Innovation Lab
30.09.2024
Publication
30.09.2024
Publication

Mini-Grid Innovation Insight: Harmonizing tariffs through smart green subsidies in Sierra Leone

Key Insights
When electricity tariffs were cut by 41% over a year, energy use surged by 58% for mini-grid customers in Sierra Leone
Low-income customers, who made up 63% of those in the study, benefited the most
Despite the tariff reduction, revenues per customer did not drop. However, the study found that high inflation and currency devaluation did impact the real value of revenues
The study recommends policy interventions including a streamlined, efficient subsidy regime, hedging mechanisms and local currency financing to support tariff reduction
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Tombo Banda
Managing Director
Miriam Atuya
Associate
For Media Enquiries
CrossBoundary Communications
Contact

In December 2022, CrossBoundary's Mini-Grid Innovation Lab partnered with the Global Energy Alliance for People and Planet (GEAPP) and the Government of Sierra Leone to implement a 1-year Tariff Harmonization Pilot across Sierra Leone. The pilot sought to test the impact of lower tariffs on customers.

The tariff harmonization pilot has successfully tackled affordability challenges and boosted mini-grid utilization. Key findings are outlined below:

  • When electricity tariffs were cut by 41% over a year, energy use surged by 58%
  • Low-income customers, who made up 63% of those in the study, benefited the most
  • Despite lower tariffs, overall revenue didn’t drop as much as expected due to increased usage

ACPU has increased by an average of 58% on the treatment sites compared to a 6% increase on the control sites
These graphs show energy consumption data from all treatment sites across all developers. Average Consumption Per User (ACPU) increased by: 58% on the treatment sites 6% increase on the control sites

However, our analysis shows that while tariff reduction can drive energy consumption and benefit low-income consumers, it needs to be strategically implemented with supporting policies to ensure mini-grid sustainability.

Reducing tariffs in countries where currency values are unstable and inflation is high can create challenges for mini-grid operators, especially if they have expenses in foreign currencies. We need additional de-risking measures to help these operators reduce their tariffs confidently.

Tombo Banda, 
Managing Director and Lead of 
CrossBoundary's Mini-Grid Innovation Lab

The study suggests several ways to support tariff reductions on a larger scale:

  1. Streamlined, efficient subsidy programs to maximize impact to end-users and minimize long-term dependency
  2. Financial tools such as hedging funds to offset macro-economic risks, such as currency devaluation
  3. Increased access to local currency financing for mini-grid projects

Download the Innovation Insight to learn more

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