A case study elaborated for the 2016 Summer class of TSLR

By Anna Hazan, Violetta Pleizler, Leonard Yegon and Daniela Stoilova

12-16 September, Turin

• Kenya is country in East Africa, approx. 40 millions people;

• Sidonge settlement is in Busia District, West Kenya – approx. 600 people in rural area;

• Population is active in agriculture; • Average minimum monthly income

- 86 Euros (9,808 KES); • Average monthly household

income in the village - 50 Euros ( 5,500 KES);

• 15% of this income is for conventional energy costs of the family;

• Each family spends approx. 13-22 euros per month for energy, water, medicines and fertilizers;

Sidonge

• 2011 – KUDURA* Pilot Project – integrated mini-grid utility hub that provides electricity, clean water, biogas and organic fertilizers

• provision of electricity and clean water for 20 customers in Sidonge

*Kudura is in Swahili, means “power to change”

2016 - Sidonge Capacity Upgrade project provides for: • extension of the network from existing electrical mini-grid from 20 connections up to 40 household connections; • inclusion of 5 new local businesses with electric power; • offer lantern rental service to households where mini-grid expansion is not economically viable; • upgrade the solar generation capacity output from 1kWp to 7kWp; • upgrade storage capacity from 670Ah to 1,700Ah; • integrate 5kVA auto-start diesel generator set; • deployment of prepaid smart meters using M-PESA mobile payment.

Red color – existing grid; Yellow – expanding grid

• Electricity generation in Kenya is liberalized with several licensed electric power producers, distributors and transmission utilities;

• Current average prices for domestic consumers are 10.55 KES/kWh (0,09 Euro/kWh) for consumption between 0-50 units;

• Inhabitants of Sidonge village could not afford connection fee to the national grid; they use a local solution – Kudura / Sidonge upgrade project;

• Sidonge Capacity Upgrade project should obtain a modification of its licenses for generation and distribution.

Players:

Current: the Sidonge community; Sidonge Selfhelping Group; consumers; the Portuguese entrepreneurship; and the Swedish

start-up company;

Possible in the middle term future (to join): the Kenyan Energy Regulator; and the Kenya Power & Lighting Company;

Relationships:

Business relation: Sidonge community – consumers – the Portuguese company;

Social relation: improving the prosperity of local society in rural area;

Incentives:

Institutional: Sidonge community (may be not so formal);

Shadow: Energy Regulator and Kenya Power & Lighting Company;

Information:

In-house: from local community & Kenyan state and district authorities;

Transmitted: from Portuguese and Swedish companies.

• Sidonge the total project capital cost is estimated at KES 6.39M (€ 58,000). 52% financed by loan (Swedish Start-up Company) and 48% by equity (Portuguese Entrepreneurship).

Directions value Unit

Cost of investment/asset 32 978 Euros

financed by equity 15 829 Euros

financed by loan 17 149 Euros

Useful life 20 Years

Operating start date 1 January 2016 Datum

Expected quantity sold p.a. as result of investment 13,490 kWh

Capital structure: 100 %

Equity 48 %

Debt 52 %

Tax rate 30 %

Revenue from investment project (sale of Electricity) 6139

Operating costs: 4 399

Energy consumption + disposal costs 0

Personnel costs 580

Insurances 0

Raw materials 1 948

Depreciation and Amortization 1 708

Other operating expenses 0

Maintenance 163

Operating income/loss 1 711

Interest expense 1 106

Income (loss) before tax 605

Tax provision -181

Result for the period 423

Unit price per kWh 0,4550

If budget available insert data for years 2016 onwards, if budget unavailable make predictions on potential increase in revenues and costs

Percentage annual increase in revenues 3,00%

Percentage annual increase in operating costs 3,00%

Tax rate 30,0%

• Chosen regulatory instrument – Rate of Return

• Financial calculation –

Revenue Requirement = ((Assets*Rate of Return) + Opex + Taxes + Interest expense) / expected amount of sold electricity quantity

€ 0.4550

• Equity issues - 52% financed by loan and 48% by equity.

The expected cost of the equity is 9.9%. The WACC is 7.10%. And the investments in assets, related to the electricity is 31 512 Euros.

• Negotiation issues – local willing-to-pay (WTP) survey, done in advance

• Environmental issues - not applicable

Current analyses are focused on the up-to-date situation • Availability of data

• project documentation of the Portuguese company - figures only for the electricity-part data;

• website of the Kenyan Regulator; • Wikipedia data on Kenya.

The Opex and investment assets are separated according to

the income from 4 services: electricity, water, biogas and organic fertilizers.

• unit price of the current case study is much higher (0,455 €/kWh) than the unit price of national grid (0,09 €

/kWh), but.. • there is also a connection fee to the national grid

(about 1,000 €), which is not affordable for the population in the village.

• Project has many positive outcomes and due to these outcomes the families can raise their monthly income.

• the project should be implemented and it will

contribute for the community wealth.