This blog was written by a team of students attending The Paul H. Nitze School of Advanced International Studies at Johns Hopkins University — Jacob Brunell, Julia Fonteles, Will Putzier and Nicolette Salazar — who conducted research for their annual practicum with support from Pact.
All modern healthcare services require some form of electricity to operate, from cold storage for blood banking, vaccines, and certain medications to sterilization and diagnostic equipment. Certain medical needs are particularly reliant on a stable energy supply, such as maternal and natal care, as delivery can be particularly dangerous. Yet only 28% of healthcare facilities in sub-Saharan Africa have access to reliable electricity.
The link between healthcare and energy is garnering more attention due to both the COVID-19 pandemic and a continuing decline in distributed energy prices. Pact and our team of researchers from Johns Hopkins University have conducted a year-long study of viable options for electrifying rural healthcare facilities to develop new frameworks for advancing work in this field.
Electrifying health facilities can be accomplished through one of two approaches: connecting to a utility grid or on-site generation. The latter option has become a much more viable solution over the past decade for remote health clinics, thanks to sharp reductions in the cost of solar PV and battery storage. The combination of these two technologies is much cleaner than using diesel generators, the preferred mode of rural clinics for providing off-grid power, and over time is less expensive.
Yet the solution for electrifying rural health clinics is not so simple.
Since rural public healthcare facilities do not often generate sufficient revenue to pay for electricity, let alone purchase an on-site energy system themselves, energy companies are reluctant to electrify these clinics, either through the installation of a solar plus battery system and sell energy over time or an on-site system on credit.
However, there are several financing options available to overcome this challenge. Grant funding is currently the dominant method in developing countries. The largest example of this is Power Africa, a USAID initiative aimed at increasing the number of people with access to power. One of the main target areas for the initiative, especially since the beginning of the pandemic, has been off-grid healthcare electrification, where Power Africa has awarded over $2.5 million in electrification grants to solar companies across Sub-Saharan Africa. These grants are funding the electrification of a number of healthcare facilities across the region using novel revenue methods, with the hope that a sustainable and scalable solution for the electrification of healthcare facilities may be found.
Power Africa recognizes the limitations of grant funding: the demand for powering off-grid healthcare facilities outpaces the availability of grant funds, efficient deployment of grant funding is often difficult for donors, and the ongoing maintenance and operations costs require long term cash infusions, whereas donors oftentimes prefer to provide grants on a one-time basis.
The cash sales model is an alternative where the purchaser of a solar system owns the system after paying the full cost upfront to the system distributor or retailer. Similarly, the pay-as-you-go (PAYGO) model offers a more flexible payment structure than cash sales, where customers pay in installments over an agreed period of time. However, these models are not suitable for rural healthcare electrification. This is because public healthcare facilities are not typically allocated a budget from the central government to purchase off-grid energy systems or pay for electricity and are not viewed as reliable customers due to their provision of public services and lack of revenue.
Theoretically, the power purchase agreement (PPA) is an ideal financial model for off-grid solar implementation since its contractual nature boosts long-term viability. But its limited implementation in the region underscores challenges in its scalability in healthcare facilities.
Regulatory and payment uncertainty and reputational risk have hindered the implementation of PPAs for off-grid healthcare facilities. There have been considerable efforts recently to adopt PPAs to finance rural healthcare facilities, but these projects are still under development and have yet to be proven viable and scalable across the region.
Application to Rural Healthcare Facility Electrification
The philanthropic model is commonly used and proven to be scalable in Sub Saharan Africa to provide short-term solutions to electrify healthcare facilities. The short-term nature of the model makes sustainability an issue, as operations and maintenance costs may not be covered for the lifetime of the solar photovoltaic (PV) system.
The cash sales model has been used successfully for small solar PV systems. However, high upfront costs and a lack of payment flexibility makes this model unsuitable for electrifying public healthcare facilities in rural areas.
The pay-as-you-go model has proven successful at a residential and commercial level. However, the unpredictability of its payment structure and low energy loads makes it unsuitable for wide-scale electrification of healthcare clinics.
The PPA model guarantees a stable revenue stream matched to the lifespan of the solar equipment, and can include provisions to cover operations and maintenance costs to ensure sustainability. A PPA with a government offtaker could electrify rural healthcare facilities at scale, but a stable regulatory environment and payment guarantees are necessary for bankability and successful implementation.
We recommend the inclusion of a third-party, independent organization to facilitate cooperation between the government and private sector. This independent organization would provide technical advice and resources that will benefit project development practices and reduce government and private-sector biases. In the long run, after a greater market establishment, securitization options for bundling high-, medium- and low-risk projects could offer an alternative to reduce investor’s risk, allowing for a transition to a commercial PPA model.
Originally published at https://www.pactworld.org.