Financing the Future of Rural Electrification

Achieving Mini-Grid Scalability in Kenya

By Lauren Kickham, Director, Product Management and Courtney Blodgett, Program Officer

Approximately 620 million people in sub-Saharan Africa lack access to electricity and the associated socio-economic, environmental, and health benefits. At the same time, governments around the world are seeking to decarbonize their electricity generation. Solar mini-grids have attracted attention across the public and private sectors as a way to provide clean, affordable and reliable electricity to rural sub-Saharan Africa.

A lack of proven, commercially viable projects has hindered the scaling of mini-grids. Vulcan Inc. and SteamaCo conducted more than two years of data collection and analysis to understand the performance of Vulcan’s nine solar mini-grids in rural Kenya. Would our grids show what the sector needed to see?

We found that it did, and it could do better. In addition to examining the grids’ economics, we identified three strategies that would drive higher returns:

Reduce up-front costs. When Vulcan entered the market in 2014, we had limited options and few efficiency levers to reduce up front capital expenditure costs. Our analysis shows the performance would benefit from a cost reduction of approximately 50 percent of our original investments. This is feasible as solar panels and battery costs continue to significantly decrease with technology advances and equipment purchases at scale. Additionally, our mini-grids are unintentionally oversized (supply exceeds demand) due to challenges predicting demand. Matching the capacity of the system with the demand for electricity will better align cost with revenue.

Grow electricity demand. Our model indicates demand growth needs to come in at 20 to 40 percent annually in the first five years and 6–10 percent annually for the next 15 years. This can be accomplished through: Responsive tariff setting and customer support services as well as implementing appliance leasing and other value-add services. Our trial appliance leasing program resulted in an increase of almost 40 percent in revenue from participants as well as shifting time of electricity use to the daytime hours, reducing the nighttime draining of the batteries.

Create short-term subsidy programs. Programs which help to reduce connection costs by $500 per connection can help to catalyze the sector. Substantial subsidies are already provided to grid-extension programs around the world. Mini-grids can be subsidized as a lower cost alternative to grid-extension.

We found that micro-grids did, and could do better

With the strategies outlined above, mini-grids can enable rapid expansion of modern, affordable and sustainable energy services across sub-Saharan Africa. They also offer a chance for Africa to continue to demonstrate the power of innovation in leapfrogging over archaic service provision, as has been done with mobile phone usage and mobile money.

Vulcan Inc. and SteamaCo have jointly authored research that provides details and recommendations on maximizing investments based on more than two years of operations.