Kenya shows that the global microgrid market is ready for significant private investment. While challenges still remain – 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 medium-term growth potential for the microgrid market in Kenya, as well as in other energy access markets including in Africa, South and South-East Asia, is very high.
A confluence of innovation, risk taking, and public and private effort has created a five-year, $1.5 billion microgrid market opportunity in Kenya, leading Germany''s TFE Consulting to dub the East African nation, "The World''s Microgrid Lab."
International startups are deploying innovative mobile ''pay as you go'' (Pay-Go), home solar, and microgrids in off-grid rural areas across the East African nation and far beyond. Their work is backed by development agencies, regional governments, non-government organizations (NGOs), venture capitalists and corporations.
It''s still early to know, but the rapid development of zero- or low-emissions microgrids and distributed energy could prove to be the linchpin of an emerging new model for environmentally friendly energy and socioeconomic development.
"Globally, microgrids for electrification have a market potential of $400 billion," says the report, "Kenya: The World''s Microgrid Lab."
As a result, Kenyans are taking their first steps up the sustainable energy ladder.
Sharply declining costs and widespread availability of solar PV, LED lighting and DC electricity — and more recently lithium ion battery storage — are key factors opening up the green distributed energy and microgrid market opportunity in Kenya and across Sub-Saharan Africa and other developing market regions. The market also is driven by widespread access to wireless/mobile money and communications networks.
According to TFE''s study, just 20 percent of Kenyans have access to grid power. Nearly nine in 10 – 88 percent – have mobile phones. Most use mobile e-payment services, such as MTN''s M-Pesa – to pay for goods and services.
Kenyans are using these mobile money services to pre-pay for off-grid home solar or ''microgrid as a service'' energy services in small increments as their needs and ability to pay warrants.
"Mobile money alleviates many of the drawbacks associated with earlier cash or scratchcard systems," says the TFE study. "For one, it vastly simplifies revenue collection: no cash changes hands. Cash-based revenue collection is a significant administrative challenge for energy access businesses, as seen in other energy access markets such as India.
"The cashless payment system unlocks the possibility of running remotely located energy vending machines in Kenya. Consumers and businesses benefit, as transaction, electricity and business expansion costs fall," TFE says.
Azuri Technologies, BBOX, Fenix International, Lumos Global, Mobisol and Powerhive number among the growing roster of ambitious, young solar mobile Pay-Go and microgrid developers providing services in the region.
Multilateral sustainable energy and development programs, such as USAID''s Power Africa, launched by former President Barack Obama, have played a critical, formative role. Reaching out to aspiring sustainable energy entrepreneurs in Kenya and across the region, they have been providing seed capital, technical and other forms of assistance and support.
Success breeds success, and now the effort is attracting both equity and debt financing from leading international venture capital and private equity investment groups and multinational corporations. The growing list includes ABB, Caterpillar, GE, Khosla Ventures, Paul Allen''s Vulcan Facebook, Microsoft and Jaguar Land Rover and other African wireless/mobile telecoms services providers, such as Airtel and Orange SA.
"Kenya shows that the global microgrid market is ready for significant private investment. While there still 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 medium-term growth potential for the microgrid market in Kenya, as well as in other energy access markets including in Africa, South and Southeast Asia, is very high," TFE Consulting writes in the executive summary of its report.
According to TFE, a $1.5 billion microgrid market opportunity exists in Kenya over the next five years. Significantly:
Some still view Kenya and other developing countries as too industrially undeveloped and risky to offer a substantial microgrid market opportunity. Similarly, Kenyans — rural Kenyans in particular — are considered too impoverished to serve as the basis of a sustainable business model.
But it''s important to note that proportionally Kenyans spend more of their budgets on energy — in this case ages-old forms like kerosene and charcoal — than residents of industrially developed countries. And as the experience of pioneering solar PV-battery energy storage PAYG and microgrid companies is revealing, they are more than willing to pay as much for safer, cleaner and more reliable and efficient power and energy these technologies now offer.
Furthermore, the pace and scope of socioeconomic development that has been taking place in Kenya over the past decade may be under-appreciated.
"Kenya is the economic lion of East Africa," TFE writes.
"Its GDP almost quadrupled from $16.1 billion in 2004 to $63.4 billion in 2015, growing twice as fast as the average rate of Sub-Saharan Africa. Its growth has been driven by a relatively stable currency, low inflation, low fuel prices and substantial public investments in energy and transportation. This has boosted an expanding middle-class with steadily rising incomes," says the report.
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The photo is sourced from Solarworx
The microgrids combining the energy from the distributed solar panels will allow for electricising 567 facilities including schools, hospitals and administrative institutions. On top of that, they will be supplying electricity to the pumps of 380 water-dependent wells. Overall, the project will provide for 277 thousand households (1.5 mln persons) accessing electricity.
Kenya has a long way to go to achieve complete electricising. According to the World Bank, in 2020 71% of the country residents had access to electric energy, and in rural areas this metric constituted only 63% (there are no more recent data). Geothermal power plants play the key role in the energy industry of the country: in 2021, they accounted for 43% of the total generation, while as hydropower plants accounted for 34%, wind-power generators – 13%, and all other sources including solar panels – 10%, according to the assessment by the Ember Research Centre.
"Microgrids are distribution facilities, which are most effective in integrating the distributed energy sources based on any technologies. Their main mechanism is coordination of the distributed generators and flexible demand to maximise their advantages for the consumers and their grids", Nikolaos Hatziargyriou, the Global Energy Prize laureate, said in his interview to Energypolis. According to him, microgrids are the preferable solution for the underdeveloped regions, because they can replace or supplement the unreliable energy sources.
"Autonomous solar generation may cover the electricity needs in agriculture, irrigation, agriproducts processing, as well as in other processing sectors and in mineral resources extraction", Mikael Alemu, the holder of the Global Energy Honorary Diploma, said about Ethiopia, Kenya''s neighbouring country at the conference "Regional to Global: Africa".
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