Mini-grid operators step in to bridge power needs for businesses

Brenda Okumu who runs a posho mill in Mudoriko, Busia County, that was converted from being diesel powered to electricity. [Courtesy] Brenda Okumu emerges from the mud-walled structure housing her posho mill, momentarily buried in a cloud of white as she dusts off flour from her clothes. Her business lies deep inside Mudoriko village, Busia County, where ugali made from dried cassava and loose maize is the main staple food, and electricity connection from the national grid is still a challenge. However, her business, a key cog in delivering this staple, now has a lifeline from a mini-grid set up by Kudura Power East Africa Ltd, which has also facilitated the conversion of her posho mill to fully operate on electricity. "It is fairly easy now because customers do not have to wait for me to fetch fuel. Even with Sh200, I can operate the posho mill for three days compared to two days if I used diesel," she says. Busia is one of the counties earmarked for connection to the national grid. Early in the year, President William Ruto launched a Sh1 billion Last Mile Connectivity Energy project in the county to light up 20,000 households. But as residents in such areas wait for connection to the national grid, this space is being occupied by mini-grid developers. The Energy and Petroleum Regulatory Authority (Epra) acknowledges regulatory challenges in streamlining the mini-grid sector. A mini-grid is a small-scale electricity-generating and supply system that is aimed at serving the surrounding community, which could be out of reach of the main grid. Some businesses, like the Kenya Tea Development Agency (KTDA), have developed mini-grids to supplement power from the main grid, hence cutting electricity costs. Robert Oduor, Busia County Business Manager, Kudura Power East Africa. [Courtesy] County Business Manager at Kudura Power East Africa Robert Oduor speaks of the challenges of running a mini-grid, citing cost as a key challenge. Since most mini-grids are set up in rural areas, he says, purchasing power is likewise lower, as some households may even have no income-generating activity, yet they need electricity. Additionally, Mr Oduor notes, investors shy away from such developments as their capital is held for long before a return on investment is realised. "Mini-grids are complex. Even when you court the investor to finance, most shy away because the payback period is normally very long, between 15 and 25 years," he says. "That is why mini-grids are not for everybody." Mr Oduor also notes that the process of developing a mini-grid can be tedious. For instance, one has to do a feasibility study, customer acquisition, engage engineers for design of the system, finance mobilisation, procurement and finally set up the grid. Additionally, it is the mini-grid developer who is also responsible for transmitting the power, connecting the customer and also doing wiring in the households. Mr Oduor estimates that the cost of connecting a single household is in the upwards of $850 (Sh110,500). "But we only require them to pay Sh6,000 to be connected, which is way below," he says. Once connected, the customer then pays the balance along with their monthly bill. The average amount for most households is Sh327 monthly. "Sometimes when schools are opening, it is very difficult to get households to pay because priorities have shifted. It is worse for households that have no one in the city who can pay the bill for them," he says, adding that the mini-grid developer has no authority to change the tariffs without Epra's and the customer's approval. This is one of the reasons why mini-grid developers have to partner with suppliers of products such as electric pressure cookers, television sets or refrigerators to help customers manage their monthly consumption. It is through such partnerships that Kudura Power East Africa Ltd has Ms Okumu's posh mill converted from diesel-powered to electric. Epra Deputy Director of Renewable Energy Mungai Kihara notes the intricate balancing that the regulator has to do to ensure both the investor in the mini-grid and the customer are satisfied when it comes to how much the electricity should cost. This is considering tariffs for mini-grids are slightly higher than those of Kenya Power. "It is not only a matter of affordability but also of what they are willing to pay," says Eng Kihara. Fair tariff He says Epra calculates the tariffs depending on the model the mini-grid developer has submitted to them. "We check the numbers, and we are also aware of what is happening across the world, so we can say this is a fair tariff," he says. Eng Kihara says it is difficult to have a flat rate tariff across the board, noting that the cost of setting up a mini-grid in Busia County may be different from doing the same in Turkana. "The other thing is the cost of finance. Where did the developer get the money?" he poses. "EPRA exists to make sure the investor gets a return on investment, and also the consumer gets value for money for the tariff they pay. Epra is like a mediator." While Epra has been licensing mini-grids since 2022, Eng Kihara says there are regulations in the works to look into how the sector can be made more attractive for investors to enter and also to exit. For example, as also noted by Mr Oduor, there are challenges with Kenya Power encroaching on mini-grid operators' infrastructure if a customer opts out of the mini-grid for the national grid. Eng Kihara says in such cases, mini-grid developers have the option of selling their assets to Kenya Power or relocating to off-grid areas for a fee. "There are some measures that we are putting in place in the regulations. Unfortunately, this is yet to be enacted, but when it is, everyone will be happy," says Eng Kihara.

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