Getting the most out of the grid – it is time to make investments count
Energy 4 Impact and MultiConsult have renewed their collaboration to boost Tanzania’s Rural Electrification Densification Program (REDP) by increasing productive use of energy activities in rural communities in Tanzania served by the national electricity grid. In collaboration with the country’s Rural Electrification Agency (REA) and building on the success of the previous phase (2017-19), the project will target 600 local entrepreneurs in 200 villages in Mbeya and Arusha regions, enabling them to capitalise on the opportunities offered by improved access to electricity.
At the same time, Energy 4 Impact will undertake a study for the World Bank and local utility Kenya Power and Lighting Company (KPLC) to examine the drivers of electricity demand within last-mile rural and slum grid-connected households, micro-enterprises, health facilities and schools in 100 rural villages and slums across Kenya. The findings and recommendations of this study will feed into the World Bank’s Improving Livelihoods and Human Capital programme, which aims to develop and demonstrate approaches which integrate demand and productive-use stimulation into large-scale electrification programmes.
These two complementary projects will provide further evidence of the socio-economic value of investing in productive use of energy activities that can unlock business potential and stimulate the economic growth of local communities.
Grid network expansion and densification are central to most African governments’ plans to provide electricity access to rural and peri-urban populations. However, most rural electrification efforts are faced with supply/demand imbalances meaning that supply far exceeds initial demand. An increased availability of power often does not automatically result in new connections or in an increase in power consumption. At the same time, demand stimulation is either outside the scope of electrification programmes and projects, or implemented on a very limited scope, as it is an imperative beyond the core competencies of implementers and accordingly receives low or no priority in terms of budget allocation.
This leads to two adverse outcomes.
First, the economics for the power utility become less attractive. If a transmission system is expanded but does not result in new connections, or if connections are added but they are for very low consuming customers, then operations costs for the utility tend to increase faster than revenues. The result is pressure on the finances of the utility – which in many cases in sub-Saharan Africa is already financially underperforming.
Secondly, and perhaps more fundamentally, it means that the ultimate purpose of the grid investment is not being realised. Energy 4 Impact believes that energy access is not an end in itself, but a means to an end: the results need to be seen in improved quality of life, better livelihood opportunities, better healthcare and education, improved food security, and so on. If grid development projects do not result in increased power demand, it means that these ultimate objectives are not being realised.
There’s no point in investing in developing the grid if the communities served are not equipped to make the most of it. There is therefore a strong case for investing not only in the poles and wires, but also in the communities’ capacity to take advantage of the opportunities offered by the improved energy access. We have gained a wealth of experience supporting both off-grid and newly grid-connected communities to capitalise on energy access and we use this knowledge to advocate with governments and the donor community about spending their money wisely in areas most likely to spur sustainable development. We’re very excited to see our efforts coming to fruition in these two projects.
Godfrey Sanga, Director of East Africa, Energy 4 Impact
In the 2017-19 pilot phase of Energy 4 Impact’s and Multiconsult’s PUE promotion project associated with Tanzania’s REDP, the 350 supported businesses increased their average monthly electricity consumption by 88%, saw their average profit grow by 183% and created over 500 permanent jobs over a period of 18 months. The initiative demonstrated that the eventual socio-economic benefits significantly outstripped the initial financial investment of the PUE intervention.
The 18 month-long second phase of the REDP project in Tanzania will optimise and build upon components of the first phase that proved effective at stimulating electricity demand amongst rural businesses. The new phase will appoint influential business owners to serve as ‘champions’ to encourage other local entrepreneurs to attend roadshows and clinics and see the income-generation and job-creation potential of appliances for themselves. The team will also distribute catalogues of vetted appliance, with technical specifications, pricing and suppliers, tailored to sectors with high growth potential in Mbeya and Arusha, particularly agro-processing, manufacturing, services and entertainment. The provision of financing is critical for small businesses with tight profit margins, so the team will build upon previous collaborations with local financial institutions to provide loan products on favourable terms, whilst also picking up discussions with productive use asset financing companies from outside Kenya and equipment financiers who require no upfront collateral. As well as equipment training, the enterprises will also be offered business mentoring which includes developing financial management skills to improve sales, profitability and liquidity.
Godfrey Sanga says: "Putting in place a full package of support for entrepreneurs has previously proved vital in helping rural businesses to flourish. It is not enough to persuade business to take on the risk of new equipment, we also have to ensure they have the know-how needed to make a success of this opportunity and improve their livelihoods over the long-term."
Successful grid demand-stimulation depends on an in-depth understanding of household and business needs in specific local contexts. The research undertaken for the World Bank and KPLC will also include an intensive study of a small sample of selected households to provide a granular analysis of their electricity consumption and spending profiles (as set against data available from KPLC). The study will ultimately present recommendations to the World Bank of potential interventions that can increase electricity demand and uptake of productive use at scale in Kenya.
Godfrey Sanga explains, "Local value creation not only helps support the costs of establishing and operating energy projects, it also stimulates more local enterprise in turn. But before we can put the necessary support in place, it is imperative that we first give investors a detailed picture of the localities and sectors where their money can be most effectively spent. Studies like this enable us to make a compelling case for how and where we can best enable locals get more out of the grid."