ENERGY STORAGE IN KENYA AND THE PHILIPPINES · ENERGY STORAGE IN KENYA AND THE PHILIPPINES A Sub...

ENERGY STORAGE IN KENYA AND THE PHILIPPINES A Sub Sector Analysis of Market Opportunities for German Companies

www.export-erneuerbare.de

Imprint

Authors

Christian Diaz Stark

Daniel Fricke

Javier Guzman de Baya

Débora Santos

Stefanie Werler

Yi-Fan Wu

November 2013

Publisher

Deutsche Gesellschaft für Internationale Zusammenarbeit (GIZ) GmbH

On behalf of the

German Federal Ministry of Economic Affairs and Energy (BMWi)

Contact

Deutsche Gesellschaft für Internationale Zusammenarbeit (GIZ) GmbH

Köthener Str. 2, 10963 Berlin, Germany

Tobias Cossen

Phone: +49 (0)30 338424 404

Email: [email protected]

Web: www.giz.de/projektentwicklungsprogramm

Web: www.export-erneuerbare.de

Picture on cover: www.lewallpaper.com

This report is part of the Project Development Programme (PDP) Sub-Saharan Africa and Southeast Asia. PDP Sub-Saharan Africa and Southeast Asia is implemented by the Deutsche Gesellschaft für Internationale Zusammenarbeit (GIZ) GmbH on behalf of the German Federal Ministry of Economic Affairs and Energy (BMWi) under the “renewables – Made in Germany” initiative. More information about PDP and about renewable energy markets in Sub-Saharan Africa and Southeast Asia can be found on the website www.giz.de/projektentwicklungsprogramm.

This publication, including all its information, is protected by copyright. GIZ cannot be liable for any material or immaterial damages caused directly or indirectly by the use or disuse of parts. Any use that is not expressly permitted under copyright legislation requires the prior consent of GIZ.

All contents were created with the utmost care and in good faith. GIZ assumes no responsibility for the accuracy, timeliness, completeness or quality of the information provided.

i

Content

1 Introduction 1

2 German Renewable Energy Industry Overview 3

2.1 Renewable Energies and Energy Storage Systems 4

2.1.1 Types of Energy Storage 4

2.1.2 Technology Focus 5

2.2 German Company Overview 6

2.2.1 Energy Storage Industry Overview and Segmentation 9

2.2.2 Strengths and Weaknesses for Internationalization 11

2.2.3 Needs and Requirements of German Companies 13

2.2.4 German Energy Storage Association (BVES) 14

3 Market Analysis 15

3.1 Sub-Saharan Africa 15

3.1.1 Energy Sector in Sub-Saharan Africa 15

3.1.2 Country Selection in Sub-Saharan Africa 16

3.2 Overview of the energy industry and market in Kenya 18

3.2.1 Macroeconomic analysis 19

3.2.2 Industry Analysis 23

3.2.3 Market Size Estimation 31

3.2.4 Summary of Industry Attractiveness 35

3.3 Southeast Asia 37

3.3.1 Energy Sector in Southeast Asia 37

3.3.2 Country Selection in Southeast Asia 37

3.4 Overview of the Energy Industry and Market in the Philippines 40

3.4.1 Macroeconomic Analysis 40

3.4.2 Market Size Estimation 43

3.4.3 Industry Analysis 49

3.4.4 Summary of Industry Attractiveness 51

4 Business Support in Kenya and the Philippines 54

4.1 Business Support in Kenya 54

4.1.1 Partnerships 54

4.1.2 Financing Opportunities 55

4.1.3 German Government Support 55

4.2 Business Support in the Philippines 57

4.2.1 Market Entry 57

4.2.2 Partnerships 58

4.2.3 Financing Opportunities 59

4.2.4 German Government Support 59

4.2.5 Events and Activities 60

5 Recommendations for GIZ Fehler! Textmarke nicht definiert.

6 Conclusion 63

ii

List of Tables

Table 1 List of importing markets for a product Exported by Germany HS 850720 Lead-acid

electric accumulators (excl. spend and SLI batteries), Unit: USD thousand 8

Table 2 List of supplying markets for a product Imported by Germany Product: 850720 Lead-acid


Table 3 Strength and weaknesses of German companies in the energy storage industry 13

Table 4 Country selection Sub-Saharan Africa 17

Table 5 Renewable energy targets by 2030 in Kenya 31

Table 6 Country selection Southeast Asia 38

Table 7 List of products exported and imported by Philippines HS 8507: Electric Accumulators,

Unit: USD thousand 43

Table 8 List of importing markets for a product Exported by Philippines HS 850720 Lead-acid


Table 9 List of supplying markets for a product Imported by Philippines 850720 Lead-acid


Table 10 Selected battery manufacturer and battery trading companies in the Philippines 45

Table 11 Distribution of mini-grids as per installed power capacity (Source: Paul Bertheau,

Geographic, Technological and Economic Analysis of Isolated Diesel Grids, 2012) 46

Table 12 Expected accumulated revenues from battery sales in diesel-hybrid systems in 2012 in

EUR 48

Table 13 Expected accumulated revenues from battery sales in diesel-hybrid systems in 2030 in

EUR 48

Table 14 Off-grid segmentation according to DOE 52

Table 15 Summary of the most important fiscal and non-fiscal incentives for on-grid renewable

energy projects 58

List of Figures

Figure 1 Gross electricity generation in Germany 1990 (left) and 2012 (right) according to energy

sources in percent of total electricity generation 3

Figure 2 Summary of major storage technologies by discharge rate for different scales of

application 5

Figure 3 Diesel-hybrid system 6

Figure 4 List of products exported by Germany HS8507: Electric Accumulators 7

Figure 5 List of products imported by Germany HS8507: Electric Accumulators 7

Figure 6 Kenya shift from agricultural economy to a service economy 20

Figure 7 The continuing demographic transition in Kenya 21

Figure 8 Key players and customers of solar battery industry in Kenya 23

Figure 9 Battery applications for renewable energy system in Kenya 32

Figure 10 Segmentation of households by use of renewable energy system in Kenya 32

Figure 11 Estimated market size for batteries in renewable energy systems for households in Kenya 33

Figure 12 Segmentation of hotels by use of renewable energy system in Kenya 33

Figure 13 Estimated market size for batteries in renewable energy systems for hotels in Kenya 34

Figure 14 Segmentation of telecom base stations by use of renewable energy system in Kenya 35

Figure 15 Estimated market size for batteries in renewable energy systems for telecom customers in

Kenya 35

iii

Figure 16 Exchange rate EUR-PHP in 2013 42

Figure 17 Philippine benchmark interest rate from January 2012 to October 2013-11-21 42

Figure 18 Expected accumulated revenues from battery sales in diesel-hybrid system in 2030 based

on adaption rate 48

Figure 19 Distribution of diesel off-grid generation capacities in the Philippines of total 375MW 52

Currency

1 USD = KES 85,67 (November 2013)

1 EUR = KES 115,09 (November 2013)

1 USD = PHP 43,74 (November 2013)

1 EUR = PHP 58,80 (November 2013)

Measurement

W Watt Wp Watt peak Wh Watt hour

kW Kilowatt kWp Kilowatt peak kWh Kilowatt hour

MW Megawatt MWp Megawatt peak MWh Megawatt hour

GW Gigawatt GWp Gigawatt peak GWh Gigawatt hour

iv

List of Acronyms

AHK

AMORE

BMU

BMZ

BPI

BVES

CAES

CAK

CAPEX

DOE

DSW

DU

EC

EEG

EPIRA

ERC

GDP

GIZ

GPCCI

HDI

IEA

IFC

IRENA

KEBS

KEREA

KPLC

LGU

NaS

NEA

NGO

NIMH

NPC

NPP

NREP

OBI

PBI

PRES

PSB

PV

QTP

RE

RPP

SAGR

SEF

SLI

Deutsche Auslandshandelskammern (German Chambers of Commerce)

Alliance for Mindanao Off-grid Renewable Energy Program

Bundesumweltministerium (Federal Ministry for Environment, Nature Conservation

and Nuclear Safety

Bundesministerium für wirtschaftliche Zusammenarbeit und Entwicklung (Federal

Ministry for Economic Cooperation andDevelopment

Bank of the Philippine Island

Bundesverband Energiespeicher (German Energy Storage Association)

Compressed Air Energy Storage

Cooperative Alliance of Kenya

Capital Expenditures

Department of Energy

Deutsche Stiftung Weltbevölkerung

Distribution Utility

Electrical Cooperatives

Erneuerbare Energien Gesetz (German Renewable Energy Act)

Electric Power Industry Act

Energy Regulatory Commission

Gross Domestic Product

Deutsche Gesellschaft für International Zusammenarbeit

German-Philippine Chamber of Commerce and Industry, Inc.

Human Development Index

International Energy Agency

International Finance Corporation

International Renewable Energy Agency

Kenya Bureau of Standards

Kenya Renewable Energy Association

Kenya Light and Power

Local Government Unit

Sodium Sulfur

National Electrification Administration

Non-governmental Organization

Nickel Metal Hydride Battery

National Power Corporation

New Power Producer

National Renewable Energy Program

Output Based Subsidy

Philippine Batteries Inc.

Philippine Rural Electrification Service

Polysulfide Bromide Battery

Photovoltaic

Qualified Third Party

Renewable Energies

Rural Power Project

Subsidized Accepted Generation Rate

Sustainable Energy Finance

Starting, Lighting and Ignition batteries

v

SME

SMES

SPUG

TCGR

UPS

WHS

VAT

VRB

Small and medium sized companies

Superconducting Magnetic Energy Storage

Small Power Utilities Group

True Cost Generation Rate

Uninterrupted Power Supply

Water Heating Systems

Value Added Tax

Vanadium Redox Battery

ANALYSIS OF THE ENERGY STORAGE MARKET IN KENYA AND THE PHILIPPINES

1

1 Introduction This report is directed to decision makers and interested parties in the energy and specifically renewable energy

industry, the energy storage industry, governmental institutions and non-government organizations in Germany

and developing countries to raise awareness to the available know-how and solutions in German companies for the

integration of renewable energies and energy storage systems in developing countries. Thereby the report focuses

on Southeast Asia with a more detailed look at the Philippines and Sub-Sahara Africa with a more detailed look at

Kenya. However, it intends to draw a general framework for market analysis and for development of a market entry

strategy. Lastly, it will give advice on improvement of government support functions to support the market entry of

private companies.

In the past decade the energy sector in Germany started to slowly change from a centralized generation model

based mostly on fossil and nuclear fuels to a decentralized generation model with an increasing share of renewable

energies. The increasing share of renewable energies in the generation mix, especially of intermittent and non-

dispatchable energy sources like solar and wind, increases as well the grid management requirements.

Conventional power plants are scheduled and managed according to the real electricity demand of the consumers.

However, intermittent and non-dispatchable renewable energy generation capacities cannot be scheduled and

management is limited to power reductions or shut-downs. Besides of a questionable economical feasibility of such

a management regime, also the technological feasibility in terms of grid stability is hardly given. Therefore

additional grid management methods and processes are necessary to ensure the required grid quality and to utilize

the full potential of the renewable energy sources.

Energy storage concepts are one of the essential components in this new setup. These system store energy when

supply is higher than demand and release energy once supply does not meet the demand. In addition, storage

systems have a fast reaction time. That means, they can be activated within a very short time to feed-in electricity

when energy generation from renewable sources is irregular due to weather conditions or technical issues. Thus

they play a critical role in grid management, especially at the low and medium voltage level.

A variety of storage technologies are available and the application of each technology depends on the specific

system requirements on costs, discharge times and power ratings. Pumped hydro and batteries, especially lead-acid

batteries, are the most applied and understood technologies. Other technologies, although already known for

decades, just start to be commercially viable and new technologies are developed and tested.

The growing market in Germany attracts many companies ranging from established battery manufacturers to

energy management developer to system solution providers. The current know-how generation among German

companies in battery technology, system design and energy management, and grid management creates not only a

competitive advantage in the home market, but also provides a growth opportunity for international markets,

especially in developing countries.

There is a hunger for electricity in the developing world. The growing population and shifting from an agricultural

economy to an industrial or service economy fuels the need for electricity. This need is partly satisfied by fossil fuel

power plants and grid extensions. However, many customers face either an unreliable power supply or are only part

of an island grid depending on diesel generators with relatively high fuel costs. Consequently, renewable energies

and storage systems can increase the reliability of power supply, the grid quality and stabilize electricity prices. The

product expertise in the components, and the engineering and design know-how for such systems are a great

opportunity for German companies to increase their business activities into these countries.

In the following section the report gives an overview of the storage technologies and the active German companies

in the storage industry. Among others, the information have been collected through a survey among the members

of the German Energy Storage Association (BVES) and phone interviews with selected companies from different


2

segments. Section 3 describes the macroeconomic situation and the energy market based on reviews of reports and

interviews of various stakeholders in the countries. In section 4 the report gives some recommendations for the

market entry, partnerships and financing opportunities. Further the support functions from the German

government institutes and events are highlighted.


3

2 German Renewable Energy Industry Overview

The energy industry in Germany is changing slowly from a centralized generation model based on fossil and nuclear

fuels to a more decentralized model with increasing share of renewable energies. This trend is not only supported

by the majority of the society but also through active government involvement through policies and fiscal

instruments. In addition, the political commitment on CO2 reduction of 40% below the level of 1990 by 20201 and

the agreed exit from nuclear power generation until 2022 2 puts further pressure on the development and

integration of renewable energies into the existing grid infrastructure.

In 1990 the energy industry was based almost entirely on coal and nuclear. A staggering 56,7% of the electricity was

generated by coal fired power plants and 27,7% from nuclear power plants. Renewable energies, including hydro

power, provided only 3,6% of electricity. By 2012 this picture has changed. Now 44,2% is generated by coal fired

power plants and 15,8% by nuclear power plants. Renewable energies have now a share of 22,6%3. That is a six-fold

increase over the 22 year period and corresponds to compound annual growth rate of almost 30%.

Figure 1 Gross electricity generation in Germany 1990 (left) and 2012 (right) according to energy sources in percent of total electricity

generation

Needless to say, this change in the generation technologies also has an effect on grid management. Especially

intermittent renewable energies, like wind and solar, increase the requirements on grid stability and quality.

Although in average both energy sources only contribute 12,3% of electricity and thus the impact is manageable, in

some local areas intermittent renewables have a share of greater than 20%. Thus, current grid control and

stabilizing mechanism reaching their operational limits and additional mechanism are necessary to support the

future development of renewable energies.

Many companies and individual have since used this opportunity. From 2005 until 2012 total investments in

renewable energies reached EUR 144.6 billion and by 2012 around 377,800 people4 worked in the industry. The

majority of jobs are in small and medium sized companies, which are specialized in the design and installation of

systems, but also in the development and manufacturing of components. These companies are at the forefront of

1 BMU, Klimaagenda 2020, April 2007 2 German Bundestag, 30. Juni 2011 3 Statistisches Bundesamt; Bundesministerium für Wirtschaft und Technologie; BDEW Bundesverband der Energie- und Wasserwirtschaft e.V.; Statistik der Kohlenwirtschaft e.V.; AG Energiebilanzen e.V. 4 BMU, Erneuerbare Energien in Zahlen, Juli 2013

31%

28%

26%

6%

2%0%

4%

0% 0% 0%

3%Brown coal

Nuclear

Stone coal

Natural gas

Mineral oil

Wind

Hydro

Biomass

Photovoltaic

Waste


4

innovation to create solutions in grid and energy management. Especially manufacturer and installers of storage

components and storage system solutions experienced a great push in the last years.

2.1 Renewable Energies and Energy Storage Systems

In a stable and reliable grid the electricity supply must always match the electricity demand. Providing the exact

amount of electricity to the customers is a technical challenging task. Typically in a well developed grid various

types of base and peak load generation capacities are available and are managed according to the forecasted

demand schedule. Usually generation is based on conventional fossil fuel or nuclear power plants, where the

electricity output can be controlled accordingly.

A growing level of grid penetration of intermittent renewable energy sources like wind and solar increases the need

for additional control electricity. That could be conventional power plants, but generation costs would be relatively

high due to a low number of full load hours and operation at levels of low efficiency. Storage system can be an

economical alternative for two reasons: 1) they can store excess electricity from intermitted energy sources and 2)

stored electricity can be dispatch on demand and storage system can therefore replace inflexible conventional

power plants for controlling power range.

In very basic terms, the storage systems store electricity when demand for electricity is lower than supply. Now

these storage capacities can be managed just like conventional power generation capacity. Meaning, if forecasted

demand for electricity is higher than the expected supply, the storage system can provide the required amount of

electricity at a specific time. Thus storage systems are an important element for the deployment of intermittent

renewable energy systems.

2.1.1 Types of Energy Storage

Different types of storage can be applied in an electrical system. Chemical storage (e.g. batteries or hydrogen) and

potential energy (e.g. pumped hydro or compressed air) are the most common type. Electrical storage (e.g.

capacitors) and mechanical storage (e.g. fly-wheel) are used in more specific applications. Each type has its own

underlying characteristics and thus suits to certain applications better than to others.

The most common characteristics to define a storage technology are:

- Energy storage capacity [kWh or Ah] - Charge and discharge rates [kW or A] - Lifetime [cycles, years, kWhlife] - Roundtrip efficiency [%] - Initial capital costs [USD/kW, USD/kWhcap, and USD/kWhlife] - Operating costs [USD/MWh, USD/kW x yr]

- Energy density [Wh/kg and Wh/m3] and power density [W/kg and Wh/m3]. These characteristics define the best technical and economical application for each technology. Figure 1 shows the different storage technologies based on the typical application size and useful discharge time. This gives a first indication on which type fits to what kind of application in terms of size and usage. However, local requirements must be taken into consideration. Reliability of the technology, costs, and required skill level for installation, operation and maintenance play a crucial role in the deployment of such technology in developing countries. Lead-acid batteries are the most common used and best understood technology. Invented in 1859 they are the oldest type of rechargeable battery. They are used mainly as starter batteries in automobiles and storage for backup power supplies, e.g. for mobile phone towers, factories, hospitals and stand-alone systems. Through their long history and worldwide distribution they have the lowest cost and local knowledge for operation and maintenance can easily be build up. Therefore lead-acid batteries are currently the preferred type in renewable energy installations in developing countries.


5

Figure 2 Summary of major storage technologies by discharge rate for different scales of application5

Lithium-ion batteries are relatively new, but are already a mature technology in mobile applications. In comparison to lead-acid batteries, lithium-ion batteries have a better performance characteristic and can handle deeper discharges, thus they can use almost their entire stated capacity with little impact on the lifetime. This characteristics and the lower requirements on operation and maintenance compensates for the higher upfront cost. However, in grid application they still need further development. Lead-acid and lithium-ion batteries are currently the most suitable technologies for renewable energy applications in the range from 10kW to 10MW in developing countries. Other technologies have at present disadvantages in discharge time, application size, costs, and operation and maintenance requirements. Therefore, this report will focus on lead-acid and lithium-ion battery technologies only.

2.1.2 Technology Focus

A conventional grid fundamentally consists of generation units, transformers, transmission lines, measurement and

control system, and the load (consumers). The grid quality and stability is managed by adjusting the conventional

generation capacities (nuclear, coal, oil, gas, hydro) according to the demand from the consumers. With an

increasing share of intermittent renewable energies the grid can still be managed by adjusting conventional

capacities up to a certain efficiency level. Beyond that point, the output from renewable sources must be limited or

storage systems must store the temporary access energy.

Thus, the introduction of intermittent renewable energies beyond a certain level into a conventional grid increases

the requirements on storage, measurement and control systems. Therefore the main technological challenges in

such a system are in the area of:

Storage and storage management systems

The development and manufacturing of energy storage system requires high R&D investments and long-term

know-how building. The exact design and combination of different materials and components is the key to create

reliable and commercial viable products. Moreover, the management of the energy flow in and out of the storage

device is critical to maintain the long-term performance quality at the specified parameters of the storage device.

Grid and energy management systems

The interaction of various types of electricity generation systems, storage systems and consumers also increases the

requirements on grid and energy management systems. Conventional systems do not possess the necessary

5 IRENA, Electricity Storage and Renewables for Island Power, adapted from Raster, 2010

CAES – Compressed Air Energy Storage NaS – Sodium Sulfur Battery VRB – Vanadium Redox Battery PSB – Polysulfide Bromide Battery NIMH – Nickel Metal Hydride Battery SMES – Superconducting Magnetic Energy Storage


6

measurement devices, control functions and algorithms to deal with the increasing amount of information. It

requires the development and adaptation of sophisticated hard- and software solutions to monitor and control all

generation and consumption units in the grid.

System solutions design, installation and operation

Considerable know-how and experience is necessary for the design, construction and operation of renewable energy

and storage systems. On-site analysis and specialized simulation software are necessary to find the precise system

specifications and the right components. Especially for island hybrid systems right sizing of all components to the

expected demand is very important for the required technical and economical performance. Moreover, training of

local technicians and service offerings from the installer ensure a long-term reliable operation of a system.

Figure 3 Diesel-hybrid system6

2.2 German Company Overview

Historically, the energy storage market in Germany has a strong focus on lead-acid battery technologies for mobile

applications, such as starter batteries for all types of vehicles, power source for floor-borne vehicles and industrial

trucks, and emergency power supply for industrial applications. There are a number of companies with a

longstanding history and world-leading technology.

However, the successful implementation of the “Energiewende” (nuclear-free energy transition agenda) in

Germany is changing the industry radically. The anticipated further development of renewable energies, and its

effect on the energy landscape in Germany, created an entire new industry including research and development

institutes, component and software manufacturers, engineering firms, service companies, distributors and system

solution companies.

In order to have a sense over the size of the German market for energy storage, we analyzed the foreign trade

statistics of Germany, considering the products under the category “HS: 8507: Electric Accumulators” and based on

the statistics of goods imported and exported from 2008 to 2012.

6 www.see.murdoch.edu.au


7

Figure 4 List of products exported by Germany HS8507: Electric Accumulators

Figure 5 List of products imported by Germany HS8507: Electric Accumulators

From the list of exported products related to energy storage, we can see that Germany exported a total of USD 1.9

billion in year 2012. From this total, USD 779 million or 41% corresponds to Lead-acid accumulators used for

starting piston engines or SLI batteries (starting, lighting, and igniting); under this category we found car batteries,

which are used in the automotive industry. The second most important traded products are the other Lead-acid

accumulators with 501 million or 26.3%; under this category we found the batteries that are used for renewable

energy solutions. The third group of products is Lithium-ion accumulators (13.2%); including mainly batteries for

electronic devices such as laptops and cell phones, but also a small percentage of batteries used for renewable

energy solutions.

Regarding products imported in the category “Electric Accumulators”, Germany imported in 2012 around USD 2.1

billion and the most important items were Lead-acid accumulators used as SLI batteries (starting, lighting, and

igniting) with USD 588 million or 27.9%, and Lithium-ion accumulators (mainly for electronic devices) with USD

0

100

200

300

400

500

600

700

800

900

2008 2009 2010 2011 2012

US

D m

illi

on

850710 850720 850760 850780

0

100

200

300

400

500

600

700

800

900

1.000

2008 2009 2010 2011 2012

US

D m

illi

on

'850710 '850760 '850720 '850780


8

542 million or 25.7%. Other Lead-acid accumulators (including batteries for renewable energy) represent 19% of

the total amount imported with USD 401 million. (See appendix 1)

Importers Exported value

in 2012 %

World 501,244 100%

Russian Federation 58,382 11.6%

Sweden 40,816 8.1%

France 39,111 7.8%

Italy 23,928 4.8%

Belgium 23,640 4.7%

Netherlands 22,683 4.5%

Poland 18,743 3.7%

United Kingdom 18,600 3.7%

Switzerland 17,399 3.5%

Austria 16,483 3.3%

China 14,305 2.9%

Others 207,154 41.3%

Table 1 List of importing markets for a product Exported by Germany HS 850720 Lead-acid electric accumulators (excl. spend and SLI

batteries)7, Unit: USD thousand

Exporters Imported value

in 2012 %

World 401,009 100%

China 91,571 22.8%

France 44,626 11.1%

Spain 42,568 10.6%

Portugal 39,820 9.9%

Greece 29,123 7.3%

Italy 24,886 6.2%

United Kingdom 17,448 4.4%

Bulgaria 16,361 4.1%

United Arab Emirates 15,659 3.9%

Austria 11,039 2.8%

United States of America 10,905 2.7%

Others 57,003 14.2%

Table 2 List of supplying markets for a product Imported by Germany Product: 850720 Lead-acid electric accumulators (excl. spend and SLI

batteries)8, Unit: USD thousand

The most important importing markets for products exported by Germany under the category Lead-acid

accumulators (excluding SLI batteries) are Russia (11.6%), Sweden (8.1%), and France (7.8%), the other countries

represent less than 5%, but is interesting to mention that the majority are European countries and China is the 11th

largest partner with 2.9% of the USD 501 million exported by Germany in 2012. 7 Trademap. Eurostat 8 Trademap. Eurostat


9

In terms of imports, Germany imported a total of USD 401 million in 2012 and the most important suppliers for

lead-acid accumulators (excluding SLI batteries) were China (22.8%), France (11.1%), Spain (10.6%), and Portugal

(9.9%), which in total represents more than the 50% of the total amount imported by Germany under this category.

The information from the trade statistics confirms that the market for Lead-acid batteries is in a mature stage, with

standard products and large number of competitors in the market. Moreover, the data shows that for lead acid

batteries (excluding SLI batteries) Germany has a positive balance of trade because in 2012 it exported around USD

100 million more than it imported; Germany has its main export partners among European countries and the first

non-European trade partner is China with only 2.9% of the total exported in 2012. On the other hand, in 2012

22.8% of German imports were from China in the same product category.

Before 2012, lithium-ion batteries were included under the category 850780 (Electric accumulators excl. spend and

lead-acid, nickel –cadmium, nickel-ion accumulators), but now lithium-ion accumulators have an individual

category (850760). Recent developments in the battery industry shifted the focus from lead-acid to lithium-ion

technology, not only for mobile applications, but also for stationary storage systems. This trend can be confirmed

by the trade statistics were imports and exports of lithium-ion product have increased considerably. Under this

category Germany had a negative balance of trade in 2012 because it exported around USD 300 million less than it

imported.

2.2.1 Energy Storage Industry Overview and Segmentation

This chapter gives an overview of the current most active companies in the energy storage industry. The overview is

not complete due to the young age and the constant fast development in the industry, but aims to give a first

understanding about the structure of the industry.

The companies have been identified through the member list of the German Energy Storage Association (BVES),

the Amadeus industry database, exhibitors lists of tradeshows and fairs in the storage industry in Germany,

renewable energy magazines and further own research. Together about 220 companies were found and divided into

the following segmentation:

- Battery manufacturers

- Battery management and energy management solution providers

- Component suppliers for battery manufacturing and system solution providers

- System solution providers and integrators

- Consultancy and project management services

- Research institutions and industry associations

- Insurance, law and financial services

- Utilities and transmission network operator

The segmentation is based on the available information from the companies’ web-pages about the company profile,

services, product range and references. In some cases a clear classification was not possible and the chosen

segmentation may be open for discussion, but the influence on the results of this report is insignificant. An

overview of the segments and companies is given in appendix 2.

Subsequent the report gives a qualitative description of the industry based on phone interviews with selected

companies, industry experts and company webpage reviews.

Battery manufacturers (26 companies)

The industry is dominated by battery manufacturers for automobile applications based on lead-acid technology.

Some of these companies also provide lead-acid batteries for industrial and renewable energy applications, and


10

have significant know-how in this area. Lithium-ion technology is mostly covered by new entrants focusing on

automotive applications and energy storage systems. However, they currently lack large scale manufacturing know-

how for lithium-ion technology. Some companies are specialized in providing customized battery solutions. The

battery cells are locally purchased as well as supplied from foreign manufacturers.

There are also a number of foreign companies active with a similar product range in lead-acid and lithium-ion

batteries. Other traditional battery manufacturers provide micro and consumer batteries based on various

technologies including lithium-ion technology, but not suitable for renewable energy applications.

Battery management and energy management solution providers (17 companies)

Several battery manufacturers also provide the battery management and energy management systems for mobile

and stationary applications. However, there are new companies which focus on the development and provision of

such management systems, especially for the integration of energy storage systems into electrical grids. In close

cooperation with their customers they provide highly sophisticated solutions, but in relatively small numbers due to

the current market size and competition. Despite that, companies have already international experiences or start to

look into these markets.

Component suppliers for battery manufacturing and system solution providers (55 companies)

This segment includes companies which provide materials, components, machines and products to the whole value

chain from battery manufacturing to system integration. It is a very fragmented segment ranging from small and

medium sized privately owned companies with a strong specialization to multi-national companies with a broad

product portfolio. The majority of the companies are established players with a long history and consequently are

also active internationally. But also the relatively young companies from the renewable sector started to reach out

to the markets outside of Europe.

System solution providers and integrators (57 companies)

This segment is extremely fragmented, ranging from installers and technology start-ups with up to 5 employees to

multi-national players with more than 2000 employees. The number of companies in this field is significantly

higher than identified during research for this report. Classified directories on web pages for renewable energies

(solarserver.de, top50-solar.de, photon.de, pv-magazin.de) indicate that between 150 and over 500 companies are

active in the photovoltaic sector alone and thus potentially offer energy storage solutions to their customers.

The skills and know-how in these companies vary significantly depending on the product, customer and solution

focus, the educational background of the employees, the in-house research and development efforts, customer

groups and field experience.

Others

The remaining segments play an important role in the further development and implantation of energy storage

technologies in Germany and subsequently also in the internationalization of the local industry. Consultancy and

project management companies are specialized in energy trading and the renewable energy sector with some

experience in storage systems. They mainly provide services for market studies, project due diligence, management

consultancy, project development and implementation.

Research institutions currently cover all storage technologies, including fuel cells and hydrogen storage, and grid

integration and smart grid applications. However there is a strong trend towards lithium-ion technology. Industry

and regional associations are becoming more and more active to connect the research facilities with the industry,

and to improve competiveness across the value chain of companies, industry clusters and regions. The insurance,

banking and legal sector is supporting this development by adapting and improving their services to the need of the

industry.


11

2.2.2 Strengths and Weaknesses for Internationalization

Undoubtful there is a strong focus of all players on the German market and the European market to some extent for

the majority of the companies. The companies have adjusted their business models and products very well to the

regulations and requirements of the local market and customers by specializing in certain segments and building

extensive know-how and expertise. The strong competition from local players, as well as international firms,

provides a climate of constant pressure for innovation, and the firms use this pressure and their good customer

relationships to provide tailored and well-thought-out high-quality solutions. An established network of research

institutes and universities offers access for further innovation support especially for manufacturing companies.

However, the strong orientation on the German market and the preference for sophisticated high-quality products

with a respective cost premium reduces competiveness towards international players in the German market and in

particular in developing markets outside of Europe. While by all means, there is a demand for high-quality products

in developing markets, the price premium in comparison to alternative products from Asian manufacturers can

often hardly be justified to local customers. Price differences of up to 400% have been mentioned during the

interviews. Other reasons can be a lack of knowledge and trust in new technologies, incorrect expectations towards

product performance, or limited availability of funding from the customer. A thorough understanding of the market

and customers is therefore essential.

Eventually sales and distribution models must be adjusted to the local conditions as well. In general, market entry

into developing countries needs time and money. As companies in the renewable and storage industry are mainly

small and relatively young, the required financial and human resources are usually limited. The interviews in Kenya

and the Philippines also confirmed, that pure product sales business models are likely to fail, and especially

German companies should offer extended warranties and additional pre- and after-sales services. Yet, price

pressure and reduced margin in the industry in the past years left companies with thin balance sheets and little

space to finance international market expansions.

Despite some short-comings in terms of internationalization readiness, German companies have the potential skills

and the required resources can be made available to capture the growth potential in the developing world. Many

companies confirmed their willingness to go abroad and to work together with local partners. However, it was also

mentioned that further support is needed.

Strength Weakness

Battery manufacturers - Unrestricted access to German und

EU market

- Network of institutes, universities

and R&D facilities

- Innovation driven

- Strong customers, especially in

automotive industry

- Expertise in lead-acid technology

- Low share of cell-/battery

production in comparison to

international competitors in

lithium-ion technology

- Few engineers, scientists and

experts available

- Strong focus on German

automotive and energy storage

market

- High costs

- Supply chain depends on Asian

manufacturers

- Access to risk capital


12

Continuing

Strength Weakness

Battery management and

energy management

solution providers


and R&D facilities

- First mover with extensive know-

how

- Government support through

initiatives

- Innovation driven

- Specialization into energy

management market

- Often new small companies with

limited human resources and

budget

- Few engineers, scientists and

experts available

- Over-engineered solutions for

developing countries and

therefore cost disadvantage

Component suppliers - Unrestricted access to German und

EU market


and R&D facilities

- Factor conditions (human

resources, skill level of employee,

capital resources, infrastructure)

- Innovation driven

- International orientation

- Battery material expertise,

production and supply chain

underdeveloped in comparison to

Asian competitors

- Price and margin pressure

lowered profits and weakened

companies

- Over-engineered

components/materials for

developing countries and


- Sales and distribution model

based on German/EU market

requirements

System solution

providers and

integrators

- Unrestricted access to German und

EU market

- Regulatory support through

German Renewable Energy Act

(EEG)


and R&D facilities

- First mover with extensive know-

how and expert knowledge in

different market segments

- Often new small companies with

limited human resources and

budget

- No brand recognition/unknown

- Price and margin pressure

lowered profits and weakened

companies

- Majority with focus on German

und EU market, no international

business model


13

Continuing

Strength Weakness

System solution

providers and

integrators

- Factor conditions (human

resources, skill level of employee,

capital resources, infrastructure)

- Sophisticated customer base and

competitive market demands

innovation

- System design know-how not

easily protectable, unless own

specialized solutions are

developed = low differentiation

- Long decision and response time

to international inquiries

- Over-engineered system solutions

for developing countries and


- Access to capital for project

development

Table 3 Strengths and weaknesses of German companies in the energy storage industry9

2.2.3 Needs and Requirements of German Companies

Based on previous information and the conducted interviews we consider the following requirements important for

the internationalization process:

- Guidance for bureaucratic and legal matters

- Standardization of commercial and legal processes

- Adapting of services from German government, Chambers of Commerce and other institutes to the needs of

SMEs

- Start-up funding, collateralization of loans and funding for reference projects

- Specific industry information about the local market

- Cultural training and business conduct for target market, expectation management for German companies

- Raising public awareness in target markets for new technologies (events, advertisement, exhibitions) and

promoting monetary advantage of better German quality

- Development and testing of business models

While many services are already available and companies are aware of them, certain adjustments and additional

requirements were mentioned. The coverage and quality of the service was commonly assessed to be reasonable,

but could be even better oriented towards the specific needs of small and medium sized companies. Especially since

financial means are a critical issue for SMEs, services should be developed together with the SMEs to offer the best

cost-benefit ratio. Small and medium sized companies in the renewable and energy storage industry operate on a

very tight budget and have to make careful decisions about their expenditures, as they have little space for failure

only.

Timely and unbureaucratic access to finance for starting a business or development of projects was mentioned as an

essential requirement to get a fast foothold in a new market. Especially funding for smaller projects is currently

9 Interviews with selected companies in the industry conducted in November 2013; Bericht der AG-2 Batterietechnologie, Nationale Platform Elektromobilität, Zwischenbericht, November 2010; Rolf Hug, Photovoltaik-Vertrieb im Wandel: Internetbasierte Geschäftsmodelle ergänzen und erweitern traditionelle Strukturen, 2010


14

difficult to get. Also, partly funding or state guarantees would ease access to local funding and reduce cost of

funding through lower interest rates.

Cultural trainings and expectation management for German companies previously to first business trips help to

understand the sensitivities of customers and business partners, not only towards communication and conduct, but

also regarding product and service requirements in relation to the price. This understanding can help to adjust the

business model prior the market entry.

German quality is well-known and appreciated all over the world. However, the pricing of German products usually

causes some irritation among customers in developing countries. As mentioned previously, the reason is largely to

be found in the lack of knowledge about the monetary benefits of better quality, but also in the buying behaviour of

customers and the availability of funding at the customer. Promotion of the cost benefits and customer education

through events, advertisement and training with the support of German institutions can help to overcome such

buying behaviour.

2.2.4 German Energy Storage Association (BVES)

The German Energy Storage Association was founded in September 2012 and its goal is to bring together the

relevant decision makers in the sector, to offer expertise to policy makers and the public, to speed up the

development of the market and to build a strong contact network. Members of the association include companies

from all sectors related to energy storage, such as technology manufacturers, project developers, system integrators,

consulting firms, research institutions and other market players in the clean-tech sector.

The energy storage industry is an important player for the future development of the renewable energies in

Germany. The government goal of a CO2 reduction of 20% below the level of 1990 by 2020 and the agreed exit from

nuclear power generation until 2022 is only feasible with the application of energy storage technologies to

compensate the intermittent behaviour of solar and wind energy. Thus the energy storage industry will play a key

role in the development of solutions and know-how.

Among other political and industry related activities, the BVES started a working group “Export Platform for

Energy Storage” in October 2013. The aim is the development of an international network among the members and

players in international markets to attain a better understanding of these markets and to establish possible business

relationships. Thus, the association can be a valuable mediator among the stakeholders in this process.


15

3 Market Analysis

3.1 Sub-Saharan Africa

Sub-Saharan Africa comprises 49 of Africa's 54 states. Geographically, it consists of all African countries that are

fully or partially located south of the Sahara (excluding Sudan). It contrasts with North Africa, which is considered

a part of the Arab world.

Sub-Saharan Africa

Area 23,588,781 km2

Population 910 million

Density 38 /km2

Countries 49

GDP (nominal) USD 1.288 trillion (2012)

GDP per capita USD 1,415 (2012)

Source: The World Bank, Wikipedia

In 2012 sub-Saharan Africa was home to more than 910 million people10. This region has the highest population

growth in the world. The Deutsche Stiftung Weltbevölkerung (DSW) estimates that the population is likely to treble

by the end of the 21st century: one in three people would then live in Africa11.

Even though this part of the world represents a large percentage of the global population, Sub-Saharan Africa is still

the world's poorest region. In the latest Human Development Index (HDI) of the United Nations Development

Program, 28 countries in this region are listed among the world's 30 least developed countries12. Armed conflicts,

political and ethnic tension, corruption, capital flight, national debt, dependence on global commodity markets are

some of the problems the African continent needs to deal with in order to progress towards a better state, society

and economy.

Nevertheless, in the first decade of the 21st century the region saw its longest period of growth since the 1960's13.

The average growth rate was almost 6 percent, and the economies of several African countries were among the

world's fastest-growing. Even the global financial and economic crisis in 2008-2009 caused only a brief slowdown

in growth in sub-Saharan Africa. According to World Bank statistics, growth stood at 4.2% in 2012.14

3.1.1 Energy Sector in Sub-Saharan Africa

Africa's energy sector has seen some progress in recent years, but in sub-Saharan Africa alone some 590 million

people are still without electricity. The electrification rate in sub-Saharan Africa is on average only 26 percent, by

contrast with North Africa where the average is 95 percent15.

10 www.bmz.de/en/what_we_do/countries_regions/subsahara 11 www.unfpa.org/worldwide/africa.html 12 www.hdr.undp.org/en/statistics 13 www.bmz.de/en/what_we_do/countries_regions/subsahara 14 www.data.worldbank.org/region/SSA 15 www.bmz.de/en/what_we_do/countries_regions/subsahara/energy/index.html


16

Many Sub-Saharan African countries rely heavily on hydropower, but severe droughts in recent years have seriously

impacted energy supply. Therefore, being connected to the grid is no guarantee of a reliable supply of electricity,

and several countries in Africa have experienced or are currently experiencing an energy crisis.

In East Africa, electricity demand is increasing by approximately 7% annually in all countries in the region and

could rise further, especially if recent discovery of oil and gas reserves accelerates the already rapid economic

growth in Kenya, Tanzania and Uganda16. The region is also expected to benefit from the Power Africa initiative

announced by US President Barack Obama in mid-2013, with more than USD 7 billion investments on clean energy

in partner countries over the next five years.17

3.1.2 Country Selection in Sub-Saharan Africa

In order to select a country for the market analysis in Sub-Saharan Africa, four countries were explored in terms of

potential for the development of renewable energies according to the Global Market Outlook for Photovoltaic 2013-

201718. The countries are Ghana, Kenya, Mozambique and Tanzania, and basic indicators were established to

compare the country's renewable energy attractiveness and the country's investment attractiveness. Based on these

indicators, one country was selected to further analyze its potential for the development of renewable energies and

energy storage market.

Ghana Kenya Mozambique Tanzania

GDP per capita (2012) USD 1,605 USD 685 USD 579 USD 599

Population (2012) 25 million 43 million 25 million 46 millions

Electrification rate

(2009) 60.5% 16.1% 11.7% 13.9%

Current electricity

generation (2009) 8,958 GWh 6,875 GWh 16,963 GWh 4,628 GWh

Current electricity

sources Oil 23%, Hydro 77%

Oil 44%, Hydro

32%, Geothermal

20%, Biomass 5%

99.99% Hydro,

0.01% Oil and Gas

Oil 1%, Gas 36%,

Hydro 60%,

Biomass 3%

Annual electricity

growth rate (2007-

2010)

7% 4% 7-8% 2%

Electricity generation

target (2020) 25,800 GWh 28,000 GWh 35,000 GWh 14,524 GWh

Solution for fulfil the

target

Small hydro,

Biomass, Wind,

Solar

Geothermal, Solar Hydro, Solar Solar, Biomass,

Geothermal

Electricity price 9~18 USD

cent/kWh

14~19 USD

cent/kWh

8~15 USD

cent/kWh

8~ 17 USD

cent/kWh

16 E&Y 2013 17 The White House, http://www.whitehouse.gov/the-press-office/2013/06/30/fact-sheet-power-africa 18 Global Market Outlook for Photovoltaic 2013-2017


17

Continuing

Ghana Kenya Mozambique Tanzania

Renewable energy

target 10% (20% for solar)

27% from

Geothermal in

2013

Plan to build

82,000 Solar and

3,000 Wind-pump

systems

2780 MW

Current RE

installation

> 4500 Solar

systems

EnBW (wind

energy)

2 GWh Hydror, 0.3

GWh Wind 125 GWh Biomass

Doing Business

ranking (2013) 64/185 121/185 146 /185 134 /185

Table 4 Country selection Sub-Saharan Africa19

Ghana

Among the four countries presented in the chart, Ghana has the highest GDP per capita (USD 1,605), the best

position in the Doing Business Ranking (64/185) and a relatively high electrification rate (60.5%). The country

relies on Hydropower (77%) and Oil (23%) as current electricity sources, and the average electricity prices are

relatively high (9~18 USD cent/kWh). Ghana has a target to develop renewable energies (small hydro, biomass,

wind and solar) to fulfill the electricity generation target of 25,800 GWh in year 2020.

These indicators position the country as a developed market for energy, which has an ambitious goal to develop

renewable energy to fill the energy supply gap. The disadvantage of this market is that the level of competition is

high since the solar energy market already exists. Besides, the Ghanaian government has established a cooperation

agreement with China for the supply of renewable energy technologies20. Moreover, on the private side, a Canadian

company has installed a 50MW solar park with a 25-year contract with the government. Therefore, even though

there is renewable energy market in Ghana, German suppliers may need to face severe competition from existing

players, who currently benefit from cost advantage and local government support.

Kenya

From the East African countries analyzed, Kenya has the highest GDP per capita (USD 685) and the highest

electrification rate (16.1%). The country has a diversified energy production, based on oil (44%), hydro (32%),

geothermal (20%) and biomass (5%). Electricity prices in Kenya are the highest among the four countries (14~19

USD cent/kWh).

Kenya has opportunities to develop geothermal energy along the Great Rift Valley and its solar potential (daily solar

radiation of 4-7 kWh/m2). Wind power also represents an opportunity for Kenya, with investments like the 300MW

Lake Turkana project and a contract with the company Isolux Corsán21 for the construction of a 428km, 400kV

transmission line that was awarded to the company in April 2013. Other prospects include the 90MW wind farm

being planned by Belgium’s Electrawinds22 NV and the International Finance Corporation (IFC), at a cost of USD

233 million, and two wind projects at Ngong Hills being developed by General Electric Co., which is targeting

160MW of wind power in the country by 201523.

19 GIZ Country Research Africa 2011, Doing Business Ranking 2013, Renewable Energy Policy Network for the 21st Century 20 CNTV http://english.cntv.cn/20130824/101913.shtml 21 http://www.isoluxcorsan.com/en/project/428-km-of-td-in-kenya.html 22 http://www.electrawinds.be/nieuws_detail.asp?taal=en&id=JQNRJNJPC&aid=JMMMKSENPSE 23 Renewable energy country attractiveness index. Issue 38. August 2013


18

Moreover, the population density in Kenya is heterogeneous, and the grid is not available in most rural area. In

these conditions, hybrid mini-grid (solar, wind, diesel generator, and energy storage) would be more economical

solution to supply electricity in rural area than grid extension. Finally, Germany and Kenya have good relationship

both in political and commercial aspects. The volume of German funds for development cooperation in Kenya

reached EUR 34.5 million in the year 201224 , while the average Kenyan-German trade volume in the past 5 years

was EUR 340 million25.

Mozambique

Mozambique has the lowest GDP per capita (USD 579) from the four countries and also performs worst in the

Doing Business Ranking (146/185). The country relies almost 100% in hydropower and, although it has the highest

current electricity generation (16,963 GWh), it shows the lowest electrification rate among the countries here

compared (11.7%). The country expects to expand its hydropower, and plans to build 82,000 solar PV and 3,000

wind-pump systems in order to achieve its electricity generation target of 35,000 GWh in year 2020.

Tanzania

Tanzania has a relatively low GDP per capita (USD 599) and a bad position on the Doing Business Ranking

(134/185), mainly due to problems related to corruption and low productivity. The country also shows a low

electrification rate (13.9%). The country relies mostly in hydropower 60% and gas as energy sources, and has good

perspectives to increase the production of gas because of national plans to explore its gas reserves. Moreover,

Tanzania is planning to develop geothermal power, and to increase electricity production based on solar power and

biomass.

Conclusion

Kenya presents the most promising outlook for development of battery storage business opportunities, based on the

criteria previously defined. The country is naturally gifted with intense, all-year-long solar radiation that enables

high generation capacity of solar power, suitable not only for remote areas but also as alternative solution to

balance grid instability. The prospective for wind energy has attracted substantial investments, with large projects

already under development in the country. Despite availability of other sources of energy to be explored, Kenya has

a stronger case for developing solar and wind power, compared to the other countries analyzed.

Mozambique and Tanzania have significant potential to develop other sources of energy with higher generation

capacity, such as hydropower and gas, respectively. Ghana is noticeably an important market in the region due to

its relatively developed status, but this also implies higher competition from companies with better understanding

of the market. For these reasons, Kenya is the focus country for the analysis and recommendations in the following

sections.

3.2 Overview of the energy industry and market in Kenya

The Kenyan population is composed by 42 different tribes, each with their own traditions and languages. They all

come together as one nation having Swahili as official common native language, and English as official working

language. For a long time, the disputes and disagreements among varied groups stole the society's attention and

valuable resources, which could long have been put in favor of the development of Kenya. But things have changed.

After the post-election crisis of 2008, the Grand Coalition Government composed by two different political parties

has been working well and restored stability in government functions. Important measures were taken in the first

three years, including the adoption of a new constitution in 2010. In March 2013, Kenya elected its 4th president in

24 http://www.bmz.de/en/what_we_do/countries_regions/subsahara/kenia/index.html 25 http://www.embassy-of-kenya.de/Kenya-German-Trade-Relation.37.0.html


19

a peaceful election process. The country is hub for developing aid in East Africa, concentrating headquarters of

many developing agencies26.

Republic of Kenya

Capital Nairobi

Official language(s) Swahili, English

Government Semi-Presidential Republic

Total area 580,367 km2

Population 43.2 million (2012)

GDP (nominal) USD 41.1 billion (2012)

GDP Per capita USD 976 (2012)

Currency Kenyan shilling (KES)

German development cooperation EUR 34.5 million (2012)

Source: The World Bank, BMZ

3.2.1 Macroeconomic analysis

Political environment In 2008, Kenya made a decision to commit political and economical efforts to a long-term national development

plan. The program is called Vision 2030 and sets the targets and drivers for two decades of strong sustainable

growth that would allow Kenya to become a newly-industrializing, middle-income country. The complete strategy is

divided in four parts. The economic pillar aims to achieve sustained economic growth of at least 10% per year

throughout the vision timeframe. The social pillar targets the improvement of living conditions and life

opportunities for Kenyans, with investments in education, health, housing and others, to ensure equality in the

distribution of future welfare gains along the society. The last pillar is political and dedicated to the role of

governance, in strengthening democracy, preserving national unit in the pursuit of goals with support of

transparency and accountability. Besides the three pillars, the country highlights the importance of growth

enablers, which are stable macroeconomic performance and better infrastructure. This is where the energy sector

appears in the vision. To enable sustained 10% annual growth until 2030, the government recognizes the urgency to

intensify investments in energy supply in the first phase of the 20-year period.27

The country aims to increase the generation of electricity to 15,000 MW by 2030. This potential is achievable

combining different energy sources, including considerable share of renewables. The government has worked to

develop investor-friendly regulations for the exploration of opportunities in the energy sector, as the government

itself cannot undertake most of these investments. This is considered the biggest challenge to the expansion of

generation capacity in Kenya. Investors lack confidence and financing is difficult. For that, the targets may seem

even more stretching than before. On the other hand, they can be an indication of how Kenyans are eager to attract

and be supportive to investors willing to participate in the development of their country.

26 African Economic Outlook 27 Vision 2030, www.vision2030.gov.ke


20

As part of the strategy for national development, the access to electricity is planned to reach 100% within the

timeframe of the vision. For that to happen, the government is investing in various power solutions for off-grid

communities, depending on the conditions of each area. Initially, the focus is primarily on supplying providers of

commercial centers and common public services, such as schools, medical care centers and county headquarters.

The community can also benefit, but is not the main target at this point. Connections to the electricity supply are

charged for both commercial and private use, but the fee is around 50% cheaper for the first type of user.28

Economy

The Kenyan economy is projected to grow 5.7% in 2013 and 6.0% in 2014, relying on lower interest rates and more

investments. Over the last decade, Kenya has performed worse than average Sub-Saharan countries (excl. South

Africa).29 The country strongly depends on foreign direct investment to compensate low domestic savings and

afford the necessary investments in private sector and infrastructure that can enable sustained economic growth.

Policies to improve human capital and productivity are crucial to make Kenya more competitive in the region and

globally, naturally attracting more investors. So far, the country has seen mostly short-term capital inflow. More

availability of long-term capital would improve the resilience of the Kenyan economy in case of new turbulences in

the global economy.

In 2012, the country shipped 48% of its exports to Africa. The neighbors Uganda and Tanzania led the list of

importers with 13% and 8.9%, respectively. Europe corresponds to 24%, Germany being the top third destination

in the continent with 1.9%. Since 2007, tea and horticulture have been the main export products, while machinery,

oil and chemicals have led the import statistics. The fluctuation of commodity prices did not favor Kenya in recent

times. At the same time, Kenyan shillings accumulated a real appreciation of 33% since 2003, due to a combination

of nominal depreciation and higher inflation versus Kenya's main trade partners. This caused loss in

competitiveness and stagnation of exports, leading to deterioration of the country's current account.30

Figure 6 Kenya shift from agricultural economy to a service economy31

The outcomes of current expansionary monetary policy pose a risk for the evolution of the Kenyan economy worth

to be considered. The easing of credit conditions may stimulate demand for consumption but raise inflationary

pressure. Excessive increase in public spending to cope with needs for expansion and improvement of public

28 Rural Electrification Authority (REA) 29 Kenya Economic Update 2013, by World Bank 30 Kenya Economic Update 2013, by World Bank 31 Kenya Economic Update 2012, by World Bank


21

services is also a concern. Kenya was ranked 121st in the World Bank Doing Business Ranking 2013, out of 185

surveyed countries. It lost positions in the rank compared to previous year, when it was ranked 117th.

The government is currently assessing a plan to change the payment model of the grid connection fee. Nowadays,

every household that wants to be connected to the national grid has to pay KES 35,000 for the connection. This fee

is one of the major reasons why a large number of Kenyan has access to grid, but not to electricity. Although the

infrastructure is close to their house, they cannot afford the connection fee.

According to the new proposal, households would be connected without paying the full amount upfront, as happens

today. The KES 35,000 payment would rather be made in small installments included in the consumption bills, for

up to 60 months. If this proposal is approved, the government expects to significantly increase the electrification

rate in the country. The decision on the new model is pending to 2014. A regulation for net-metering in Kenya is

also under development, however the instability of the national grid poses challenges to its implementation.

Society

Recent studies estimate that poverty in Kenya has reduced to a level between 34% and 42%, versus 47% in 2005,

when the last official census was done.32 The reduction of death and birth rates, the migration to urban areas, and a

new trend shifting jobs from agriculture to industry and services are the three main factors influencing changes in

the Kenyan labor market over last decades. Along with that, the country is half way in its demographic transition33,

which is resulting in what is called demographic dividend. It means that, as the workforce grows in size, each

working age person supports on average fewer dependents (children and elderly). Some countries that previously

experienced this transition went through prosperous times of growth and demand expansion.34

Figure 7 The continuing demographic transition in Kenya35

If the pace of job creation could cover the increase in number of workers, this transformation could trigger a

significant increase in purchase power for Kenyan consumers, turning this market into a more attractive

destination for investments that would again create jobs, feeding a virtuous circle. However, according to the 2012

Economic Survey figures, the working age population grows by 800,000 per year, while formal wage jobs increase

by 50,000 per year. Therefore, at this pace, only 6% of new entrants in working age find a formal wage job. Of all

wage jobs in Kenya, approximately only 40% are formal, divided as 27% in private sector and 13% in public sector.

Other forms of employment are family farming and non-farming self-employment (e.g. street vendors or 32 Kenya Economic Update 2013, by World Bank 33 Kenya Economic Update 2012, by World Bank 34 Kenya Economic Update 2011, by World Bank 35 Kenya Economic Update 2012, by World Bank


22

dressmakers). Surveys in the country highlight three main barriers to job creation: (i) potential political and

macroeconomic instability, (ii) weaknesses in transportation and electricity, and (iii) corruption. Nearly 80% of

firms in Kenya suffer losses with power shortage, amounting to average 7% of sales. As consequence, 67% of firms

own or share a generator, to cover average 16% of their electricity demand.36

Kenya seems to have a serious commitment to the improvement of its educational policy. In 2011, the country

allocated 7.2% of GDP to education expenditure. Among Sub-Saharan countries, the average spending is 3.8%. In

Kenya, 57% of total government spending on education goes to primary school teachers. On the other hand, studies

show that absenteeism among these teachers is very high. A survey based on unannounced visit to schools

registered 16% of teachers not in school, and other 30% in school but not teaching. Despite the increase in

resources at public schools, the student's performances remain low, and poorest children are the most behind.

Secondary education is now also offered for free by the government.37 There are 30 universities in Kenya, 7 of which

are public and 23 private.38

Approximately 20% of Kenyans have connection to continued electricity supply in their households. The expensive

grid connection fee is the main barrier for improvement of this statistic, as vast majority of the households are

actually already within connectable distance from the grid. The government has invested in providing power

systems to supply public facilities and commercial centers in off-grid areas, with special focus on primary schools.

The electrification of all primary schools is a pre-condition to implement the plan of distributing notebooks for all

primary school students in Kenya.

Technological progress

The penetration of technologies is relatively good in Kenya. In 2013, the national statistics indicate penetration of

78% for mobile phones and 41% for internet.39 The country is considered a technology hub in Africa with high

concentration of tech organizations and startups.40 IBM recently inaugurated its first African research lab in

Nairobi.41 And the government is willing to provide further support to the development of this sector, having

included investments in information, communications and technology as one of the enablers of Vision 2030.42 The

plan to distribute notebooks to all primary school students in Kenya is also an indication of the government's

commitment to facilitate inclusive adoption of new technologies.

Kenya has an incredible example of pioneer mobile money transfer service. Developed by Vodafone and operated in

Kenya by its affiliated Safaricom, M-PESA is a mobile payments system based on accounts held by a mobile

operator and accessible from subscribers’ mobile phones. Deposits and withdrawals are done at widely available M-

PESA agents. Sending codes by SMS, people can pay bills in shops, supermarkets, taxis etc. Moreover, they can

easily transfer money between M-PESA accounts to benefit of other users, e.g. relatives, or to a regular bank

account. Through M-PESA accounts, people can earn interest over savings or take loans. It is also possible to

purchase products advertised directly at their mobile phones, besides air time for traditional phone calls.

Withdrawals are also possible at 24/7 PesaPoint ATMs. The innovation revolutionized the payment habits of

Kenyans, promoted financial inclusion and has received innumerous international awards.43 In 2006, 19% of

Kenyans had bank accounts, while 70% had mobile phones.44 M-PESA started to operate in 2007 targeting the

unbanked population, but was convenient to all. It rapidly grew its customer and service bases. In February 2013,

36 Kenya Economic Update 2012, by World Bank 37 Kenya Economic Update 2013, by World Bank 38 Kenya Education Fund, www.kenyaeducationfund.org/university-in-kenya/ 39 ANSR.IO, www.slideshare.net/sofiazab/kenya-2013-tech-sector-trends-online-social-mobile 40 ANSR.IO, www.slideshare.net/sofiazab/kenya-2013-tech-sector-trends-online-social-mobile 41 Information, Communication and Technology Authority, www.ict.go.ke 42 Vision 2030, www.vision2030.go.ke 43 GSMA case report, www.gsma.com/mobilefordevelopment/programmes/mobile-money-for-the-unbanked/mmu-examples/m-pesa 44 Safaricom, www.safaricom.co.ke/personal/m-pesa/m-pesa-resource-centre/presentations


23

there were 17 million active M-PESA users registered. The total deposit value reached KES93.3 billion in October

2013 (approximately USD 1.1 billion).45

The reputation of renewable energy solutions was damaged in the past, when cases of defective equipment and/or

incorrect installations of solar PV systems were frequent. The use of solar solutions in rural and remote areas also

created a peculiar situation with some people labeling solar PV systems as electricity solution to the poor. Currently

the government as well as companies in the sector work to raise awareness of potential customers and end-users

about the benefits and productivity of solar systems. New regulations targeting renewable energies have been

developed and help to improve overall quality standards in the sector and customer confidence.

As an excellent case of innovation combining the technologies above mentioned, the German company Mobisol

GmbH provides prepaid electricity in some off-grid communities using M-Pesa as payment method. The families

receive a ready-to-use solar home system and pay the cost of the equipment as they use the electricity. After

equipping 300 houses during pilot projects in Kenya and Tanzania, the model has proved to be economically viable

and the company announced plans to expand operations in the region.46

3.2.2 Industry Analysis

The energy market in Kenya is here analyzed in terms of attractiveness for German battery manufacturers seeking

opportunities to enter the market. The main elements of the market were mapped based on primary interviews with

industry experts, local players, and policymakers, as well as published reports on energy industry in Kenya. The

relationships among the most relevant stakeholders and their role in the development of this business are described

below.

The Kenyan energy market moves steadily towards renewable energy, in a trend that has gained momentum over

the last few years. Among the main local players, it is possible to find both companies that have started the business

in the last decade and companies that have been operating in Kenya for much longer but changed focus to

renewable energy as the new market unfolded. In broad terms, batteries are typically purchased in Kenya to

compose solar/wind power solutions in projects of integrated systems, replace used units or be sold by distributors

that will serve end-users directly, in a do-it-yourself installation model. Chinese battery suppliers are strong

competitors in the market, which is still very price-driven. The increased attention to hybrid power systems is

turning diesel generators from substitutes into complementary products, opening new fields of cooperation.

Figure 8 Key players and customers of solar battery industry in Kenya

45 Safaricom, www.safaricom.co.ke/mpesa_timeline/timeline.html 46 Mobisol GmbH, www.plugintheworld.com/

Battery manufacturers

System integrators

Hotels

Telecom

Government Schools, hospitals

Non-Profit BOP

households

Upper-OP households

Distributors End-Users


24

Direct customers: system integrators

System solution providers and integrators are potentially the single target for direct sales of German batteries in

Kenya. The demand for renewable solutions has increased over the last years. The financial incentives for

renewable energy projects and electricity generation in Kenya have favored this business.

Quality versus price

The set of solutions and services provided by these companies varies in complexity and scope according to the

capabilities of each player, covering design, assembly, installation and maintenance service mostly for pure solar

and solar hybrid power systems. They offer projects to end-customers in response to calls for bids or simple

quotation request. To develop relationship with potential end-customers, system integrators often invite for

presentation about available solutions. Such meetings serve three main purposes: educate demand about renewable

energy solutions, generate awareness for the corporate brand and influence future calls for projects. Especially in

cases of biddings, different specifications defined by the end-customer can greatly change the odds of one particular

solution. Specifications that set more rigorous quality standards will automatically reward projects that deliver

higher quality, which often also means better batteries that improve system performance. Local integrators say the

battery represents 50-60% of a system total cost. So, the price difference coming from a choice for better batteries is

more likely to be accepted when the end-customer already recognizes and understands the performance gaps

related to different levels of quality.

As it would be expected in a developing country, there is great pressure for cheaper solutions in the market, starting

from end-customers and moving up along the supply chain. The demand for stand-alone/replacement batteries

available at distributors gives some system integrators the alternative to resell excess of batteries to these retailers.

The same doesn't hold true for more expensive batteries though, as there is no demand for premium batteries in the

here called Do-it-yourself market. Once purchased, system integrators have no expectation of use for these units if

not as component in their own projects. On the other hand, they also point out that the long lead time for new

orders of high-quality batteries eventually compromises their responsiveness to new projects that would justify

more complete solutions and afford better batteries. This situation restricts the flexibility of Kenyan companies to

lead the market towards higher quality and requires them to manage inventory of more advanced batteries

cautiously.

Skilled labor

The market environment presents another important challenge to be addressed in order to continue developing.

The lack of trained installers remains a point of attention for companies in the sector. Well-trained, experienced

installers are necessary to assure the quality of the systems performance. Poor installation and maintenance

techniques can easily damage the equipment installed, compromising the actual productivity of the solution. In

this case, the expected financial savings wouldn't realize, frustrating customers that strongly relied on those savings

in the purchase decision.

There are relatively many installers who have learned the techniques on the job, but lack knowledge on the concepts

that would be covered by formal trainings. Many of these installers work independently, assembling systems that

combine parts from different suppliers. While the ERC works to finalize curricula for courses to prepare

professionals in this field, the system integrators have tried to create their own solutions. Some of the interviewed

companies proactively started to identify potential installers and invite them to be trained by their own staff. The

training is done as part of the job, with especial attention from the permanent installation teams. One of the cases

includes even coverage of expenses with relocation from distant areas. The evaluations performed by this company

always indicate positive, sometimes outstanding, impact from the new skills over performance. One of the

companies even prefers professionals with background in energy and electrical components, but without experience

in installation of systems, as they perceive to be harder to retrain installers with old, inaccurate habits. The benefits

of teaching right the first time add more value to the work of ERC, which will set the standards not only for existing

professionals, but especially for the new generation of installers that will be attracted to the market as it grows.


25

In fact, the market still recovers from times when individuals and companies without serious quality concerns

offered power solutions to customers and poorly installed badly designed systems. Cases of frustrated end-

customers and end-users who at some point experienced this situation are common. But the occurrence of new

incidents has decreased over the years, as the government has dedicated attention to improve regulations in this

business. Nevertheless the trust of end-customers and end-users is harder to be rebuilt, therefore the system

providers have to overcome resistance at times, to convince customers about the potential of the solutions. This

also implies the need to verify the adequacy of the expectations of their customers regarding the projects, which is

not rarely inappropriate due to lack of knowledge about the technology.

Expectations from Kenyan firms

Kenyan companies seem interested in opportunities to do business with German companies, as per response and

attendance to events in Kenya organized by German organizations, such as the Chamber of Commerce (AHK) and

GIZ. Interviewed companies in Kenya mention strong relationships as a very important building block of successful

business deals and they expect to share this same mentality with their business partners. The liaison between

system integrators and battery suppliers has potential to be particularly fruitful in a market that moves towards

building capability for more complex projects and strengthening the credibility of the technological performance

among end-customers. In the context of purchase agreements and joint ventures, the local companies interviewed

named a few suggestions that could potentially help the development of stronger informal and formal ties between

Kenyan and German companies, which would ultimately reflect on better business results.

- Technical assistance for development of technologically advanced projects

- Training about new technologies of batteries and their adequacy in terms of system design

- Openness and trust in sharing information and expectations when negotiating partnerships for tenders and

projects in Kenya

- Buy-back option for batteries purchased to reduce inventory holding cost for Kenyans

- Adaptation of products when European specifications don't guarantee best performance in Kenya

End-customers and end-users

The main groups of end-customers identified in Kenya are private companies, especially in the telecom and

hospitality sectors, and households including both grid-connected or off-grid ones. Each of these groups has

somehow different motivations to use renewable energy and is in different stage of adoption of the technology.

Hotels

Kenya is a great tourism destination, which surprises its visitors with varied landscapes, wildlife and culture. A

large part of the hotels operating in the country are resorts in off-grid and conservation areas. Hotels located in

disconnected areas usually generate electricity with diesel generators, but the fluctuation of oil prices can

significantly affect the cost of this operation. Despite connected to the national grid, hotels in central areas also

suffer from generally high electricity costs due to high tariffs and high consumption for operations. Besides raising

awareness for responsible consumption among employees and guests, the hotel managers are now looking for

opportunities to reduce the rates paid for the energy consumed, while improving its supply and reliability. The

global trend towards green solutions plays a role to further influence this customer group, by increasing

expectations of guests for more sustainable facilities and procedures. On top of all, it is found that hotels are aware

of their own social and environmental responsibility and are willing to invest in solutions to align hotel practice to

sustainable standards.

The hotel industry is perceived as more open to experiment new technologies than others. Modern facilities are an

important element of competitive advantage for hotels to satisfy guests and perform well in the industry rankings,

as well as to ensure efficiency in operational costs. Solar systems have started to be installed to heat water. The

hotels interviewed had started to operate the new water heating systems (WHS) within about six months before the

interview. It was revealed to be a common procedure to visit other installations before the decision for new projects.


26

One of the hotels had already received almost 15 visits of commercial customers interested in the new WHS, and

about 10 of those signed new projects with the same system supplier after getting recommendations from this hotel.

The group included other hotels, hospitals and schools. Another solution working in some lodges is the use of

diesel-charged batteries during low-peak periods, while the diesel generator can be turned off. For instance, during

the night the consumption is mostly limited to lighting and the batteries would be sufficient for it.

To afford investments on CAPEX, the hotels firstly rely on internal funding, but avoid risky decisions that might

compromise liquidity. From searching solutions to deciding for an investment, the process takes around one year

for the hotels interviewed, while the availability of budget for such projects has to be planned even before that in the

case of bigger hotel chains. Payback period considered for CAPEX investments ranges from 2-3 years to 4-6 years.

The interviewees were potentially early adopters of new technology for hotels already in operations, but their

facilities were also going through renovations and building expansion. With the prospects for increase in the

number of hotels or expansion of existing ones in the country, management companies of new hotels can be good

targets, as they would be the most interested in applying the latest available technologies in their new facilities. The

advantage of the new hotels against existing hotels is that the first group would be more willing to invest in

complete integrated solutions, instead of progressively installing small systems that don't interact with each other.

The customer perception of not having Kenyan companies that are technically prepared to conduct these projects

opens an opportunity for foreign companies more credible in terms of quality products and service.

Households

The households in Kenya are a large and diverse group. In the urban areas, there are households connected to the

national grid, and others that are close to the infrastructure but not connected to it. In the remote areas, there are

mini-grid infrastructures available for some communities, while others are still in the dark.

The shortages of power supply are a frequent event in the lives of Nairobi residents supplied through the grid.

Kenya Power and Lighting Company (KPLC), the single responsible for transmission and distribution of electricity,

publish weekly announcements on the newspapers informing when, where, and for how long the supply will be

suspended. The situation gets worse in case of really dry seasons, as happened in 2009 when hydropower plants

had serious problems with the water level in the reservoirs. In general, households simply rearrange their plans for

the day accordingly, and wait for reestablishment of the supply. But, there is interest from the upper-level

households to install alternative power solutions, such as solar panels, batteries and diesel generators. Especially if

good regulations for net-metering are set in place, the cost of grid-connected solar systems would decrease

significantly, because the installation of batteries would not be required. Batteries alone represent 50-60% of solar

systems, as per interviews with local system integrators, and this saving might make the solution affordable also for

mid-income households.

As mentioned before, the government is interested in increasing the rate of households connected to the grid, by

reformulating the connection fee model. Despite their relatively low individual consumptions, the inclusion of these

future newly-connected households might increase the demand enough to further compromise the stability of

electricity supply from the grid, depending on the actual evolution of government plans to grow the installed

generation capacity in the country. More grid instability would again drive demand from households for alternative

solutions.

Rural Electrification Authority

The government has made efforts throughout the years to provide electricity in rural and remote communities.

With the installation of mini-grids in community centers, public facilities such as hospitals, schools, and county and

district headquarters are supplied with energy and the community can benefit from a better service. As part of the

current program for electrification of all primary school until 2014, 16,200 schools are pending to be supplied

through public invitations to tender, out of total 26,000 primary schools in the country. One example of tender

included supply, installation, testing and commissioning of solar PV systems for 215 schools distributed in nine lots


27

(maximum two awarded per tender), with deadline for bids 16 days after publishing. The task is challenging, but

actually some of the communities with unsupplied schools already have a grid installed. In these cases, the

investment would be only in wiring the school facilities. The funds for this program are 80% covered by the Kenyan

government and the remaining by development funds, including World Bank, African Development Bank and

Finnish Department for International Development Cooperation.

Non-Governmental organizations

NGOs have also given their contribution by assisting and/or implementing electrification projects all over the

country. Regarding their purchase behavior as end-customers, it is often the case that NGOs will specify mandatory

use of required brands for parts of the power system to be delivered. System providers believe that lack of technical

knowledge about power systems is what drives these end-customers to specify brands that are traditional and well

established in the market, as to avoid risk of misunderstanding and future underperformance of systems purchased

with donated funds. Hoppecke is a brand name commonly mentioned for battery requirement in these occasions.

Sometimes private companies also require specific part suppliers for their new power systems. In government

tenders, on the other hand, the restriction of part suppliers is done indirectly, to the extent that interested suppliers

must offer only parts that deliver the technical specifications defined in the tender description. Whenever possible,

system integrators try to influence their institutional customers, by providing them with information sessions about

renewable energy and power system solutions, aiming to create conditions for future tenders that will favor higher

quality standards.

Local communities

For low-income end-users, providing solar system solutions to individual households seem technically and

economically puzzling. Technically, the demand of individual households would require very small systems, which

might turn not so stable and present poor performance compared to settings with higher demand. Economically,

the costs of these small systems would likely prove still unaffordable for these households. As a group of end-users

organized as one end-customer though, they would have much more potential for future business. The aggregate

income of some of these groups might well be enough to afford systems that can supply many households in the

community. It is a matter of how they could get organized to negotiate and commit as a group, as well as having

proper understanding of what these technologies are suitable for and how to properly run and maintain the

systems. Cooperatives can be a good starting point to identify potential customers among this type of end-users.

Many communities get together as cooperatives to make local business stronger, negotiate better deals, and bring

prosperity to their regions. The Cooperative Alliance of Kenya (CAK) is the association of cooperatives in Kenya,

and its mission is to provide quality leadership to the cooperative movement, while influencing politics to the

benefit of cooperatives, and providing information and support to the development of improved cooperative

models. The cooperatives affiliated to CAK are active in agriculture (38%), financial services (45%) and other

sectors, e.g. housing and handicrafts. They are spread all over the territory, and an improved access to electricity

could substantially increase their chances to scale up business. Furthermore, it could help to generate jobs for the

youth and become more sustainable. For the purpose of implementing projects and disseminating information,

CAK is constant interaction with the cooperatives. This association could therefore be a channel to identify

cooperatives that might be interested in power systems and afterwards contact them to present specific solutions to

their needs.

Telecommunication networks

The basic structure of the telecom industry in East Africa is composed by two groups. Mobile network operators

and tower companies own the network tower facilities, and telecom equipment vendors supply equipment and

solutions related to telecom and power. The sites are operated by managed service providers. Although mobile

network operators still own majority of towers, there is a recent trend of transferring these tower assets to tower

companies.


28

The number of base station sites in Kenya increased from 4,367 in 2011 to 5,565 in 2012 (+27%). The mobile

network cover already 89.1% of the population, but land area is still an opportunity for further development. Nearly

35% of land area is covered by GSM signals, and the remaining 65% concentrates vast majority of the uncovered

population.47

The potential for solar energy solutions is high and spread all over the Kenyan territory, which attracts the attention

of mobile network operators that need stable electricity supply even in off-grid areas. The availability and reliability

of technologies for installation of such systems in Kenya is very good. In principal, the market is receptive for this

renewable energy source, but high initial CAPEX, space requirements and scarcity of external funding are some of

the challenges to be addressed with innovative business models.

Competition

As previously mentioned, the Kenyan market is still primarily driven by price. The batteries supplied by Chinese

companies are largely available in this market since 2008. The advantages of Chinese batteries relate to their

competitive price strategy. Its affordability guarantees a market as component for system solutions and as over-the-

counter product for retailers and distributors. In terms of technology, these products often last maximum two years

before replacement is needed. There are also reports of poor quality control, with frequent cases of shipments that

include several malfunctioning batteries that are identified only once tested by the system integrator, or at times

after installed. One of the system integrators says that its orders of Chinese batteries always include 10% more units

than actually needed, as precaution against defects. The buffer is covered on the own expenses of the Kenyan

company and it currently does not raise great concern because the low price makes the procedure still cheap and, in

case of excess of well-functioning batteries, they can easily be used in future projects. For example, over a period of

2 months, the company turned 300 Chinese batteries in the inventory while only 10 German batteries were turned.

The Spanish suppliers were mentioned by one of the interviewees as example of European companies that can

provide good quality products with much better service than that of German companies. The Spanish are faster to

reply requests for quotations, able to deliver the final product in shorter time, and usually more flexible to

accommodate demands from Kenyan firms. Nevertheless, German suppliers are very well regarded by Kenyans for

the superior quality of their batteries. Whenever sourcing from Germany, system integrators say they can trust the

battery performance will be great. One of the companies usually offers five years warranty for German batteries

even though the manufacturer actually covers only the first two years. The reason to extend is that, it helps to

support before customers the argument that these are really high quality batteries.

Kenya imports vast majority of industrialized products available in the country. Generally speaking, the costs of

manufacturing in Kenya are considered excessively high, and discourage investments in industrial ventures. In the

case of batteries, there is one local supplier. Chloride Exide is a former UK subsidiary of a automotive battery

group. It is based in Kenya since 1963 and was acquired by a Kenyan investor in early 1990's, when it started to

diversify the business with solar batteries and later solar system solutions. Locally, it is one of the strongest names

for batteries, in large part due to their automotive batteries arm. Nevertheless it also stands out as the only battery

player with local production facilities, having foreign partners for the development of technologies used. The

manufacturing activities are run by Associated Battery Manufacturers, a sister company of Chloride. Most of the

production is sold to distributors, while the remaining is used on in-house solar projects.

The presence of Chinese batteries in the Kenyan market has contributed to expand the market and make simple

solutions become more affordable by reducing upfront investment. Nevertheless, the total investment in solutions

that use low-performance batteries can be equal or even higher than that of lower quality batteries, since it requires

earlier and more frequent spending on replacement and maintenance.

47 Powering Telecoms: East Africa Market Analysis, by GSMA, 2012


29

Diesel generators

Some diesel generator companies watch closely the development of the renewable energy market in Kenya. They

recognize the trend for decrease in the demand for diesel generators as stand-alone power solutions, but also notice

the opportunity to join renewable energy companies in the business of hybrid power systems. A diesel generator

company who attended a recent German-Kenyan Solar PV Conference in Nairobi sees business partnerships with

hybrid PV system integrators as a promising opportunity to expand into new technologies. Diesel generators are

expected to continue having a market as backup solution. However, the future of primary sources of energy in off-

grid areas in Kenya is together with hybrid renewable energy solutions.

Regulatory environment

The Energy Regulatory Commission (ERC) is in charge of regulating the general supply of electricity, and renewable

energy as well as fossil energy segments. Some of ERC's main attributions are licensing of professionals in the

sector and setting tariffs. Kenya Bureau of Standards (KEBS) is the institution that defines official standards to be

followed by products and services commercialized in Kenya, while ERC ensures enforcement and compliance in

energy-related products and services, and manages complaints against energy service providers.48 The lack of

appropriately equipped facilities to test imported products is a challenge for quality controls.

Since the establishment of the Renewable Energy division, an important objective was to recover customer

confidence in renewables as energy generation solution, because the equipment and services for solar PV systems

were falling behind in quality. Companies are not invited to participate directly in the process of developing new

regulations. Instead, ERC works closely with Kenya Renewable Energy Association (KEREA). This association

gathers the opinions and feedbacks from its member companies and provides a consolidated view of RE private

sector reaction to upcoming regulations.

Training curricula and licensing procedures

ERC, KEREA, Strathmore University and the National Industrial Training Authority cooperate to develop standard

training curricula for solar PV technicians. There are three levels of certification, named T1, T2 and T3. The first

will prepare technicians for small systems (up to 100W) and the second, for medium systems (up to 300W). The T3

level targets technicians for large PV systems (above 300W) and hybrid grid-connected solar installations. Based on

the curricula, standard courses of 3 to 4 weeks will be developed for each level and offered in national professional

training centers. While the regulations for T1 and T2 are ready, the group still works on finalizing T3. One of the

challenges identified for the higher level is the local gap in knowledge of latest technologies that should be included

in the curriculum, to prepare the future professionals for new trends in solar PV systems.

Solar PV technicians licensed by ERC will go through an examination process that requires proof of performance in

theory and practice. Once the initiative is concluded, the process for attaining the first license will include course,

professional exam, practical assessment, and interview. The licensed technicians have to reapply for revalidation

annually, which includes submitting a list of installations done, with respective capacities and locations, so that

ERC can cross check with previous inspections.

Power producers, and solar PV manufacturers, contractors and importers also need to require licenses before doing

business in Kenya. Companies that want to invest in mini-grids to sell electricity directly to end-users have to

contact the Electricity division of ERC to obtain permission for such business activity. The procedure enables ERC

to monitor the service and guaranties a channel of complain for end-users.

Barriers for entry

Some characteristics of the Kenyan market are not friendly to foreign companies starting business in Kenya. They

are not necessarily an impeditive for business, but deserve special consideration when planning strategies for

market entry.

48 ERC website, KEBS website.


30

Significant part of the demand for solar power systems in Kenya is materialized through tenders. But the dynamics

of bidding processes differ depending on the customer who organizes. In general, tenders proposed by commercial

and non-profit customers are limited to a selective pool of invited bidders. Therefore, if a company decides to start

in the market to serve this customer segments without having a renowned brand name, it can take time to build the

connections and credibility for these invitations. The tenders started by the government are open for all interested

suppliers to bid, but it is mandatory to have Kenyan suppliers sharing the ownership of the project in order to

participate. These partnerships are established more commonly between system integrators, but battery

manufacturers also join sometimes.

The lead time is often also challenging for these projects, if compared to lead time of imported European batteries.

Customers want to have their systems installed in very short time, while batteries that would be installed have to be

ordered and shipped from Europe to Kenya as projects go. System integrators usually hold only a small inventory

for this kind of battery, as the market doesn't present other attractive channels that could absorb the units in

excess. Finding means to reduce the lead time would put German suppliers in a better position to compete.

From end-customer point of view, the difference in prices between German batteries and other lower tier batteries

are considered excessively high despite the quality advantage. As the choice of batteries significantly impact the

total cost of a solar power system, it poses a challenge to convince end-customers to opt for better models. Based on

the experience of local system integrators, commercial customers are more fact-oriented in their decision making

process than other groups. This would make them a preferred group for German batteries, as their need for more

complex, customized solutions would more easily justify the use and showcase the benefits of high-performance

batteries, in comparison to solar home systems.

In general, system integrators in Kenya have been dedicating time to better train and retain technicians and

installers. Through KEREA, they can influence regulations on certification of solar system technicians.

Nevertheless, due to lack of knowledge in latest technologies especially among local players, their capacity to deliver

effective customized solutions to more demanding customer segments, such as telecom, hotels and hospitals, is

compromised. For faster development of the local market, they would need support and already have interest in

partnerships with companies with expertise in more advanced technologies. Given the difficulties of entering the

market independently and the credibility of German technology, this could be a great opportunity for German

system integrators and manufacturers to partner with Kenyan firms and share knowledge that can enable the

execution of complex, high value-added projects.

The local financing options available for solar projects in Kenya are relatively expensive. Credit lines provided by

German banks currently have minimum loan requirements that automatically exclude small and medium-size

projects. The customers assessed in the hospitality sector preferably funded such CAPEX investments with internal

funds. However, in a market that values word-of-mouth and pilot cases in power solution decisions, the lack of

available funding for customers can become an obstacle.

According to interviews with local and foreign players, it is hard for foreign companies to develop a business in

Kenya. It takes much time to build network and credibility, as well as financial resources to keep running in the first

years of operation. Partnerships with local players tend to be a very important step to have local presence to

support projects in Kenya, counting on advices from a partner that knows the market well without the costs of

setting up own operations in a new location.


31

3.2.3 Market Size Estimation

In order to know better about the market size, we created a model to understand the dynamic and size of those

potential market segments. According to National Energy Policy from Ministry of Energy of Kenya49, the total

electricity capacity will reach 15,000 MW in 2030 from current capacity of 1,660 MW. With this capacity target,

500MW will come from solar energy while 3,000MW will come from wind power (see table 5).

Peak power is assumed to be six hours per day with charging rate of 0.4, which means only 40% of the electricity

generated from renewable energy is used to charge the battery. The capacity of the battery is calculated with

48VDC system while the price of the battery is based on 12V/50Ah, which is used as standard battery in this report

and would be connected in series to form 48VDC system. Based on these simplified specifications, the accumulated

quantity of batteries demanded would be 14 million with accumulated revenue of EUR 1,330 million by 2030 for

the total solar and wind power battery storage market size.

Capacity (MW) Percentage

Solar 500 3%

Wind 3,000 20%

Others 11,500 77%

Total 15,000 100%

Table 5 Renewable energy targets by 2030 in Kenya

From German battery suppliers’ point of view, the potential opportunities are on the value-added applications

rather than pure batteries sales, especially in the application for the energy storage devices for renewable energy.

The market in Kenya for Small-to-medium size renewable energy system, powered solely with solar or wind energy

or jointly with other source, can be divided into two categories, household and commercial usage.

For household usage, there are two main applications depending on the grid compatibility. First, within grid

compatible area, household would choose grid as the primary energy source; therefore, additional individual

renewable energy system would be treated as secondary energy sources (or backup). Second, within the grid

incompatible area, household wouldn’t be able to connect to grid; thus, the renewable energy system would provide

energy as primary sources. Moreover, based on the population density, there are two types of renewable energy

systems for household usage in the grid incompatible area. First, in the region of relatively high population density,

hybrid mini-grid can be used to provide energy for the neighbourhood. Second, individual renewable energy

system would be more appropriate for the area with relatively low population density.

For the commercial usage, we identify two potential and easy to scale–up segments, hotel and telecom application.

There are quite a few safari hotels which are located in grid incompatible area, where the renewable energy system

can be used as primary power source. With the hotel situated in grid compatible area, the renewable energy system

acts as secondary power source.

For the telecom usage, similar to the household usage, there are two potential applications depending on the grid

accessibility. First, for the telecom sites in the off-grid and unstable grid area, where the average electricity

shortage time is longer than six hours per day, the renewable energy system would be the primary energy source.

Second, for the telecom sites within grid accessible area, the renewable energy system would be the secondary

source. The list of the segments of battery application in renewable energy system in Kenya is summarized in figure

9.

49 National energy policy, 3rd draft, Ministry of Energy, Republic of Kenya, May 11. 2012


32

For household usage, approximately 65% of the total population lives in grid compatible area while 35% in grid

incompatible area in 201250. Within the grid compatible area, we further divided this group into mini-grid potential

and individual system potential with the percentage of the population. The mini-grid potential refers to the

population living in the area with relatively high population density, approximately higher than 250 people per

square kilometre. The region with population density approximately lower than 249 people per square kilometre

would fall into the category of individual system potential. Moreover, the average household electricity

consumption per year varies due to the household income and the area of population density, ranging from 410 to

950 kWh/household/year. With renewable energy system reaching six hours of the peak power, the appropriate

renewable energy system size would be from 99 to 274W. With this information, we assume the system size would

be 100W for secondary power source and 200W for primary power source. All the household information is

summarized in figure 10.

Kenya Battery

Market

Household

Usage

Commercial

Usage

Mini-grid

Individual

Hotel

(Secondary)

Telecom

Primary Power Source

Secondary Power Source






Figure 9 Battery applications for renewable energy system in Kenya

Figure 10 Segmentation of households by use of renewable energy system in Kenya

In 2012, the total population was more than 43 million in Kenya. Using the total population number, the number of

people within each household segment could be attained. In order to have the approximate household numbers,

the number of people within every segment is divided by 7, the average household headcounts in Kenya.

Furthermore, an annual population growth rate of 2.7%51 is used to estimate the total population in Kenya in 2030.

No change in average household electricity consumption rate is assumed.

50 National Electrification Coverage Planning Investment Costing Estimation Model Kenya Final Report, A Report to the World Bank by the Energy Group, October 24, 2007 51 World bank data, population growth (annual %) in Kenya, http://data.worldbank.org/indicator/SP.POP.GROW


33

Peak power is assumed to be six hours per day with charging rate of 0.4, which means only 40% of the electricity

generated from renewable energy is used to charge battery. The capacity of the battery is calculated with 48VDC

system while the price of the battery is based on 12V/50Ah, which is used as standard battery in this report and

would be connected in series to form 48VDC system. Using the renewable energy penetration rates in table 5 for

both off-grid and grid usage, we estimated the market size with the help of a Bass diffusion model, as shown in

figure 11. With this estimation, the accumulated revenue for battery of renewable energy in household segment

would be around EUR 140 million by 2030, approximately 1.5 million units of 50Ah/12V batteries.

Figure 11 Estimated market size for batteries in renewable energy systems for households in Kenya

Figure 12 Segmentation of hotels by use of renewable energy system in Kenya

For the commercial usage, as mentioned earlier, there are two targeted potential markets – hotel and telecom.

According to Kenya Association of Hotel Keepers and Carters52, there are 218 members, which can be treated as

potential users. Around 44% of those hotels are situated in the off-grid area53. Annual growth rate of 10% (annual

tourist growth rate)54 is used to estimate the growth of the hotel. For the hotel in off-grid area, the monthly diesel

consumption rate is between 4,000 to 20,000 litres, which can supply energy from 45,200 to 226,000 kWh per

52 http://www.kahc.co.ke/ 53 Solar PV market in Kenya: Status and opportunities, BSW-Solar special exhibit rural electrification, Intersolar 2013, Munich, Germany, Charles Muchunku, Chairman, Kenya renewable energy association 54 Kenya National Tourism Strategy 2013-2018. Kenya National Bureau of Statistics

-

20.000

40.000

60.000

80.000

100.000

120.000

140.000

160.000

-

2.000

4.000

6.000

8.000

10.000

12.000

14.000

2012 2014 2016 2018 2020 2022 2024 2026 2028 2030

Acc

um

ula

ted

re

ve

nu

e (

EU

R t

ho

usa

nd

)

An

nu

al re

ve

nu

e (

EU

R t

ho

usa

nd

)

Year

off-grid mini-grid off-grid individual grid individual Accumulated revenue


34

month. Assuming those diesel generators running 24/7, the size of the generators would be between 65 and 314

kW. With this number in mind, we assume the reasonable size for renewable energy system for secondary power

source would be 20 kW while for primary power source would be 60kW. All the hotel-related information is

summarized in figure 12.

With the renewable energy penetration rates mentioned in table 5, we estimated the market size for hotel usage

with the help of a Bass diffusion model, as shown in figure 13. With this estimation, the accumulated revenue for

battery of renewable energy in hotel segment would be around EUR 4.8 million by 2030, approximately 0.5 million

units of 50Ah/12V batteries.

Figure 13 Estimated market size for batteries in renewable energy systems for hotels in Kenya

Regarding the Telecom industry in Kenya, there are currently 5,565 telecom sites in Kenya, including 4,838 sites

connected to stable grid with lower than 6-hour shortage daily, 150 sites with unstable grid, and 577 off-grid sites55.

Growth rate of 5% is used to estimate the number of telecom base station in 2030. For the telecom sites connected

to stable grid, the renewable energy system would be secondary energy source.

On the other hand, the renewable energy system plays the role of primary energy source to the sites with unstable

grid and off-grid sites. The peak energy consumption is around 5 kW for a normal base station. Here we assume

that 5kW renewable energy system is used for primary power source for unreliable grid-connected and

incompatible base stations. For the grid-connected base stations, 2kW renewable energy system is used. All the

telecom-related information is summarized in figure 14.

With the renewable energy penetration rates in the timeframe mentioned in table 5, we estimated the market size

for telecom usage with the help of a Bass diffusion model, as shown in figure 15. With this estimation, the

accumulated revenue for battery of renewable energy in telecom segment would be around EUR 3.4 million by

2030, approximately 0.35 million units of 50Ah/12V batteries.

55 Powering Telecoms: East Africa Market Analysis, GSMA Green Power for Mobile

-

1.000

2.000

3.000

4.000

5.000

6.000

-

100

200

300

400

500

600

2012 2014 2016 2018 2020 2022 2024 2026 2028 2030

Acc

um

ula

ted

re

ve

nu

e (

EU

R t

ho

usa

nd

)

An

nu

al re

ve

nu

e (

EU

R t

ho

usa

nd

)

Year

off-grid grid Accumulated revenue


35

Figure 14 Segmentation of telecom base stations by use of renewable energy system in Kenya

Figure 15 Estimated market size for batteries in renewable energy systems for telecom customers in Kenya

3.2.4 Summary of Industry Attractiveness

The opportunity for German suppliers would be to provide batteries with renewable energy system rather than

simply battery retailers. Therefore, two attractive markets are identified - households and commercial usages.

The household market can be further divided into mini-grid and individual systems. Mini-grid projects are hold by

three potential customers – Kenya government, communities, and NGOs. The Kenya government has ambitious

target on reaching 100% electrification by 2030. However, with current grid distribution, still large area is grid

incompatible. Rather than expanding current grid to the sparse area, mini-grid would be a more economic choice.

Government has the power to decide the suppliers for the mini-grid projects, acting as the end-customers.

Lobbying is necessary to acquire mini-grid projects from Kenya government. Besides government, community

would also play an important role in mini-grid projects. The people from neighbourhoods collaborate to fund on

building community-owned mini-grid, which composes diesel generator and renewable energy system like PV or

wind turbine. Community acts as end-customer as well as end-user for the mini-grid projects. The decision

making process may differ from case to case. The community may be price-sensitive, need reference, or quality

driven. The suppliers need to generate awareness and have customized solutions in community mini-grid segment.

NGOs are another mini-grid projects holder. To guarantee the stability and applicability of the mini-grid, NGOs are

relatively quality-driven and less price sensitive. The suppliers should be present with strong quality to gain the

-

500

1.000

1.500

2.000

2.500

3.000

3.500

4.000

-

50

100

150

200

250

300

350

400

450

2012 2014 2016 2018 2020 2022 2024 2026 2028 2030

Acc

um

ula

ted

re

ve

nu

e (

EU

R t

ho

usa

nd

)

An

nu

al re

ve

nu

e (

EU

R t

ho

usa

nd

)

Year

Off-grid + Unreliable base station Stable grid Accumulated revenue


36

mini-grid projects from NGOs. System solution providers and integrators with certain scale would consider

entering household mini-grid segment. Since a large portion of mini-grid systems need to be customized, battery

management and energy management solution providers would also enter this segment by cooperating with local

system solution providers in order to acquire the projects. Strong branding, high quality, reference generating, and

intensive communication on specification are necessary for presenting in household mini-grid market. As

mentioned in the forecast chapter, the size for batteries of mini-grid household market in monetary is estimated to

be EUR 30 million by 2030.

For the household individual usage, there are two main customer groups. The first end-customers are NGOs, which

target on providing electricity access to the people living in grid incompatible, sparse, and poor areas. Reliability of

the project is still the main concern for NGOs. The suppliers should provide standard but wide-applicable systems

and reliable individual systems. The second customer group is the general household, which is end-customer and

end-user. The selection of the brand would depend on recommendation from friends or solutions that they saw

working well. Word of mouth is the key to enter this segment. The unreliability of the renewable energy system

would destroy the further business. However, since the installation and design of the individual systems are

relatively simple, German suppliers need to face serious competition in this segment. System solution providers

and integrators with price competitive advantage or creative financing model would be able to participate in

household individual system. Moreover, since the quantity of the installed systems would be the key for

profitability, a group of trained technicians would be necessary. As mentioned in the forecast chapter, the size for

batteries of individual household market in monetary is estimated to be EUR 110 million by 2030.

For commercial usage, two attractive segments are identified. Firstly, hotels would like to have self-owned power

system to guarantee the service quality when facing the frequent electricity shortage. Prestigious hotels would be

able to take loans from banks or fund the system organically. The key factor to select suppliers would be the

recommendation from other hotels, which already have installed system. Pilot project in this segment would

trigger the follow-up projects. For commercial hotel usage, system solution providers and integrators could team

up with battery management and energy management solution providers to deliver customized solutions. Since

further maintenance and replacement contract would be present in the hotel segment, the local technical support

teams are needed. The size for batteries of hotel market in monetary is estimated to be EUR 4.8 million by 2030.

The other commercial segment is telecom base station usage. The electrical stability is crucial for the telecom

operators. Therefore, the key factors to select would be on the reliability and troubleshooting. Moreover, the

quality and maintenance of the renewable energy system would be the keys for supplier selections. Contracts for

several years and whole service that include maintenance and replacement are very likely for telecom segment.

Battery management and energy management solution providers can be important players since it’s crucial to

deliver safe, which wouldn’t damage the telecom equipments, and reliable electricity supply for telecom base

stations. Additionally, system solution providers and integrators would act as complementary role to the battery

management and energy management solution providers. The telecom industry is relatively conservative and

needs strong reference to launch new energy solutions. Pioneer project would help to generate the awareness. The

supplier which gains the first successful project in one specific telecom company has the opportunity to exclude all

other competition, and enjoy the priority as telecom power solution provider in that specific telecom company.

Similar to hotel segment, the local technical support teams are needed to provide trouble-shooting and

maintenance services. The size for batteries of telecom market in monetary is estimated to be EUR 3.4 million by

2030.


37

3.3 Southeast Asia

Southeast Asia is a sub region of Asia, consisting of the countries that are geographically south of China, east of

India, west of New Guinea and north of Australia. Southeast Asia consists of two geographic regions: Mainland

Southeast Asia, also known as Indochina, comprising Cambodia, Laos, Myanmar (Burma), Thailand, Vietnam and

Maritime Southeast Asia, comprising Brunei, Malaysia, East Timor, Indonesia, Philippines, Christmas Island, and

Singapore.

Southeast Asia

Area 4,500,00 km2

Population 610 million

Density 136 /km2

Countries 11

GDP (nominal) USD 2.158 trillion (2012)

GDP per capita USD 3,538 (2012)

Source: The World Bank, Wikipedia

3.3.1 Energy Sector in Southeast Asia

Southeast Asia is an extremely diverse set of countries with vast differences in the scale and patterns of energy use

and energy resource endowments. Since 1990, the region’s energy demand has expanded two-and-a-half times. The

fundamentals suggest that considerable further growth in demand can be expected; especially considering that per-

capita energy use of its 600 million inhabitants is still very low, at just half of the global average56.

The Southeast Asia Energy Outlook 2013 reports that oil is the dominant fuel source (37%) in the region, followed

by natural gas (21%). Coal use has grown at double-digit rates since 1990 and now makes up 16% of primary

demand. Efforts are underway to boost the deployment of modern forms of renewable energy, which currently

account for 12% of the primary energy mix, made up mainly of hydro, geothermal and biomass power, co-

generation technologies and solar photovoltaic (PV). Traditional biomass plays a major role, representing some

12% of total demand (bringing the share of renewables in total to 24%)57.

3.3.2 Country Selection in Southeast Asia

According to the Asian Development Bank, Southeast Asia will be the next big growth engine in Asia. Indonesia,

Malaysia, the Philippines, Thailand, and Vietnam, with a population of 525 million and a combined GDP of USD

2.8 trillion, are expected to grow almost 6 percent between now and 2030. Therefore, in order to select one country

for further analysis we selected four options that have a high potential for the development of renewable energies:

Thailand Vietnam Indonesia Philippines

GDP per capita (2012) USD 10,000 USD 1,394 USD 5,000 USD 4,300

Population (2012) 65 million 92 million 249 million 104 million

Electrification rate

(2010) 99.3% 97.6% 64.5% 89.7%

56 Southeast Asia Energy Outlook 2013 57 Southeast Asia Energy Outlook 2013


38

Continuing

Thailand Vietnam Indonesia Philippines

Current electricity

generation (2011) 145,000 GWh 103,000 GWh 174,000 GWh 67,000 GWh

Current electricity

sources Oil 84%/ Coal 12%

Hydro 34,3%, Gas

41,4%, Oil 2,4%,

Coal 17,2%

Coal 42%, Oil 23%,

Gas 22%

Coal 35%, Gas 29%,

Geothermal 15%

Annual electricity

growth rate (2001-

2010)

3.9% 15.0% 4.3% 6.5%

Electricity generation

target (2020)

70,686 MW

generation capacity

in 2030

Energy available up

to 834 TWh in

2030

83 GW installed

capacity until 2025

25 GW installed

capacity until 2030

Solution for fulfil the

target

Import and

increasing and

development

efficiency of

current systems

Increase RE (11%)

and nuclear (20-

50%) of total

energy demand by

2050

Geothermal/ Hydro

energy

Conventional (Oil,

Natural Gas, Coal)

and Renewables

Electricity price 4-7 USDcent/kWh 2012 on average

6, 9 USDcent/kWh 4 - 12 USDcent/kWh 7 -13 USDcentt/kWh

RE target

25% of total energy

consumption in

2025

Increase to up to

11% of total energy

consumption of the

country by 2050

15% until 2025 15,200 MW installed

capacity until 2030

Current RE

installation

Hydro 5,300 MW,

Biomass 1,752 MW,

Geothermal 350

MW, Solar 350MW

Hydro 9,899 MW,

Wind 31 MW, Solar

2.8 MW, Biomass

150MW

3,520 MW Hydro,

1,200 MW

Geothermal

3,400 MW Hydro,

1,966 MW

Geothermal

Doing Business

ranking (2013) 18/185 99 /185 120/185 108 /185

Table 6 Country selection Southeast Asia58

Indonesia

Because of problems with energy supply and climate change, Indonesia’s government is planning to invest in

renewable energies. Due to geographical conditions, Indonesia has a huge potential for renewable energies,

especially in hydro-power and geothermal, but also other renewable energy sources such as solar, wind and biomas.

The capacity for renewable energy is expected to double until 2025 to 12.5 GW with an investment of USD 15.7

billion. Possible barriers are the unclear financial support mechanism for renewable energies and lack of non-fiscal

incentives to adopt these energies. This process of change requires time and it seems that local companies do not

feel comfortable in working with long-term projects. In general, although the country has a high potential for

battery storage, it does not fulfil the main requirements to adopt the Germany technology in this initial phase.59

58 GIZ Country Research Southeast Asia 2011, Doing Business Ranking 2013 59 DENA, Country Profile Indonesia (2012)


39

Vietnam

The economy of the country has being growing since the 80’s at an average rate of 7-8% annually and this growth

has increasing the energy demand in the country. For that reason, the government is investing in modern energy

power plants. In that line, off-grid projects have a special priority under the objective to expand the country

electrification rate. Nevertheless, uncertainty about the long-term public policy regarding the energy strategy, as

well as the monopoly of public companies in the energy sector and the lack of private investment make the market

less attractive for foreign investors.60

Thailand

Thailand is one of the most developed countries in the Southeast Asia and has the highest GDP per capita among

the four countries with USD 10,000 in 2012. The energy demand is increasing and the government has developed

instruments and regulations to incentivise the installation of new power plants, especially on the basis of renewable

energies. The market offers a great opportunity for companies to enter due to the stability and incentive policy of

the government. However, the market for energy storage systems seems less attractive due to the very high

electrification rate and well developed electricity infrastructure. Recent activities of the government focus more on

the application of smart meters.61

Philippines

The country has a real problem with energy supply. The special geography of the country, more than 7000 islands,

the growing population and the underinvested power sector make it difficult to meet the electricity demand. In

addition, the country has the highest energy prices in Asia. Diesel systems are very common in many islands and

consequently represent high costs and environmental problems (e.g. oil spills). This is an excellent opportunity for

renewable energies to improve power supply, to stabilize the local grids and to lower costs. The government actively

promotes the change to cleaner energies and it provides incentives for new renewable energies solutions.62

In our understanding, the Philippines provide currently the best opportunity for battery storage applications and a

more detailed market analysis is provided in the next chapter.

60 DENA, Country Profile Vietnam (2012) 61 DENA, Country Profile Thailand (2013) 62 DENA, Country Profile Philippines (2013)


40

3.4 Overview of the Energy Industry and Market in the Philippines

Republic of the Philippines

Capital Manila

Official language(s) Filipino, English

Government Unitary Presidential Constitutional Republic

Total area 300,000 km2

Population 96.7 million (2012)

GDP (nominal) USD 284 billion (2012)

GDP Per capita USD 2,918 (2012)

Currency Philippine Peso (PHP)

German development cooperation EUR 115 million (2013) Source: The World Bank, BMZ

3.4.1 Macroeconomic Analysis

Political environment

When analyzing in which degree the government has an influence on this field, it is necessary to take into account

that energy is a strategic factor for a country, and therefore most countries’ governments regulate this industry. In

that way, the Department of Energy (DOE) is the institution in charge of the application of the energy policy and

the National Electrification Administration (NEA) is the organism in charge of electrification program in the

country, mainly providing financial, technical and institutional support.

In general, the Philippines have many different institutions involved in the energy sector. This fact must be taken

into account when trying to enter the market. It is highly recommended to know the different stakeholders in the

country involved in the energy industry in order to avoid delays in getting the public permissions and compulsory

certifications for operating in the country. The guidelines of the energy strategy of the country are exposed in the

Electric Power Industry Reform Act (EPIRA) created in 2001. The Energy Regulatory Commission plays also a very

important role in the public energy sector by regulating the different electricity sectors. Additionally, the National

Renewable Board (NREB) was created in 2008 in order to design the Renewable Energy of the country.

Due to the lack of own energy resources and the increase in energy consumption, the country must import an

important percentage of its energy need (especially oil, coal and gas). Despite of importing energy, there is still an

energy gap, especially in Mindanao and partly in the Visayas and Luzon. In this line, the government is trying to

attract private investors and carrying out energy sector liberalization measures.

The energy consumption has increased from 45,159 GWh to 55,296 GWh in the period from 2005 to 2010. The

government expects an energy consumption of approx. 150,000GWh in 2030. This huge demand must be covered

by increasing national energy capacity. If strategic measures are not carried out, the gap between supply and

demand in terms of energy consumption will increase drastically in the 3 main regions; especially in Luzon, but also

in Visayas and Mindanao. The government is aware of this problem and has created an energy strategic plan under

the name of “Power Development Plan 2009-2030” established by the DOE.


41

Specifically for renewable energies, the DOE elaborated in 2011 the first National Renewable Energy Program

NREP, which has as main goal to set the percentage of renewable energies in the total energy consumption for the

country and also to contribute in the increase the energy capacity of the country. The specific goal is to increase the

power generation capacity for renewable energies from 5,400MW to 15,400MW in the period from 2011 to 2030.

Especially important will be the expected capacity increases from geothermal power plants, wind energy and hydro

power. In 2009 the renewable energies represented more than one third of the total energy in the Philippines. Wind

energy, solar energy and biomass are in the initial development phase, therefore there is an important market

potential for them.

In 2001 the DOE started the liberalization process, but still the energy regardless of the origin and type produced in

the country has public ownership. The authorities can permit companies to explore, build and use renewable

energies, but the ownership of these companies must be of 60 % of Filipinos. It implies that foreign companies have

to set collaboration with local ones.

To sum up, even after initiating the liberalization of the sector, the government still plays the most important role

when deciding investments and planning for new technologies in energy sector in general and for renewable

energies in particular. For specific tax policies, labour laws, environmental laws, trade restrictions, tariffs goods and

services which the government wants to provide or (merit goods), it is highly recommended to consult the

publication of the "Renewable Energy Laws ” elaborated by the government authorities in Philippines and based on

the legal frameworks in order to have further specific details:

- Republic Act 9513 - Renewable Energy Act of 2008

- Republic Act 9367 – Bio fuels Act of 2006

Economic factors

The national economy of the Philippines is the 41st largest in the world, with an estimated gross domestic product

(nominal) of USD 284.472 billion (2012) and a GDP (per capita) of USD 2,918 (2012). The country mainly exports

semiconductors and electronic products, transport equipment, garments, copper products, petroleum products,

coconut oil, and fruits. The main important trade partners are the United States, Japan, China, Singapore, South

Korea, the Netherlands, Hong Kong, Germany, Taiwan, and Thailand.

The Philippine economy has experienced a transition from agriculture to services and manufacturing. The country is a net importer, especially of energy products. The unemployment rate stands at around 7.3% (2013)63 and an inflation rate of 2,90% (2013).64

We can observe in the figure 16 a fluctuation in the exchange rate. This is an important economic fact due to the

impact of the exchange rate on the costs of exporting goods and the supply and price of imported goods in an

economy.

The benchmark interest rate in Philippines was last recorded at 3.50 percent. The interest rate in the Philippines is

reported by the “Bangko Sentral ng Pilipinas” (BSP). From 1985 until 2013, Philippines interest rate averaged

9.9% reaching an all-time high of 56.6% in December of 1990 and a record low of 3.5% in September of 2012. In the

Philippines, interest rate decisions are taken by the monetary board of the BSP. The interest rate plays an essential

role in investment decisions, especially due to its influence on the capital cost. For Philippines, we observe multiple

fluctuations and unsteady tendency.

In the “Doing business Country Report 2013” elaborated by the World Bank the country is ranked in position 108 of

a 189 total countries. This ranking is also used as reference when analysing how fast a country can adopt new

technologies.

63

www.tradingeconomics.com 64

www.tradingeconomics.com


42

Figure 16 Exchange rate EUR-PHP in 201365

Figure 17 Philippine benchmark interest rate from January 2012 to October 2013-11-21

Social factors

The population in the Philippines increased from 1990 to 2008 by approximately 28 million - a 45% growth and

has a total population of 94 million (12th most populated country in the world). The population's median age is

22.7 years with 60.9% aged from 15 to 64 years old, which translates in a large workforce for the country and

relatively low labour costs. Life expectancy at birth is 75.03 years for females and 68.99 years for males. To be

considered is also the fact that half of the population resides on the island of Luzon.

The country's total labour force is around 38.1 million. The agricultural sector employs close to 32%, but

contributes to only about 14% of the GDP. The industrial sector employs around 14% of the workforce and accounts

for 30% of the GDP. Meanwhile the 47% of workers involved in the service sector are responsible for 56% of the

GDP. The public spending for education is around 2.5% of GDP. Regarding to the number of education centres, the

Commission on Higher Education (CHED) lists 2,180 higher education institutions, 607 of which are public and

1,573 private.

Most of the national burden of health care is taken up by private health providers. In 2006, total expenditures on

health represented 3.8% of the GDP. 67.1% of that came from private expenditures while 32.9% was from

government. The transportation infrastructure in the country is relatively underdeveloped. Partly this is due to the

mountainous terrain and the scattered geography of the islands, but it is also the result of the low public investment

in infrastructure. In 2003, only 3.6% of GDP went to infrastructure development. There are 203,025 kilometres of

65 www.xe.com


43

roads in the country, but only around 20% of the total is paved. In general, the energy consumption per capita in

Philippines is low and this is mainly due to low income of householders and total capacity of energy supply together

with high prices. 66

Technological factors

Technology development of a country and its capacity for adopting new technologies and spread it into the

population is one of the most important factors when analyzing a country´s development progress and potential

economic growth.

When talking about new technologies and their penetration on the society, we can mention that Philippines has a

modern cellular phone industry and a high concentration of users, with about 67.9 million cellular phone

subscribers in 2008. The Philippine Long Distance Telephone Company commonly known as PLDT is the leading

telecommunications provider. It is also the largest company in the country. Estimates for internet penetration in

the Philippines vary widely ranging from a low of 2.5 million to a high of 24 million people. 67

In terms of renewable energies, individual energy systems (solar panels) are gaining importance, but its

development and population adoption will depend on economy factor (basically price) and public promotion

policies. Environmental factors such as weather and climate change in activities such as tourism, farming, can

especially affect to the adoption of new technologies in the energy field.

3.4.2 Market Size Estimation

In order to have a feeling over the size of the Philippine market for energy storage, we analyzed the foreign trade

statistics of the Philippines, considering the products under the category “HS: 8507: Electric Accumulators” and

based on the statistics of goods imported and exported in year 2012.

Product Code

Product label Exported

2012 %

Imported 2012

%

Trade balance export-import

'850710 Lead-acid electric accumulators of a kind used for starting piston engines

91,967 89.7% 16,422 15.0% 75,545

'850790 Parts of electric accumulators 8,649 8.4% 8,303 7.6% 346

'850720 Lead-acid electric accumulators (excl. spend and started batteries)

1,352 1.3% 51,937 47.4% -50,585

'850780 Other Electric accumulators 595 0.6% 32,833 30.0% -32,238

Total 102,563 100% 109,495 100% -6,932

Table 7 List of products exported and imported by Philippines HS 8507: Electric Accumulators, Unit: USD thousand

In 2012 the Philippines exported a total amount of USD 102 million and imported USD 109 million of products

under the category Electric Accumulators. Therefore, its balance of trade for this category of products is negative,

with USD 6.9 million more in products Imported than Exported. Moreover, under the category Lead-acid

accumulators used as SLI batteries, the Philippines has a positive balance of trade of USD 75 million with a total of

USD 91 million exported and USD 16.4 million imported. On the other hand, for the category Lead-acid

66 Republic of the Philippines, National Statistics Office and interviews with public authorities in the Philippines 67 Republic of the Philippines, National Statistics Office and interviews with public authorities in the Philippines


44

accumulators (excluding SLI batteries), the balance of trade is negative by USD 50.5 million, with only USD 1.3

million exported and USD 51.9 million products Imported.

The most important trade partners for products exported by Philippines under the category Lead-acid

accumulators (excluding SLI batteries) in 2012 were Japan (33.3%), Singapore (14.6%), and India (12.1%), which

account for 60% of the total amount exported.

Importers Exported value in 2012

%

World 1,352 100%

Japan 450 33.3%

Singapore 197 14.6%

India 164 12.1%

United States of America 141 10.4%

Netherlands 112 8.3%

Hong Kong 108 8.0%

China 107 7.9%

Others 71 5.3%

Table 8 List of importing markets for a product Exported by Philippines HS 850720 Lead-acid electric accumulators (excl. spend and SLI

batteries), Unit: USD thousand

In terms of imports, Philippines imported a total of USD 51 million in 2012 and the most important suppliers for

lead-acid accumulators (excluding SLI batteries) were China (35.3%), Vietnam (30.4%), and Hong Kong (25.1%),

which in total represents more than the 90% of the total amount imported by Philippines under this category. It is

important to note that Germany the 6th largest trade partner with 1.4% or USD 723 thousand exported to the

Philippines in 2012.

Exporters Imported value in 2012

%

World 51,937 100%

China 18,321 35.3%

Vietnam 15,808 30.4%

Hong Kong 13,022 25.1%

Singapore 1,802 3.5%

Taiwan 973 1.9%

Germany 723 1.4%

Japan 440 0.8%

Korea, Republic of 266 0.5%

India 184 0.4%

United States of America 181 0.3%

Malaysia 34 0.1%

Others 184 0.4%

Table 9 List of supplying markets for a product Imported by Philippines 850720 Lead-acid electric accumulators (excl. spend and SLI

batteries), Unit: USD thousand


45

Automotive and industrial battery application

Automotive and traction batteries are the biggest market, followed by industrial and UPS applications. The market

is very well developed and saturated both from local production as well as from imports mainly from China,

Thailand, Japan and Korea. Actual growth rates of this sector were not available for this report, but it is safe to

assume that this segment will grow in line with the overall GDP growth of the country.

Philippine Batteries Inc (PBI) stands out as the only major battery manufacturer in the country. It is selling under

the brand Motolite and claims a production potential of 720.000 battery units per months and a local market share

of 80% for automotive and industrial batteries. The company was founded in 1919 and is one of the regions pioneer

in lead-acid batteries and the longest-serving battery manufacturer.68 PBI offers batteries for all segments and is

supplier to well establish American and Japanese automotive companies.

The remaining market share is distributed mainly between traders and distributors of foreign made batteries. Lead-

acid batteries are the main applied technology in all segments. An overview of the most mentioned companies on

the B2B internet platform alibaba.com is given in the below table 8. The import duty rate for batteries is 15% and

import VAT is 12%.69

Company Type Segment Revenue Brands Technology

BPI (Motolite) Manufacturer Automotive,

Industrial, Off-

grid

Above EUR

100 miliion

Motolite, OEM Lead-acid

Narada Battery Manufacturer

(Singapore,

China)

Industrial, Off-

grid

- Narada Lead-acid,

lithium-ion

Tradetech

Marketing

Trader Industrial, Off-

grid

<EUR 1

million

Chloride,

Exide, MSB

Lead-acid

Skobe Lift Trader Industrial <EUR 1

million

- Lead-acid

Tabuko Energy

Network

Trader Industrial <EUR 2.5

million

Alphacell Lead-acid

Friction Materials Trader Automotive,

Industrial, Off-

grid

- 3K, Tiger Lead-acid

Maxx Energy

Ventures

Trader Industrial, Off-

grid

- Chloride Lead-acid

Table 10 Selected battery manufacturer and battery trading companies in the Philippines70

Off-grid battery application

The off-grid market is a growing segment and several companies started to be active in this area.71 According the

IFC report “Lighting Asia” the electrification rate in the Philippines is with 86% relatively high. However, the

electrification rate drops to 65% in the rural areas and the National Electrification Administration (NEA) reports a

market potential of 2,5million unconnected households in the Philippines (September 2013). According to Tetchi

68 www.motolite.com 69 www.tariffcommission.gov.ph 70 www.alibaba.com/countrysearch/PH/battery-market-supplier.html 71 www.solarbuzz.com/resources/analyst-insights/philippines-fit-setbacks-continues-but-off-grid-opportunities-expand


46

Cruz-Capellan, founder of the Philippine Solar Power Alliance Inc, currently around 3 to 3.5MW of solar off-grid

capacity is installed mainly in solar lanterns and solar home systems.

Main driver in the past were rural electrification projects such as the Rural Power Project (RPP) and Project

BEACON. Across these programs 3.000 solar lanterns and 40.000 solar home systems in the range of 10-40Wp

have been sold in the Philippines.72. The AMORE program provided until 2013 support to extremely poor areas in

Mindanao and expects to provide an additional 12.000 systems.73

The NEA’s vision is the total electrification on area coverage by 2020. That means in the mid and long-term these

off-grid households must be connected to a grid or electrified with off-grid solutions. Slowly, there is an early stage

shift towards mini-grid and diesel-hybrid solutions, but no references yet. In addition a capacity upgrade of the

existing diesel generation capacities is required to meet the growing demand, and thus creates an opportunity for

hybrid solutions with energy storage capacities.

According to a study of Bertheau, 375MW of diesel off-grid capacity is installed in the country. However, the same

study also mentions that the real installed capacity is likely to be higher, but due to a lack of proper data could not

be considered. Currently, the largest share of the capacities is operated by the state-owned operators NPC-SPUG

and NEA.74 The SPUG operates 287 diesel generators in the whole country and supply 213 island grids, with a total

capacity of 278MW.75 NPC also aims to install 103 MW additional power capacities in off-grid areas by 2016.76

Other operators are Electrical Cooperatives (EC), mines, manufacturer and tourism facilities. All of these operators

are interested in reducing their power generation costs based on diesel and bunker fuel consumption reduction.

However, there is a significant difference in the total number of the Bertheau (222 diesel generators and 108 mini

grids) and the DOE (287 diesel generator and 213 mini grids) in table 9. The difference is that, Bertheau extracted

the number of power plants from the UDI World electric power plant data base and included only diesel plants

which are 50km away to the main transmission grid or are located on actual islands.

Installed Capacity (MW)

Percentage of total number of mini grids

Number of mini grids (Bertheau)

0 – 0.5 40% 43

0.5 – 1 28% 30

1 – 2 11% 12

2 – 5 13% 14

5 – 10 8% 9

Table 11 Distribution of mini-grids as per installed power capacity (Source: Paul Bertheau, Geographic, Technological and Economic Analysis

of Isolated Diesel Grids, 2012)

Lastly, the mobile telecom sector plays an important role in a geographical disperse country like the Philippines.

Globe Telecom and Smart Communications are the major players in the country. Globe operates around 7,000

mobile towers and Smart around 8,000 mobile towers. Further information regarding grid connection rate were

not made available. This segment is therefore not considered in the market size estimation for batteries in the

Philippines.

72 IFC, Lighting Asia: Solar Off-grid Lighting, February 2012 73 www.amore.org.ph 74 Paul Bertheau, Geographic, Technological and Economic Analysis of Isolated Diesel Grids, 2012 75 DOE, 2012-2016 Missionary Electrification Development Plan, March 2012 76 http://www.philstar.com/business/2013/07/28/1020951/napocor-install-addl-103mw-capacity-grid-areas-2016


47

Market size for off grid application

The greatest potential for German energy storage technology is seen in the diesel-hybrid market. The upgrading of

existing diesel generation capacities with renewable energies can help reducing operation and maintenance cost, as

well as the overall levelized cost of electricity. Solar power and wind power are ideal energy alternatives, but due to

their intermittent behavior additional energy storage capacities can improve the performance of such hybrid

systems. In order to estimate the size of this energy storage market a model has been developed based on current

installed diesel capacities of NPC-SPUG of 278MW. The results of this model are then extrapolated to additional

diesel capacities for which data are not available according to Bertheau and to the envisioned additional capacities

of NPC.

The difficulty in estimating the total battery capacities for all diesel-hybrid system lies in the uniqueness of each

system. The battery capacity is depending on many factors (e.g. demand curve, diesel O&M costs, availability

pattern and amount of alternative energy sources, cost of these sources, etc). Therefore every diesel-hybrid system

is individual designed to meet the specific requirements at the site. Werner and Breyer77 studied 155 mini-grid

installations and analyzed how different types of mini-grid systems are sized and configured. Based on the installed

diesel capacity they provide ratios for the installed photovoltaic and the corresponding battery capacity.

Additionally the following assumptions have been made:

1 The installed diesel capacity for each NPC-SPUG plant is based on the 2012-2016 Missionary Electrification

Development Plan of the Department of Energy. The gross generation of electricity has been translated into

the plant capacity based on the operational hours.

2 Only diesel plants with a capacity of up to 500kW have been considered. We assume that with capacities

greater than 500kW energy storage becomes sporadic.

3 According to Werner and Breyer the battery capacity is calculated on total system capacity including diesel

and photovoltaic. Based on their study village grids rely on 47% of photovoltaic power. In our model we

assume that up to a diesel capacity of 50kW the share of photovoltaic at the total capacity will be this

number. Thereafter the ratio is reduced linear until a diesel capacity of 500kW with a share of photovoltaic

on the total system capacity of 20%. In combination with a “solar fuel saver”, this percentage might reach up

to 50%.

4 According to Werner and Breyer the battery-to-total-system-capacity ratio is 7,6 kWh/kW for village

systems. Similar, we assume that up to a diesel capacity of 50kW the ratio will be the same. Thereafter the

ratio is reduced linear to zero at a diesel capacity of 500kW.

5 The monetary amount is based on the calculated battery capacity in kWh for each diesel plant. A reference

battery with 12V/50Ah at the price of 95EUR was used to calculate the total expected revenues.

With this assessment the total potential accumulated revenues for batteries from diesel-hybrid system would be

around EUR 10 million for the known installed diesel capacities of NPC-SPUG. However, based on the study of

Bertheau the total off-grid diesel capacity is higher and we extrapolated the NPC results to the Bertheau’s capacity.

Hence, the total potential accumulated revenues for batteries are around EUR 14.5 million in 2012. Thereby, diesel

generators with a capacity up to 100kW provide the biggest share in the market with 53%, followed by diesel

generators up to 300kW with 44%. The 300-500kW segment would only contribute around 4% with. A further

breakdown of the 100kW segment shows the biggest potential in the 10kW segment with 39%. The other two

segments are relatively evenly distributed with 29% and 32% respectively.

The forecast of the expected potential accumulated revenues in 2030 is calculated from the average capacity growth

rate (ACGR) of installed generation capacities from 2012 to 2030. The ACGR is based on the installed generation

capacity of 16GW in 2012 and the government target of 25GW in 2030. We assume that the off-grid diesel

capacities grow at the same rate of 2,51% per year. Consequently, the expected potential accumulated revenues in

77 Werner, C. and Breyer, C. (2012). Analysis of mini-grid installations: An overview of system configurations. 27th European PVSEC, 24.-28. September 2012, Frankfurt, Germany


48

2030 are around EUR 37 million. Overall it is further assumed that any additional installed capacities have the

same capacity distribution as the NPC data.

Year 2012 Total diesel

capacity Total revenue

0 -100KW revenue

100 - 300kW revenue

300 - 500kW revenue

NPC 278 MW 10,196,875 5,364,252 4,467,037 365,585

53% 44% 4%

Bertheau 375 MW 14,513,889 7,635,296 6,358,231 520,362

Table 12 Expected accumulated revenues from battery sales in diesel-hybrid systems in 2012 in EUR

Year 2030 Total diesel

capacity Total revenue

0 -100KW revenue

100 - 300kW revenue

300 - 500kW revenue

Bertheau 586 MW 37,191.840 19,565.446 16,292,967 1,333,427

Table 13 Expected accumulated revenues from battery sales in diesel-hybrid systems in 2030 in EUR

Figure 18 Expected accumulated revenues from battery sales in diesel-hybrid system in 2030 based on adaption rate

Given the uncertainty regarding the actual installed diesel capacities, possible system configurations and project

feasibility the expected application rate (see figure 15) can vary for the reasons described below:

- A higher photovoltaic capacity ratio increases the results and vice versa

- A higher battery capacity ratio increases the results and vice versa

- Additional capacities not known to this report and future installations increase the result

- Extending the model to diesel capacities greater than 500kW increases the results

- Additional capacities through diesel-battery systems only would increase the result

- An percentage increase or decrease in battery price assumptions changes the result accordingly

- An 100% application rate is assumed, lower application rates reduce the result accordingly

- Alternative energy sources and substitutes which do not need energy storage and/or are more economic

have not been considered and would reduce the result

- Retirement of diesel generators due to grid connection or replacement with other technologies

- Further economic or legislative constrains are not considered and can reduce the result

However, additional capacities from private individuals, companies and tourist facility are believed to be existing

based on light sources visualized through night satellite images according to Bertheau, but no estimation of the

capacities are given. Moreover, the growing tourism sector on the islands increases the energy demand

significantly, which can hardly be satisfied from the communal utilities. Therefore many resorts just start to install

-

5

10

15

20

25

30

35

40

0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100%

Ac

cu

mu

late

d r

ev

en

ue

s i

n

20

30

(E

UR

mil

lio

n)

Adaption rate


49

their own diesel generators and are interest in the application of renewable energies for cost saving purposes as well

as for image reasons but often have problems fitting the large installations on their ground.

3.4.3 Industry Analysis

The energy market in the Philippines is analyzed in terms of attractiveness for German battery manufacturers and

energy storage solution providers seeking opportunities to enter the market. The main elements of the market were

mapped based on primary interviews with industry experts, local players, and policymakers, as well as published

reports on energy industry in the Philippines. The relationships among the most relevant stakeholders and their

role in the development of this business are described below.

The Philippine energy market moves slowly towards renewable energies, as the political pressure was relatively low

in the past due to the installed hydro and geothermal power stations. However, the share at the generation

capacities of these both sources of clean energy declined steadily over the past years and reached 28% in 2012.

Natural gas contributes to another 27% and coal became the biggest generation capacity with 39%.78 Coal became

the favorite energy source in the past years due to its cheap price and fast development process of power plants.

However, this trend put now some pressure on the government to push alternative renewable energies, such as

solar and wind, next to hydro and geothermal.

Political environment

Companies trying to get a foothold in the country should bring a clear strategy and patience to the Philippine

market. The growing economy and the increasing investment in the infrastructure and the energy sector offer great

business opportunities. The Philippine government always welcomes investments and new technologies, and is

willing to arrange meetings with local stakeholders. But foreign companies must take the lead in business and

project development. However, decision processes are slow and the bureaucracy can be cumbersome when dealing

with government authorities. There are too many authorities and institutions involved in the administrative

processes, processes are insufficiently harmonized at local level and regulations are deficient as well. 79,80

The corruption has improved in the past years (2010: rank 134; 2011: rank 129, 2012: rank 105)81, but different

political interests and resulting conflicts should be observed carefully, especially at provincial level and with Local

Government Units (LGU). Other potential issues can arise from the involvement of local decision makers in the

diesel fuel and generator business by threatening their revenue streams.

Finance

Access and cost to capital is a challenge for renewable energy projects and that was mentioned in most of the

interviews. Projects below a EUR 5 - 10 million project volume are difficult to finance through development banks

and may then have to be secured through local financial institutes and private investors. The high upfront costs of

renewable energy projects, the lack of trust and knowledge about the performance of these technologies, and the

long retention period of 8 to 15 years usually increases the risk premium required by these investors. In general

interest rates from local banks for a 1 to 2 year loan are between 3 and 7% and for loans between 5-10 years start at

10%. Longer loan terms are difficult to secure with local banks, as there is no experience with such loans.

However, the IFC introduced the Sustainable Energy Finance (SEF) Program to easy access to finance of renewable

energy and energy efficiency projects. Hereby the IFC cooperates with local private banks Bank of the Philippine

Island (BPI), Banco de Ori (DBO Unibank), BPI Globe BanKo and China Banking Corporation. The terms ask for a

30/70 equity/loan split for retention rate of 5-7 years at 7% using the equipment as collateral. Project volume can

78 DOE, Power statistics 2012 79 GIZ, Rules and Processes for Off-Grid PV Project Development in the Philippines, May 2013 80 Meeting with Solar Association, Manila, October 2013 81 www.transparency.org


50

be as low as EUR 85.000 and leasing is an option.82 Driver of further growth can also be the development of

alternative finance mechanism (e.g. leasing, bonds, micro-finance schemes).

The DOE also offers some financial support under the “Missionary Energy Development Plan” to enlarge the grid of

the National Electricity Administration via the electrical cooperatives.

The reputation and name-recognition of the involved companies also plays an important role. A well known

international brand and a proven track record in combination with an established and well-connected local partner

can increase the accessibility to loans and other finance options.

Substitutes

The battery potential in the off-grid segment can be reduced, if instead of solar or wind energy other non-

intermittent sources such as hydro, biomass or geothermal energy are used for a system upgrade. Reliable and

robust figures about the substitution potential at mini grid areas in general are not available. Likewise, the required

high up-front investment of renewable energies may still give the installation of additional diesel generators an

advantage in certain project constellations.

In general, the total project costs and the thereby resulting cost of electricity must be considered. Besides the high

up-front costs, other cost drivers may influence the project negatively. For example, logistic cost can have a major

influence on project costs and vary across the country due to the geography of the Philippines and the

underdeveloped infrastructure. Similar any required skilled labor and specialized tools for the installation of

systems must be transported from the main urban areas. Meticulous project planning is therefore essential to avoid

costly and long delays.

Whether any of the before mentioned features influence the proposed project, can only be evaluated on a project-

by-project basis as the project requirements and conditions vary for each project.

Competitors

Among the main local players, it is possible to find both companies that have started the business in the last decade

and companies that have been operating in the Philippines for much longer, but changed focus or just included

renewable energies in their business as the new market unfolded. Many private companies across the country

selling Chinese made solar lighting and solar home systems, but have little experience and know-how regarding

functionality and service of solar systems. They usually learned the technique on the job, but lack the conceptual

understanding of the underlying system technology.

First companies emerge in the urban centers with a better understanding about system design and operation. They

offer on-grid and off-grid solar systems for residential and commercial applications for private customers in the

urban areas, but also to resorts and communities in the rural areas and islands. These companies work

independently and assemble the systems from components of different suppliers. Often these suppliers change

depending on the availability and price. Thus, system standards and quality vary.

Overall, the before mentioned companies do not yet own the necessary know-how and skills for the development of

solar-hybrid-systems in the commercial and utility scale segment. System solution offerings and services are a

potential market segment for foreign companies. International system developers already start to take a more

serious look on the Philippines and focus at these segments, as well as on the development of large scale on-grid

ground-mounted solar systems.83

82 Meeting with IFC, Manila, October 2013 83 www.pv-magazine.com/news/details/beitrag/pv-in-the-philippines-beginning-to-pay-off (accessed on 13.11.2013)


51

Customers

Customer and stakeholder education about the product technology, application and benefits is an important part in

the sales process, also to take away any resentment against the new technologies. One obstacle is the existing

familiarity with gen-sets and the perception of its stability. Also, bad experiences with previous renewable

installations due to inappropriate design, low quality and missing maintenance led to skepticism about their true

potential.84 This skepticism can be eradicated with the installation of demonstration and reference systems showing

the material and performance quality of the installations.

The know-how and expertise of Germany companies can be used to build the necessary trust in the offered

alternative products and solutions, and the ability to execute the projects successfully. This is especially an

advantage for projects with non-standard design solutions and high utility expectations (e.g. private customers in

telecommunication, industry, private schools and hospitals, resorts and hotels).

Filipino customers are extremely price sensitive and even more so in the rural areas. Although, German quality has

a very good reputation, the higher cost must be thoroughly explained (better efficiency, higher availability, longer

life time, scalability, etc.) and the future monetary benefits clearly outlined.85,86 Chinese or Indian products are

widely available and, as it was mentioned in the interviews, these products are up to 75% cheaper than German

products.

This in particular challenging since also investors and government evaluate and decide very price focused.87

Although the government also requests certain technical standard and quality requirements in public biddings,

usually Chinese suppliers claim to fulfill these prerequisites. It did not become clear from the interviews, whether

these requirements are actually too relaxed and too easy to match, or whether they are not thoroughly verified and

controlled. Fact is that there are frequent quality and performance problems with low-cost products and

solutions.88

A positive differentiator for German companies can be pre- and post-sales service and maintenance offers, which

are unusual in the low price product range.89 With this strategy extended warranties over low-cost product

warranties could be offered. But as mentioned before, the monetary benefit of these additional services must be

clearly communicated. Ideally the argumentation should be based on data from real existing systems in the

Philippines and backed up from renowned institutes and reference customers.

Lastly, as much as German companies like to focus on perfected technologies and highest quality, the interpersonal

and relationship level is very important for Filipino customers. Trust and respect needs time to develop, but it also

helps to sell the additional value offered by German products. There is definitely an interests from Filipino

companies to do business and work together with German companies. Events organized by the GIZ and German

Philippine Chamber of Commerce and Industry (GPCCI) are well attended and seen as excellent first meeting point

to get to know each other and to exchange ideas.

3.4.4 Summary of Industry Attractiveness

The opportunity for German suppliers would be to provide batteries with renewable energy system rather than

simply to battery retailers and the most attractive market are diesel-hybrid systems. In general there is a great

interest from all diesel plant operators in technologies which reduce the overall operation costs of the installed

84 Meeting with Promech, Manila, October 2013 85 Meeting with DOE, Manila, October 2013 86 Meeting with NPC-SPUG, Manila, October 2013 87 GPCCI, PV-Hybridsysteme für Netzunabhängige Energieversorgung 88 Meeting with Promech, Manila, October 2013 89 Meeting with DOE, Manila, October 2013


52

diesel generators. The state-owned NPC-SPUG is the biggest operator in the market. However, the government is

pushing the liberalization of the energy sector and supports new players especially in the off-grid areas. For that

purpose the government classified the NPC-SPUG off-grid areas according to their gross electricity generation in

four segments.

Currently all segments are operated by NPC-SPUG, but New Power Producers (NPP) and Qualified Third Parties

(QTP) are encouraged to take over operations. The application and commercial process is rather bureaucratic and

the involvement of a local partner is highly recommended. The NPP/QTP is selected based on the so called True

Cost Generation Rate (TCGR), meaning the most competitive cost of electricity win and must be below the current

electricity cost of that diesel generator. The electricity from the NPP/QTP is sold to the distribution utility (DU),

which can be a Electric Cooperative (EC), a Local Government Unit (LGU) or a private company. The DU sells the

electricity to the customer at a rate regulated by the Energy Regulatory Commission (ERC) and pays the Subsidized

Accepted Generation Rate (SAGR) to the NPP/QTP. The difference between the TCGR and SAGR is paid from the

Output Based Subsidy (OBI), which is a surcharge collected from all end users in the country.

Gross Electricity Generation Area category Operator

Greater than 10,000 MWh Large NPC-SPUG

Greater than 1,000 MWh Medium NPP

Greather than 50 MWh Small A QTP

Up to 50MWh Small B QTP

Up to 10MWh PRES QTP

Table 14 Off-grid segmentation according to DOE

The private sector is another very attractive segment. Especially the manufacturing and tourism industry has a

great demand for alternative power solutions. Factories and hotels would prefer to have self-owned power system

to guarantee the grid quality while currently facing the frequent electricity shortage. Luxury resorts are able to take

loans from banks or fund the system themselves and are therefore the ideal client for first projects. The key factor

for future projects is also the recommendation from other hotels, which already have a system installed. Therefore,

it is essential to have pioneer project in this segment, which would trigger follow-up projects. For commercial hotel

usage, system solution providers and integrators could team up with battery management and energy management

solution providers to deliver customized solutions. An additional income can be further maintenance and

replacement contract.

Figure 19 Distribution of diesel off-grid generation capacities in the Philippines of total 375MW90

90 Paul Bertheau, Geographic, Technological and Economic Analysis of Isolated Diesel Grids, 2012

44%

22%

15%

12%

4% 3%State-owned operators

Manufacturer and tourism

Mining

Electrical Cooperatives

Municipalites

Others


53

Other segments like mining industry, telecommunication and solar home systems can be developed as a side

business to generate additional income. There were no data made available regarding the market potential in the

mining and telecommunication industry, but both operate diesel generators in some of their facilities and thus may

be interested in alternative energy solutions. The solar home system and lighting market is already well established

and would require a close cooperation with local governments and non-governmental organizations.


54

4 Business Support in Kenya and the Philippines

4.1 Business Support in Kenya

4.1.1 Partnerships

Kenya’s power sector also underwent a process of unbundling as a result of the Electricity Power Act of 1997 and

further reforms (including semi-privatization and the creation of new institutions) followed the passing of the

Energy Act in 2006. The most important actors in the renewable energy industry in Kenya that can act as business

partner for German companies willing to enter the Kenyan market are:

Rural Electrification Authority

The REA was established in 2006 in order to accelerate the pace of rural electrification program in Kenya that had

started in 1973, is tasked with increasing access to electricity in rural areas. Rural electrification under the REA

predominantly takes the form of grid extension as 75 per cent of the country’s population is concentrated in 10 per

cent of its landmass. Moreover, REA could be an interesting partner because it has the ability to procure off-grid

institutional RE systems through public tenders. (www.rea.co.ke)

Ministry of Energy and Petroleum

The Ministry of Energy’s Rural Electrification Master Plan details its intention to electrify all public facilities (such

as district administration headquarters, market centers, schools and health facilities) by 2012 and 40 per cent of

rural households by 2020. Therefore, it represents an opportunity as a public procurer for RE solutions.

(www.energy.go.ke)

Energy Regulatory Commission

ERC is the governmental institution that is responsible for the energy regulations and for the pricing schemes and

tariff setting in Kenya. The ERC also takes the role to monitor the implementation of energy related projects and

protects the interest of the consumers. ERC is the right partner to approach in order to verify the requirements and

conditions needed to enter the Kenyan market. (www.erc.go.ke)

Kenyan Bureau of Standards

KEBS is the organization in charge of developing the technical standards that are going to be required and enforced

by the government and provides product certification. It is very important that companies in the RE sector willing

to do business in Kenya talk to this organization in order to know whether their products meet the requirements

and to acquire product certification, especially when companies are interested to apply for public tenders.

(www.kebs.org)

Kenya Renewable Energy Association

KEREA is a non-profit association dedicated to promote the interests of members of the renewable energy industry

among government, public sector, the general public and any other organizations that may impact on the

development of the industry in Kenya. Among KEREA activities are promoting awareness on renewable energy,

supporting training and capacity building, pro-renewable energy lobbing, networking and business linkages.

(www.kerea.org)

Non-Governmental Organizations (NGOs)

The NGO Coordination Board has around 6,000 NGOs91 on its register in Kenya and some of them are interested in

improving the access of electricity; therefore, they can implement projects related to the installation of RE solutions

or initiatives that promote the use of RE. Moreover, many NGOs provide services in the remote off-grid parts of the

91 Source: www.ngoregnet.org/country_information_by_region/Sub_Saharan_Africa/Kenya_country_page.asp


55

country. Consequently, these organizations also represent an important group of customers for RE solutions

because they need energy for office power, school lighting, health centers, and community water pumping.

International Cooperation

The international cooperation has being very important in the development of Kenya and it has a large influence in

the country in terms of economic decisions. In addition, Nairobi is one of the most important hubs for international

organizations in East Africa; for that reason, the international cooperation represents an important partner to do

business in Kenya, because they are constantly looking to partner with private institutions to implement large

projects related to renewable energies and they have the ability to provide financial, technical and institution

building support. Moreover, the international cooperation has the capacity to influence the government in order to

consider renewable energy as a viable option to improve the country access to electricity and to create the

appropriate legislation that promotes the expansion of renewable energy solutions.

4.1.2 Financing Opportunities

The financing options for projects related to energy storage and renewable energy in Kenya depend on the segment

on which the project is going to be developed because every segment has different customers and therefore different

way of access to finance:

Household projects

Projects that aim to have households as consumers will face the problem that renewable energy solutions demand a

high initial investment and this kind of investment is taken as a challenge for the majority of Kenya’s population.

Therefore, this kind of projects need to offer flexible ways of financing; in Kenya they can take advantage of the

current development of Microfinance Institutions (MFIs) and develop financial products for the adoption of

individual renewable energy solutions. Moreover, companies interested in this sector can develop new and creative

ways of financing and payments, for example pay per use models or offering energy payments via cell phones. To

develop this kind of solutions companies can approach NGO’s or the International Cooperation because these

organizations also work to increase the access to electricity

Mini-grid projects

The customers in this segment are represented by the government and the communities; hence, there are

possibilities to develop public-private partnerships that can have access to international financial resources from

development banks, such as the World Bank, African Development Bank, among others. Moreover, the

international cooperation can help local communities to offer a counterpart contribution to the projects.

Commercial projects

Normally commercial clients have a better access to finance than households and communities. Large hotels and

lodges can afford to finance renewable energy projects with internal funds and they can also ask for loans to

commercial banks in the region. Besides, they can also try to reach development funds that are aimed to help

renewable energy projects (i.e. KFW-DEG, Climate Technology Initiative Private Financing Advisory Network,

Renewable Energy & Energy Efficiency Partnership, etc.)

4.1.3 German Government Support

For German companies planning to invest abroad, the German Government offers several ways of support, the

main institution aimed to help German companies abroad is the German Embassy located in almost all major cities

in the world. In Kenya the German office is located in Nairobi and among its task is to support German firms

engaged in foreign markets. Other institutions involved in the economic promotion are the German Industry and

Commerce in Kenya (AHK), the German Business Association in Kenya (GBA), the KfW-DEG, and the Deutsche

Gesellschaft für Internationalle Zusammenarbeit (GIZ).


56

German Chamber of Industry and Commerce in Kenya (AHK)

The AHK is the official Representation of the German Private Sector in Kenya. The AHK represents German

business interests and informs about and promote Germany as business location. It is in their mandate to promote

bilateral business relations through advocacy and lobbying with state institutions and government bodies.

(www.kenia.ahk.de)

The services offered by the AHK in Kenya are:

- Market Entry Facilitation

- Business Partner Search

- Market Information and Research

- Organization of Business Delegations and Fact Finding Missions

It is important to mention that the AHK Kenya has a special division for energy, the Energy Desk, which offers

services along the whole energy supply chain, including the power generation, transmission, distribution and

energy efficiency on demand-side.

The Energy Desk services include92:

- Individual consultancy for market entry/ business development strategy

- Analysis of the target market/ target market segment

- Identification of potential business partners and clients

- Organization of individual fact-finding missions for companies

- Consultancy/ support to develop broader business models for the market entry (in consideration of

German promotion programs)

- Provision of information about development cooperation projects

- Organization of platforms to provide German companies a visible and effective presentation (e.g. experts’

dialogues, roundtables, seminars, conferences)

- Organization of German business trips to Kenya and the East Africa region

- Organization of a “German Day” on leading local trade fairs

German Business Association in Kenya (GBA)

The GBA was formed in 1987. Its current membership stands at 67. These are either branches of German

companies, German institutions and foundations, or Kenyan companies or individuals with commercial or other

links with Germany. GBA's objectives are to foster, promote and discuss improved business relationships,

opportunities and measures between businessmen, businesses, companies and agencies involved in business and

commerce between Germany and Kenya. (www.gbakenya.com)

KfW – DEG

The KfW is the German government development bank, it administers Germany’s official Financial Cooperation

and its priority areas of activity include poverty reduction and economic development, good governance, education

and health care, and protection of the climate and the environment. KfW offers financing solutions for large-scale

projects in Germany and for expansions, exports and new projects abroad. (www.kfw.de)

The DEG is a part of the KfW Group and finances private-sector investments in developing countries with the aim

to improve the living conditions of the people. It promotes the private sector as the engine for sustainable growth.

(www.deginvest.de)

92 http://www.kenia.ahk.de/energy-desk/services/


57

GIZ Kenya

GIZ has been working in Kenya since 1975. It currently employs 53 supporting experts, including 18 development

advisors and 6 peace-keeping experts, as well as 403 national personnel there. In addition, 7 CIM experts are

employed in Kenyan research institutions. Additionally to the project activities in Kenya, GIZ is also involved in 15

development partnerships with the Kenyan and German private sectors. (www.giz.de)

Projects and Programs:

- Sustainable Infrastructure

- Security, Reconstruction and Peace

- Governance and Democracy

- Environment and Climate Change

- Economic Development and Employment

4.2 Business Support in the Philippines

4.2.1 Market Entry

Private sector participation is strongly encouraged by the Philippine government. Inbound foreign investment is

actively encouraged through incentives that target the promotion of the inflow of foreign capital and the transfer of

technology. This holds true for the segment of renewable energies and energy storage technologies towards which

the Filipino government demonstrates an open attitude. Yet, foreign ownership is limited to 40 percent for most

businesses.93 This regulation requires German companies seeking to enter the Philippine market to team up with a

local partner. A number of institutions provide an overview of Filipino companies active in the field of renewable

energies.

For German companies who seek to conduct business in the Philippines, a number of options for market entry exist

that depend on the respective business model. Foreign companies may take over electricity supply in off-grid areas

if they are able to operate more economically than the local supplier. In this case, two options are available:

a) Companies may become a Qualified Third Party (QTP). If the criteria for eligibility are met94, foreign

companies may apply for subsidies for electrification. They may thus act as a technology provider and

assume supply in certain areas. However, until this date only two QTPs have been accredited.

b) Companies may also become a New Power Producer (NPP) and take over power generation in off-grid

small islands, or isolated grids. To this end, they may either take part in a competitive selection process in

order to claim subsidies, or negotiate directly with the Electric Cooperative (EC) in charge for the area. The

latter option does not involve the participation in a bidding process; however companies are not eligible for

subsidies for missionary electrification. Furthermore, they may enter a Joint Venture with existing ECs to

jointly develop projects, or to provide technology or generation.95

Fiscal incentives Non-fiscal incentives

- Tax exemption for the first seven years; afterwards

10%

- Renewable Portfolio Standards (RPS) (certain

percentage of generation must originate from RE)

93 For more information regarding the entities that are affected by this regulation, please refer to the Foreign Investment Negative List (FINL): http://dti.gov.ph/dti/uploads/file/Foreign%20 Investment%20Negative%20Lists%20or%20EO%20584.pdf 94 The eligibility criteria can be found here: http://www2.doe.gov.ph/E-desk%20web/energy%20savings%20&%20safety%20tips/English%20Brochures/Qualification%20Criteria%20for%20the%20Qualified%20Third%20Party.pdf 95 For more information see http://www.doe.gov.ph/


58

- Reduced taxes RE sales and purchases - Green Energy Option (enables consumer choice

for RE)

- Exemption from import tariffs for 10 years (if

certificate available)

- Net Metering (enables consumers with grid access

to generate electricity from RE)

- Tax exemption on carbon certificates - Feed-in tariffs

- No VAT

- Subsidies for rural electrification

Table 15 Summary of the most important fiscal and non-fiscal incentives for on-grid renewable energy projects

Even though private sector engagement is encouraged, there are still few examples of successful RE projects with

private participation. Most off-grid areas are currently operated by NPC SPUG and employ diesel fuels for power

generation. Governmental incentives for off-grid areas are reported to be in development at the Department of

Energy (DOE); the time of their implementation can however not be foreseen at this stage. Experts expect that the

incentives will be comparable to those incentives that exist for on-grid operations. A brief summary of the most

important fiscal and non-fiscal incentives for on-grid renewable energy projects is given in table 15.

Companies wishing to engage in grid-tied activities on the islands need to apply for a local service contract at the

Department of Energy (DOE). The procedure takes currently approximately 120 days, but is expected to be

shortened over the coming months in order to reduce the amount of bureaucracy and stimulate foreign investment.

If electricity is not fed into the grid, a local service contract is not required, and companies may directly contact the

respective entities, i.e. resorts without governmental involvement.

4.2.2 Partnerships

The 40/60 regulation, by which foreign companies are limited to 40 percent ownership of operations, requires

firms to conduct business jointly with a local entity. In order to get a good understanding of the local players,

companies may choose from several options provided by German as well as Filipino institutions:

a) The Filipino Department of Energy (DOE) is able to provide a comprehensive list of local actors in the field

of RE. The DOE also offers to set up the first contact between German and Filipino firms. German

companies are actively encouraged to contact the DOE if they seek to learn more about their options on the

local market, and meet local firms to set up a Joint Venture. (www.doe.gov.ph)

b) The German-Philippine Chamber of Commerce and Industry (GPCCI) serves as a strategic interface of the

economic relationship between Germany and the Philippines and provides a variety of services and

consulting to German companies that are interested in doing business in the Philippines. The GPCCI

actively assists in the search for a local business partner, provides extensive market research, including

research on target consumers and feasibility studies, and sets up a schedule for business delegation visits.

(www.gpcci.org)

c) The European Chamber of Commerce of the Philippines (ECCP) aims to facilitate market entry for

companies from all sectors. The services offered by the ECCP include the organization of trade fairs,

business forums, the maintenance of a network of local businesses, and the facilitation of business contacts

between German and Filipino firms. Companies wishing to access these services are required to become

members of the ECCP. (www.eccp.com)

d) The initiative “renewables - Made in Germany” seeks to facilitate export of German technologies into

emerging markets. In this context, the German Energy Agency (Dena) provides extensive country profiles

that contain the contacts of a number of relevant institutions as well as business contacts in the field of RE.


59

Local companies that are listed in the report can be contacted directly. To obtain the country profile on

renewable energy opportunities in the Philippines, please visit the website of the export initiative:

www.exportinitiative.de

e) The GIZ Renewable Energy Project Development Programme (PDP), an instrument of the “renewables –

Made in Germany” initiative, targets specifically emerging and developing countries and is implemented

together with the chambers GPCCI and ECCP. Among the services offered by PDP are the facilitation of

business partnerships and the exchange of experience and expertise between German and local companies

through information trips for both, foreign and German companies, sector-specific market analyses,

trainings and workshops in developing and emerging countries, and policy advice for sustainable

investments. (www.giz.de)

4.2.3 Financing Opportunities

The relevance of the availability of financing options and low-cost credits for the financing of RE projects has been

increasingly recognized over recent years. A number of public and private initiatives exist that will be briefly

introduced in the following:

a) The Sustainable Energy Finance (SEF) program is an initiative established by the International Finance

Corporation (member of the World Bank group). The fund covers RE and energy efficiency projects as well

as retrofitting of existing installations. The four private banks of BDO, Ban Ko (a microfinance institution)

and Chinabank join together in this initiative. Applicants are eligible to receive long-term loans (usually

five to seven years) of the size of up to 70 percent of total project costs if they are able to demonstrate an

equity value of 30 percent. The interest rate of approximately seven percent depends on the risk associated

with the project and is oriented on current market levels. The banks have set up an advisory system and a

risk-sharing facility. In comparison to governmental institutions, private banks are able to process loan

requests more rapidly. The IFC also provides leasing options to customers who do not seek to own the

installations, and refinance loans through system performance. The IFC supports projects as small as

demonstrating a total cost of PHP 5 million (. German companies can approach IFC directly for financial

support. (www.climateinvestmentfunds.org/cifnet/project/philippines-sustainable-energy-finance-

program)

b) For public financing, the Clean Energy Program of the Asian Development Bank (ADB) can be consulted.

The institution offers several funds and partnerships with the mission to support capacity building,

institutional development, and project-development activities in the areas of clean energy. For a list of

available financing options, please review www.adb.org/sectors/energy/programs/funds-and-partnerships.

c) The Development Bank of the Philippines runs a fund for renewable energy and energy efficiency projects

that are at least 70 percent Filipino-owned: www.dbp.ph/devbanking.

d) Venture Capitalists may serve as equity partners for large projects. An example is the Asia Climate Change

and Clean Energy Venture Capital Initiative, run by the ADB, which supports an equity infusion to several

venture capital funds to accelerate private sector-based innovation, transfer, and diffusion of climate

change technologies. (www.adb.org/sectors/energy/programs/clean-energy-program)

4.2.4 German Government Support

The largest initiative related to supporting the exporting activities of German companies in the RE segment, is the

exporting initiative in which BMWi, Deutsche Auslandshandelskammern, Dena, Deutscher Industrie- und

Handelskammertag, and GIZ cooperate. The program addresses companies of all areas of renewable energies,


60

energy systems, and storage. Assistance is provided in all phases of foreign market development, from market

analysis, market entry, and roll-out.

GIZ further advises the Philippine Government in establishing favorable frame conditions for RE development in

the country. The project ‘Support to the Climate Change Commission in implementing the National Climate Change

Action Plan is funded under the International Climate Initiative of the German Federal Ministry for the

Environment, Nature Conservation, Building and Nuclear Safety (BMUB) and implemented by GIZ with the

Department of Energy and the Climate Change Commission in the lead and a wide range of stakeholders, including

private sector, involved. Besides working on policies and instruments for promoting RE this project also addresses

the barriers for private investment in renewables.

The Federal Office of Economics and Export Control (BAFA) provides assistance specifically to small and medium-

sized enterprises. The offerings include advisory services and trainings, counseling, and promotion of national

trade fairs. More information can be found on http://www.bafa.de/bafa/en/trade/index.html.

4.2.5 Events and Activities

A number of activities such as trade shows, fairs etc. related to RE and energy storage take place in the Philippines.

For current events, and news around RE development in the Philippines, the website www.renewableenergy.ph

provides up to date information.

For news that directly address German companies, the exporting initiative lists all events that concern the industry:

www.exportinitiative.de. The above mentioned institutions GIZ and GPCCI can also be consulted directly.

Messe Düsseldorf holds an annual trade show for energy storage technologies, and posts news and activities related

to energy storage on its website: www.energy-storage-online.com.

For further information on local activities, the following Filipino governmental institutes can be contacted directly:

- Department of Energy – Mail: [email protected]; Internet: www.doe.gov.ph

- Department of Science and Technology – Internet: www.dost.gov.ph

- Energy Development and Utilization Foundation

- Energy Management Association - Mail: [email protected]; Internet: www.enmap.org.ph

- Energy Regulatory Commission - Mail: [email protected]; Internet: www.erc.gov.ph

- National Electrification Administration - Mail: [email protected]; Internet: www.nea.gov.ph

- National Power Corporation - Mail: [email protected]; Internet: www.napocor.gov.ph

- National Transmission Corporation - Mail: [email protected]; Internet: www.transco.ph

- Power Sector Assets and Liabilities Management Corporation - Mail: [email protected]; Internet:

www.psalm.gov.ph

- Renewable Energy Association of the Philippines

- Wholesale Electricity Spot - Mail: [email protected]; Internet: www.wesm.ph

- Department of Environment and Natural Resources; Mail: [email protected]; Internet: www.denr.gov.ph

- Energy Regulatory Commission; Mail: [email protected]; Internet: www.erc.gov.ph


61

5 Recommendations for GIZ The following section recommends a number of actions that GIZ might consider taking, in order to further develop

the local market in both countries and facilitate access by German companies. The proposals are mostly based on

the interviews conducted with local stakeholders and our own analysis of the markets and countries.

Program to promote bilateral CSR working groups among SMEs

Studies indicate that the top three obstacles for SMEs to enter foreign markets are insufficient skills, lack of

financial resources and lack of knowledge of foreign markets.96 Especially when it comes to markets in developing

countries, the uncertainties seem even bigger. As identified in the overview of Kenya and the Philippines, an

important step for market entry by German companies is to find local partners. But the process of identifying and

selecting these partners is usually difficult for companies without good local networks already established or

inexperienced in internationalization.

To support the market entry of SMEs of the battery industry in these countries, GIZ could use its local presence to

facilitate the establishment of different working groups in each country, composed by German and Kenyan/Filipino

firms that are related to the battery market and could be interesting contacts for German firms evaluating market

entry and potential partners. The events organized by business associations are usually disperse and provide chance

for a first superficial contact among firms. The idea behind setting working groups is to provide these firms with

more time and situations that could reveal insights about the working culture of the target country and foster

mutual understanding. This would facilitate German SMEs to build a stronger network abroad and make better-

informed decisions on partnerships, while learning about local market dynamics.

The scope of work for these groups would not be directly business-related. Preferably, these networks would rather

engage in social and environmental causes that are relevant to the developing country in focus, but also connected

to the business. Based on its large experience in promoting solutions to development issues, GIZ could support the

firms to choose an appropriate cause and develop a strategy to address it. The implementation of the co-created

initiatives would be a major deliverable of the working groups.

Disposal and recycling of batteries is an example of issue that might suit well battery manufacturers. In 2012, lead-

acid battery recycling was considered the worst toxic pollution problem in the world, followed by lead smelting.97

Intoxication from lead, a basic component of most batteries, can be lethal. There are several reports of cases in

Africa and Southeast Asia, including Kenya and the Philippines.

There are other reasons why different stakeholders might be interested in such initiatives, as mentioned below.

- Society: appropriate disposal and recycling of lead-acid batteries can prevent serious health problems and

environmental pollution

- Battery manufacturers: manage a sustainable product life cycle and connect to future customers

- System integrators: strengthen collaborative relationships with suppliers, potential partners and customers

(e.g. NGOs)

- GIZ: engage companies to promote environmental responsibility among Kenyans with a very German habit

(conscious recycling)

- Customers: raised awareness about lead-acid risks may increase customer preference for batteries with

longer useful life

- BVES: stimulate collective thinking and get closer to companies engaged in the initiative

- All stakeholders: shared costs can facilitate engagement in relevant, strategic CSR even for SMEs in both

countries

96 Supporting the Internationalization of SMEs, by European Commission, 2007 97 The World's Worst Pollution Problems, by Blacksmith Institute, 2012


62

Educational initiatives

As leading country in renewables technologies, Germany could stimulate the use of its corporate and academic

expertise to share knowledge on latest technologies and facilitate market evolution abroad. GIZ can extend directly

or through other government bodies the opportunities for educational cooperation.

- Establishment of renewable energy institutes in Kenya and the Philippines: training institutes similar to

Germany's Renewables Academy, supported during the establishment by GIZ

- Sponsorship of short-duration internships of Kenyan/Filipino technicians and engineers with German

manufacturers and system integrators

- Partnership with DAAD for more exchange opportunities for Kenyan/Filipino university students to study

in Germany, in programs focused on energy storage or renewables

Regulatory support

The credibility of German quality standards could be used to improve regulations related to professional

certification and effective quality controls. This would help Kenya to step ahead in terms of skilled labor for

renewable projects and facilitate adoption of new technologies not yet available in the country.

- Consulting ERC, KEREA and KEBS to set training curriculum for advanced professionals (T3 level)

- Supporting KEBS and ERC to set facilities for testing and control of quality standards of batteries and other

electrical components

- Proposing establishment of different levels of certification seals for licensed batteries, based on their

quality standards

Financial support

The need for more pilot projects was mentioned both in Kenya and Philippines. GIZ, through develoPPP, or DEG

and KfW could provide more funds for such projects.

- Reduce minimum requirements for financing of local projects

- Increasing awareness of such funds among potential customers

Conduction of pilot projects

Besides the provision a financial support for the conduction of pilot projects, local institutions that were

interviewed in the context of our research emphasized the need for external partners when running projects. It is

important to demonstrate the feasibility of technologies as well as the qualitative capabilities of German products.

Bad experiences in the past have led to mistrust in new technologies in some cases. GIZ as perceived as an

institution that could help to create the market through the conduction of pilot projects and the development of

financially viable business models. The demonstration of technologies does not only help to spur demand, but also

serves as a useful marketing tool for German companies.


63

6 Conclusion

The purpose of this report was to facilitate the access to market information for German battery manufacturers,

currently assessing export opportunities in Sub-Saharan Africa and Southeast Asia. The reading provides an

overview of the German energy storage suppliers, analyses their fit to market opportunities in Kenya and the

Philippines, and recommends initiatives for GIZ to support the development of these two markets and the market

entry of German firms. The document attempts to be informative to different audiences interested in Kenya, the

Philippines or energy storage business.

Kenya is open for investments in the energy sector. The ambitious plans for national development rely on the

successful expansion of generation capacity and extension of electricity across the country. Private investments are

crucial component of the strategy. Besides investing on electrification of rural areas, the government has been

working on the regulations to facilitate the adoption of renewable energy systems. In terms of market segments,

commercial customers, especially hotels and telecommunication network operators, are the most promising for

German companies, as they require customized solutions that will make most use of the battery's superior

performance. The mini-grid projects of the Rural Electrification Authority are also an interesting target for the

same reason. However hotels and telecommunication operators are more willing to pay a premium for the quality

of the systems provided, and have considerable access to internal funds.

The Philippines are in a moment of uncertainty regarding the future of the energy supply in the country. As the

population is projected to grow intensively in the coming years, authorities evaluate alternatives to increase

generation capacity in the country. The Filipino geography adds challenges to the situation, as some of the islands

with highest expected growth are not easily accessible and can hardly cope without diesel generators. This situation

makes investments in hybrid power systems a plausible coming trend in the Philippines, to reduce dependence on

the volatility of fossil fuel prices. NPC-SPUG is the biggest operator of off-grid diesel operators in the country and

would be the ideal target, but also hotels and resort have a great potential in the Philippines.

Either due to official requirements or market dynamics, the market structure for batteries in both countries

requires foreign entrants to partner with local players that can support or co-create projects. For not highly

internationalized SMEs, such as battery manufacturers and system integrators in Germany, identifying local firms

that fit well with their working culture and can be trusted as their local faces is a hard task. GIZ can play an

important role to facilitate access of German SMEs to Kenya and Philippines by engaging these firms in GIZ's local

projects that can provide training in new technologies for batteries and renewables, in order to help the market to

evolve in terms of quality standards and customized solutions. Another option: GIZ can stimulate the founding of

working groups that join SMEs in both countries with shared interests in the development of local markets and

willing to co-create high-impact corporate social responsibility initiatives. The working relationships built through

the groups can help firms to get fresh insights about the market and form a strong network for future business.

Other drivers of technology adoption should not be overlooked. More pilot projects and easier financing

opportunities can largely influence the confidence of customers and even expand attractive market segments for

German batteries.

It is our hope that those interested in energy storage, Kenya, and the Philippines can benefit from the information,

analysis and impressions shared along this report. May new fruitful ideas flourish, business between these

countries grow and more socioeconomic development be seen in Kenya and the Philippines.


64

Appendix

Appendix 1

List of products Exported and Imported by Germany HS 8507: Electric Accumulators

Product Code

Product label Exported

2012 %

Imported 2012

%

Trade balance export-import

'850710 Lead-acid electric accumulators of a kind used for starting piston engines

779,865 41.0% 588,655 27.9% 191,210

'850720 Lead-acid electric accumulators (excl. spend and started batteries)

501,244 26.3% 401,009 19.0% 100,235

'850760 Lithium-ion accumulators (excl. spent)

251,285 13.2% 542,053 25.7% -290,768

'850750 Nickel-metal hydride accumulators (excl. spent)

116,472 6.1% 240,163 11.4% -123,691

'850730 Nickel-cadmium electric accumulators

115,574 6.1% 95,837 4.5% 19,737

'850790 Parts of electric accumulators, including separators

106,734 5.6% 150,401 7.1% -43,667

'850780

Electric accumulators (excl. spend and lead-acid, nickel –cadmium, nickel-ion accumulators)

28,288 1.5% 89,907 4.3% -61,619

'850740 Nickel-iron electric accumulators

2,875 0.2% 3,009 0.1% -134

Total 1,902,337 100.0% 2,111,034 100.0% -208,697

Source: Trademap. Eurostat. Unit : US Dollar thousand

List of products exported by Germany HS 8507: Electric Accumulators

Product Code

Product label Exported in 2008

Exported in 2009

Exported in 2010

Exported in 2011

Exported in 2012

% 2012

'850710

Lead-acid electric accumulators of a kind used for starting piston engines

596,138 449,090 618,959 755,039 779,865 41.0%

'850720

Lead-acid electric accumulators (excl. spend and started batteries)

630,493 414,827 482,909 519,994 501,244 26.3%


0 0 0 0 251,285 13.2%


65

Continuing

Product Code


Exported in 2009

Exported in 2010

Exported in 2011

Exported in 2012

% 2012


0 0 0 0 116,472 6.1%


126,679 111,875 111,680 104,045 115,574 6.1%


86,489 72,170 94,185 113,269 106,734 5.6%

'850780


292,731 261,321 308,033 413,268 28,288 1.5%


1,336 2,571 2,080 2,922 2,875 0.2%

Total 1,733,866 1,311,854 1,617,846 1,908,537 1,902,337 100.0%

Source: Trademap. Unit : US Dollar thousand

List of products imported by Germany HS 8507: Electric Accumulators

Product Code


Exported in 2009

Exported in 2010

Exported in 2011

Exported in 2012

% 2012

'850710

Lead-acid electric accumulators of a kind used for starting piston engines

599,933 415,763 506,325 578,282 588,655 27.9%


0 0 0 0 542,053 25.7%

'850720

Lead-acid electric accumulators (excl. spend and started batteries)

288,102 183,468 199,197 403,129 401,009 19.0%


0 0 0 0 240,163 11.4%


195,863 105,051 131,812 145,053 150,401 7.1%


117,939 90,487 102,196 124,641 95,837 4.5%

'850780


615,543 500,166 659,978 875,314 89,907 4.3%


66

Continuing

Product Code


Exported in 2009

Exported in 2010

Exported in 2011

Exported in 2012

% 2012


2,731 2,441 2,740 3,273 3,009 0.1%

Total 1,820,111 1,297,376 1,602,248 2,129,692 2,111,034 100.0%

Source: Trademap. Unit : US Dollar thousand


67

Appendix 2 List of companies in the storage industry (not exhaustive)

Battery manufacturer

Accurate GmbH

Accusysteme Transwatt GMBH

Akasol GmbH

Albert Seine GMBH

Atec Batterie

BAE

BBS-Industriebatterien Brenner Batterie Systeme

Deutsche ACCUmotive GmbH & Co. KG

Diehl & Eagle-Picher GmbH

Dispatch Energy Innovations GmbH

Dynamis Batterien GMBH

EAS Germany GMBH

ECC Repenning GmbH

EnerVault Corporation

Exide

F.X. Mittermaier & Söhne GMBH & CO. KG

GAIA Akkumulatorenwerke GmbH

Hawker GMBH

Hoppecke Accumulatorenwerke / Batterien

InnoPower

Leclanche

Li-Tec Battery GmbH

Moll Batterien

NEC Europe

PROSOL Invest Deutschland GmbH

RRC Power Solution GmbH

Samsung SDI Europe GmbH

Tadiran

VARTA Microbattery GmbH

Varta Storage GmbH

VRI Batterietechnik

Battery management and energy management solution providers

ads-tec GmbH

Enpla GmbH

EnWi-Etec GmbH

Gildemeister Energy Solutions

Heliocentris Energy Solutions AG

OHP Automation Systems GmbH

P21 GmbH

Refu Elektronik

RKB electronic AG

RWE Fuel Cells

Sia Energy GmbH & Co. KG

Stuba

Voltwerk

Component suppliers for battery manufacturing and system solution providers

aleo solar AG

ArevaGmbH

BBT Thermotechnik Junkers Deutschland

Bosch

Büttner Energie- und Trocknungstechnik GmbH

CAEstorage GmbH

Clariant Produkte GmbH

Comemso

Custom Cells Itzenhoe GmbH

dfm-select gmbh electronics & power-protection

Dhiel

Digatron Industrie-Elektronik GmbH

e-Wolf GmbH

GP Joule GmbH

Grenzebach Maschinenbau GmbH

Gustav Klein GmbH & Co. KG

IMB Stromversorgungssysteme GMBH

Industrieelektronik Brilion GMBH

Kaco

KBA-MetalPrint GmbH

KBB Underground Technologies GmbH

KEW GmbH

Kostal Industrie Elektrik GmbH

Linde AG

M+W group

Mack Electronic Systems GmbH

Manz AG

Mastervolt GmbH

McPhy Energy Deutschland GmbH

Mitsubishi International GmbH

Platinum GmbH

Power-One

Q3 Energieelektronik


68

RauEE

Rena GmbH

Rittal GmbH & Co. KG

Roth&Rau

SafetytestGmbH

Schmid Group

Schneider Electric GmbH

Schüco

Scienlab

SGL Carbon GmbH

SMA Solar Technology AG

Solarworld

Solutronic

Spitzenberger & Spies GmbH & Co. KG

Stirling Sun Power International GmbH

Stornetic GmbH

TALIS Deutschland GmbH & Co. KG

Umicore

Werner Mathis AG

System solution providers and integrators

a+f GmbH (Gildemeister)

AS solar

ASD Sonnenspeicher

Aton-Solar

Autarsys

b+w Electronic Systems

Batterie365

BayWa r.e. Solarsysteme GmbH

BeBa Energie GmbH

Centrosolar AG

Conergy

Conergy AG

cronimet power solutions

Deutsche Energieversorgung GmbH

DG Licht

dibu-energie

Durion GmbH

e3 dc

Energiebau Solarstromsysteme

ET Solar Power GmbH

ETOGAS GmbH

eva technology GmbH & Co. KG

Frankensolar

Gehrlicher

General Electric Deutschland Holding GmbH

Green Store AG

HID-Europe GmbH + Co. KG

Hitzler Energiesysteme GmbH

Hitzler Energiesysteme GmbH

IBC solar

Interprojekt Ingenieurgesellschaft mbH

JMS Solarhandel

J-ON Power GmbH

Juwi

KAUFEL GMBH & CO. KG

Krannich solar

Lokavis Energietechnik GmbH

Martin Walz Elektro + Solartechnik GmbH & Co. KG

Mederer Energie + Technik e.K.

Multiwatt Energiesysteme GmbH

OneShore

Pfenning Elektroanlagen GmbH

Qinous

SBWW GmbH

Schmitz Gebäudetechnik

Siemens AG

SiG Solar GmbH

Solartechnik Stiens GmbH & Co. KG

Solarwatt

Soleos

Sumec Europe GmbH

Tritec

Vanadis Power GmbH

VR ENBEKON eG -

Wagner Solar

Younicos AG

Consultant and project management services

Apricum GmbH

Björnsen Beratende Ingenieure

ce energy consulting

Cetecom ICT Services

Clean Horizon Consulting


69

Currenta GmbH & Co. KG

DMT GmbH & Co. KG

e3 eins e-energie gmbh

EHG Energie Handel GmbH

enervis energy advisors GmbH

Enrag GmbH

Fichtner GmbH & Co. KG

Hartwig-Technik Ing.-Büro

Hochtief Solutions AG

JBO Ingenierue GmbH

Research institutes and industry associations Baden-Württemberg International Gesellschaft für internationale wirtschaftliche und wissenschaftliche Zusammenarbeit mbH Brennstoffzellen + Batterie-Allianz Baden-Württemberg

Deutscher Wasserstoff- und Brennstoffzellenverband

ELG Sonnenstrom eG

energy2hub

Eurpoapartner-Solar GmbH & Co. KG Fachhochschule Köln Institut für Landmaschinentechnik und Regenerative Energien Fraunhofer-Institut für Siliziumtechnologie ISIT

Fraunhofer-Institut für Solare Energiesysteme ISE Fraunhofer-Institut für Umwelt-, Sicherheits- und Energietechnik Umsicht Fraunhofer-Institut für Werkstoff- und Strahltechnik IWS Dresden Fraunhofer-Instiut für Physikalische Messtechnik IPM

Industrie- und Handelskammer zu Düsseldorf

International Solar Energy Research Center

Israel Trade Center - Büro Berliner Botschaft

Kompetenznetzwerk Lithium-Ionen Batterien e.V.

MEET Battery Research Center / Universität Münster

OTTI Ostbayerisches Technologie- Transfer-Institut e. V.

Bereich Erneuerbare Energien

StoRegio Energiespeichersysteme e.V.

ZAE Bayern

Insurance, law and financial services

Aon Versicherungsmakler Deutschland GmbH

Beiten Burkhardt

Enernovum GmbH & Co. KG

Utilities

EnergieSüdwest AG ewmr - Energie und Wasserversorgung Mittleres Ruhrgebiet GmbH Ewz

Greenpeace energy eG

Naturstrom AG Next Energy EWE Forschungszentrum für Energietechnologie e.V. Pumpspeicherwerk Einöden GmbH

RWE

RWE AG

Schluchseewerk AG

Stadtwerke Schwabach GmbH

Stadtwerke Troisdorf GmbH

SWT Stadtwerke Trier Versorgungs- GmbH

Vattenfall Europe Generation AG

ENERGY STORAGE IN KENYA AND THE PHILIPPINES · ENERGY STORAGE IN KENYA AND THE PHILIPPINES A Sub...

Documents

Transcript of ENERGY STORAGE IN KENYA AND THE PHILIPPINES · ENERGY STORAGE IN KENYA AND THE PHILIPPINES A Sub...