Electric grid extension: Opportunities and challenges for solar PV powered enterprises and households

20 Aug

By Godfrey Sanga

As you travel through the rural villages in Tanzania, it is common to see wooden poles laid on the road sides, near others already fixed and ready for electricity distribution. This is what I experienced during my recent visit to the country in July 2015. The grid extension and construction of isolated mini grids are being undertaken in areas where several households and businesses have already adopted solar photovoltaic (PV) technology and other means such as diesel generators to meet their electricity needs. Solar PV systems are already popular in these areas because of a number of factors, including a decrease in solar PV panels and batteries costs, increased awareness and market promotion by the public and private sector organisations. The adoption of solar PV and other means of electric power generation have stimulated demand for electricity in these areas. This has hence translated to the potential markets for electricity.

The national electricity grid in a village in Geita, Tanzania. Notice the narrow bamboo poles on both sides of the road used to transmit solar power locally. [Photo by Godfrey Sanga]

The national electricity grid in a village in Geita, Tanzania. Notice the narrow bamboo poles on both sides of the road used to transmit solar power locally. [Photo by Godfrey Sanga]

As I made these observations, the big question that came to my mind – a question I believe is posed by other energy players – is the implication rural electrification will have on entrepreneurs already using solar systems to power their businesses and homes. Moreover, some have spent enormous resources as upfront commitment to long term credit agreements in order to acquire and install the solar PV systems. What will the future of this technology be?

With this anticipated extensive connection of off-grid areas to the electric power grid, most people will access electricity in their homes. This will obviously lead to a reduced market for businesses using solar PV technology in offering services such as phone charging. To say the least, this would actually spell the end of these types of businesses.

My colleagues at GVEP and I talked to a number of people using solar technologies and other stakeholders to seek their views on this imminent development. We gathered that both the solar PV and the national grid electricity are important and can be used simultaneously in hybrid systems. It is also worth knowing that in extreme situations where such arrangements may not be economically and financially viable, entrepreneurs are already thinking of relocating their businesses to far flung areas that are not likely to be connected to the grid any time soon, while others are diversifying sources of revenue by starting other related businesses such as hair cutting salons, selling cold drinks and video shows.

On a positivist note, however, most of the entrepreneurs engaged in phone charging businesses using solar PV still prefer retaining the solar PV systems even when their business premises get connected to the national grid. The hybrid system increases reliability of electricity supply, besides minimising costs since the solar phone charging business would still be powered in these rural areas where frequent power outages and low voltage supply are common.

An entrepreneur using one such grid-solar hybrid system attributed his high clientele to the fact that he always has power as he relies on both solar and electricity. This, he says, has given him an edge over his competitors.

The cost of connecting to the Tanzanian power utility, Tanzania Electric Supply Company Limited (Tanesco), in the rural areas has dropped to as low as $13 down from $83 in order to attract many households and enterprises to connect to the grid. The current rate of electrification in Tanzania is 40% and the country is aiming to increase this to at least 75% by 2035, according to the country’s Power System Master Plan (2010 – 2035). The process of connecting new customers has also been highly simplified by reducing some requirements in the application process. However, many rural households still cannot afford to pay the $13 for the connection; an issue that remains a major concern in electrification efforts. In recent developments, the Rural Energy Agency (REA) in Tanzania has engaged financial institutions and other private sector actors to identify the best way to finance the connection of rural households who will then repay the costs through their monthly electricity consumption bills.

A phone charging enterprise with an opportunity to connect to the national electricity grid in Geita, Tanzania. [Photo by Godfrey Sanga]

A phone charging enterprise with an opportunity to connect to the national electricity grid in Geita, Tanzania. [Photo by Godfrey Sanga]

Past experiences indicate that very few customers connect to the grids once the first connections have been effected. This is due to high cost of constructing further distribution lines and limited number of potential customers. My take is that Tanesco should connect as many customers as possible at this stage, otherwise the grid extension projects may not be financially viable. Over recent years, Tanesco has progressively increased electricity tariffs and this will likely force many consumers to think and adopt cheaper options such as solar PV. The need to improve reliability of power supply, the high cost of connecting to the grid and the monthly bills that most people in rural areas are unlikely to sustain as well as the expanding rural populations will continue to push for the increased demand for solar PV.

GVEP International is supporting a network of 530 energy micro-enterprises in Tanzania, some of whom are located in areas where the electricity grid is being extended. These enterprises provide solar phone charging and other related services such as electronic equipment repair, hair cutting salons and video/TV shows using solar PV systems. Approximately 30% of these business owners are women.

GVEP provides entrepreneurs with technology, business and financial training, mentoring services and access to capital by linking them with financial institutions. Average total revenue per enterprise is of US$83 per month, with peak amounts slightly above $100 during the harvesting period that falls between May and September. These enterprises serve close to 30,000 regular customers in 147 villages in the regions of Mwanza, Geita, Simiyu, Shinyanga and Mara, who would have otherwise travelled long distances to charge their phones in areas with electricity, or use other expensive means such as diesel generators or car batteries. In total, 830 jobs have been created by these enterprises, 35% of which are occupied by women. These businesses have contributed to increased entrepreneurship and development in these areas by enabling improved communications via mobile phones and saving villagers’ money and time which would be spent on expanding to nearby villages.

It is important for GVEP and other organisations working in the energy sector to be aware of the rural electrification plans in their target areas and use such information to prepare and guide entrepreneurs on how they stand to benefit from grid electricity as well as in managing possible adverse effects, particularly for those who have already invested in other means of power such as solar PV. In my view, solar PV will still have a place in the energy cycle in areas covered by electricity.

Godfrey Sanga is the Programme Manager for GVEP’s Capital Access for Renewable Energy Enterprises (CARE2) programme.

Ambitious female entrepreneur sets eye on the crown

16 Jul

By Mulemia Maina

During the last annual Board meeting in Nairobi, the management team accompanied the Trustees to see GVEP-supported entrepreneurs in central and west Kenya.

I joined the group that visited entrepreneurs in Mai Mahiu and Nakuru areas in Central Cluster. We visited briquette producers Lydia Waithera and Richard Gakuo at their respective premises. We also visited SCODE (Sustainable Community Development Enterprise), an ICS assembler and distributor based in Nakuru town.

Natural forests in the rich Rift Valley face extinction due to high demand for wood fuel. [Photo by Caroline Dubois]

Natural forests in the rich Rift Valley face extinction due to high demand for wood fuel. [Photo by Caroline Dubois]

As we navigated the 86 miles (138 kilometres) stretch from the capital Nairobi into Kenya’s scenic Rift Valley, I noticed the lush green wood resource covering the villages. I immediately thought about the dire threat these natural resources faced owing to the scramble for wood fuel, not only by average Kenyan households but by multinationals, some of whom export timber to lucrative international markets. A World Bank report in 2014 put Kenya’s forest cover at a mere 6.1% that year. According to the World Energy Outlook, 84% of the population in Kenya still cook and heat their homes using solid fuels, which include firewood, charcoal and agricultural waste. The use of wood fuel has come with its fair share of health implications as users inhale the toxic gases. The scramble for wood fuel has led to deforestation, posing a major environmental catastrophe.

During the visit, one entrepreneur who caught my attention was briquettes producer Lydia Waithera, who is supported through business and technology mentoring by GVEP. Her enterprise is located in Mai Mahiu’s shopping Centre in Naivasha, an hour’s drive from Nairobi. Lydia is a very enterprising and committed briquette producer whose customers are mostly chicken farmers and households. She told me that she got into the briquette making business purely by chance after a disastrous development on her chicken rearing business.

Lydia Waithera takes us on a visit around her briquettes production facility. [Photo courstesy of Caroline Dubois]

Lydia Waithera takes us on a visit around her briquettes production facility. [Photo courstesy of Caroline Dubois]

At the time in 2009, 50% of her 10,000 chicks died. She learned that the possible causes of the high mortality rates, due mostly to lung infections and pneumonia, was the use of ordinary charcoal to warm the chicks, and was advised to use briquettes instead. Her first briquettes supplier was however unable to meet her needs due to a huge unmet demand in the market.

Lydia’s discovery of briquettes and the pending need of fellow farmers to fight their poultry’s high mortality rate gave her the idea of starting her own briquette business. She thus started her briquette business in 2010 and was recruited into the Capital Access for Renewable Energy Enterprises (CARE2) programme in 2013, where she received training in briquette making, was given advice about adequate machinery and was supported in getting a loan of $3,500 from a local financial institution to expand her business.

Briquettes offer an alternative solution to charcoal and can be used for cooking and heating. Not only are they less costly and burn longer, they also emit less smoke, thus creating a healthier environment. When Lydia started saving her chickens’ lives thanks to briquettes, word spread in the region and many farmers came asking for her help.

Lydia uses briquettes to warm her chicks. [Photo by Caroline Dubois]

Lydia uses briquettes to warm her chicks. [Photo by Caroline Dubois]

She now supplies several institutions and large scale farmers. The average sale for this business is $1,077 per month.

I must confess that I was impressed with Lydia’s industrious nature. She has recently invested in three machines – two briquetting machines and one crusher, with a view of supplying supermarkets.

Briquettes at the last production stage. [Photo by Caroline Dubois]

Briquettes at the last production stage. [Photo by Caroline Dubois]

A major learning point for me and my projection is that Lydia’s investment will increase her production from 1.5 tonnes to 7 tonnes per day.  This translates to at least four times the number of beneficiaries reached. GVEP mentoring will be more critical to ensure that common pitfalls that come with rapid expansion are avoided and enable Lydia optimise her investments.  This shows the importance of GVEP’s business and technical mentoring services remaining robust to such developments, and adequately supporting growing enterprises.

This enterprising woman is one among the many female entrepreneurs GVEP is supporting in the energy sector in East Africa. From briquettes to improved cookstoves and solar power, many women across the region are taking their livelihoods into their own hands, all the while serving their communities by providing solutions to their basic energy needs.

Mulemia Maina is the GVEP Programmes Manager.

Expanding LPG access in Ghana: do innovation prizes have a role?

15 May

It’s the end of April and Accra is hot and humid, the roads clogged with traffic. I’m here with a GVEP colleague for a few days of meetings with officials at the Ministry of Energy about the prizes we’re designing around increasing access to LPG for cooking. The government wants to expand access from the current 20% of households using gas, to 50%. This is an initiative of the President.

The country is in the midst of a protracted power crisis with frequent blackouts affecting industry and domestic customers. Solving the electricity supply problem is clearly on everyone’s minds at the Ministry, and the top priority. One cause of the current power outages appears to be a shortage of LPG for thermal generating plants.

Cooking with LPG in Ghana

Cooking with LPG in Ghana

Despite these challenges there is high level engagement with the issue of LPG for cooking and considerable interest in how the innovation prizes might help achieve the government target. New policies, which aim to create an environment favourable to private sector investment in the LPG sector, are currently under discussion. Ghana has large gas reserves which are slowly coming on stream. If fuel supply can be secured, distribution can be expanded. The government is being supported by experts from the LPG industry in designing the new policies, but there is a lot of work still to.

The literature on innovation prizes says that design is complex and takes time. That is certainly true of what we are experiencing in Ghana. The government officials and other stakeholders we are working with are all very positive and engaged. But the concept of innovation prizes is new to them, and trying to use prizes as part of a policy implementation is a learning curve for all of us.

Innovation prizes work best when they are part of a wider programme of activity, and in Ghana our prizes need to fully align with the new LPG policies to be effective. Potentially we could contribute to some big impacts, but finalising detailed design is contingent on some of the details of the proposed changes and the timescales over which these will take effect. None of this yet agreed, and therefore not public, which means we cannot talk to some stakeholders. We have to wait for the policies to be approved and for the government staff to conduct stakeholder briefings, expected to happen over the summer, before we can test our prize ideas on some of the people we expect to be our solvers.

We will work through this, and the details of how the innovation prizes will contribute become clearer with each step, but it’s a lengthy process involving much discussion with a range of parties. We’re focusing on three specific areas where we believe an innovation prize can deliver a solution to a problem linked with implementing the new policies. Because the policy changes are still under discussion and have not yet been agreed by the government in Ghana we cannot at this stage disclose details of what exactly we’re planning to do. We have to respect the confidentiality of the conversations currently in progress. What we can say is that one prize will probably aim to incentivise the private sector to develop new distribution models, and another will engage with the public.

If we’ve learned anything in the past year it is that prize design is indeed complex and requires a considerable investment of time to get the focus right. Aligning with wider processes of change is complex, and a political process not just a technical one. Ultimately we believe that, by working closely with the various stakeholders, the impact will be greater.

We’re fortunate in having a funder – DfID – which is understanding of this complexity and supportive of the process.

The Ideas to Impact  programme covers three broad thematic areas: water and sanitation, energy access and climate adaptation. If you are interested to receive regular updated on the development of this programme please register to receive the Ideas to Impact newsletter or visit http://www.ideastoimpact.net/.

Kisumu entrepreneurs receive equipment to boost production

15 May

Entrepreneurs in Kisumu town in Western Kenya, have received equipment from GVEP International to scale up production of locally manufactured efficient cookstoves in the country.

Seven entrepreneurs who included two women groups have benefited from machines worth 1.6 million Kenya shillings ($ 17,000) that are expected to help them improve their productivity as well as income from their work.

The equipment handed over to the groups on Monday, 4 May, 2015 in Kisumu, comprised six welding machines, five paint spraying machines, six angle grinders, four bar cutters and 22 tin snips.

“We have given out these equipment to help the entrepreneurs produce quality cooking stoves. The Smart Jikos have been found to be efficient and effective compared to the other conventional and improved cookstoves in the market”, said the GVEP’s Western Region Business Technology Mentor Kevin Okoth.

Entrepreneurs in Kisumu town receiving equipment from GVEP International to scale up production of locally manufactured efficient cookstoves in Kenya.

Entrepreneurs in Kisumu town receiving equipment from GVEP International to scale up production of locally manufactured efficient cookstoves in Kenya.

Entrepreneurs in Kisumu town receiving equipment from GVEP International to scale up production of locally manufactured efficient cookstoves in Kenya.

GVEP was awarded a $375,000 grant in June 2013 from the Global Alliance for Clean Cookstoves’ Spark Fund to improve the performance and quality of locally manufactured efficient biomass cookstoves in Kenya. The Fund is part of the Global Alliance for Clean Cookstoves’ strategy to strengthen supply and enhance demand in the cookstove and fuels sector through innovation and tailored entrepreneurial capacity development.

GVEP has been working closely with local manufacturers and end users, under the Spark Fund, to develop two stove designs (one using wood and one using charcoal) that can offer improvements in performance over current models being made. These designs are currently manufactured and sold by local entrepreneurs who closely work with GVEP.

New hybrid minigrid project to power rural villages in Tanzania

10 Nov

In mid October, I travelled to Mwanza, Tanzania to help coordinate a project that will establish 16 solar-hybrid minigrids in the surrounding region of Lake Victoria.

Mwanza is the coordination base from where the work for establishing the 16 minigrids in the surrounding rural areas will happen. Typically, only 2-5% of Tanzanians in these areas have access to energy. Bwisya, where the first minigrid will be built, is a village on Ukara Island, located 97km away from Mwanza. Bwysia requires two ferry rides (over the course of a day) to get to.

Fishing on Ukara Island is the main economic activity, while cash crops (including cassava and sweet potatoes) are smaller, alternative livelihood sources. The value of the fishing activities is limited in part by lack of refrigeration of the daily catch, which reduces the price that can be paid for the fish. This would be just one of many ways that electricity could improve the livelihoods of those living in Bwisya.

JUMEME is the joint venture that will set up this minigrid. It was founded by partners working out of five countries, including technical consulting and engineering firms INENSUS, TerraProjects, as well as Saint Augustine University of Tanzania. All 16 minigrids that JUMEME will build will serve 82,000 beneficiaries.

This overall mini-grid “project” is really split into two parts. The first one—the “demonstration” or pilot project—is funded by the Energy and Environment Partnership–Southern and East Africa (EEP). The purpose of this project is to set up the Bwisya minigrid.

The second project, which will be simultaneously implemented, is partly funded by the EU (African-Caribbean-Pacific – European Union Energy Facility II Grant). This project is designed to expand from the Bwisya (EEP) project, where 15 additional minigrids would be established in the surrounding region. Because this “scale-up” project also requires private capital, the EEP project would serve as a demonstration that can be used to help source investors and commercial debt.

The GVEP team will organize the EEP-project implementation, while providing ancillary support for the scale-up project. We met for two days with all partners in a conference room on the verdant campus of Saint Augustine University to finalize action items and to allocate specific roles and tasks among the partners. It’s an exciting chapter for JUMEME, as construction in Bwisya is set to launch soon.

The effects of the minigrid establishment will be substantial. For example, in Bwisya, at the very least, electricity would attract economic activities from other areas to the center and stimulate enterprise and entrepreneurial activity. It could revive the village water pump to decrease water-born diseases while facilitating better and cleaner drinking water (currently residents pay for water that could be used to pay for the pump). Other benefits include anything from home lighting (to study, and to reduce smoke from kerosene) to other productive uses—and refrigerating the fish haul—as well as the opportunity to enjoy leisure activities such as watching television.

Mwanza (Photo Credit -- Conrad Whitaker)

Mwanza (Photo Credit — Conrad Whitaker)

Mwanza (Photo Credit -- Conrad Whitaker)

Mwanza (Photo Credit — Conrad Whitaker)

Mwanza (Photo Credit -- Conrad Whitaker)

Mwanza (Photo Credit — Conrad Whitaker)

Bwisya Village (Photo Credit - Leo Schiefermueller)

Bwisya Village (Photo Credit – Leo Schiefermueller)

Bwisya Village (Photo Credit - Leo Schiefermueller)

Bwisya Village (Photo Credit – Leo Schiefermueller)

Bwisya Village (Photo Credit - Leo Schiefermueller)

Bwisya Village (Photo Credit – Leo Schiefermueller)

Bwisya Village (Photo Credit - Leo Schiefermueller)

Bwisya Village (Photo Credit – Leo Schiefermueller)

Solar transforms Tanzanian village

2 Aug

The village of Sakwe is a 3 hour drive east of Mwanza in northern Tanzania. There are around 800 households scattered about. The main street is lined by small stores selling general groceries and other essentials. Sakwe is 4 km from the nearest grid connection. There is small likelihood of the grid extending here and anyway the connection fee is expensive (around $300.) People make a living growing cotton and maize, and raising livestock.

Four years ago the village had no mobile network coverage and few people owned a phone. Everyone used kerosene to light their homes. Today the villagers estimate there are as many as 3000 handsets in the village, network coverage is good, and almost every home has at least one solar lantern. ‘Kerosene is hardly sold here,’ one villager told us.  Solar is providing electricity for essential needs – one of these being phone charging.

GVEP is working with six entrepreneurs in the village who provide phone charging services, and we are about to start work with five more. Antonia Giluli was using a car battery to provide phone charging when GVEP met her last year. She was charging 6-7 phones a day and every few days the battery had to be taken into the regional town of Bariadi for charging. With GVEP’s help Antonia was able to secure a loan from Postal Bank of Tanzania and bought a 50W solar panel and other equipment. Now she charges between 25-50 phones per day. Her record books showed that on one day in June she charged 90 phones. At 200/- (12 US cents) per phone she is making $4-5 a day. Antonia used part of her loan to stock her shop with bicycle spare parts which are much in demand.

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Antonia Giluli (seated) and her sister charging phones

Even with 11 phone charging service providers in the village the demand will not be fully satisfied, but competition does mean that the cost of charging a phone has fallen from 300/- to 200/-. Few homes have solar panels and the ability to charge phones at home, but most do have small solar powered task lights thanks to the local promotional activities of Sunny Money. Using schools as a  distribution platform, Sunny Money has brought quality d.light products to the community – the S2 and S20.

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Two d.light S2 lights charging next to the panel used by one of the phone charging businesses

Apart from phone charging the GVEP supported entrepreneurs also provide other services such as barbershop (using electric clippers) and TV viewing. The 2014 World Cup had a big following in Tanzania  and one entrepreneur in Sakwe invested in a satellite service so he could show matches in his front yard. His neighbours paid a small fee to watch.

GVEP aims to help 550 businesses in total become established and profitable in the Mwanza region by Sept 2015. Currently there are 336 active businesses in the project and 98 more waiting to get started. Because the equipment costs around $400 some of the entrepreneurs need to borrow from a bank. This is challenging to do on their own but with GVEPs support almost 80 enterprises have secured loans with more in process. Eleven entrepreneurs – ten of them women – received their loans while I was in Mwanza recently. From the bank they went with the GVEP technology mentor to a reputable supplier Zara Solar to buy the equipment they needed.

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Rebeca Maskini (left) and Pendo Mwandiki (right) with their newly purchased solar panels

It was like a party in the shop, everyone excited to be getting the equipment they know will transform their businesses. All of the entrepreneurs supported by GVEP receive business training and mentoring to ensure that by the end of the project they have the technical and business skills to prosper.

Are distributed energy service companies the future?

18 Jun

Historically the strategies of national governments in countries where people lack access to electricity have focused on grid expansion. The approach of the government of Kenya for example is primarily about lowest cost options for increasing generating capacity to feed the expanding national grid.

But alongside grid development we’re seeing a significant shift in donor thinking, with ‘off grid’ becoming an increasingly important focus. The US have a substantial ‘off grid’ component in their Power Africa programme, the UK has a new ‘green mini-grids’ programme soon to launch, the International Finance Corporation are embarking on major studies, and GIZ and KfW are supporting a range of programmes. Other funders are following suit.

Approaches differ and the paradigms are still evolving, but there is increasing interested in some quarters in the potential of commercially managed mini-grids. A recent paper by Pepukaye Bardouille and Dirk Muench from Persistent Energy describes well the potential these distributed energy service companies represent.

As Barbouille and Muench make clear DESCOs are still in their infancy. None have so far reached profitability. The business models look promising though, as GVEP can attest from our work with a number of the companies pioneering these approaches. The large amount of donor funding starting to flow into this area has the potential to help many of these businesses reach commercial scale.

Two issues which Barbouille and Muench don’t discuss in their paper are government policy and social equity. Few governments in Africa have policies which positively encourage and support DESCOs. This is not surprising considering the ‘early stage’ of the industry.

But supportive policy will be needed. Identifying suitable sites for deployment free of the risk of a competing grid extension is difficult and costly. GVEP recently commissioned studies for two sites in Tanzania which showed that a solar mini-grid could be viable. But government plans to extend the grid into the area led us to advise against a mini-grid. DESCOs need a clear national planning framework to operate within, and help with identifying good sites.

The social equity issue is a tougher one to crack. DESCOs can potentially operate on a purely commercial basis though in many African settings margins are thin. Avoiding reliance on subsidies clearly has benefits for a DESCO. But will governments support a two track electrification approach where the rural poor pay a lot more per kWh for electricity than those connected to the national grid. Fee for service models rather than a tariff are a way of avoiding direct comparison with the grid – but the underlying issue of ‘social equity’ is still there.  Why should the urban elite benefit from investments in infrastructure which are subsidised while the off-grid community receives no support?

Much work remains to be done on policy and strategy issues in individual countries before DESCOs find themselves in an environment which positively supports their growth. But there can be little doubt that this is an area where we will witness major change in the next few years.

 

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