Q&A: Appliances are key to rural mini-grids' success

From the newsletter

The success of rural mini-grid projects requires bundling appliances to increase consumption demand. This is according to Erastus Musyoka, an energy expert, whom we interviewed this week. Simply connecting people without considering demand risks the sustainability of these projects and trivialises the bankability of these investments.

• Mr. Musyoka has worked in Kenya’s energy sector for over nine years and has overseen several projects, mainly mini-grids, in the underserved regions of Kenya.

• Last month, the World Bank issued a $150 million funding to build 114 solar mini-grids across 14 counties. This is at the final phase of the Kenya Off-Grid Solar Project (KOSAP), which began in 2018.

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Given that rural communities generally have low energy demands, what factors inform your choice of location and project size to ensure feasibility and sustainability?

Erastus Musyoka: These investments require a multi-faceted approach, starting with resource assessments and mapping. Since most of our projects are mainly solar we consider factors like average daily sunshine hours, which in many Kenyan rural areas can exceed 5-6 hours.

We then assess the community's energy needs and growth projections, including household consumption, productive uses (e.g., irrigation, agro-processing), and social services (e.g., schools, and health centres). Conduct community consultations to ensure project alignment with local priorities. The community's ability to pay is also factored in.

With low electricity consumption in rural areas, how are investors cushioned to ensure they get returns on their investment?

Erastus Musyoka: First, rural electrification projects in Kenya are mostly funded through the government using the exchequer or multi-donor funding and other development partners under either grants or low-interest loans. As rural consumers typically have low electricity consumption, investment in Productive Uses of Energy (PUEs), such as irrigation, agro-processing, small-scale manufacturing, and e-mobility becomes paramount for electricity demand stimulation.

The investors are working on all-inclusive models where they can collaborate with SMEs, financial institutions, manufacturers and local governments to develop flexible financing models for the PUEs in the targeted communities during the minigrid establishment. This can be effectively facilitated through the availability of data on the sectoral investment plans and projections to both the public and private stakeholders.

What are the major challenges you encounter when implementing mini-grid projects?

Erastus Musyoka: Securing land for energy projects can be challenging due to land tenure issues and community disputes. Obtaining necessary permits and approvals can be time-consuming. Also, securing sufficient funding for rural electrification projects, which often have low returns on investment can be challenging.

Logistical and security issues also greatly impact on project implementation cost posing a great challenge.

Are there specific incentives or policies in place to support renewable energy?

Erastus Musyoka: The Kenyan government has previously implemented several policies and incentives, including the Energy Act 2019, which provides a framework for promoting renewable energy development. The National Energy Policy supports this by setting out the goals of increasing renewable energy generation. Initially, lithium-ion batteries and solar panels enjoyed VAT exemption, but the 2024 Finance Bill reversed this.

Is there private sector participation?

Erastus Musyoka: Yes, there is growing private sector participation in renewable energy in Kenya. Private companies have played a key role in the distribution and sale of solar home systems. Together with mini-grid developers, they have worked in areas that are far from the national grid, enabling those with low income to access energy affordably through pay-as-you-go (PAYG) models. These PAYG systems, often utilising mobile payment technologies, have allowed for the expansion of energy access beyond the reach of traditional grid infrastructure. However, this expansion has not been without challenges, with reports of consumers facing potential exploitation from some PAYG companies.

Do you think there is more to be done to encourage private-sector participation?

Erastus Musyoka: More needs to be done to streamline permitting processes by reducing bureaucratic hurdles for mini-grid projects. Providing clear and predictable regulatory frameworks that cushion developers from future governmental developments is also essential. Currently, there is a mini-grid draft policy which seeks to protect developers when the grid extends to reach minigrids, allowing them to continue operating or concessionally yield their facility to the government.

How do you see the market evolving in future?

Erastus Musyoka: There is significant potential for off-grid generation as solar and battery prices continue to decline. Rural area mini-grids must be bundled with appliances that align primarily with agricultural and other economic activities prevalent in those areas. This approach will boost consumption and, consequently, improve returns on investment for mini-grid developers. Establishment of accessible and dynamic data repositories on government development plans and projections will make investors plan effectively. Moreover, with new regulations anticipated to provide greater protection for mini-grid developers, increased investor confidence is expected.