This report synthesises available analyses on the role and potential of mini-grids in Kenya and explores how this technology can help the country attain its goal of universal electrification by 2022 and also contribute to the achievement of other related development objectives.

Executive summary:

Even with the global electrification rate rising from 83% in 2010 to 89% in 2017, about 573 million people still lack adequate access to electricity in Sub-Saharan Africa. The Sustainable Development Goal (SDG) 7 calls for action to “ensure access to affordable, reliable, sustainable, and modern energy for all” by 2030. It is estimated that investments worth USD 30 to 55 billion per year will be needed to achieve universal electricity access in Sub-Saharan Africa by 2030. Provision of electricity, particularly in rural and remote settings, is inherently challenging and resource intensive. Although large interconnected electric grids are designed to take advantage of economies of scale, distribution efficiency, and cost-optimal generation sites, they also require large upfront investments. These investments are difficult to justify when connecting rural and remote areas with unproven demand and low consumption densities to the centralised grid. Such areas are best served by decentralised systems such as mini-grids. The World Bank has adopted the working definition of mini-grids as “electric power generation and distribution systems that provide electricity to just a few customers in a remote settlement or bring power to hundreds of thousands of customers in a town or city. They can be fully isolated from the main grid or connected to it but able to intentionally isolate (“island”) themselves from the grid”.

An estimated 47 million people are connected to about 19,000 mini-grids globally. Mini-grids provide electricity access to households, public facilities, and businesses using decentralised electricity generation technologies, managed by governmental institutions, private enterprises, or community cooperatives. The deployment of mini-grids has accelerated globally in recent years, driven by the rapidly decreasing costs of renewable energy technologies, which are now the most cost-effective options for mini-grid deployment in many countries. The choice of operator varies; mini-grids can generally be classified as public utility operated, private sector operated, community operated, or hybrid (a mix of two or all of the aforementioned models). Renewable energy mini-grids are expanding in many regions in Sub-Saharan Africa, particularly in countries where rural electrification targets are explicitly complemented by policies and measures for mini-grids. The total off-grid renewable energy capacity in Africa was nearly 900 MW in 2016, a 40% increase from the previous year. Most of this growth came from solar photovoltaic (PV), in the form of mini-grids or standalone solar home systems [Section 1.1]. Multiple studies have shown that mini-grids are the least-cost option for providing electricity to an estimated 100-300 million people in Africa.

Mini-grids have a long history in Kenya, with the first installations dating back to the early 1980s. In recent years, several diesel-based mini-grids have been transformed into hybrid diesel-solar or diesel-wind systems, and several fully renewable energy mini-grids have been deployed. The total installed capacity in 2016 was approximately 25.3 MW, most of which consists of public operated mini-grids [Sections 1.2.1 & 1.2.2]. However, to date, the overarching strategy for Kenya’s electricity sector focuses primarily on national grid extension; mini-grids are included but significantly under-represented in the 2018 Kenya National Electrification Strategy (KNES). The private sector development of mini-grids has also been restricted due to limited policy support, although this will be improved with the proposed mini-grid regulations in the new Energy Act 2019 [Section 1.2.3].

The Government of Kenya has set a target for 100% access to electricity by 2022. Progress towards this target in recent years has been encouraging, with electrification rates increasing from 36% in 2014 to an estimated 57-70% in 2017. Overall, approximately four million households still lacked access to electricity in 2017, 3.6 million of which were in rural areas. Options for electrifying these non-connected households include the extension of the national grid to rural areas and the installation of off-grid solutions, including mini-grids and solar home systems [Section 2.1]. Independent studies have determined that mini-grids may be the most cost-effective option for a large proportion of the remaining non-connected households in rural Kenya. According to one of these studies, renewable energy mini-grids deployed in 2017 in Kenya are estimated to have a total capital cost of approximately USD 1,000 (KES 103,000) per household connection, with significant potential for cost reduction in the near future. The Africa Mini-Grid Developers Association (AMDA) has reported a steady reduction in the average cost per connection across private sector built and operated mini-grids as the market in Kenya and Tanzania has expanded: the cost was USD 1,163 in 2017, decreasing to USD 934 in 2018, with further projected reduction to USD 600–700 in 2020. In contrast, recent investments in grid extension to isolated rural areas have resulted in total costs of up to USD 2,427 (KES 250,000) per household connection [Sections 2.2 & 2.3.1]. Although the 2018 KNES estimates that about 38,661 household connections will be best provided through mini-grids in Kenya, several other studies find this figure to be between 660,000 and 2.1 million connections, representing 17-58% of the non-electrified households in rural areas. Based on this range, mini-grids in Kenya could supply between 180 and 570 GWh of electricity in 2030 [Section 2.3.2]. Despite mini-grids’ significant potential contribution to the total electricity supply, this option is not yet sufficiently integrated into current electricity sector policies or strategies or included in the demand and supply calculations of the 2017-2037 Least Cost Power Development Plan (LCPDP), which is the central planning document for Kenya’s electricity sector. This may be an indication that the potential of mini-grids to contribute to the overall national electricity supply nexus is not yet well understood or could be significantly underestimated.

The potential for upscaling mini-grids in Kenya could be realised through the formulation of a clear policy and corresponding strategy promoting decentralised solutions, including mini-grids, and the integration of this strategy into future updates of the LCPDP. In addition, targeted public interventions could encourage increased private investment in mini-grids; basic policy interventions, including modest subsidies considerably lower than the current grid connection subsidies in grid extension programmes, could reduce mini-grid project payback periods from over 30 years to just 5.5 years [Section 2.4]. Rural electrification has historically depended on public finance and employed centralised distribution approaches. Addressing the inadequate electricity access affecting millions of people across Sub-Saharan Africa within the SDG 7 timeframe requires an incremental approach that strengthens existing forms of electrification and supports complementary approaches. Mechanisms for incentivising private investment in mini-grids need to be explored as one of these approaches. This report reviews case studies from Chile (Programa de Electrificación Rural (PER)) and Nigeria (Universal Electrification Project: Promoting solar hybrid mini-grids) and explores how their approaches could be applied in Kenya [Section 3].

In addition to being the most cost-effective option for achieving rural electrification in some areas, mini-grids could also have positive economic and social impacts, including synergies with national development objectives and the SDGs [Section 4]:

• For every 1 MW of mini-grid capacity developed, approximately 800 full-time-equivalent job-years are created for Kenyan workers. While the total job creation potential for grid extension, the alternative option, would be a similar order of magnitude, it is likely that the proportion of jobs for Kenyan workers and in rural areas will be higher in the case of mini-grid deployment, particularly in terms of jobs created in local construction, community services, ongoing onsite business administration, and other sectors from induced effects. This is especially the case considering regulations require that all solar PV installers – the majority of whom are local experts – be registered with EPRA and the fact that Kenya now has a local solar PV assembly plant in Naivasha [Section 4.1].
• Using the latest technologies, mini-grid development may contribute to increasing the number of households with electricity access and improving the reliability of electricity supply in rural areas, where national grid-based electricity supply is frequently disrupted by unplanned outages caused by technical issues and extreme weather events [Section 4.2].
• Renewable energy mini-grid development can improve domestic energy security by reducing dependence on fossil fuel imports. If 180-570 GWh of coal-based generation was displaced by mini-grids, coal imports could be reduced by 55-175 thousand tonnes per year, equivalent to cost savings of USD 5.5-17.3 million (KES 550-1,742 million). This would also reduce the demand for foreign currency and improve the import-export balance [Section 4.2].
• Mini-grids can play an important role in advancing healthcare provision in rural areas. Lower costs for mini-grids can allow for more connections to medical facilities at the same level of investment. Furthermore, more reliable electricity provision through mini-grids can lead to improved healthcare services in areas not connected to the main grid in terms of capacity, service hours, and the range of services offered [Section4.3].
• Solar mini-grids contribute to enhanced water security in some locations when used for water pumping and where the solar canopy can be utilised for rainwater capture and storage. Increased deployment of mini-grids also reduces the need for large thermal plants, which require substantial amounts of cooling water in the generation process [Section 4.4].
• Renewable energy mini-grids offer significant potential for climate change mitigation, if they displace on-grid fossil fuel power plants. Through offsetting the supply of 180-570 GWh of coal-based electricity, mini-grids could contribute to reducing emissions by 0.14-0.48 MtCO2e per year. This mitigation potential makes mini-grid development an interesting prospect for consideration in climate change mitigation planning processes, and it may be possible to attract further support for the implementation of measures through climate-related finance [Section 4.5].
• Mini-grids in unelectrified rural areas help improve resilience to the impacts of climate change. They can offer a degree of autonomy from the national grid and, in the case of climate-related natural disasters, ensure that the communities they serve continue to have access to electricity and are thus better able to cope with the local effects [Section 4.6].

Given mini-grids’ cost-effectiveness and proven synergies with sustainable development and national objectives, potential action points, summarised below, have been identified to enable renewable energy mini-grids to progress to the next level and realise the associated benefits [Section 5]. Due to the potential climate change mitigation benefits, international climate finance proposals may also be an option for financing specific actions.

1. Conduct a thorough, up-to-date comparative assessment of the costs of mini-grids and grid extension for rural electrification, considering integration of a shadow carbon price.
2. Formulate a clear strategy for mini-grid development, aligned with grid extension plans.
3. Integrate the strategy for mini-grid development into the next iteration of the KNES.
4. Integrate the strategy for mini-grid development into the next iteration of the LCPDP.
5. Conduct a thorough assessment of rural energy markets to reduce perceived investment risk.
6. Streamline administrative processes for prospective project developers.
7. Identify the most effective financial instruments to maximise investments in rural electrification.
8. Conduct a comparative analysis of various business and management models.