A new report by Munich-based energy markets consulting firm TFE Consulting has found that the growth in micro-grid adoption in sub-Saharan Africa is increasingly being driven by private investment and innovation, and less so by development organizations and NGOs.
While there remain a multitude of challenges facing the sector – particularly in relation to the regulatory framework and aggregation of projects that underpins much micro-grid development in Africa – the proliferation of innovative businesses with unique funding ideas and technical approaches are providing plenty of commercially attractive opportunities.
The report, titled Kenya: The World’s Microgrid Lab, also examines how technology is helping to drive down cost, drive down risk and instil confidence in Kenya’s government that micro-grids can be a key piece of their electrification strategy.
Specifically, digital technologies are boosting the uptake of solar-powered micro-grids in Kenya in a multitude of ways, finds the report. At the most sophisticated level, satellite imagery and algorithms are being employed to bring better and faster site selection, essentially modelling villages’ energy use to help startups and businesses design the most optimum micro-grid. Data analytics, smart meters and digital currencies and platforms – such as Bitcoin and Blockchain – are also enabling smoother peer-to-peer transactions, lower transaction costs and reliable risk profiles.
The global trend towards electric vehicles (EVs) and home storage is also having a secondary impact, the report adds, driving down the cost of lithium-ion storage technologies to a more affordable level. Currently, lead acid batteries are the storage option of choice in many parts of Africa, and this chemistry is not well suited to the environmental and cycling conditions usually present on the continent.
“Investments in micro-grid businesses has been dominated by development organizations and NGOs, and increasingly by private companies,” said the report’s author and TFE Consulting founder Tobias Engelmeier. “This is because there are still great risks in investing in micro-grids in Africa.”
However, allied to rapidly declining solar module costs, locally designed smart meters and the proliferation of mobile payment solutions, new technologies are such as the use of satellite imagery are playing a key role in making micro-grid platforms more affordable, Engelmeier adds.
This, in turn, is driving innovation in business models. Some examples cited in the report include the Sun Exchange, a South African crowdfunding startup that allows people to invest in individual solar cells at specific micro-grid installations; Vulcan Philanthropy’s SMS (text message) analysis that accurately identifies who are the most power-hungry consumers in any one village or town; and Swedish platform Trine, which uses digital currencies like Bitcoin and Ethereum to reduce transaction costs for solar power to near zero, while also encouraging the influx of international funding.
“As a result of this innovation, micro-grids offer higher returns to investors and become a more attractive option for governmental electrification strategies,” said Sam Duby, co-author of the report. “Now, the best potential sites and customers can be identified through data analytics and remote mapping. Power usage and payments are easily tracked using metering and control technologies. Tariffs can be adjusted in real-time to optimize the use of installed assets and increase operator revenues.”
Engelmeier added that the effect of this innovation is helping to bridge the psychological, informational and operational gap between remote African consumers and micro-grid developers and investors – many of whom are located in Europe and the U.S. “In general, technology is making this ‘remoteness’ less remote,” he explained.
In Kenya, 88% of the population are registered mobile phone users. while only 20% have access to grid power. As a result, mobile money transfers are overtaking other transaction methods for electrification. In 2016, six billion mobile money transactions were recorded from 25 million users, transferring almost $150 million every day. Data from the Central Bank of Kenya shows that this mobile money makes up almost 67% of all cashless transactions via the National Payments System.