By Tobias Engelmeier and Sam Duby, from TFE Consulting
Nestled against the hills near Lake Magadi in the south of Kenya lies the small village of Entesopia. Although the village is bustling with a myriad of regional tribes, Entesopia is not supplied with grid electricity. Instead, the community is powered by an 8.5 kilowatt modular solar microgrid, owned by Vulcan Philanthropy and managed by SteamaCo. It supplies more than 60 homes and businesses, including a petrol pump operator, a small cinema, and a number of welding shops.
These renewable microgrids are cropping up all around the world as developing and developed countries alike turn to them for their increased resiliency and flexibility. The speed with which they can bring electricity to the unelectrified makes them decisive for countries with lower electrification rates. In Kenya, for example, it is highly unlikely that the vibrant fishing islands in Lake Victoria or remote communities in Marsabit will be connected to the national grid anytime soon. Microgrids offer an opportunity for these communities to move up the energy ladder quicker and with greener energy than expansion of a central grid.
As it grows, the microgrid industry is becoming less and less driven by development organizations and NGOs and increasingly by private companies. 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. But in order to truly make a difference, these microgrids need to make money.
In order to profit, 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 slightly lower allows demand side management technologies to reduce the cost and support full utilization of the generated electricity. The development of digital technologies really makes a difference here. Satellite imagery and sophisticated automated algorithms are now being used 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.
To really get the most out of a microgrid, it’s key to have some heavy power users in the portfolio. This might 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 shops. Often, the most profitable businesses are not the most obvious. In rural Kenya, hair salons or incubating hen eggs can be very lucrative, both of which require steady, reliable electricity.
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. If the microgrid operator shifts focus from selling kilowatt-hours to selling a service and is providing the appliances used to deliver it, she also has an incentive 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. Along the coast of Lake Victoria, the addition of a community fridge or freezer can make a huge difference to the livelihood of resident fishermen. By not needing to sell their catch immediately, their incomes rise exponentially.
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