UNDERSTANDING THE ECONOMICS BEHIND OFF-GRID LIGHTING PRODUCTS FOR SMALL BUSINESSES IN KENYA By Kristen Radecsky A Thesis Presented to The Faculty of Humboldt State University In Partial Fulfillment Of the Requirements for the Degree Master of Science In Environmental Systems: Energy, Environment, and Society Option May, 2009 UNDERSTANDING THE ECONOMICS BEHIND OFF-GRID LIGHTING PRODUCTS FOR SMALL BUSINESSES IN KENYA By Kristen Radecsky Approved by the Master's Thesis Committee: Dr. Arne Jacobson, Major Professor Date Dr. Charles Chamberlin, Committee Member Date Dr. Steven Hackett, Committee Member Date Dr. Christopher Dugaw, Graduate Coordinator Date Dr. Chris A. Hopper, Dean for Research and Graduate Studies Date ABSTRACT UNDERSTANDING THE ECONOMICS BEHIND OFF-GRID LIGHTING PRODUCTS FOR SMALL BUSINESSES IN KENYA Kristen Radecsky For illumination, many off-grid communities use lighting products such as candles, kerosene-fueled lamps, or dry cell battery-powered lights. Unfortunately, fuel- based and dry cell powered lighting can be expensive, a health hazard and often provides poor quality light. Manufacturers are currently designing rechargeable lighting products using LED technology as an alternative option for lower-income people. I developed a model to analyze the initial and life cycle costs of 19 off-grid lighting products. With the results, I make design recommendations for manufacturers. The analysis is based on product prices, laboratory measurements of product performance, and data about lighting cost and use patterns for small, off-grid businesses in Kenya. The field data were collected by Arne Jacobson, Maina Mumbi, Peter Johnstone and me during 2008. My results indicate that the economics of off-grid lighting using electric lamps depends on the charging mode. Products that are charged on a fee basis using grid electricity generally have a lower initial cost but a higher life cycle cost than solar- charged products. For grid-charged products, I found that increasing battery size and iii reducing power consumption strongly influence life cycle costs. For solar-charged products, I found that reducing module size proportionally to a reduction in power consumption influences life cycle costs moderately. I also found that it is best to design grid-charged products with an optional solar component and high-brightness LEDs are the preferred lamp type if available at a reasonable price. Potential design improvements may increase capital costs; manufacturers should consider customers’ willingness-to-pay when making design changes. iv ACKNOWLEDGEMENTS I am immensely grateful for all the mentoring Arne Jacobson has given me through this thesis and throughout my entire time at Humboldt State University. He is an exceptional role model and friend. I also thank Charles Chamberlin for his impressive attention to detail when reviewing my analysis and Steve Hackett for his help understanding economic concepts embedded in this thesis. Along with Arne Jacobson, I thank Peter Johnstone and Maina Mumbi for a successful research experience in Kenya gathering data used in this thesis. I also thank Francis Ngugi, Samwell Elsam, Alice Mumbi, Paul Mwaniki, Gladys Hankins, and Mark Hankins for their support in Kenya. In addition, our work was dependent on the reliable participation of the small business owners in Maai Mahiu and Karagita. I am also very grateful to the Schatz Energy Research Center and everyone working there. I thank Stephen Kullman and the lighting lab ladies Patricia Lai and Jenny Tracy for their collaboration in conducting off-grid product performance tests. I also thank Kyle Palmer, Scott Rommel, Mark Rocheleau, and Andrea Allen for their work on the datalogging LED lamps we employed in Kenya. I thank the Blum Foundation and the Lighting Africa Project for their funding support and Evan Mills of Lawrence Berkeley National Laboratories for all his support. Most importantly, I am grateful for the unconditional love provided by my mother, father, and grandmother while I’ve been living far away and throughout my life. v TABLE OF CONTENTS Page ABSTRACT.................................................................................................................. iii ACKNOWLEDGEMENTS.............................................................................................v TABLE OF CONTENTS................................................................................................vi LIST OF TABLES .........................................................................................................xi LIST OF FIGURES.......................................................................................................xv LIST OF APPENDICES...............................................................................................xxi ACRONYMS AND ABBREVIATIONS.....................................................................xxii CHAPTER 1. INTRODUCTION...................................................................................1 CHAPTER 2. BACKGROUND.....................................................................................4 2.1 About Kenya .................................................................................................4 2.2 Introducing Small Businesses in Kenya.........................................................7 2.3 Current Off-Grid Lighting for Small Businesses in Rural Kenya ...................8 2.3.1 Fuel-Based Off-Grid Lighting Products in Kenya............................9 2.3.2 Electric Off-Grid Lighting Products in Kenya...............................12 2.4 Small Businesses in Maai Mahiu and Karagita ............................................14 2.5 Small Business Off-Grid Lighting Use ........................................................17 2.6 Current Lighting (Qualms and Options).......................................................19 2.7 Progress Towards Improving Off-Grid Lighting Products............................22 A. Electric Off-Grid Lighting Design Basics..........................................23 B. Promising Electric Off-Grid Lighting Products for Kenya.................36 vi CHAPTER 3. LITERATURE REVIEW.......................................................................38 3.1 Consumer Preferences.................................................................................38 3.2 Parameter Values to Support Economic Analyses........................................42 3.3 Economic Analyses.....................................................................................45 A. Jones et al. Study ..............................................................................46 B. Peon et al. Study ...............................................................................48 C. Foster and Gómez Study ...................................................................50 D. Lighting Africa Study .......................................................................52 CHAPTER 4. METHODOLOGY.................................................................................59 4.1 Methodology 1 – Field procedures while in Kenya ......................................61 4.1.1 Costs associated with lamp ownership ..........................................61 4.1.2 Kerosene Fuel Consumption Rates & Lighting Use Patterns .........64 4.2 Methodology 2 – Performance testing procedures on battery-powered products..................................................................................................69 4.3 Methodology 3 – Procedures to estimate “end of use” lux values.................72 4.4 Methodology 4 – Process for estimating the Life Cycle Cost values ............73 4.4.1 Capital cost...................................................................................74 4.4.2 Maintenance cost ..........................................................................75 4.4.3 Energy cost...................................................................................78 4.4.4 Replacement cost..........................................................................80 4.4.5 Salvage value................................................................................82 4.4.6 Present worth (pw)........................................................................82 4.5 Methodology 5 – Procedures for measuring lux values ................................85 4.6 Methodology 6 – Process for estimating the cost/lux-hr values....................87 vii 4.7 Methodology 7 – Design Sensitivity Analysis .............................................88 A. Battery Size ......................................................................................88 B. Battery Chemistry.............................................................................91 C. Charging Options..............................................................................91 D. Optional Solar Module Upon Repurchase .........................................93 E. Power Consumption (Light Output)...................................................94 4.8 Methodology 8 – Economic Parameter Sensitivity Analysis ........................95 CHAPTER 5. RESULTS & DISCUSSION ..................................................................97 5.1 Results & Discussion Section 1 – Base Case Scenario ...............................100 5.2 Results & Discussion Section 2 – Design Sensitivity Analysis...................112 A. Battery Size ....................................................................................113 B. Battery Chemistry...........................................................................117