Solar energy systems
Solar energy systems
Business Model Description
Provide off-grid or mini-grid solar energy systems to rural communities.
Expected Impact
Contribute to access to electricity in Kenya (especially in rural areas) and reduce carbon emissions.
How is this information gathered?
Investment opportunities with potential to contribute to sustainable development are based on country-level SDG Investor Maps.
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Country & Regions
- Kenya: Rift Valley
- Kenya: Eastern
- Kenya: Coast
Sector Classification
Renewable Resources and Alternative Energy
Development need
Kenya wants to achieve universal access to electricity by 2022. With the increase in electricity consumption (13% between 2015 and 2019 (1)) and issues with transmission reliability, Kenya has a high demand for off-grid and mini-grid solutions. Kenya is on track to achieve SDG 13 - Climate Action by 2030. However SDG 7 - Affordable and Clean Energy is considered a major challenge and is only moderately improving.(2)
Policy priority
Kenya wants to achieve universal access to electricity by 2022. Kenya’s National Electrification Strategy aims at creating around 2 million new connections using Solar House Systems and mini-grid solutions provided mainly by the private sector.(3)
Gender inequalities and marginalization issues
Only 13% of the rural households in Kenya have access to electricity, compared with 68% of urban households.(15)
Investment opportunities introduction
The abovementioned goal of providing universal access to electricity under the Kenya National Electrification Strategy requires approximately USD 2.8 billion's worth of investments, mostly from the private sector.(3)
Key bottlenecks introduction
Lack of energy storage systems for solar energy, unreliable grid connections causing frequent outages and high electricity prices present bottlenecks.
Solar Technology and Project Developers
Pipeline Opportunity
Solar energy systems
Provide off-grid or mini-grid solar energy systems to rural communities.
Business Case
Market Size and Environment
< USD 50 million
The environment for off-grid development in Kenya is favorable and the total sales of Solar House Systems reached USD 5 million between 2014 and 2018, putting Kenya in a leading position in Africa. The main drivers were rising demand at a rate of 6.7% (2018) and unreliable transmission from current sources.(3)
In 2019, Kenya had installed 700,000 off-grid connections.(7)
Electricity consumption rose by 13% between 2015 and 2019(1), which shows the need to develop affordable energy sources like off-grid and mini-grid solutions.
Indicative Return
15% - 20%
Based on regional examples from Nigeria, mini-grid projects can achieve up to 15% - 20% returns.(6)
Investment Timeframe
Medium Term (5–10 years)
Depending on the size of the project, the investment timeframe may take from 5 to 15 years, based on benchmark sectoral statistics.(9)
Ticket Size
USD 500,000 - USD 1 million
Market Risks & Scale Obstacles
Business - Supply Chain Constraints
Business - Supply Chain Constraints
Capital - CapEx Intensive
Impact Case
Sustainable Development Need
Kenya still faces major challenges in achieving SDG 7 - Affordable and clean energy.(11) In 2019, only 25.1% of the population relied primarily on clean fuels, and the share of renewable energy in total energy consumption equalled 54.9%, down from 57.7% in 2017.(5)
Further, despite developing capacity the remaining significant problem is transmission. Companies reported that on average they faced 3.8 electricity outages from the main grid per month, for average duration of 5.8 hours. This led to sales losses of 5.4%, and forced 65.6% companies to buy a generator.(3)
Households also mentioned electricity cost and connection fees as a constraint. This means that some communities that are in theory linked to the grid have only 5.5% last mile connection. Connection fees are USD 140 - 320 (KSH 15,0000 - 35,000), compared with the daily cost of an off-grid generator of USD 0.5 (KSH 50).(3)
Gender & Marginalisation
Only 13% of rural households in Kenya have access to electricity, compared with 68% of urban households.(15)
Expected Development Outcome
Reduced CO2 emissions
Reduced electricity outages
Gender & Marginalisation
Improved access to electricity for rural households
Primary SDGs addressed
7.1.1 Proportion of population with access to electricity
7.2.1 Renewable energy share in the total final energy consumption
56% in 2016 (16)
Share of final energy consumption from renewable sources - 72.66% (16)
100%
N/A
11.1.1 Proportion of urban population living in informal, informal settlements or inadequate housing
56% (16)
By 2030, ensure access for all to adequate, safe and affordable housing and basic services and upgrade slums.
Secondary SDGs addressed
Directly impacted stakeholders
People
Corporates
Outcome Risks
Land use change and thermal pollution (possible habitat loss and harm on the land’s productive areas) (11)
Potential risk of pollutant discharge from solar cell modules, negative environmental impacts related to life cycle performance of solar panels (11)
A solar system without any backup system may not be sufficient to meet the demand when the weather is cloudy.(3)
Gender inequality and/or marginalization risk: Pollutants or discharge from solar cells may affect the communities living around the disposal sites, if improperly handled.
Impact Risks
Unexpected impact risk: The improper disposal of solar cells may have negative environmental effects.
Gender inequality and/or marginalization risk: Stakeholder participation risk - If the rates for electricity are too high, rural households and low income communities will still be unable to participate in this investment opportunity area.
Impact Classification
What
Providing off- and mini-grid solutions is likely to have positive impact because it will increase the access to electricity and partially solve the problem of unreliable transmission.
Who
The remote rural communities that are aggrieved due to lack of electricity from the main grid.
Risk
Although the model is market proven, there is already a high market competition and the solution will have to provide additional value e.g. higher power generation.
Impact Thesis
Contribute to access to electricity in Kenya (especially in rural areas) and reduce carbon emissions.
Enabling Environment
Policy Environment
Kenya Vision 2030: This policy firmly embeds the principles of sustainable development in the overall national growth strategy.(4)
Kenya National Electrification Strategy: Kenya wants to achieve universal access to electricity by 2022. This target is espoused in the 2018 Kenya National Electrification Strategy (KNES) and will be achieved through grid and mini-grid intensification, densification, and expansion, in tandem with standalone solutions.(7)
Kenya National Electrification Strategy: Overall, the government has supported off-grid electrification, as demonstrated by KNES 2018, which has a strong off-grid component and provides direction for the approximately 2 million new connections by 2022.(7)
Financial Environment
Financial incentives: Davis & Shirtliff has partnered with Standard Chartered to launch Kenya’s first sustainable financing instrument. Under the partnership, Davis & Shirtliff will offer up to 25% discounts on their products, while Standard Chartered will offer a 12-month repayment by an instalment plan.(12)
Fiscal incentives: The market for Solar Home Systems enjoys a favorable taxation framework. Current exemptions include exemptions from value added tax (under the Value Added Tax Act) and import duties for imported or purchased material for constructing power plants (under the Finance Act).(3)
Other incentives: Ongoing projects include the Kenya Off-Grid Solar Access Project (KOSAP) with possible access to financing (2017-2023).(3)
Regulatory Environment
Kenya has reduced regulations for off-grid development to attract private sector engagement, which has accelerated growth of the sector.(3)
Electricity Act 2019: This Act outlines the obligations of the national and county governments for providing energy services.(3)
Energy (Mini-grid) Regulations 2018: These regulations include requirements for installing mini-grid solutions.(3)
Finance Act 2018: This Act covers tariffs and exemptions.(3)
Marketplace Participants
Private Sector
M-Kopa, Powerhive, Asteven, Green light planet, Spire, Mibawa, Mobisol, Mwezi Energy, Orb Energy, Pawame, Solar Kiosk, Solar Panda, Solinc, Sollatek, and Spark Possibilities
Government
Rural Electrification and Renewable Energy Corporation (REREC), Kenya Power and Lighting Co. (KPLC), Kenya Renewable Energy Association
Multilaterals
African Development Bank (AfDB), NovaStar, Kiva, Acumen, DOB Foundation, World Bank
Non-Profit
Global Off-Grid Lighting Association
Target Locations
Kenya: Rift Valley
Kenya: Eastern
Kenya: Coast
References
- (1) Kenya National Bureau of Statistics (2020). Kenya Economic Survey 2020. https://www.knbs.or.ke/?wpdmpro=economic-survey-2020
- (2) Sachs, J., Schmidt-Traub, G., Kroll, C., Lafortune, G., Fuller, G., Woelm, F. (2020). The Sustainable Development Goals and COVID-19. Sustainable Development Report 2020. Cambridge: Cambridge University Press.
- (3) US Agency for International Aid (2019). Off-Grid Solar Market Assessment - Kenya. Power Africa Off-grid Project.
- (4) Republic of Kenya (2018). Third Medium Term Plan 2018 – 2022 Transforming Lives: Advancing Socio-economic Development Through The 'Big Four'.
- (5) National Treasury and Planning State Department for Planning (2020). Second voluntary national review on the implementation of the sustainable development goals - Kenya.
- (6) World Access to Modern Energy (2018). Minigrids Investment Report: Scaling The Nigerian Market.
- (7) Ministry of Energy (2018). Kenya National Electrification Strategy: Key Highlights. http://pubdocs.worldbank.org/en/413001554284496731/Kenya-National-Electrification-Strategy-KNES-Key-Highlights-2018.pdf
- (8) M-KOPA. Our Impact. http://solar.m-kopa.com/about/our-impact/
- (9) PwC analysis based on Prof. A. Damodaran data, 2020.
- (10) Samoita, D., Nzila, C. and Østergaard, P. (2020). 'Barriers And Solutions For Increasing The Integration Of Solar Photovoltaic In Kenya’s Electricity Mix', Energies. https://www.mdpi.com/1996-1073/13/20/5502/pdf
- (11) Mahajan, B. (2012). 'Negative Environment Impact Of Solar Energy', Energy Policy. https://www.researchgate.net/publication/233952943_Negative_environmental_impacts_of_Solar_Energy
- (12) Davis & Shirtliff (2020). Standard Chartered Bank unveils Kenya’s first sustainable finance package - press release. https://davisandshirtliff.com/news-and-press-at-davis-and-shirtliff/483-davis-shirtliff-standard-chartered-bank-unveils-kenya-s-first-sustainable-finance-package
- (13) Kenya Bureau of National Statistics (2019). Gross County Product 2019.
- (14) African Development Bank (2019). Kenya: Bank Group Country Strategy Paper 2019-2023 and Country Portfolio Performance Review.
- (15) Kenya Bureau of National Statistics (2014). Kenya 2014 Demographics and Health Survey key findings. https://www.dhsprogram.com/pubs/pdf/sr227/sr227.pdf
- (16) SDG Tracker (2021). End poverty in all its forms everywhere. https://sdg-tracker.org/no-poverty