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Micro-Hydro Feasibility in Kenya

Micro-Hydro Feasibility in Kenya. Erdem Ovacik, Mike Morgan, Jamie Dean, Adam Nyugen Bridging the Divide, UC Berkeley December 6 th , 2006. Costs/economic feasibility Action potential. AGENDA.

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Micro-Hydro Feasibility in Kenya

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  1. Micro-Hydro Feasibility in Kenya Erdem Ovacik, Mike Morgan, Jamie Dean, Adam Nyugen Bridging the Divide, UC Berkeley December 6th, 2006

  2. Costs/economic feasibilityAction potential AGENDA

  3. GENERATION COSTS LOWER THAN ALTERNATIVES: UTILIZATION IS KEY FOR COMPETITIVENESS Sensitivity analysis (US¢/kWh) • Micro-hydro generation is very cost competitive: • Baseline assumptions: • 20 kW plant • 60% capacity utilization • Depreciated over lifetime of equipment (>20 yrs) • Cost of capital including risk premium at 20% • Considers only generation costs – transmission or distribution not included Utilization: What portion of the generated power is used? US cents/kWh 1- Micro-hydro is cheaper than diesel in any case 2- Micro-hydro could be competitive vs. grid 3- Capacity utilization makes biggest difference 100% 60% 33% Size: How big is the plant? Diesel* Grid** Micro-hydro 50 kW 20kW 5kW Term of commitment: How long does the business consider to operate? 20+ yrs 10 yrs 5 yrs *Assumes for price for diesel = $ 1.1 per liter at the site of generation **Grid price depends on geography, level of consumption, etc. The US¢ gives a representative figure for a large business. Does not include cost of back-up diesel generators in the case of power cuts

  4. PROFITABLE OPPORTUNITIES TO SELL EXCESS POWER • Sell power to communities • Would increase capacity utilization to 15-25% • Need access to communities • Distribution costs estimated at $ 220 / household (HH) • HHs already paying high energy bills, replacing the energy bill would bring significant revenues at 25-40 US¢/ kWh • Overall profitable if communities are near by, densely populated and incur high energy expenditures • Sell power to grid • Would increase capacity utilization to 100% • Need access to grid; transmission costs estimated at $1,400 / km • KPLC pays only 3-4 US¢/kWh • Finlay’s experience is 3.15 US¢/kWh • KTDA negotiates 4.8 US¢/kWh • Grid already relies highly on hydro sources and power shortages are likely to coincide – resulting in penalties, etc • Profitable overall - however uncertain because of KPLC’s unclear policy While one option does not exclude the other, selling back to the community has high profit potential

  5. SELLING EXCESS POWER TO THE COMMUNITY COULD BE HIGHLY PROFITABLE (1/2) The Business Perspective US¢/kWh earned $/year per household NPV=$84 ROI=5.4% • Baseline assumptions: • HHs within 5 km of generation • Average mini-grid extension per HH: 60m (density indicator) • Average capital for connection per HH: $205 (appropriate tech) • Average connection size: 90 W • Access during 6pm-12am • Current energy expenditures average $5 per HH per month (replaced) • HHs effectively pay ~40 US¢/kWh • HHs only utilize excess capacity – no extra generation related costs Revenues Costs Profit Grid Community • Only extra cost to power HHs is transmission and distribution investment • This business brings: • 11$/yr more profits for every new customer • 5.4% return on investment-assuming business makes all distribution investment • The alternative is to sell power to the grid • Even after discounting large investment costs, profits from sales to community are much larger than sales to the grid

  6. SELLING EXCESS POWER TO THE COMMUNITY COULD BE HIGHLY PROFITABLE (2/2) The Community Perspective $ per month $/installation US¢/kWh • Baseline assumptions: • HHs within 5 km of generation • Average mini-grid extension per HH: 60m (density indicator) • Average capital for connection per HH: $205 (appropriate tech) • Average connection size: 90 W • Access during 6pm-12am • Current energy expenditures average $5 per HH per month (replaced) • HHs effectively pay ~40 US¢/kWh • HHs only utilize excess capacity – no extra generation related costs Current expenditures Micro-hydro Grid Micro-hydro Grid Micro-hydro • HHs would be able pay $5 a month to access electricity because this is what they currently spend • Micro-hydro will improve service quality and duration while replacing current expenditure • Effectively, the $5 a month translates to access installation charge at $205 and electricity at US¢9/kWh • Both installation and per kWh charges are much lower than the grid offer • The affordability is even higher compared to grid offer since business assumes all or some of the upfront capital investment

  7. CO-FINANCING DISTRIBUTION AS EFFECTIVE WAY TO REDUCE RISKS • Capital requirements for a scheme including generation and sale to community: • 125 kW generation micro-hydro plant • 3km generation-business transmission • 3km generation-community transmission • Distribution network to 2000 HHs/centers Overall capital requirements US$, thousand Generation Business Community Distribution Total Transmission 30% 5% 5% 60% 100% Percentage of total costs • Essentially, generation and distribution should be treated as two separate businesses • Distribution capital requirement is much larger than generation putting undesirably high risk on the power generating business with relatively low ROI (~5%) • Therefore, distribution business could be separated from independent generator and co-owned and co-financed by the community to decrease risks that micro-hydro implementing business is facing (ie Kenya Tea Development Authority)

  8. Costs/economic feasibilityAction potential AGENDA

  9. KEYS FOR SUCCESS IN DEMONSTRATION PROJECT ARE CLEAR INCENTIVE FOR BUSINESS AND STRONG MANAGEMENT CAPABILITY • Main difference from an ITDG project is ownership and drive of the process by a business • Main goal is to show that given financial incentive, the project can take place without donor help • Important to work with a reliable management team and currently successful business • Working with a business co-owned or fully owned by the community (such as cooperatives) would increase opportunities for collaboration A. Demonstrate on existing business site B. Demonstrate in a new location Existing business-community relationship and successful operational business model A better example to motivate other new investors to invest in micro-hydro and community electrification Pro’s May be hard to locate a micro-hydro site near the business of desire May be hard to find business ready to invest in production in new location given support only for micro-hydro Con’s

  10. DIESEL RUNNER BUSINESSES WITHOUT ACCESS TO GRID ARE MOST LIKELY TO IMPLEMENT MICRO-HYDRO ON THEIR OWN The conference will start the process for both engagements: • Install at existing businesses: • Identify full-time diesel runner businesses • Communicate large and clear savings against diesel even without selling excess power • Check if peak demand > 10kW and average daily consumption > 30kWh • Identify hydro-sources and characteristics within 5 km • Identify other businesses and households within 5 km • Compare financial viability with / without micro-hydro using the excel business model provided • Continue with businesses with access to the grid • Establish business near abundant source: • Identify or watch out for businesses with growth / investment plans • Communicate expected energy costs in potential sites for investment • Compare financial viability with / without micro-hydro and other business investment using the excel business model provided

  11. INSTALLATION NEAR EXISTING BUSINESS: MKULIMA COOPERATIVE DAIRY COOLING WITHOUT GRID ACCESS Cost savings with micro-hydro (at 21% CU*) • Assumptions: • Dairy business cooling milk prior to micro-hydro with diesel power generation at 41 US¢/ /kWh • Produces 25k liters of milk/day • Cools 5 hrs/day using 50kW cooling pump • Has access to micro-hydro flow 2km away, which can support 50kW generation year-round • Has access to capital at a rate of 20% interest • There exists densely populated community of 800 HHs and centers with average spending of $5/month on energy Annualized, US$ thousand ROI= 11% Total MH Generation Transmission Diesel Saving Profits from sales of excess power to HHs (25% CU*) Annualized, US$ thousand ROI= 3.8% Distribution Transmission Total Costs Revenues Profit • Switching to micro-hydro and selling to community are both profitable • Co-financing and co-ownership of distribution network is recommended where community would finance significant part of capital costs – making it a higher ROI business *CU: Capacity Utilization

  12. INSTALLATION NEAR EXISTING BUSINESS: MKULIMA COOPERATIVE DAIRY COOLING WITH GRID ACCESS Cost savings with micro-hydro (at 21% CU*) • Assumptions: • Dairy business cooling milk prior to micro-hydro with grid power backed with dieselat 14 US¢/ /kWh • Produces 25k liters of milk/day • Cools 5 hrs/day using 50kW cooling pump • Has access to micro-hydro flow 2km away, which can support 50kW generation year-round • Has access to capital at a rate of 20% interest • There exists densely populated community of 800 HHs and centers with average spending of $5/month on energy Annualized, US$ thousand ROI= -8% Total MH Generation Transmission Grid Saving Profits from sales of excess power to HHs (25% CU*) Annualized, US$ thousand ROI= 3.8% Distribution Transmission Total Costs Revenues Profit • Switching from grid to micro-hydro is not feasible unless CU is increased further • New businesses or selling excess power back to grid could make the scheme profitable *CU: Capacity Utilization

  13. BACK-UP

  14. LIST OF LOCAL AND INTERNATIONAL SUPPLIERS • Materials: • Metal works: • • Penstocks, piping : • o African Steel Pipes (ASP) • o H. Young • o Zakhem • • Iron carpentry, gates, others : • o Tealand Engineering – (Kericho) • o Duplex Engineering (Kericho) • o Bridge Motors (Kericho) • o K K Engineering • o Marshall Fowler • o J F McCloy • o CMC Engineering • o Specialised Engineering • Turbines: • o Numerical Machining Complex Limited (Nairobi) • Electric components • • Cables • o East African cables • o Kenwestfal • • Electric switchboards and components • o Doshi Electrical • o Switchgear and Controls • o Power Controls • o Electric Link • o A Baumann • o Sitima Enterprises • • Transformers • o Imported – local dealers • Controllers • o Sintronics Ltd (Nairobi) • Contractors: • General contractors : • • A contractors will be needed for intakes, desilters, surge tanks – forebays, power houses and tailraces • • B or C contractors will be OK for canals (headrace), roads, bridges and basement of penstocks • • International : • o Strabag • o Sogea • o Put Sarajevo • o China Road and Bridges • o SIETCO • • National : • o H Young – Currently subcontractor to the Sondu Miriu Hydro Project 60MW • o Mugoya Construction – Was a sub-contractor to the Turkwell hydro project • 106MW • o Kirinyaga - General civil works • o SS Metha - General civil works • o Kundan Singjh - General civil works • o Issaco - General civil works • o TM-AM - Group General civil works • o Victory - General civil works • o Associated - General civil works • Electric contractors: • National : • o Power Technics • o Specialised Power System • o Power Engineering • o M J Vejaria • o Metha Electricals • • International : • o ABB, • o Siemens • o Schneider Electric

  15. LIST OF KEY LOCAL STAKEHOLDERS IN MICRO-HYDRO DEVELOPMENT

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