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Knowledge is Power

Data-Driven Development of the Mini-Grid Sector

Frontier: noun. The extreme limit of settled land beyond which lies wilderness.

– Oxford English Dictionary

Anyone reading this article is probably very familiar with mini-grids (if you’re not, I recommend this overview from The Guardian). With 1.3 billion people living off-grid, 620 million of them in sub-Saharan Africa alone, mini-grids could save developing powered-business-1countries billions of dollars and avert millions of deaths and thousands of tonnes of CO2 each year. But they are a frontier concept, drawing on recent and emerging innovations for both their technology and business models. Until we have proven answers to existential questions about financial and operational sustainability, the future of mini-grids will remain uncertain.

Most new businesses develop services and improve their business models around consumer data; mini-grid operators face an uphill battle here. The “bottom of the pyramid”, made up of 4 billion of the world’s poorest, has been consistently overlooked, suffering from a lack of market data despite having an estimated value of $5 trillion. Data on consumers who are connected to electricity for the first time is even more limited. At Steama.co, we adapt the world’s most advanced technologies for remote islands, jungles, and savannahs, giving mini-grid operators the visibility and control to rapidly evolve and shift the “Wild West” perception of off-grid energy.

steama-technicianSteama.co began as a mini-grid project developer in western Kenya, where we saw an urgent need for affordable, rugged energy meters that
could collect reliable, real-time data from anywhere in the world – a frontier meter. Today, Steama.co’s smart metering platform helps mini-grid operators across eight countries address common pain points: payment collection, accurate forecasting, and, critically, a better understanding of their consumer base.

One such developer is Vulcan Impact Investing, which is seeking to assess the viability of commercial, village-scale, solar-powered mini-grids by operating 10 projects in rural Kenya. Vulcan and Steama.co are now sharing insights from the first two years of operating data to help form a standard knowledge base for current and aspiring mini-grid developers. In this article, we have laid out a sample of our findings to illustrate how data can provide key insights to running a successful mini-grid. (Further details and findings will be published in a white paper, available at http://vulcan.com/impactinvesting.)

1.     Identify Energy Demand

The challenge: Companies lack proven methods for identifying mini-grid sites which will meet a target return on investment (ROI). This in turn makes it difficult for developers to finance projects.

What the data tells us: Across Vulcan’s 10 sites, there is a wide variation in the monthly average revenue per user (ARPU); the top 10% of consumers pay 5x more than the average, so when it comes to modeling grid performance, it matters who is connected.

This means that indicators that are predictive of high-revenue consumers are especially valuable. Our data show that consumers who frequently engaged with automated SMS services used more than twice as much energy as those who didn’t, suggesting that mobile phone literacy is one such indicator.

What this means for operators: Developers who assess familiarity with mobile technology during site surveys can identify more successful sites and have more accurate financial forecasting. Metering systems that support SMS communications can aid in this effort by running automated marketing campaigns and tracking SMS engagement among potential consumers.

2. Remove Payment Barriers

The challenge: Mini-grid operators are expected to prove financial success, while simultaneously providing a critical social service – electrifying consumers with limited formal income.

What the data tells us: Smart metering platforms can integrate with mobile money services such as M-Pesa, enabling instantaneous micro-payments as low as $0.10. On Vulcan’s grids, the average payment amount was $2.00, with some consumers topping up as often as 5 times per day.

Unsurprisingly, consumers prefer to pay for energy in a way that aligns with the revenue streams in their home or business. Operators who support a wide range of payment plans can match tariffs with the way their customers earn and save. By offering this flexibility on several sites, Steama.co convinced a subset of consumers to spend 40% more on their electricity each month.

What this means for operators: Make it as easy as possible for consumers to pay. It sounds obvious, but the majority of mini-grids worldwide still operate with inconvenient payment methods (such as scratch cards) and rigid tariff structures, which make paying a hassle and decrease mini-grid revenues.

Consequently, the choice of energy meter has a profound impact on project revenues. Steama.co’s cloud-connected smart meters offer flexible, remotely configurable payment plans that are not available with STS[1] and other unconnected, prepaid meters. While smart meters often come at a higher capital cost, the higher service level can pay for itself in a matter of months.

3. Connect Consumers to Value-Added Services

The Challenge: Rural mini-grid consumers often lack access to credit and pay more for equivalent goods and services than the average citizen. This “poverty tax” reduces the purchasing power of off-grid households and businesses and suppresses mini-grid revenues.

What the Data Tells Us: Energy demand increases when consumers are connected to clean, affordable electricity, but the relatively high capital cost of purchasing new appliances slows that growth. Consumers use the extra profits from cheaper, more reliable electricity to improve their businesses, but there is a lag from the time required to save up for a refrigerator or television. This is detrimental to both the consumer and the mini-grid operator, who both lose out on potential revenues in the early years of operation.

What this means for operators: Integrated services like appliance leasing programs offer an up-selling opportunity that both increases mini-grid revenues and gives consumers access to critical financing services. Remote monitoring data helps operators identify potential customers for these programs and realize financial returns earlier in the project lifetime.

hub-at-nightPerhaps most fundamentally, the data from Vulcan’s grids show that once a consumer switches to mini-grid power, they don’t go back to kerosene lamps and batteries. In follow-up surveys, they cited health and environmental benefits, higher-quality health and school facilities, and above all, business growth.

Mini-grids offer a clear path for developing countries to leapfrog the unsustainable energy infrastructures of the past and provide everyone, no matter how remote, with modern energy services. Our experience has shown that off-grid consumers are happy to pay sustainable rates for electricity services, provided the quality of service is high. Remote visibility and control are critical tools in that effort, and as technology continues to improve, affordable, reliable, and flexible metering platforms will help push back the frontier of off-grid energy.

The examples in this article show snapshots of the value that data can bring to a mini-grid business. Vulcan and Steama.co are working on follow-up studies and further research, and as our experience and dataset grows, we will continue to share our findings.

To learn more, or read the full version of Vulcan and Steama.co’s white paper, go to http://vulcan.com/impactinvesting.

 


 [1] STS stands for “Standard Transfer Specification”, a common protocol used in non-connective electricity meters. Since these meters can’t communicate or integrate with other services, consumers must pay a local agent in cash, usually for tokens that are entered into the STS meter via a keypad.