The global microgrid market is ready for significant private investment. While there remain some challenges – especially around the regulatory framework and aggregation of projects – there are now enough businesses with viable business models to provide early stage, strategic or even crowd investors with commercially attractive opportunities.
The expansion of microgrids is accelerating due to the resilience and flexibility they provide as well as the speed with which they can bring electricity to the unelectrified. In order for them to be profitable as well, they need to be optimized. TFE Consulting’s newest report, Kenya: The World’s Microgrid Lab, provides a model of the typical microgrid costs to show the available profit.
The model assumes an average customer usage of approximately 1.9 kWh per day, which is high. While some customers use this much (and more), many residential consumers use less than 50 Wh per day. This suggests two fundamental design points: first, ‘right-sizing’ the microgrid optimizes energy use and generates more profit. Secondly, the more services offered along with electricity, the more efficient the system.
In order to size the microgrid to maximize profit, there needs to be some heavy (usually commercial) power users in the portfolio. This could be a single anchor load, like a telecom tower or a small industry or shop. Or – to reduce risk – could be a variety of heavy users such as maize mills or welding shop. Either way, the microgrid needs to be the right size to fit the usage. Too big a system will lead to underutilization and higher per unit costs. Too small a system will forego revenue and scale effects, again leading to higher per unit costs.
This is not as simple as it sounds. For instance, sizing the system not to the peak power but a bit lower and implementing demand side management technologies can help reduce the cost and support full utilization of the generated electricity. The development of digital technologies comes into play here. In another example, PowerHive uses satellite imagery and sophisticated automated algorithms to find and characterize potential microgrid sites. This concept could be enhanced to optimally design microgrids based on village patterns and sizes and types of houses (read other examples here).
From this, it is clear that the microgrid operator stands to benefit through proactive interventions that increase electricity usage across the site. This could be something along the lines of appliance leasing or other service-based mechanisms. As a side note, if the microgrid operator shifts focus from selling kWh to selling a service and is providing the appliances used to deliver it, he is also incentivized to use efficient appliances.
Electrification can easily be coupled with other technology investments to provide all kinds of services, such as entertainment, cold storage, local transportation, or water pumping and irrigation – to name just a few. Around Lake Victoria, the provision of a fridge or freezer to a fishing community can make a huge difference to livelihoods and businesses as fishermen are no longer forced to immediately sell their catch, thereby substantially increasing their incomes.
Going further towards becoming service providers, the microgrid operator could establish a workshop or internet connected cyber café. With suitable training, access to the internet would also open up a potential new revenue stream for end users of power by unlocking access to the online market for simple out-sourced jobs offered through sites like Amazon’s Mechanical Turk or Fiverr. This work is available year-round and would provide a hedge against the uncertainties of seasonality: reduced fish populations or failed crop harvest, for instance.
Linking electrification with microfinance is a key enabler. Finance and electricity together can catalyze the growth of small businesses which are key to development and economic growth. They are mutually reinforcing and thrive on successful businesses that ensure a steady payment stream. This should ideally become a virtuous cycle that helps the power consumer earn more income with increasing energy demand, thus stepping up the ‘energy ladder’. As economic activity increases so does the number of opportunities available to young people. This in turn reduces outwards migration.
For a more in-depth analysis and other perspectives on the microgrid market in Kenya and globally, download the full report here.
About the authors:
Dr. Tobias Engelmeier: Tobias is an entrepreneur and advisor with over a decade’s experience in organizational change and growth-oriented business models. He has lived in India for several years, founding Bridge To India (a cleantech advisory), India Goes Solar (a web platform) and a project development company focusing on distributed energy. Over the years, he has worked for investors, technology companies and governments on managing industry transitions in Asia, Africa and Europe. In 2016, he founded TFE Consulting to provide consulting services on industries that are undergoing rapid transformation. @TEngelmeier
Dr. Sam Duby: Sam is an influential technology developer and Africa expert with many years consulting and publishing in clean-tech and robotics. Six years ago, Sam co-founded the Ashden Gold Award winning SteamaCo Ltd in Kenya, which provides the tools required to build and manage financially viable power grids in remote areas of emerging countries. Sam has worked across the spectrum of renewable energy research in academia, consulting firms and start-ups in the developing world. At TFE Consulting, Sam leads projects at the intersection of energy and digital technologies with a focus on Africa. @Supermaximus
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