A new generation of microgrids is beginning to win funding from investors as a profitable way to bring power to the 620 million Africans who lack access to electricity.
Microgrids of the past have demonstrated real advantages, including being cheaper to build than traditional grid-tied coal plants, and having the ability to spread power and cost over a couple of hundred customers. They also have been able to boost service over standalone solar. The issues standing in the way, however, have long been maintenance and bill collection, which generally end up killing profits.
But two startups have finally solved these problems that have historically kept deep-pocketed investors at arms length.
Microgrid developers SteamaCo and Powerhive built similar smart technology platforms that allow them to remotely monitor their systems' performance in real time and capture consumer payments by a mobile money platform.
This is possible because at least 25% of Kenya’s GDP now flows through M-Pesa, the country’s very popular mobile money platform relied on by the rural poor. Meanwhile, mobile Internet use in Africa is predicted to grow at double the rate of the rest of the world over the next five years.
Success 30 miles off the grid
Before the installation of a smart microgrid in the remote town of Entasopia, 30 miles from the nearest power line in Kenya’s desolate Rift Valley, life used to come to an abrupt halt after the sun set. That, however, changed in 2014, after Nairobi-based SteamaCo turned on its solar-powered microgrid in the middle of town.
It supplies enough power to bring significant changes to villagers' lives. That's why Joseph Nyagilo, SteamaCo's roving field manager, chose Entasopia in the first place. According to Nyagilo's strict formula, the right population size, close cabling-density and perky business activity made the town a sure bet to blossom once it got a jolt of solar power.
Soon enough, the filling station switched off its diesel generators because solar was more reliable and cheaper. The hardware shop owner started doing electrical repairs using a new soldering iron, a notorious urban energy hog. With a new hair dryer, a small hairdressing salon opened.
TVs and sound systems
Entasopia’s microgrid, which cost $75,000 to install, rents space in the the village chief's yard for 24 solar panels that generate up to 5.6 kilowatts, along with 24 hour battery storage.
A control box, located below the solar panels, houses a smart meter that controls power to each of the customers in town and also communicates remotely with payment software, cutting off power when credit is used up.
So although Entasopia is hundreds of miles away, SteamaCo doesn't have to send out bills or hire meter readers since everything is automated and customers only buy power when they need it. The company simply texts its one local employee if a problem shows up on its monitors in Nairobi.
“We’re just one of a number of companies tapping into growing internetisation,” SteamaCo founder and technical director Sam Duby told The Guardian. “Developing communities have traditionally been viewed as too poor to use sophisticated energy services, but we aim to show that is simply not the case.”
The employee keeping an eye on the microgrid in town is John Pambio. He said that power demand surges at night when lights, TVs, and sound systems come on.
Normally late-night stereo is impossible with solar, but like most of SteamaCo's solar hubs, there is enough battery storage to last for 24 hours.
"This business is breaking even and making a small profit already," Duby told Reuters. "We feel encouraged to scale up because we realize the microgrid business is sustainable."
1,000 homes and business
Microgrids still charge high prices for power. SteamaCo and the microgrid partners that increasingly license its platform to charge between two and four dollars a kilowatt-hour. But that's still cheaper than kerosene for lanterns and diesel-fueled generators.
And eliminating the use of both fuels cuts the town's greenhouse gas emissions by 485 tons of CO2 a year.
Although SteamaCo installed its first fully automated microgrid management system just three years ago, 25 systems are already up, running and producing about 80 kW, while connecting about 1,000 homes and small businesses.
Three of the grids are owned and operated by SteamaCo. The others are owned by five investors — Vulcan, E.ON, PowerGen, Renewable World and Cleanstar Ventures — who pay for different levels of support from SteamaCo.
Microgrid owners, who are SteamaCo’s direct customers, pay a charge US$1,500-2,000 for its special hardware, and then a license fee of US $100/month for the SteamaCo software that allows them to view their own microgrids.
Smart microgrids have completely changed Kenya's energy politics. Last September Powerhive became the country's first private utility allowed to sell power to the public (see the press release).
After running pilots in four villages and providing 1,500 people with solar power, California-based Powerhive can now supply power in direct competition with state-owned monopoly Kenya Power.
Under the deal, Powerhive will begin generating and distributing electricity to rural off-grid communities.
Powerhive and Enel Green Power, a large Italian power provider, are partnering on the $12 million project to transform 100 Kenyan villages, with 93% of the project financing coming from Enel, and 7% Powerhive.
With a total capacity of around 1 megawatt, the new solar microgrids will give 90,000 people access to grid.
The CEO of Enel Green Power pointed out the favorable economics of the partnership: “This country couples a low electrification rate, still in the range of 30%, with one of the highest mobile phone penetration rates of the region, thus making this union ideal to implement innovative solutions able to integrate the electrification of rural areas with generation from renewables, storage facilities as well as advanced billing systems.”
SteamaCo is also looking for equity partners to speed expansion. Although the microgrid developer financed its early operations with aid money and research grants, along with angel investors like Microsoft founder Paul Allen's Vulcan Capital, founder Sam Duby is currently raising equity from funds that want a return on their investment.
“We want to show this business can be profitable,” Duby said. “Even though our customers are poor, they have purchasing power and know how to use it. For instance, with revenues above $10,000 in its first year, SteamaCo’s microgrid in Entasopia is likely to have paid for itself within a decade."
If smart microgrids take off like Duby hopes, the change to rural Kenya could be huge and long lasting.
So now when the sun sets in the Rift Valley and SteamaCo's lights pop on throughout Entasopia, instead of heading home to sleep, villagers shop at new and thriving stalls or head for the bars, where drinking ice cold beer and watching TV is still a novelty.