Dependence on non-renewable energy resources is causing harmful effects on the environment so much so that this, together with over-consumption, is contributing to climate change, economic inequality and is wiping out essential species. This report examines how the environmentally and economically promising market of microgrids is a necessary investment which can lessen the dependence on non-renewable resources in eastern African communities where renewable resources are abundant. This type of infrastructure would also help reinforce the labour market in Africa, encourage self-sufficiency in communities, restore confidence in young African communities and lastly incite education and development in urban and rural communities. (Barido et al., 2017) Furthermore, the all-present topic of ‘corporate social responsibility’ (CSR) is more prevalent in a business’ corporate strategy than ever before (Idowu, SO, & Kasum, AS 2014). Companies have had to adapt to the changing environment in the business world and have had to be more answerable to their stakeholders (Hossain, M. S., & Al-Amin, M. (2016)). This report will draw on these two topics in order for an electric utility companyto foster new trajectories towards a cleaner and better environment for all. The primary objective of this report is to provide an analysis of the microgrid industry in a promising Eastern African market with a specific focus on collaborating with the Spanish multinational electric utility company Iberdrola. This paper will give a strategic report in order for the company to invest successfully, develop their business and participate in the world’s largest project today; Sustainable development goals (SDGs). The company will be working towards achieving the United Nations (UN) (2016) SDGs in hopes of helping reach Goal number 7 by 2030; ‘ensuring access to affordable, reliable, sustainable and modern energy for all’.
20% of the world’s population is without electricity. Sub-Saharan Africa accounts for 621 million. Panos et al. (2016), Ouedraogo (2017) and Abubakar Mas’ud et al., 2016) have reported that the region also has the lowest level of access to electricity with over 50% of the population lacking electricity due to national or regional networks being outdated or even inexistent in some rural parts of the continent. The SSA population is set to grow greatly in urban and rural areas, where in 2010 population in the region grew at the world’s highest rate (Abubakar Mas’ud et al., 2016), which consequently heightens the threats associated with access to modern energy. As shown in the figure  below, Sub-Saharan Africa’s access to electricity increased, however it still remains significantly behind other parts of the world. Figure 1: Proportion of the population with access to electricity by region, 2000 & 2012 (%) (Unstats, 2016) Figure 2: Proportion of the global population with access to electricity, 2000 & 2012 (%) (Unstats, 2016) This UN graph indicates that 2012 still saw 65% of the people within SSA without access to electricity, revealing it to be a region with the lowest access with the highest population per square metre than any other world region. Lack of energy sources cause children to be deprived of education due to blackouts, families cannot perform everyday tasks, businesses are running literally against the clock, because at any moment their electricity could cut out. Hospitals have people sitting waiting on surgery tables due to power failures and are putting people’s lives on the line. Businesses shut down or close shop for hours because affordable, clean and most importantly reliable energy is unattainable. Even though research has shown that electricity is fundamental for a society to overcome many of its social and economic obstacles, it is unfortunately unattainable for many. In 2015, during a G20 summit in Rio de Janeiro, the Sustainable Development Goals (SDGs) were created and signed by over 180 countries around the world. One of the aims is to “secure access to affordable, reliable, sustainable and modern energy for all by 2030”. While a conventional way of serving rural communities is to expand the network this can often be technically and economically ineffective due to a combination of capital shortage, weak grid connection and lengthy construction time to connect remote areas (Gandini and de Almeida, 2017). However, an energy storage system (ESS) which works in unison with a renewable source could lessen the gap between people who have and those who are limited or are without access in rural areas. Microgrids and ESS would also minimize the breakdown of essential electrical grids in hospitals, schools, factories and could reduce the number of fatalities also caused by these energy sources in Eastern Africa. Abubakar (2016) and Gandini (2017) advocate that research is showing renewable energy (RE) to be the desired source of energy as financial and environmental disasters and early deaths due to fuel inhalation, of which nearly 600,000 are in Africa, can be traced back to the use of traditional solid fuels.
To achieve the SDGs, this report will attempt to help Iberdrola continue on their path to be the ‘pioneer in Socially Responsible Investment’ which according to their Integrated report from February 2018 is a top priority for the company itself. It will also attempt to address the issue of Energy-transition which for both Iberdrola and their stakeholders is the most significant issue, as seen in the matrix below in figure 
Economic dimensions Environmental dimensions Social dimensions Material issues
- Socially responsible investment
- Economic performance
- Ethichs and integrity (anti-corruption, free competition and fiscal responsibility)
- Responsible supply chain
- Electric and gas infrastructure
- Management of natural capital
- Innovation and new business models
- Integration of renewable energy within the electric system
- Climate change
- Management f biodiversity
- Energy transition
- Availability and management of water
- Customer satisfaction
- Diversity and equal opportunity
- Occupational health and safety
- Impact and local communities
- Human rights
- Attraction, development and retention of human capital
- Connectivity, digitalization and cybersecurity
- Public policy
- Circular economy
- Environmental performance. “Eco-efficiency”
- Vulnerable customers
This report will firstly briefly explain the functions of a grid and present a SWOT analysis which will help to develop a strong business strategy plan. A variety of resources to use with a microgrid will be outlined and the infrastructure and the microgrid market will be analysed to identify the difficulties that could arise throughout different stages of the project. Following on from this, an argument for a suitable candidate will be made for Iberdrola to consider this project in their future endeavours so as to assess the viability of a project of this nature an analysis of internal and external factors will be illustrated. Then, the region that best accommodates this project will be defined and the relevant microgrid for the African territory will be identified. Cost-effective methods of entry will be presented which will facilitate Iberdrola in making an informed decision on their finances, using different methods of funding and taking into account current similar projects and methods used. An insight into the sector’s microgrids are estimated to see substantial sociological and economical improvements and to conclude this report will aspire to convince Iberdrola that together with these aims, taking part in a project like this will not only improve Iberdrola’s image but open a large market for expansion in the future.
Specialized literature has not provided a widely accepted definition of microgrids. However, research conducted by The Schumacher Centre defines microgrids as energy generation systems, which comprise of multiple interconnected loads which feed from several energy sources. The majority of definitions highlight the fact that microgrids have unambiguous boundaries. A subset of the definitions mentions the possibility of them having different types of loads and the inevitable use of smart devices for operational and monitoring purposes. The point of contention, nevertheless, is whether they can or cannot be connected to large grids (the ones that operate at a national or regional level and provide power to multiple cities and towns simultaneously). This report does not exclusively focus on connected or stand-alone systems (lacking any sort of connection to the aforementioned large electrical systems), both will be taken into account for all considerations. Accordingly, the definition of a microgrid which this work is going to adhere to is the following: “A micro-grid is an isolated electrical system of interconnected loads and electricity generation plants providing electricity services to villages and/or small towns comprising of demands from 50 to 10000 families, operated and managed independently. In some cases, smart monitoring and operating equipment may be necessary to enhance efficiency and/or good governability” (The Schumacher Centre, 2014, p. 56). It could be interpreted that this min-max threshold is needed to avoid financial, technical and maintenance issues. On the one hand, building a microgrid aimed at servicing a figure lower than 50 families has proven to not be financially feasible according to onsite research carried out in Latin America by The Schumacher Centre (2014, p.56). On the other hand, designing a facility to bring electricity to more than 10,000 homes makes the project overall overly expensive with an increase in maintenance costs, and would blur the lines between microgrids and urban grids (The Schumacher Centre, 2014, p. 56). With regards to generation capacity, it should be underlined that there are also various types of microgrids in terms of it, with a scale ranging from mini (0.001-0.005 MW) through large (50-300 MW), including small (0.005-5MW) and medium sized (5-50MW) microgrids. Microgrids being the focus of this work, it seems only appropriate to provide the reader with a concise history of them which highlights the most relevant events related to these energy-generating systems.
The origin of the term ‘microgrid’ has not yet been determined. Nevertheless, Pike Research –market research and consulting firm– indicates that the first “modern industrial microgrid” (Wolf, 2017, p. 1) was built in 1955, in the State of Indiana. Even though this 64 MW power system was the pilot project of the modern age, the concept of microgrid can be dated as far back as 1882. It was then that Thomas Edison opened Pearl Street Station a facility designed by him at a time when generation and distribution systems were still not standardized. Edison’s facility fulfilled most criteria for modern microgrids; independence from a larger system, six generators with a producing capacity of 1,100 kW DC and it was powered by steam originated from coal combustion. Similar to most microgrids today, Edison’s Station was modest in size, generated electricity locally and relied on a small distribution network. It was able to serve only a limited geographical area due to the fact that it worked with DC transmission as is true of today’s microgrid. Edison’s facility also comprised batteries for energy storage, as many modern microgrids do. Modern microgrids, not radically different from Edison’s pioneering system, have widely spread in the last decades due to their capacity to protect against outages and shortages, frequently connected to the grid. An event critical to the popularization of microgrids was Superstorm Sandy, which hit North-eastern U.S. in 2012. The storm left millions of households without electricity for weeks, but many noticed that in a certain number of buildings in the states of NY, New Jersey and Connecticut lights were still on thanks to microgrids at work. This raised awareness around microgrids, even at a political level, and led to their inclusion in the rebuilding of the grid that powered the region (Wolf, 2017, p. 1).
To illustrate the value of microgrids as a means of making electricity available, a SWOT analysis of them is provided and summarized below in a graph for ease of reference. The SWOT analysis has been chosen for it is a systematic method which provides the proper framework for a management team to consider all internal and external factors that might affect the performance of a project such as the investment in microgrids.
- Microgrids open the possibility to rely on local and independent management, which can contribute to a more active role of the user in the decision-making process, or at least a better predisposition towards meeting his specific demands. Local management also fosters local employment and empowers local inhabitants.
- Under competent management, microgrids have the potential to protect against blackouts and power shortages, providing a reliable and independent energy service. Large grids breakdown often, causing great discomfort or even leading to life-endangering situations in some cases. In regions where power outages are frequent, utilizing power grids can greatly aid electricity access. Facilities to which power grids will be of absolute help include gas distribution lines, research facilities, hospitals, grocery stores, police stations and water treatments plants, as the use of these renewable energy grids can also prevent major disasters from occurring where an outage can be catastrophic.
- Microgrids can be powered by clean local energy sources. These sources of energy are environmentally-friendly, renewable and are not subject to price fluctuations or other external factors, which contributes to safeguarding the natural heritage and the financial stability of the population served. Additionally, utilising microgrids to manage distributed clean energy resources such as wind and solar photovoltaic in regions lacking these, represents a huge value for private sector investors and is a great incentive in mobilising capital in the microgrid sector.
- Should the demand for electricity grow abruptly, there is a risk that the system would be overloaded shortly after the beginning of service. This emphasizes the need to plan accordingly beforehand and consider how demand may vary over time before initiating the project.
- Small micro-grids (serving up to 500 households) are not likely to succeed at paying back the up-front investment, which counteracts the financial feasibility of the project.
- As for technical constraints, it is worth noting that conventional petrol-powered systems and renewable energy-based microgrids are not designed, modelled or planned the same way, which most fail to consider. Renewable energy-based designs are more complex in nature due to the reliability of the grids being dependent on customer demand and the availability of the renewable energy in question. The design process therefore comprises the deep understanding of these variables and without this, the lifespan of the installed microgrid is thus curtailed by poor and inadequate designs as seen in several designs which failed to consider the worst-case scenarios.
- Regulations and guidelines of many countries –such as Germany, Denmark and Sweden, among others (Anaya and Pollitt, 2015, p. 1)– promote the use of distributed energy resources (DER) with the aim to reduce environmental impact, lower service costs, increase the efficiency, stability and endurance of the system (Martin-Martínez et al., 2016). As Akinyele (2018: 1) puts it: “the advocacy for low-carbon future by policy-makers, governments, developers, independent producers, industrialists and other concerned stakeholders, present microgrid as a promising electricity generation option now and in the future”. The growing adoption of renewable energy, the quest to reduce energy generation costs, fossil fuel dependency as well as the need for efficient grid infrastructure have driven the installation and growth of microgrids in Africa. This speaks for the proliferation of microgrid over the last few years.
- There is great demand for off-grid energy generating systems since 1.3 billion people (about 20% of global population) lack access to electricity supply. According to the International Energy Association (IEA), approximately 622 million of them are in Africa (Akinyele et al., 2018, p. 1). Over 62% of these people (approximately 750 million) will benefit most effectively from these services through remote, off-grid power solutions such as isolated microgrids. Consequently, experts have estimated that the market for micro-grids in Africa shows great potential for development.
- In a bid to alleviate financial strain as well as improve upon their CSR image, commercial and industrial customers can examine how microgrids can be beneficial – be it in the reduction of the company’s carbon emission or its supporting or ancillary activities. This can be seen as a further factor fostering demand for this energy generation systems.
- An additional source of opportunities is utility load growth. To meet the world’s ambitious electrification targets, another business case for microgrid is that of when facilities experience substantial load growth requiring the need for an additional substation. By connecting a centralized microgrid to the existing substation, majority of the electrification load is covered by the microgrid hence resulting in significant cost savings.
- Several studies suggest that a high neglect or lack of critical analysis of the enabling conditions for microgrids has been the primary cause of microgrid’ failures in several off-grid areas.
- Lending institutions will thoroughly examine the financial feasibility of the micro-grid and automatically reject small-sized projects.
- Failure to interact and engage with the communities for whom the microgrids are intended continues to pose a problem in the successful deployment of microgrid projects. Without the community’s involvement in sustaining the renewable energy systems, long-term sustainability cannot be guaranteed. This is currently the case of many African countries, particularly communities in Nigeria. Insufficient community engagement can be catastrophic to microgrids as they are commissioned for and tailored to a particular community. Therefore, it is vital to get stakeholders in the community engaged and do it in a structured manner.
- Additionally, the problem of acquiring land also brings about the stalling of these projects as there in no clear-cut agreement between the stakeholders, namely the investment community, the developers, the government and the customers (Akinyele et al., 2018).
- With regards to propriety, a further potential threat to microgrids would be the mistaken assumption by its members that they are not to assume the ownership of the facility. This is due to the fact that most of already existing microgrids have been donated to local communities and locals frequently expect the donors to take charge of maintenance and operation of the infrastructure (Akinyele et al., 2018).
- The low level of social awareness also constitutes a microgrid failure factor. Proper management of the systems cannot be put into place when renewable energy-based microgrids are not understood in the first place. It is indisputable that there needs to be increased education on what microgrids are and how they operate rather than solely having optimistic views on how they improve and accelerate the global electrification process. Presently, an estimated two-fifths of Nigeria’s population is unaware of solar photovoltaic (PV) systems.
Now that the value of microgrids has been accounted for, it would be interesting to get into what kind of infrastructure would be necessary. Microgrids can be powered by virtually any electric source available on-site. Before the advent of renewable energies, the two most-extended sources were diesel motors and Micro-Hydro Power Plants (MHPP), which are both capable of generating power at either 110V, 220V or 440V. Depending on the distance of the served population from the source, these plants would either generate power, to then transmit it and finally distribute it or merely generate and distribute it directly. The location of the energy generating system in relation to the population served therefore plays a vital role, as it determines the need for a transmission system, comprised of lines and transformers which raise tension to ensure voltage drops are kept at a minimum. When necessary, these transmission systems increase the cost of the arrangement significantly, the further the distance between the source to the consumer, the higher the cost increase (Gui et al., 2017). Now that the occasional need for a transmission system has been presented, the most frequent infrastructural elements of a microgrid will be illustrated: Firstly, construction of the generation plant, including elements that will vary according to the source of energy used to power the microgrid (works to erect a power house, install a turbine, put up windmills, solar panels, and so on). Secondly, distribution lines, which comprise cables, posts and meters, among others. Lastly, electromechanical equipment, that is to say, the very machines aimed at generating electricity as well as secondary equipment in charge of monitoring the operation of the facility. A figure showing a simplified MHPP microgrid arrangement is provided below to assist the reader in the understanding of the typical components of a microgrid. Figure 3: Typical components of a MHPP Microgrid (The Schumacher Centre, 2014, pp. 58) The figure shows the entire energy journey from generation to consumption. Initially, electricity is generated with a hydraulic turbine collecting kinetic energy from falling water at the powerhouse. Then, as the population lies far away from the generation plant, a step-up transformer is used to raise tension so as to prevent a drop in voltage. The energy flows then throughout the transmission cables until it reaches a step-down transformer, which then lowers tension back. This low-tension electricity travels through the distribution network until it finally reaches every home. In the early 1970s, when environmentally-friendly sources of energy arrived, micro-grids started to comprise of photovoltaic systems (PV), wind turbines and biomass generators. The intermittent nature of PV and wind generators made it necessary for Microgrid to incorporate batteries so that they would be able to service users even in the event of this source of energy being temporarily unavailable. Due to the fact that batteries only work with a direct current (DC) and most domestic appliances need an alternating current (AC) to function, the incorporation of batteries brought along with it inverters, which are used to change DC to AC (The Schumacher Centre, 2014, pp. 56–58). The following table succinctly summarizes the infrastructure requirements for microgrids depending on the chosen energy source:
|Technology by source of energy|
Infrastructure components required
|Solar PV Systems||MHPP||Wind Generators||Biomass Systems||Diesel Sets||Hybrid Systems|
|Civil works||Small works||Large works||Small works||Relatively small works||Small works||Depends on the combination of technologies|
|Electricity storage system (batteries)||Large storage systems required||Not required||Large storage systems required||Not required||Not required||Depends|
|Inverter||Required||Not required||Required||Not required||Not required||Depends|
|Transmission lines||Generally not required||Most cases require||Most cases require||Not required||Generally do not require||Depends|
Iberdrola in the last year has set aside €246 million in order to fund projects in developing smart grids and clean energy processes and has also put in place a programme called “Electricity for all” which entails promoting and developing renewable energy resources in the electrical sector. Owing to their involvement in these causes, Iberdrola appears to be concerned with following their strategic path in investing in renewable energies. It can be interpreted from the response received from Iberdrola that emerging countries are being considered by the company as they declined to discuss related projects any further. In the last 3 years Iberdrola has shown their interest in emerging markets as they have successfully donated to the advancements in the energy sectors in Africa, Latin America and most notably with their joint venture in Iluméxico with Engie. Iberdrola´s specialization in renewable energy and the areas deprived of electricity in Africa would give them an opportunity to put in place a new strategic development movement on the continent. Moreover, there is no doubt that Africa is rich in renewable energy sources and furthermore, it is a place where Iberdrola has not invested in microgrids before. This implies that an economic movement towards this continent will generate a positive impact in terms of Corporate Social Responsibility, economic viability, and broadening Iberdrola’s portfolio. Therefore, this report intends to enclose a framework that will enable a company to put into effect an investment with these characteristics. This proposal would be taken into account by a company like Iberdrola in order for them to make their final decision. The tools used for decision-making are the ones provided by the economic and business doctrine.
As explicitly stated on the Iberdrola corporate website, renewable energies are one out of their three key Strategic Business Units (SBU). Further proof of their investment in renewable energy is the fact that in the first trimester of 2018, 47% of their total production involved renewable energy (Iberdrola S.A., 2018). One of the main aims of this project is to continue on the road of energy transition particularly in emerging countries. After reviewing the different renewable energy sources that can be used with microgrids, solar and wind energy stood out as Iberdrola’s prime areas of expertise. Being a world leader in wind power, an investment in Africa would allow Iberdrola to introduce their technology on to the market, while also expanding their portfolio through further advancement in solar energy. Therefore, it seems appropriate to assess how valuable a microgrid project powered by solar and wind energy in Africa might be. A SWOT analysis would provide a holistic overview while remaining and allowing succinct for ease of reference. This SWOT analysis will be based on these two power sources to finally determine the area which best adapts to the investment.
A SWOT analysis combines a study of the strengths and weaknesses of microgrids with the opportunities and threats of the environment. The goal is to take into account external and internal factors by maximizing potential strengths and opportunities and minimizing weaknesses and threats. Thus, to implement the project microgrids, an analysis is presented so as implementation is more effective and efficient. This will show Iberdrola the benefits of microgrids as well as threats and weaknesses.
- The distribution of solar resources across Africa is uniform, with more than 85% of the continent’s landscape receiving at least 2,000 kWh/ (m² year).
- Being uniformly distributed across the continent (Govinda 2011), this helps in making the decision of where to undertake the project.
- Most adapted to rural electrification and stand-alone systems.
- Solar PV is much more competitive in off-grid or mini-grid applications.
- Solar can also be an effective element in a broader suite of modern energy solutions, such as solar lanterns, ovens and water heaters.
- Wind energy is intermittent, and electricity generated from wind can be highly variable
- Massive production wind energy is neither storable nor dispatchable (Hirth et al. 2016).
- Supplies from solar energy will require continuation of potentially costly policy supports (Govinda 2014).
- Solar PV and wind turbines are the least-cost renewable technologies, and both could be competitive on a levelized cost basis in many SSA countries (IRENA, 2015b).
- Prices of solar panels are falling with the entry of China as the biggest player in PV industry (Mayur Sontakke 2015).
- Solar energy benefits from fiscal and regulatory incentives and mandates, including tax credits and exemptions, feed-in tariffs, preferential interest rates, renewable portfolio standards and voluntary green power programs in many countries (Govinda 2014).
Current costs of renewable power still exceed those of most fossil technologies, although this gap has closed substantially through considerable technological development: the cost of solar photovoltaic (PV), for example, has decreased by 50% over the last four years (IPCC 2011; IPCC et al. 2014; Rogelj et al. 2015). The cost of the solar installations is the most expensive of all Renewable Energy Technologies (RETs).
- On the other hand, there are not many options for supplying dispatchable renewable power at large scale (Labordena et al. 2017).
Now, there is a need to decide on the geographical area of Africa suitable for the said investment. For this, arguments will be presented in support of this proposal. First, the North is being discarded, as 99% of North Africa’s population has access to electricity (Johnson, et al. 2017). Even though Central Africa has the highest hydro and biomass potential due to the mighty Congo River and its basin and equatorial forest (World Bank, 2011), this work focuses on microgrids powered by renewable energy sources. Finally, North and South of Africa are known for having the best access to solar and wind energy due to Sahara and Kalahali Deserts (Labordena M. et. al. 2017); which could be a good place to install solar panels and windmills. However, solar energy is the most abundant type of energy source in West Africa, whilst Eastern Africa boasts of both wind and solar and has a de facto monopoly in geothermal energy (Niyibizi, A. 2015). East Africa showed the highest growth rate in GDP in the year 2015 of 4.2% and according to research the population in Eastern Africa is said to grow rapidly to hit the one billion mark before the end of 2030 (Ouedraogo, 2017). As shown below, it was finally decided upon to choose Eastern Africa as all studies done by the authors of this report led to this geographical zone being the most compatible. In sum, this report investigates solely on the Eastern regions. At this point, the PESTEL model will aid define the Renewable Energy’s macroenvironment in Eastern Africa, which will highly influence the decision. The PESTEL analysis allows a global vision of the environment by taking into account six (6) factors: political, economic, sociocultural, technological, ecological and legal. By also using a risk matrix, it can analyse which risks could arise during the development of the project in the Eastern African zones. Iberdrola has no control over these variables however they could have a strong impact on them. Thus, the PESTEL analysis makes it possible to anticipate and better prepare the company within this continent. Thus, for microgrids projects, potential catastrophes can be avoided so as the best tools are implemented.