Where Does Mini-Grid Revenue Actually Come From?
Week [n] of pretending I know what I am doing
Last Tuesday, around 9pm, I was reviewing two mini-grid proposals with a mug of coffee that had gone cold an hour earlier.
Routine work. Check the assumptions, check the returns, write comments, go to bed. I have reviewed dozens of these. I opened the revenue tab and did what I always do first: a lazy sanity check on the back of an envelope, before trusting anyone’s formulas, including mine.
Five hundred connections. Two hundred and fifty naira per kilowatt-hour. Call it one kilowatt-hour per household per day, because it’s late and one is an easy number.
500 × 250 × 30. About ₦3.75 million a month.
I stared at it. That couldn’t be right. That’s the revenue of a decent Lagos restaurant. For an entire power utility.
So I did what any professional does when his own maths embarrasses him: I assumed I was the problem. These people build mini-grids for a living. I build spreadsheets about people who build mini-grids for a living. Clearly I’d dropped a zero somewhere.
I checked the tariff. ₦250/kWh. Correct, and honestly fair; try running a diesel gen for less.
I checked the connections. Five hundred. Correct.
Which left the quiet little number in the middle. The kilowatt-hour. How much electricity does a newly connected rural household actually buy?
I did not know. Twelve years in this industry. I did not know.
So at 9:40pm I was Googling rural household consumption benchmarks like a first-year analyst, and the answer that kept coming back was worse than my lazy guess. Many newly connected households buy half a kilowatt-hour a day. Some less. Lights, phone charging, a fan when the day has been unkind. My envelope had been generous.
I went back to the proposal to find where the real revenue was hiding, because the model showed a perfectly healthy project and my envelope showed a bake sale. And there it was, in Year 3, in a curve that swept upward with total confidence, labelled productive use.
The maize mill. The welder. The cold room. Demand triples, the project sings, everyone claps.
My first reaction, and I wrote this in my notebook, was: “so the whole sector is fiction?”
And then I stopped, because that couldn’t be right either. I have stood in villages where mini-grids work. Actually work. Freezers humming, operator solvent, batteries alive past their warranty. The maths can survive. So what did those sites have that this spreadsheet only had as a curve?
I sat with the cold coffee and made a list. Every working site I could think of had its mill, its cold room, its anchor load, either already there before the panels arrived, or built, financed and nursed into existence by the developer, on purpose, with money and staff and grief.
None of them got their demand from a growth assumption.
And that’s when the envelope finally made sense, at roughly 10:15pm.
The spreadsheet assumes demand exists, waiting to be served, like a queue outside a shop. But in a village that has never had power, there is no queue. There is no shop. Demand isn’t served in these projects. Demand is manufactured. The developer isn’t really selling electricity at all. They are bootstrapping a small economy, and billing for the electrons is the receipt, not the product.
Once you see it that way, everything in the model reads differently.
The grant that paid for the generation equipment? I’d been reading it as a subsidy on power. It isn’t. It’s seed capital for an economy that doesn’t exist yet, and it’s the only reason the tariff can be low enough for that economy to ever start.
The “5% O&M” line? On a working site, half of what that money actually buys is a human being who knows every customer by name and collects payment with a patience no formula captures.
And “productive use” in Year 3? That’s not an assumption. That’s the entire business plan, wearing a revenue line’s clothing. If it appears in the revenue tab but nowhere in the CAPEX, the workplan or the org chart, then nobody is building it, and a curve nobody is building is just hope with a gradient.
So I went back through both proposals one last time, and I searched, genuinely searched, for the mill. For the line item that buys it, the person who runs it, the plan that fills it with maize.
It wasn’t there. In either one.
Which changed what I wrote in my review comments entirely. I’d sat down to answer “is this project financially viable?” and by 10:30pm I’d realised that was the wrong question. The right question, for this project and I suspect for most of the sector, is: who is manufacturing the demand, and did anyone budget for them?
If the answer is in the spreadsheet, you might have a utility.
If the answer is a curve, you have a donation with an invoice printer.
I rebuilt both models from scratch the next day, with the demand line dragged down to what households actually buy and a new cost line for the unglamorous work of building the rest. The projects don’t look dead. They look like what they actually are: patient, subsidised economic development that happens to run on solar, and is entirely honourable so long as nobody calls it something else.
I still don’t know exactly where the line sits between “subsidised but sound” and “insolvency with a ribbon-cutting ceremony”. I’m working on it. Loudly, here, so you can correct me.
The Usual Asterisks
*My maths might be wrong. Please check it.
*The numbers are rounded and anonymised; if they resemble your proposal, that is rather the point.
*If you operate mini-grids and your demand curve came true, I am begging you to tell me how.
—S (Chief Impostor, back-of-envelope enthusiast, cold coffee survivor)
P.S. To the developers actually out there building the mill before drawing the curve: you’re doing the hardest job in this industry, and this piece is a love letter disguised as an audit.
P.P.S. Found an error? Perfect. Drop a comment and I’ll fix it in v47_FINAL_FINAL_actually_final.
P.P.P.S. Yes, I reheated the coffee at 10:45pm. No, it did not help.