The Solar Market in Kenya after COVID

As economies around the world struggle to survive the Covid-19 pandemic, the solar industry has shown signs of strong performance and opportunity for growth post COVID in Europe, Asia, the Middle East and North America. In these regions the overall energy demand has fallen and renewables like solar have carried the load (pun intended) by increasing in the overall energy mix. Renewables have increased in the energy mix in Europe 12-30% during the last six months showing that grids are manageable with more renewable energy than previously thought. Portugal has not used coal in 60 days.. fossil fuels are down around 35% in Germany.. and investment in renewables seems as though it will continue to grow.

But what about in developing economies where much of the population has unreliable or no access to electricity, and solar energy had been facilitating increased access to electricity and economic expansion?

Countries like Kenya--where grid reach is around 65% of the country and solar energy is only 1% of the energy mix—have been affected by COVID differently.

Prior to COVID 19 there was good reason to predict that the solar industry in Kenya would see strong growth in the decade from 2020-2030.

Kenya is seen as a relatively attractive market for investors, with a functioning democratic government, a stable economy, and a strong track record of private sector investment.

Kenya’s economic growth has been step enough to put the country’s electricity supply under increasing pressure. According to GetInvest, between 2004 and 2013 Kenya’s power demand rose by 18.9% annually.

This has slowed down to around 3.6% from 2018 to 2019 but generation in the country (after calculating losses) is still not enough to meet current demand, let alone to meet the demands of growth and ambitious targets like Vision 2030, in which the Government of Kenya targets universal electrification by 2030.

Kenya has more than enough solar irradiation to power all of its current and prospective demands. Yet despite this huge potential and year on year growth, solar energy remains only a small part of the energy mix, contributing less than one percent of current energy generation in the country. The potential for solar is huge.

But the question is: Will the solar industry in Kenya continue to grow as projected before COVID-19? Which types of solar energy are primed for growth? How can EPCs in Kenya position themselves to thrive post COVID?

Several variables must be in place in order to predict that a country is prime for a strong growth in solar energy as economies recover. Looking at the Grid Reach, Grid Price and Grid Availability will give us an insight into which types of solar PV installations are currently viable and which types of solar installations—if any-- are on the verge of big growth post COVID.

A strong grid with a wide reach is a great indicator that solar energy offers an attractive source of affordable energy.

The grid reach in Kenya is approximately 65% according to the UNEP report, which is among the highest in Africa.

Solar installations can be broadly divided into three types:

Grid tied installations – one customer, no storage

Mini-grids – storage and many customers

Off-grid or hybrid systems - one customer with battery storage, can be grid tied or off grid

In Europe, Asia and the West the grid is very reliable and reach is wide, this allows for grid tied solar installations where the ROI is much higher.

Grid tied projects typically have the best ROI for two reasons: one is because you can avoid the cost of batteries, and two is the potential for net metering. Indeed, net metering is one of the key drivers of solar growth in Europe, North America and Asia.

But in Kenya where the feed in tariff is not implemented grid tied installations remain attractive for captive consumption to replace daytime consumption from the grid.

Grid tariffs can fluctuate from month to month based on amount of consumption, peak consumption, duration of peak consumption, and many other factors.

In Kenya, according to the UNEP report we see the price of grid power between 2017 and 2019 ranged from $.18 and $.23 per Watt the10kWh usage band, and historically the price of electricity in Kenya has increased 4% per year.

There are further incentives for reduced grid consumption overall because exceeding certain parameters like peak consumption, and duration of peak consumption can lead to high tariff charges (not to mention questionable billing practices that have often led to claims of fraud in the country.)

The KPLC tariffs are set up so that the C&I sector is very motivated to move to solar energy. Any of KLPC customers can use a grid tied solar system to capture and use solar energy in the daytime, thereby reducing their KPLC consumption in the daytime. And this is a trend we have seen in the market: A UNEP report says the vast majority of solar installations in Kenya for a single customer are grid tied. Their data shows more than 50% growth year over year in this sector.

Does that mean the market for grid-tied installations is becoming small? No!

KPLC said in their 2018 Power Report that there are 3900 large commercial and industrial power consumers in Kenya in with an average project size of 175 kW. The UNEP report counts 384 out of 3900 have captive solar installations. This is a market segment that is prime for growth post COVID.

So what we see in Kenya is a great opportunity for EPCs who offer grid tied installations to the C&I industry who can target sizes between 10kw to 600kw.

EPCs would do well to identify the best grid tied inverters available on the market and become very familiar with them. Strong relationships with vendors can yield price breaks, better after-sales service, easier installations and ultimately more customers who are satisfied.

(I will address market strategies for this segment in another article)

Another factor is the quality and reach of the national grid because this directly affects which types of solar installation is possible and practical.

On type of solar installation that is increasingly more common in Kenya (and East Africa) is the Mini-grid. Mini-grids are a size up to 10MW that often has energy storage and a network to that distributes power to several customers. This is a great option to serve communities who are far from the national grid and therefore is an increasingly important part of the Government of Kenya’s stated goal of universal electricity access by 2030. In neighboring countries like Uganda and Ethiopia mini-grids are an even more important part of their plans due to low grid penetration.

Main grid extension is generally the least-cost option for people who already live close to the grid in urban and peri-urban areas. Minigrids are usually least-cost for people who live so far from the main grid that extension costs are higher than installing local generation and storage capacity, but in a location densely populated enough to support the fixed costs of building the minigrid infrastructure. Off grid Solar home systems are the least cost for everyone else -– those living in sparsely populated areas, where running poles and wires from even a local minigrid becomes expensive.

CrossBoundary has developed an analysis to calculate the approximate number of people who can be served most cheaply by a mini grid versus a main grid extension or personal off grid system.

According to their analysis the approximate findings are that Minigrids are cheaper than grid extensions at an average distance of 25 kilometers from the high-voltage grids, and cheaper than home solar at an average benchmark of 400 people per square kilometer.

That means that Minigrids are the cheapest way to deliver power for at least 100 million people in Africa, and approximately 5-10 million Kenyans – representing above 500MW of solar minigrids in Kenya.

Before COVID the World Bank had spent over $1billion dollars for mini grid development in East Africa including over $150million for Kenya. The World Bank-funded electrification campaign is under the Kenya-Off-Grid Solar Access Project (Kosap).

The mini-grids are given on a competitive tender basis and many have been completed already.. However there is a great opportunity for EPCs to modernize their min-grid design and lower cost. The UNEP report states that the average cost per kilowatt hour of a minigrid has been $.60 / kwh, and that figure can be optimized to as low as $20/kwh.

The inverters and the storage are the place to start. Improvements in super capacitor storage has shown some exciting developments that will significantly lower lifetime storage costs. Inverter brands like Huawei have entered the space and are developing exciting solutions as well.

EPCs in this space should look to better equipment to optimize power generation and minimize operation costs.

The source of the electricity in the national grid can also give us insight into the possible growth of the solar market in a country. The national energy mix is an important factor because solar energy is only generated during daytime hours so there must be some kind of storage and / or there must be some kind of night time generation of power like hydro, coal, diesel or others. These all provide consistent power to the grid, or at least they vary on different rhythms to the solar energy.

Kenya gets as much as 55% of its power from Hydro energy, though this figure varies with the season and droughts cause less hydro to be produced which is replaced with diesel and coal.

There is also vast amounts of geothermal energy available at the rift valley where the earth’s crust is very thing and drilling into the earth to reach intense heat and magma for steam energy is relatively cheap. In fact the Great Rift Valley in Kenya is one of the best locations on earth for harnessing geothermal energy efficiently. Kenya gets 30% of its generated electricity from geo-thermal sources.

This is a good sign for utility scale solar projects. In 2018 and 2019 Kenya has proven to be one of the best markets in Africa for utility scale solar investments. The regulatory market in Kenya has shifted more and more towards fostering large investments in solar. And we have seen more than 120MW of solar farms due to be completed in 2019 and 2020.

It is hard to say if this trend will continue post covid or if the construction of solar farms will slow down in the near future. At least we can say past performance, and the presence of Hydro and Geothermal and wind like the 310 Lake Turkana Wind Project) is a good sign for solar energy, because these sources of energy can provide grid stability for additional solar generation. And learning from the lessons of COVID in Europe, grids can be managed with more renewable energy than previously thought.

In summary, the solar industry in Kenya shows several signs of a boom post COVID. Grid users of all sizes can save money with grid tied solar systems to reduce their daytime consumption.

Mini grids are the most cost effective way to provide electricity access to between 10 and 20% of Kenyans.

The international Energy Agency says that Kenya could supply an economy six-and half times larger than today using little more than twice its current energy consumption with greater energy efficiency including distributed generation to minimize losses and maximizing daytime consumption and taking advantage of plentiful solar irradiation.

EPCs in Kenya would be smart to take this time and review their supply chains to look for optimization. Better supplier relations, better grid tied and microgrid equipment can increase your profits, and better market awareness will ensure you are a part to the growth of solar in Kenya for years to come.

In my next articles I will talk about access to financing to unlock these solar projects, and market strategies for solar EPCs in East Africa who would like to finish 2020 strong.