By: Emma Polgar, Associate 

The rural electrification rate in Kenya is a mere four percent, and in Tanzania it is only three percent.[1] Increasing energy access for rural regions across Eastern African is thus critical for the region’s much needed economic and social development.[2] The question is how to best supply reliable, affordable power to as many rural consumers as possible. Distributed generation, in the form of micro-grids powered by renewable resources, is one potential answer.[3]

Since the 1960s, many Eastern African nations have used micro-grids to power rural communities.[4] Traditionally, micro-grids have relied on diesel and hydropower, but these energy sources are becoming increasingly undependable.[5] Renewable resources are being looked to as a replacement.[6] The hurdle in developing micro-grids that generate a reliable source of energy from renewables is attracting adequate investor interest.[7]

To attract investment, the Eastern African nations need favorable renewable energy policies. One such policy that has been successful in Europe and various developing nations are feed-in tariffs (FITs).[8] A FIT is “a policy instrument used to encourage the growth of an industry in renewable energy generation by ensuring that those who produce electricity from . . . renewable sources have a guaranteed market for the electricity they produce, and therefore a return from their investment.”[9]  

A FIT alone is not enough to make an impact; technology and finance must also play a role. This post discusses an idea that integrates policy, technology, and finance. It involves tailoring a FIT to rural micro-grids, in which private companies support the grid and produce the power.  This means a private company produces power for its own purposes, and sends the excess power to a local micro-grid.

Over the past few years, “mobile network operators have become adept at generating their own off-grid power as mobile penetration has out-paced the growth of the electricity grid.”[10] A mobile phone company’s investment in the local grid makes sense because subscribers with increased access to power can charge their phones more regularly and are thus able to increase usage. More minutes means more revenue. The model of expanding energy access in rural communities in response to the spread of technology has been proven to work. In Kenya, as families acquired televisions and radios over the course of the 1990s, the market for solar home systems became increasingly popular.[11] A similar pattern will likely hold true as cell phone usage increases, but instead of a single home gaining energy access, an entire community will.

Sending excess energy to a micro-grid is a model that has been used previously, but traditionally the grids were powered by diesel. Using renewable energy sources will likely make this energy-sharing less appealing to telecom companies because renewable sources produce smaller quantities of energy.[12] But if the energy generation were to become profitable, as opposed to just convenient, telecom companies may aim to produce enough renewable energy to power their own lines and feed into a micro-grid, making the practice more prevalent. A FIT provides the perfect mechanism to capitalize on this opportunity.[13] If companies can be guaranteed a positive return on their energy production, it is more likely that they will produce excess energy to feed into micro-grids, and more rural communities will gain access to electricity.

One critical factor that needs to be addressed is cost for energy consumers. If it is too high, consumers will not be able to afford it and the FIT will have not been effective. Because government grants cannot cover the necessary costs, donor support is likely necessary. Programs such as Deutsche Bank’s Global Energy Transfer Feed-in Tariffs Program—“GET FiT”—are ideal.[14] Its goal is to “support renewable energy policies that reduce or mitigate investment risks, and consequently attract significant private capital to drive markets for commercially-available technologies.”[15] The proposal presented in this post jives perfectly with GET FiT. Additionally, GET FiT has expressed interest in working with Tanzania because of Tanzania’s commitment to its micro-grids—a positive indication of the potential support for off-grid renewable energy projects elsewhere.[16] 

Key to the success of the telecom energy-sharing model is the mutual benefit to the community and the company. For the community, access to electricity is critical. For the company, the relationship can enhance profits and be billed as an act of corporate social responsibility.[17]  Future opportunities for energy sharing should be presented to local, national and international companies.