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Kenya: The World''s Microgrid Lab report shows the global microgrid market is ready for significant private investment. While there still remain some challenges – especially around the regulatory framework and aggregation of projects – there are now enough businesses with viable business models to provide early stage, strategic or even crowd investors with commercially attractive opportunities.
"The medium-term growth potential for the microgrid market in Kenya, as well as in other energy access markets including in Africa, South and Southeast Asia, is very high," TFE Consulting writes in the executive summary of its report. According to TFE, a $1.5 billion microgrid market opportunity exists in Kenya over the next five years.
This case study tells the story behind a research project on the economics of rural electrification in Western Kenya. The chapter covers (1) aspects of the policy and technology environment that initially guided the course of the work; (2) how the project pivoted away from solar microgrids and focused instead on the expansion of the national electricity grid; (3) unexpected challenges encountered while implementing a randomized evaluation of electricity infrastructure; (4) how we interpreted the study findings in light of consequential, concurrent changes to Kenya''s electrification policies; and (5) possible directions for further research, motivated by our project experience.
In 2012, we began a study on solar microgrids in rural Kenya. Over time, it evolved into an experiment that randomized the expansion of the national electricity grid instead. In this chapter, I tell the story behind this project, focusing on the pivots and iterations that shaped the path of our research on the economics of electrification over nearly a decade.
When we started our project, access to electricity was widely seen as a major driver of economic development, just as it remains today. Then-United Nations Secretary General Ban Ki Moon famously referred to it as the "golden thread" connecting economic growth, social equity, and an environment where people could thrive. Supporting this outlook was the well-known, near-perfect correlation between electricity consumption and GDP per capita, which is shown in Fig. 5.1.
The positive correlation between electricity consumption and GDP per capita
Notes: Both variables are presented on a logarithmic scale. 2014 data obtained from the World Bank DataBank Reprinted from Lee et al. (2020b)
At the time, over a billion people still lacked access to electricity. The question of how governments could best expand access to power remained front and center. Moreover, developing countries were expected to drive a considerable amount of growth in global energy consumption (Wolfram et al., 2012). As a result, expanding access in these countries using conventional fossil fuel technologies would certainly accelerate global warming. The development challenge was clear: In countries with high rates of energy poverty, how could electricity access be expanded while mitigating the consequences on the global environment?
In the spring of 2012, UC Berkeley''s Development Impact Lab brought together a team of economists and engineers to work on this problem.Footnote 1 The basic goal of the collaboration was to improve the design of the solar microgrid technologies that were being developed for poor countries. By bringing together engineers and economists, the iterative process of engineering design could be merged with microeconomic survey data and evidence obtained using the randomized control trial (RCT) approach that had become widespread in development economics. We believed the results of such a collaboration could inform the design of technologies and public policies in unique ways.
A couple aspects of the partnership generated a great deal of excitement. First, the engineers had been working with start-up companies to design solar-powered microgrids that featured novel, prepaid, smart metering technologies. These devices offered a trove of high-frequency, electricity usage data. We thought about using these data to predict the kinds of appliances people were using in their homes. Combined with data collected through household surveys, we could perhaps unlock the precise mechanisms through which electrification improved well-being. And in places where electricity theft was an issue, we thought about measuring the impacts of the smart metering technologies on monitoring and enforcement. There were many possibilities for data science.
More broadly, it seemed just a matter of time before billions of dollars would be directed towards electrification programs across the world. In the face of climate change, solar microgrids had great potential. We thought about how an infrastructure experiment could yield new benchmarks on the causal effects of electrification. Perhaps these could serve as useful inputs in the large-scale, infrastructure investment decisions that would surely be made in the future.
The remainder of this case study is organized as follows. The next section discusses the technology choices available to policymakers at the start of our project. Then, in the following sections, I describe the important decisions we needed to make to set up an experiment; the things we learned that influenced our research questions and intervention design; and how we made sense of our findings given the evolving policy context. The final section offers a view on some of the important research questions for the future.
There are several ways to address the development challenge of expanding access to electricity. Traditionally, governments have addressed this challenge by investing in expansions of their national grids. All developed countries have reached universal rural electrification in this way. The issue moving forward, of course, is the extent to which the grid can supply electricity from nonfossil fuel sources of energy.
The 2000s introduced various improvements to an array of decentralized, renewable energy alternatives, including solar lanterns, solar home systems, and renewable energy microgrids. There was hope that these novel technologies could allow people living in the Global South to gain access to electricity, while minimizing the negative consequences on the environment. Across sub-Saharan Africa, the rapid adoption of mobile phones had made landline telecommunications infrastructure obsolete. By 2012, many entrepreneurs, donors, and observers were talking about how this improved set of decentralized, renewable energy solutions would allow off-grid households to similarly leapfrog the grid.
Microgrids, which connect small networks of users to a centralized and stand-alone source of power generation and storage, were also generating substantial interest. Microgrids could provide longer hours of service and higher capacities than solar lanterns and solar home systems, making it feasible to use power more productively. Furthermore, they could be powered with clean energy sources, like solar, wind, and hydro. Despite their potential, microgrids had not yet been deployed at scale in developing countries. In fact, a number of early microgrid pilot deployments had completely failed.
In Kenya, our microgrid partner had taken advantage of the technological trends to develop a next-generation, village-scale solar microgrid that allowed consumers to pay-as-they-go using their mobile phones. They marketed their technology as one that could empower consumers to make real-time decisions about their energy consumption, while alleviating credit constraints. Importantly, each user had their own smart meter that would send information about power consumption and credit balances over text messages. Depending on how each system was sized, they promised power that would be more reliable than the national grid.
In 2012, official estimates of the national household electrification rate in Kenya ranged from 18 to 26%.Footnote 4 We were intrigued by the potential market for this microgrid. And as our discussions with our partner progressed, it became easy for us to imagine the thousands of off-grid villages across Kenya where this technology would thrive. We took it for granted that the people living in these off-grid villages would be receptive to this novel technology. Soon, we would discover that we were wrong.
Our microgrid partner suggested that we find communities with a couple important features. One, we needed villages with a high density of potential users. The microgrids would be sized to supply power to roughly 50 customers. If customers were clustered close together, the line losses on the microgrid''s low-voltage network would be minimized. Two, we needed villages with many unelectrified businesses since these were likely to use more electricity, thus increasing revenue to our partner. From our standpoint, we also wanted villages that were far away from existing national grid infrastructure. The last thing we wanted was to invest our resources and time in villages that would soon receive grid electricity from Kenya Power, the national electricity distribution utility.
This was no easy task. After visiting a local Kenya Power office in the Western county of Busia, we learned that Kenya Power had yet to geotag the locations of its infrastructure, meaning there was limited administrative data that could help us locate a sample of off-grid villages. In lieu of actual data, we were given permission to photograph the aging infrastructure maps that were displayed on the walls. In addition, we were provided with an assortment of tips on where we could find the distant yet densely populated communities that would meet our criteria.
As we drove across Western Kenya searching for rural, off-grid villages, we noticed something peculiar. Although the vast majority of rural homesteads lacked access to electricity, nearly every off-grid village we visited seemed to have a power line running nearby. Rather than being "off-grid," much of what we observed appeared to be underneath the grid.
Why were so many rural households left unconnected to these electricity lines? We learned that a major barrier was the high cost of connection. In fact, during the decade leading up to the start of our study, any household in Kenya within 600 m of a low-voltage distribution transformer could apply for an electricity connection at a fixed price of 35,000 Kenya shillings (KES), which was worth roughly $398 USD at the time. This seemed far too expensive in Kenya, where annual per capita income was below $1,000 for most rural households. At the same time, the cost to the utility of supplying a single connection in an area with grid coverage was estimated to be several multiples higher.
Suddenly, it seemed plausible that a substantial share of the 600 million people lacking access to electricity were not off-grid but were instead "under-grid," which we defined as being close enough to connect to a low-voltage line at a relatively low cost. This distinction seemed important because the policy implications for off-grid and under-grid communities were quite different. In under-grid communities, it might be preferable to design policies that could leverage existing infrastructure, as opposed to promoting an independent solution like a microgrid.
The argument against grid power seemed to hinge on the extent to which the grid delivered dirty, fossil fuel power. But across sub-Saharan Africa, installed generating capacities were still relatively low, and substantial capacity additions were slated for the future. Importantly, a large share of these additions was expected to feature nonfossil fuel technologies. In Kenya, where fossil fuels represented about a third of installed capacity at the time, several major geothermal and wind projects were already under development. Given the trends, why not focus on expanding electricity access through a grid that might soon be channeling a higher share of clean energy?Footnote 6
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