One of the biggest challenges which has bedeviled General Electric, for years now, was the acquisition of Alstom’s power and grid business. I called that move a very bad one considering that GE Capital was also evolving at the same time. Large scale grid electricity was passing through a redesign and any company betting on its sustained viability was clearly out-of-phase with reality. Indeed, across all metrics, electricity supply will become increasingly decentralized in communities and industrial regions. Yes, grid power will lose to pockets of small energy suppliers.
That is what is happening in Kenya. Kenya Power, the national electricity company, is not happy as the national grid is losing some of its best customers to decentralized electricity providers. Yes, customers have moved on and the government cannot sell its products: “Dampened demand growth is further compounded with the increased threats of grid defection by the industrial category as decentralized renewable energy options are becoming more available and cheaper”.
But M-Kopa, which was just four years old at the time, has grown rapidly in that time, reflecting the broader progress in the sector as renewable energy solutions are increasingly adopted as viable workarounds to plug the wide gaps in electrification in Kenya and across the continent. Yet, a half decade later, there are fears that looming regulation in the East African country is signaling a possible shift in the government’s outlook on the sector.
Those fears come in light of the latest annual report by Kenya Power, the national electricity company, which showed local demand growth for electricity lagged below the projected level of 5%. Even more crucial is the reason presented as a suspected cause of stunted demand. “Dampened demand growth is further compounded with the increased threats of grid defection by the industrial category as decentralized renewable energy options are becoming more available and cheaper,” the report stated.
It is what it is: the national grid will get to a state where it cannot find people to buy its products, in most parts of Africa, since the customers are not waiting for them to fix their problems. Companies like Unilever and Dangote Group generate their own power, and those are lost good customers to the national grid. What happens here is unfortunate: we expect the national grid to invest but the reality is that some of their best potential customers have found alternatives, leaving them to service largely not-very-profitable customers. Yes, they serve communities which are not likely to pay them, even as the industrial and commercial customers have moved on. I have made this point here as the biggest challenge in the electricity sector in places like Nigeria. Call it the Nigerian trap.
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Besides, it is very clear in Nigeria that the best electricity customers are already out of the national grid. So, who do you expect (grid) electricity investors to finance production for? Simply, electricity is a special product in a developing nation like Nigeria. That is why a distribution company (DISCO) will choose to provide services to 2,000 homes even though one factory nearby can absorb all the energy and pay higher premium on top. Technically, you cannot serve your “best” customer [someone who is ready to pay highest fee] based on pure monetary revenue due to regulation which also gives you quasi exclusivity in the region. It is far logistically easier for DISCOs to send all the power generated in Lagos to top 30 firms in Lagos instead of working to serve hundreds of thousands of households. But they cannot because electricity is not an ordinary product!
The Revolt of Nigeria’s Electricity DISCOs on Smart Meter Disintermediation
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It’s a quandary, investing and building a product whose potential best customers have already moved on.
A grid system cannot be considered a viable business in this contemporary time, so the best bet would be to have generation point located where the consumption happens, whatever source that is available.