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. Renewable energy solutions such as solar also reduce future greenhouse gas emissions that contribute to climate change.
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.
Through JHU’s energy practicum program, we worked closely with Pact to develop research questions and contribute to the literature on energy financing models for rural health care. Our research covers multiple countries in Sub-Saharan Africa and several developing nations in other regions. Based on our research and the considerations above, we propose a blended philanthropic and PPA model to electrify off-grid rural healthcare facilities, which can also include an option for development of a mini-grid system to electrify surrounding residences and businesses via a microgrid.
In our proposed solution, the rural healthcare facility provides the space for the solar and storage equipment and in return would receive electricity from said solar and battery microgrid unit that is installed onsite. In order for the utility providing the solar and battery unit and the independent power producer who provides operations and maintenance services for the microgrid to receive revenue, the microgrid would also electrify nearby homes and businesses and collect revenue from them, allowing the cost of electricity for rural healthcare units to be partly or completely subsidized.
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.
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.
This blog was originally published on the Pact World site.