Private sector-owned mini-grids and rural electrification: A case study of wind-power in Kenya's tea industry

Abstract

We use a discounted cash flow model to explore the impact of electricity pricing and cost sharing rules on the economics of a small wind-powered mini-grid project in Kenya, designed around local tea factories as a demand anchor and connected to the national grid. The results show that including rural domestic and small business consumers in the project increases the overall economic benefit, illustrating the potential gains from using the tea factories as a demand anchor. However, the results also demonstrate that how costs are allocated to different consumer types impacts on participation and on whether the full benefits could be attained. If all consumers must pay towards the infrastructure they use according to their consumption, domestic consumers with low energy demands would not join the mini-grid. Cost sharing rules can be designed where tea factories, small businesses and domestic consumers all individually benefit and would therefore have incentives to participate. However, when the mini-grid is owned by the tea factories there are also possible outcomes where they might prefer to exclude domestic consumers. The results emphasise the need for policy makers to consider appropriate mini-grid tariffing regulation and how these tariffs interact with any existing national electricity pricing systems.