Thoughts on Inclusive Innovation: The Kenya Rural Electrification Initiative

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Harry Mills
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1 Thoughts on Inclusive Innovation: The Kenya Rural Electrification Initiative Prof. Gerry George Imperial College London

2 Themes from break-out sessions Radical changes occurring (e.g., climate change, urbanisation, shift of wealth) Resource scarcity (of low-carbon energy sources) Many, yet under-served customers at the bottom of the pyramid Integration needed to achieve efficiencies

3 Social Business Models Creation of economic opportunities Repayment of invested capital Economic and social wealth creation Inclusion of broad stakeholders Key Questions: What revenue model is viable? Who makes profits? Who invests in developing social wealth?

creation Inclusion of broad stakeholders Key Questions: What

4 Economic profit maximization No recovery of Invested Capital Repayment of Invested Capital Social profit maximization

5 New Business Models Challenge conventional wisdom low cost and marginal profit? scale in geographically dispersed markets? Setting up appropriate partnerships Experimentation

6 In rural East Africa, less than 5% of dwellings have access to electricity.

7 Many previous rural electrification projects using renewable energy have followed this pattern: X External donor installs equipment No training. No revenue generation. After some time, system fails and is not repaired

External donor installs equipment No training.

8 Project aims What? Implement sustainable, decentralized electricity generation which promotes development and improves wellbeing Where? To start with, in two rural communities in East Africa How? Using business models that can be easily replicated throughout Africa and the developing world. When? Over the next 1-4 years

9 Choosing Energy Supply System Energy (Wh/person/day) TV/Internet Access What users would like Lights & radio What users can afford Lights Solar home system PV battery charger PV microgrid PV / diesel hybrid Full diesel generation Expected benefit/$ spend What people want

Lights Solar home system PV battery charger PV microgrid PV /

10 - Lighting - Central phone charging - Lighting -Indiv. phone charging - inverter option for TV - Centralised supply, ac - metered, tariffs -Load restriction - Centralised supply, ac - metered, tariffs -No load restriction <3 kwh per month - household 10 kwh per month - household 100 kwh per month - household Solar home systems individual dc systems mini-grid ac systems Technical supply level Lifestyle expectations Financial / business models Fully electrified system

supply, ac - metered, tariffs -No load restriction <3 kwh per month - household 10 kwh per month - household 100 kwh

11 - Lighting - Central phone charging - Mobile phone usage - Lighting -Indiv. phone charging - inverter option for TV - Centralised supply, ac - metered, tariffs -Load restriction - Centralised supply, ac - metered, tariffs -No load restriction - TV - Schools & healthcare - Personal Internet access <3 kwh per month - household 10 kwh per month - household 100 kwh per month - household Solar home systems individual dc systems mini-grid ac systems Technical supply level Lifestyle expectations Financial / business models Fully electrified system

metered, tariffs -No load restriction - TV - Schools & healthcare - Personal Internet access <3 kwh per month - household 10 kwh per

12 - Lighting - Central phone charging <3 kwh per month - household - Lighting -Indiv. phone charging - inverter option for TV - Centralised supply, ac - metered, tariffs -Load restriction 10 kwh per month - household - Centralised supply, ac - metered, tariffs -No load restriction - Mobile phone usage - TV - Schools & healthcare - Personal Internet access - Free issue - mobile phone type billing, metered (income) - fully metered - Small businesses - urban living 100 kwh per month - household Solar home systems individual dc systems mini-grid ac systems Technical supply level Lifestyle expectations Financial / business models Fully electrified system

metered, tariffs -No load restriction - Mobile phone usage - TV - Schools & healthcare - Personal Internet access - Free issue - mobile phone type billing, metered

13 Kenya: 8 Provinces 69 Districts 210 Constituencies 497 Divisions 2427 Locations 6631 Sub-locations 35 million people

14 Security and access: Eliminate eastern and northern constituencies Down to: 197/210 constituencies 6194/6631 sublocations

15 Existing grid: Eliminate sub-locations with existing grid connection Down to 3966/6631 sub-locations

16 Existing off-grid: Eliminate sub-locations within 20 km of existing decentralized power supply Down to 3827/6631 sublocations

17 Minimum requirements: Trading centre Health centre or dispensary School (primary and/or secondary) Needed to establish baseline No previous electrification intervention

18 PV Deployment Models

19 Lowest transaction cost Minimal org. set-up Infrastructure for installation and maintenance built as sales increase Cash sales model High upfront cost Limited market Quality control and user training unaccounted for Transfer of PV system Payment (cash) Payment (instalments)

sales increase Cash sales model High upfront cost Limited market

20 Dealer credit model Main investment barrier lowered Moderate organizational set-up but Payment facility requires working capital High interest rates Lack of organizational capacity Transfer of PV system Payment (cash) Payment (instalments)

requires working capital High interest rates Lack of

21 End-user credit model Main investment barrier lowered PV company avoid financial risk associated with credit scheme but Geographic restriction High interest rates High organizational set-up Transfer of PV system Payment (cash) Payment (instalments)

22 Fee-for-service Facilitates access to electricity for more people More quality control practices but High risks and transaction costs Geographic restriction Long payback period High org. set up Transfer of PV system Payment (cash) Payment (instalments)

23 HomePower! in Namibia Credit sales - Funding from REFAD and GoN, technical assistance from GTZ - Down payment 20%, 5% interest - A range of systems ($892 50W $3, W) - Training by ministry with accredited suppliers PV-ESCO in Zambia Fee-for-service - Funding from SIDA and GoZ - Three ESCO in provinces operating since 2001 and SHSs are lent to ESCO over 20 year period. - Battery fund - Training and quality control - Credit sales model unable to reach the poorest (only 10% in Namibia) - ESCO in Zambia has more reach to the poorer, but only with help of subsidies

24 Factors influencing choice/success of BMs Monitoring of PV electrification project Level of subsidy Purchasing power/poverty levels Size of PV system Sparsely populated target market Ability of Dealer/ESCO to decentralize operations Standards for quality control Training for installers, maintenance operators

25 Coherence diagram no poverty

26 Coherence diagram without subsidy

27 Coherence diagram with subsidy

28 Critical to understand what drives success and failure Ownership Mutualise the asset Governance Control over asset Technology adoption, norms, behaviours Training human capital and responsibility Entrepreneurship economic opportunities

29 Our aim is to find a more sustainable business model: External donor provides investment Training given. Revenue generated. Community has interest in project running. Scheme is sustainable and is replicated

BY GREEN KNOWLEDGE INSTITUTE (GKI)

BY GREEN KNOWLEDGE INSTITUTE (GKI) The Green Village concept/programme has been designed and developed by the Green Knowledge Institute (GKI) for Zambia and African countries in general. The aim of the