Kenya Grid: Bent To Grow Or To Break

Co-Authored by Jesse Nyokabi

The Innovator's Dilemma: When New Technologies Cause Great Firms to Fail by Harvard professor and businessman Clayton Christensen is one of the many great books ever written without a shadow of doubt. Right from the introduction of the failure framework: Why good management can lead to failure; that statement in itself immediately gets you hooked and slowly reels you in. After analyzing and understanding the findings stated, you will appreciate the potential change, elements of disruptive technology can present in the business world.

First, let us begin by listing the five laws or principles of disruptive technology discussed in this brilliant book:

1. Companies depend on customers & investors for resources
2. Small markets don’t solve the growth needs of large companies
3. Markets that don’t exist can’t be analyzed
4. An organization’s capabilities define its disabilities
5. Technology supply may not equal market demand

The purpose of this article is to take the substance of this book, use it as a lens to see through the energy sector here in Kenya.

The Kenya energy mix is as follows:

Credit: EPRA ENERGY AND PETROLEUM STATISTICS REPORT FOR THE FINANCIAL YEAR ENDED 30^TH JUNE 2023

The grid is an unbundled model with different companies playing a role in different stages of the value chain. Chapter 9 entitled Performance Provided, Market Demand and Product Life Cycle, the author talks about performance oversupply. In the product evolution model: buying hierarchy by Windermere Associates of San Francisco, California; the four phases are as follows:

1. Functionality
2. Reliability
3. Convenience
4. Pricing

The factor driving the transition from one phase of the buying hierarchy to the next is performance oversupply. Looking at our energy mix, with electricity being the commodity of discussion, there has been a performance oversupply of functionality, reliability, and convenience. The major topic of discussion when we start electricity conversation here in Kenya is cost (pricing).

Historically, when this performance oversupply occurs, it creates an opportunity for disruptive technology to emerge and subsequently to invade establish markets from below

Well, the disruptive technology is slowly emerging and for full scale invasion, the discussion must happen on three points simultaneously:

1. Increase of  Geothermal Installed Capacity
2. Wholesale Electricity Market Model
3. Open Access

The above conversation needs to go hand in hand and NOT picking one leaving out the rest.

The electricity market needs are evident:

1. Cost
2. Reliability
3. Electricity Access/Connectivity

Renewables are disruptive technologies depending on one’s perspective BUT here in Kenya, geothermal must lead the integration of renewables to the grid.

Geothermal is:

• Cheaper (unit per kWh)  - which reflects the cost factor.
• Dispatchable - which reflects the reliability factor.
• Scalable - which reflects the electricity access or connectivity factor.

Geothermal power supply outlines the characteristics of a disruptive technology plus the progression of the technology is faster than the pace of improvement demanded in the market. Putting this into context; electricity production through geothermal can be achieved in four ways:

1. Conventional Hydrothermal Systems (“CHS”)

2. Engineered (or Enhanced) Geothermal Systems (“EGS”)

3. Advanced (or Closed Loop) Geothermal Systems (“AGS”)

4. Multi-system hybrids (or Hybrid Geothermal Systems)

While CHS is limited geographically to areas such as Iceland, Hawaii, Kenya, Ethiopia, etc.  where specific and unique subsurface conditions exist naturally, the other three categories have the potential to be deployed globally including, for example, in sedimentary basins and Super Hot Rock (“SHR”).

Engineered (or Enhanced) Geothermal Systems (“EGS”)

EGS is a scalable geothermal technology where one or more wells are drilled, and either via natural or hydraulically-stimulated fractures, the wells are connected in the subsurface, creating an engineered reservoir. Water is then injected into the reservoir, where it absorbs heat from the hot rocks it is circulating through. It is then produced to the surface, where the fluid or steam is passed through a turbine, and used to generate electricity.

Advanced Geothermal Systems (“AGS”)

AGS in many circles has become a catch-all term that includes a variety of next-generation and emerging geothermal concepts, including Closed-Loop Geothermal Systems (“CLGS”).

CLGS can have any configuration that allows the circulation of fluid without direct contact between the Working Fluid and the reservoir.

Multi-System Hybrids

Multi-system hybrids, also known as Hybrid Geothermal Systems, are systems that couple two geothermal systems, such as EGS and AGS or CHS and CLGS or two different systems such as solar photovoltaic (“PV”) and geothermal, concentrated solar power (“CSP”) and geothermal, direct air capture (“DAC”) and geothermal, carbon capture, usage, and storage (“CCUS”) and geothermal, etc.

In Kenya, we have ONLY implemented CHS method.

Transition of our traditional grid to wholesale electricity market and implementation of open access would further attract resources and investors to this disruptive technology. Increase of dispatchable renewable energy would contribute to the progression of the power pool which in turn would foster growth at the regional level. Most important, there would be performance oversupply being experienced in the pricing phase.

How will that impact the economy?

1. To all manufacturing and industrial plants, it would contribute to the improvement of the operating margin hence a driving factor for profitability.
2. To domestic consumers, affordable cost of electricity.

All in all, the question still begs: Understanding innovation dilemma point of view, will good management realize their hinderance when faced with disruptive technology?