Off-Grid Utilities

Seeding the integrated utility revolution

This year may prove to be a significant milestone in Shell Foundation’s work to bring modern energy services to people in Africa living on $2 to $10 a day.

For more than 18 months, SF has been incubating a new business model, referred to as the Energy Company of the Future, to catalyse a fully-integrated utility approach that improves existing grid reliability, provides additional generation capacity, and delivers affordable off-grid technologies such as solar home systems and mini-grids in rural areas where grid extension is not yet viable.

The aim has been to take a customer centric approach that supports universal access to energy for customers at all income levels, and equips households and businesses with the means to put the received energy to good use, for example by financing key domestic and productive use appliances from TVs to refrigerators to solar pumps.

From mini-grids to off-grid utilities

SF’s first experience in the mini-grid sector dates back to 2008, supporting Husk Power with a biomass mini-grid model in rural India. Based on customer demand for reliable power, SF worked with Husk to develop a customer-centric utility model to deliver 24/7 A/C power to customers in Bihar, India. The importance of customer-level data and smart meters to run these types of models led to a new partnership with SparkMeter in 2015 to develop an affordable, smart metering solution specifically designed for the remote off-grid sector.

Over time, we have nurtured a portfolio of partners to improve the viability of mini-grids by lowering costs to serve and accessing blended capital, resulting in the creation of Odyssey Energy Solutions, an IT platform to effectively and transparently deploy donor funding and provide asset monitoring services to investors (in partnership with our long-standing incubation partner Factor[e] Ventures). We also supported the creation of a new project equity facility specifically for mini-grids with Cross Boundary Energy Access (CBEA) and the creation of the African Mini-grid Developers Association (AMDA) to align the sector’s voice in Africa, share market data and support policy-makers and investors.

In recent years, the sector has made substantial progress towards better understanding the market opportunity of the sector positioned to serve 100 million people in Africa alone. The private sector has started to coordinate through AMDA to align messaging on policy and financing needs and promising progress has been made with large programmes committed to mini-grids from the World Bank and the Africa Development Bank.

Despite this, and factoring in continued innovation and growth of existing models, research with Catalyst Off Grid Advisors (2017) shows that the UN Sustainable Development Goal for universal energy access (SDG7) will be missed by more than 100 million households. This reality spurred our continued search for more integrated utility-type models which can deliver services to both on- and off-grid customers in both urban and rural areas.

Image of a man working on Husk site

An engineer works on a Husk plant platform

SDG7 will be missed by more than 100 million households. We need more integrated utility-type models which can deliver services to both on- and off-grid customers in both urban and rural areas.

Integrated distribution models

Large scale utility companies and off-grid companies still work in isolation, despite obvious synergies related to government policy, regulation, cost efficiencies, technology and cross-subsidisation. In partnership with DFID, USAID and the Rockefeller Foundation, SF started to identify integrated distribution models predicated on partnerships with existing utilities, public sector backing and a customer value proposition for access to 24/7 reliable power for all, irrespective of location and income levels.

The ability to serve all customers – from large commercial and industrial customers to rural, residential customers – is critical to achieving SDG7. Most off-grid models exclusively serve low demand households and lack the anchor loads or commercial customer base to achieve commercial viability and scale. On the other end of the spectrum, some business models focus only on serving the more profitable commercial and industrial customers and leave underserved customers without much improvement in energy provision.

The past 18 months were spent developing the idea from a concept to a business model ready for testing and validation by engaging utility distribution companies across Sub-Saharan Africa and India to explore possible partnerships.

This work has resulted in the creation of a new business, Konexa, launched this year – which seeks to radically transform access, reliability and affordability of electricity in three Sub-Saharan countries, with the goal of reaching over 50 million customers through grid and off-grid solutions.

Konexa: The Energy Company of the Future

Konexa is currently validating the integrated utility model through a pilot project in northern Nigeria. To this end, it has signed commercial agreements with two Nigerian distribution companies and identified a pilot area around several 11kV feeders serving a population of around 50,000 to test and refine its approach. Konexa aims to start deploying initial solar home systems and mini-grids later this year and refurbishing the existing grid infrastructure in 2020.

One of the most important roles for Konexa is the ability to carve out special purpose vehicles (SPVs) containing utility assets that allow infrastructure investors to come in without taking on the risk of the incumbent utilities’ existing financial state. Particularly in Nigeria, where many utilities have a negative value, Konexa’s role in unlocking capital for grid renovation is potentially game-changing.

The many years of SF’s off-grid learnings have been incorporated into the Konexa model, such as the need to ensure households and businesses have access to appliances to improve the sales of energy as well as ensuring the economic development of the village, so customers can afford it. The usage of smart technologies, such as pre-paid metering, combined with customer centric business models that have evolved from off-grid solutions, will help demonstrate a path to utility reform.

Though early days, our hope is that Konexa is one of several new models that will deliver a much-needed step change to accelerate progress towards SDG7. Having supported the business to launch, SF will play an early-stage role to enhance its ability to serve lowest-income customers while seeking second-stage support to take it to scale. We will share learnings and insight from this new approach as the work progresses.