United Nations has called on
businesses, governments, and
civil society to achieve Sustainable
Energy for All by 2030
Mini-Grids Around the World
Operating Commercial Micro-Grids in India
By: Nikhil Jaisinghani, Co-founder, Mera Gao Power
Operating Commercial Micro-Grids in India
Nikhil Jaisinghani, Co-founder, Mera Gao Power
Since 2010, there has been a heightened interest in and increasing activity around micro-grids. These have ranged from large solar installations serving cell towers to the newly labeled “pico-grid” model serving rural communities (as there is no formal definition or delineation, all small systems will continue to be referred to as micro-grids in this article). Much of the geographic focus has been in India and Sub-Saharan Africa, though not exclusively so. Husk Power Systems in India was the first notable micro-grid social enterprise, but the list of such companies has grown as new enterprises learn from, adjust, and pivot from their trail-blazing model.
One such social enterprise is Mera Gao Power (MGP), which has been building and operating solar-powered micro-grids since installing its first pilot system in 2010. Investor demands at the time were for a payback period of less than five years on rural infrastructure – since then, investor expectations have become more ambitious, with expected payback periods at or below three years. MGP’s initial goal was to develop a model that could deliver on these expectations.
The three basic components of unit economics are capital costs (CAPEX), operating costs (OPEX), and revenue. From the beginning, it was clear that a truly commercial company could not be built with a dependence on government subsidies. MGP therefore initially focused on CAPEX and designed a low-cost solar-powered micro-grid that could provide a typical hamlet in India with basic energy services for under $1,000. While the design was sound, it took nearly two years to work through multiple suppliers of each system component. While costs per component are high due to an insistence on high-quality goods, through improved engineering the total CAPEX was kept low.
One of the great things about solar installations is that they are fully automated; i.e. there is no need to hire staff to turn solar micro-grids on and off. Additionally, MGP’s design is simple enough that local staff, though untrained in electronics, can learn to build and repair systems effectively. However, unlike East Africa, mobile money and mobile banking are not widespread across rural India. Payments, therefore, have to be collected in person. To do so, MGP borrowed from the micro-finance sector to develop a low-cost collections mechanism. Additional technology, such as a field database and mobile apps – all developed in-house – have simplified the job of collecting payments and tracking data. This has allowed MGP to hire local field staff, paying wages above market rate but within the acceptable range to meet investor demands.
The third component of unit economics – revenue – is where investors pay the most attention. From its inception, MGP’s business theory on collections was that strong collections require three conditions – low cost to the customer, consistent delivery of service, and a link between payment and service. The cost to the customer is where the company began its efforts. If the cost is too high, customer willingness to pay will diminish over time or will be low to begin with. MGP found that the average household in a rural hamlet of Uttar Pradesh pays Rs. 80 to Rs. 100 ($1.20 to $1.50) per month for kerosene, plus another Rs. 60 ($0.90) per month for phone charging. To maintain customer interest, MGP knew it would need to keep its monthly cost below Rs. 140, the typical household’s monthly expenditure on comparable services. MGP currently charges Rs. 30 ($0.45) a week for service. This effectively prices MGP’s commercial, dependable, unsubsidized household power service below the most subsidized slab 1 rural grid connection in Uttar Pradesh – Rs. 180 ($2.70) per month.
Service delivery was the next challenge to tackle. Though MGP’s micro-grid design is fully automated and low maintenance, the company was faced with component quality challenges initially. As the company scaled up, it became clear that additional effort was needed for quality control. For much of 2014, MGP focused on developing training processes, quality control teams, and mobile apps that could simplify employees’ responsibilities to ensure high levels of construction and maintenance quality. In addition, MGP set out to build a low-cost micro-grid monitoring device, collecting performance data that is uploaded to the cloud – enabling it to be accessed anywhere. As a result, the company was able to expand in 2015 without compromising on the quality of service, satisfying the second criterion of revenue.
The final condition for ensuring revenue is solidifying the link between payment and service. The obvious technology option here is a prepaid meter. These can be purchased from a variety of sources, but have one significant constraint – cost. By integrating a commercially available meter into the MGP micro-grid design, CAPEX would approximately double, and often times a portion of revenue would go to the metering company as well. Instead, MGP began adapting micro-finance type discipline into its collection processes, rapidly disconnecting customers who fell more than a month behind in their payment. By focusing management attention on collections, the link between payment and service is secure. To add to MGP’s options in this regard, it has also developed a low-cost prepaid meter, which, at $10, is an acceptable capital cost. The meters will be deployed in 2016 to test their impact on unit economics.
Six years after its first pilot, MGP has emerged as a stronger, more disciplined company. With strong unit economics, a slew of lowest-cost technologies, appropriate and custom-designed software tools, and field-tested processes, MGP has the unique ability to meet the aforementioned requirements and offer an attractive payback period on new investments. The company will leverage its technology innovations and experience to attract new forms of growth capital, piloting innovative finance mechanisms and delivering an attractive return on investment with unique social returns to global investors.
However, MGP will not be growing alone. The landscape projects greater growth – in both number and scale – of micro-grid social enterprises worldwide. New companies emerge each year, testing different technologies and innovative business models. Though the competition for customers may not be a reality for decades, their competitive spirit to innovate, achieve efficiency, and grow will drive companies forward. MGP looks forward to continue learning from others’ experiences just as it shares its own.
Bringing Solar Nano-Grids to Kenya
Dr. Murray Simpson, CEO, INTASAVE Energy & Dr Daniel McGahey, Regional Director, INTASAVE Africa
Many villages in sub-Saharan Africa are located in remote areas, with small independent communities of around 50-100 houses in reasonably close proximity. The standard solar home systems (SHS) that are currently available are standalone and can supply a fixed amount of energy to a single consumer household. Rather than relying on installing solar panels on individual households, a single SONG can supply a community of around 50 households from one central hub at 20Wp per household – enough to power three light bulbs and a phone charger, for example.
The solar hub contains traditional battery cells that store the power collected from the solar panels and will supply it via portable battery packs housed in the central hub. These battery packs, with a cutting-edge design using recycled lithium-ion batteries and a unique battery management system and microcontroller, are developed for use in rural areas. The communities will take the batteries for household use and return them to the hub for re-charging as required. This ‘hub’ will also enable the provision of collective community power for local enterprise and development since excess power generated at the central SONG location can be effectively utilised to meet the communities’ commercial, social or agro-industrial needs. The SONG system architecture is modular, which means it can be easily be extended to keep pace with the growing aspirations and needs of the community or individual households.
The case for SONGs in Kenya
Kenya is well suited to solar, with an average of 5kWh/m2/day (1,850 kWh/m2/year) available throughout the country. It is estimated that in 2014 some 320,000 households were using solar home systems (SHS) in Kenya – the largest market in Africa. This illustrates a clear user uptake for solar systems that deliver benefits to households and communities.
Moreover, the Kenyan government has adopted a “light touch” regulatory approach to facilitate the development of its household market for solar renewables. This includes exemption from value-added tax (VAT) and duties on imported PV products. There is a high degree of decentralization and county governments have significant local powers. These governments are under a clear directive (legal notice No.157) to identify renewable energy sites for development. The Nakuru County Government, for example, has been working in close partnership with INTASAVE Energy to identify the communities for the first SONG deployments.
As more people are connected to such services and their energy demands and expectations increase, the challenge for legislators will be to design a regulatory environment to bolster a complex and evolving rural electrification market to enable consumers to climb up the energy ladder.
*INTASAVE initiated the impact investment initiative with an extensive research project, investing $600,000 in research and development, funded by the UK Engineering and Physical Science Research Council (EPSRC), and the Department for International Development (DFID). The project is undertaken in partnership with Oxford University, Loughborough University, the United International University of Bangladesh and Nottingham University.
Generating Power from Trash
Tom Price, Director, Strategic Initiatives, All Power Labs
All Power Labs builds biomass gasifiers that turn organic waste like wood chips, nutshells, and corncobs into on-demand, renewable, carbon-negative energy. These compact units, called Power Pallets, fit 20kW of power into a small energy appliance. They work day or night, regardless of weather, and produce high amperage energy for productive uses, like running machinery. The installation cost is about half the price of solar counterparts, and they generate electricity for a fraction of the cost of diesel. Power Pallets are designed and built in Berkeley, California, USA and have been installed in 30 countries around the world. Able to support loads from 5 to 18 kW, the company recommends Power Pallets for mini-grids supplying power to a set of smaller load commercial customers.
Watch this 14-minute video highlighting All Power Labs’ work in Liberia.