical assistance and knowledge transfer.
A conducive macro-economic and regulatory environment that helps to alleviate or remove structural barriers for microgrids and to decrease market access barriers for community/socially-owned enterprises. Microgrid tariff regimes have to strike a balance between cost-recovery and affordability, including potential support measures for low-income households.
Technical assistance and knowledge transfer to the community in setting up necessary governance structures, defining appropriate tariff and payment schemes, as well as operating and maintaining the system was a crucial success factor in all analysed microgrid projects. Intermediary organisations, including the public sector, development partners and financiers play a key role in facilitating and financing projects and capacitating communities. This also requires a substantial amount of time and resources to be factored into the overall project timeline.
To fully implement the INEP and achieve universal electrification by 2030, co-ordinated policy measures are needed to overcome the electrification backlog, improve planning alignment and strengthen institutional and technical capacities. Key priorities include developing a detailed and sequenced roll-out plan for INEP, including critical information on target communities and load profiles, strategically leveraging partnerships and public funds to mobilise private investment in microgrid projects and portfolios, and developing dedicated microgrid regulations including a transparent tariff regime.
Recent regulatory reforms allow for higher private sector participation in electricity market transactions and ease private investment, while reducing market entry and grid access barriers for microgrids in South Africa. Nonetheless, dedicated microgrid regulations and a cost-reflective tariff regime are not yet in place, which creates uncertainty for private investors in microgrid projects. Developing microgrid regulations to support bankability and scalability would include (i) legislative instruments empowering NERSA to regulate the microgrid industry, and (ii) NERSA to define and adopt the requirements and procedures for a microgrid licensing regime. Such regulations could strive to ensure short and streamlined licensing processes, define transparent and unified microgrid tariffs that balance cost recovery and affordability, appropriately manage grid encroachment and design targeted financial incentives and support policies for no- and low-income households, including those channelled through municipalities.
Streamlining procurement processes, particularly for municipal electrification projects, and mitigating the currently high levels of non-technical grid losses are further important measures (Department of Electricity and Energy, 2025[13]).
Based on international and national experience, fully commercial viability of microgrid projects without public support is rare. Most projects require a minimum share of grant funding and/or subsidies, partly accompanied by technical assistance in developing bankable project proposals and sustainable implementation arrangements, and in strengthening local capacities and data availability. Considering modular grid design to ensure appropriate capacity utilisation while allowing for grid upgrades when demand increases, demand stimulation and load management programmes as well as combinations with rural development programmes, and strategically including anchor clients, public institutions and small businesses in grid planning can help in improving microgrid project planning and viability. Scaling up microgrid deployment will require blended financing approaches, including risk mitigation instruments combined with better planning and the development of bankable project proposals. Aggregating several microgrid projects into larger portfolios can help to mitigate risks of individual projects and improve commercial viability yet would require a robust regulatory framework and tariff certainty for microgrid projects to attract private investment. While different governance models exist, strong community involvement and, where feasible, community ownership can usefully be ensured across all models to safeguard that microgrid projects meet the actual needs of the respective community, are set up with a sustainable long-term governance structure and deliver benefits to the community. When seeking private investment, this can, for instance, be achieved by including minimum requirements for community involvement in tendering documents.
Develop dedicated microgrid regulations to support bankability and scalability. This would include (i) legislative instruments empowering NERSA to regulate the microgrid industry, and (ii) NERSA to define and adopt the requirements and procedures for a microgrid licensing regime, e.g. including:
Ensuring streamlined and short licensing and processes;
Defining transparent and unified microgrid tariffs that balance cost recovery and affordability, as well as a clear and efficient tariff indexation mechanism to partially mitigate risks of currency fluctuations and inflation;
Provide guarantees against or define a compensation model for potential grid encroachment;
Where appropriate, design targeted financial incentives and support policies for no- and low-income households (LSM1-3), including those channelled through municipalities.
Under DEE’s leadership, develop a detailed and sequenced roll-out plan for the INEP in coordination with the respective municipalities and communities. Such plans would include datasets on target communities, their socio-economic and demand profiles, geospatial information, potential anchor loads in proximity and other factors of relevance for mobilising investment.
Ensure that the Provincial Electrification Master Plans are publicly accessible on a centralised platform and contain up-to-date, detailed priorities for technology deployment and distribution grid expansion.
Advance the discussions on a proposed blended finance facility for microgrid electrification. Strategically leverage public funds available for INEP implementation to bring in private sector investment. This could for instance include a Results-Based Financing Framework and/or tendering larger microgrid portfolios.
Engage in public-private-partnerships and involve potential investors and donors early, including in electrification planning, development of financing models/setting up of a blended finance facility and matching timelines of microgrid electrification programmes with realistic deployment timeframes, streamlining and simplification of loan and grant application processes, adjustments of the regulatory framework and provision of technical assistance; this can be achieved through structured dialogue processes and inclusion of considerations for active community involvement.
Consider defining larger microgrid portfolios to be tendered to the private sector, which aggregate microgrid projects with different risk levels, consumption and income levels, and which spread risks of individual projects.
Requirements for bidders could usefully include a requirement for active community involvement in these projects, linked to specific Key Performance Indicators
Encourage modular grid design, integration of anchor clients and public institutions as well as small businesses and/or community-owned enterprises in microgrid project design. Consider demand stimulation and load management programmes at least for microgrids with higher service levels.
Consider linking provincial electrification plans with rural development programmes and dedicated MSME support programmes actively involving local communities to help create sustainable economic activities.
Improve data availability and strengthen capacities of local stakeholders around microgrids, including
Promote the sharing of data on microgrid technologies and economics to identify trends, assess risks and address challenges more efficiently and effectively;
Provide capacity building for municipalities and community members to optimise municipal electrification programmes and actively participate in the implementation of community-centric microgrid models, while understanding the benefits and implications; this could happen by strengthening SALGA’s training offers under the INEP Action Plan.
Strengthen capacities of local financial institutions to better assess opportunities and risks related to financing microgrid projects.
Improve planning processes and co-ordination, particularly for municipal electrification projects, e.g. through
Providing technical assistance in project development, design of community structures and business planning;
Using internationally available toolkits, e.g. the African Model Mini-Grid Regulations Tool, including a tool for tariff design; developed by the African Forum for Utility Regulators (AFUR) in partnership with GET.transform.
Strategically extract and leverage insights from existing microgrid pilot projects to generate technical, commercial and governance lessons to inform the national scale-up.
References
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[1] The Mpumalanga Green Cluster Agency (2025), 2025 MPUMALANGA SMME ‘s GREEN INNOVATION CHALLENGE, https://thegca.co.za/green-challenge/2025_challenge_invitation/.
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← 1. Generation assets, e.g. for solar-powered mini-grids include PV modules, batteries, inverters and other electromechanical components.
← 2. Green sukuks are Sharia-compliant bonds to finance or refinance eligible green projects that contribute to Indonesia’s objectives of reducing greenhouse gas emissions, building resilience to weather-related events and preserving biodiversity. The Green Bond and Green Sukuk Framework was adopted in 2018, with energy efficiency, renewable energy and sustainable transport among the nine eligible sectors to receive the proceeds of green sukuks/bonds.