Vulcan Impact Investing and SteamaCo share early insights from their Kenyan microgrid program in this guest post:
Rural electrification in Africa poses an opportunity for both strong investment and strong impact. Paul G. Allen’s Vulcan Impact Investing (VI2) offers a few early insights into factors for success. VI2 owns 10 solar powered microgrids in rural Kenya and has seen two crucial factors which can make or break the profitability of the microgrids: diversity of economic activity and seasonality.
Vulcan’s microgrids are operated on Steamaco‘s smart metering platform, giving Vulcan live data and the insight needed to understand factors influencing demand. The micro-grids provide electricity for approximately 325 direct users and 2,000 indirect users. As can be seen in the chart below, average revenue per user (ARPU) measured in United States Dollar (USD) per month varied widely between sites.
Higher diversity of business customers leads to higher profits
Analysis of live data revealed that the more profitable mini-grids are those that have both a high number of commercial customers, who spend more on electricity, and a diverse range of businesses such phone charging stations, hotels, hair salons, shops and television watching venues. By locating a site where diverse businesses can be supported or established, the less profitable but highly impactful residential customers can be sustained.
Prepare for seasonality
Every business, including the microgrid business, has its seasonal peaks and valleys. When the December holiday season arrives, customers are inclined to increase electricity consumption to accommodate family visits, making December the month that most commonly exhibits maximum ARPU. The post-holiday slump hits hardest in February, the month that most commonly exhibits minimum ARPU; this is most likely due to a combination of a slowing of activity after the Christmas holiday and the dry season. The early year dry season reduces agricultural activity, which has a knock-on effect on electricity consumption. To help offset seasonal lows from dry seasons, one factor to consider when selecting micro-grid sites is how many local businesses are directly related to the agriculture sector (e.g. mills) and how many are not directly related (e.g. phone charging stations).
Vulcan and Steamaco are currently delving deeper into the impact of business diversity and seasonality as well as exploring other factors that affect the ARPU.
The results of the exploration will be made publicly available in a white paper to be published at www.vulcan.com/VI2 in July 2016.