With a population of 53,771,300 and the rural population is 72% of the total population as of 2020, the energy sector in Kenya is largely dominated by petroleum and electricity, with wood fuel providing the basic energy needs of the rural communities, urban poor, and the informal sector. An analysis of the national energy shows heavy dependency on wood fuel and other biomass that account for 68% of the total energy consumption (petroleum 22%, electricity 9%, others account for 1%). Electricity access in Kenya is low despite the government’s ambitious target to increase electricity connectivity from the current 15% to at least 65% by the year 2022. ( Kenya Energy Situation)
As of 2007, the contribution of the energy sector to the county’s GDP was about 4%. According to the 2019 Kenya Population and Housing Census, 50.4% of total households depend on grid electricity followed by 19.3% on solar for lighting.
It costs approximately Ksh 35,000 (EUR 318.18) to connect to the national grid and about 0.1145 EUR equivalent per kWh of the electricity service. These are relatively high costs that pose a major obstacle to the expansion of electricity connections to low-income households and small businesses. The electrification of rural households is both expensive and may worsen the already serious financial troubles of the state’s electricity distribution companies. Given the current electricity pricing structure, electrifying rural households is likely to produce only limited revenue.
This situation gives rise to more innovative approaches, such as Energy as a service (EaaS). Energy as a service is a business model whereby customers pay for an energy service without having to make any upfront capital investment. To bring it into context, we can take a look at various examples. Today’s economy offers us all kinds of options to get the things we want without actually having to purchase them ourselves: why buy a car when you can have Uber, need a place to stay? Airbnb has got you covered. In the energy sector, that’s where Energy as a service comes in. It provides an opportunity for businesses and institutions to make improvements to their energy infrastructure without any capital expense or debt, while still receiving the benefits of that equipment, better quality, reduced maintenance expenses and saving on your utility bill.
The product economy transaction, which is a 20TH-century model, involved an upfront model from a consumer to a supplier, in exchange for a static product or service. In such a transaction, the consumer made a one-time payment in exchange for a product/service. The consumer owned that product and had with it all the attended risks; the risk of maintaining that product, the risk of losing it, the risk of damage or even the risk of the product becoming obsolete.
However, the global economy is heading towards a model that is subscription-based. An example of such a model is Netflix. Netflix offers consumers an opportunity to access the value of their product without the headache of maintaining it, and moreover, the consumer can make a monthly subscription fee that fits within their budget. Energy as a service at its core is geared toward a subscription-based model, that offers consumers to make that monthly subscription in exchange for given energy service.
Service-based models would also help integrate grid extension and off-grid alternatives, such as solar home systems and micro-grids, which are already in use by many private companies to sell energy services in exchange for a monthly fee. When energy services are provided by private companies, the state-owned electricity distribution companies do not incur losses and their debt does not grow. The private companies could offer different packages, such as basic lighting and mobile charging, and charge higher fees for additional services such as fans or televisions. This model would better match the realities of power consumption in rural areas.
Off-grid companies around the world are already deploying service-based models at scale. SolarCity (now a Tesla subsidiary), SunRun, and Vivint are prominent examples of companies that offer these models. Vivint Solar, for example, offers both a solar lease option and a solar PPA for residential customers. The solar lease involves a fixed monthly payment for use of the panels, and the solar PPA is payment for the electricity that the system generates at a predetermined price per kWh, which is lower than the utility’s retail rate and thus provides savings for the customer. In both plans, Vivint retains ownership and has the responsibility of installing, maintaining, and monitoring the solar system throughout the 20-year contract, while the customer enjoys energy savings and the benefits of solar without purchasing the system outright.
In East Africa, M-Kopa, Sun King, D.light and other companies offer a suite of solar products and help people finance them with mobile payments over time. Such models could also be applied to grid connections so that people would pay a monthly fee depending on their choice of service level.
If the government wants to extend electricity service for all, it needs to find a solution to the problem of finance. The current model will likely further undermine the economics of rural electricity distribution and experimenting with service-based models could lead to innovative solutions.
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