Renewable energy and industrialisation: Focus on SMEs
Kenya is a renewable energy resource rich in solar, geothermal, wind, hydro and biomass with potential to harness tidal energy. Currently, 70% of Kenya’s energy is from renewable resources set up as grid connected and stand–alone power systems, placing the country in third position after Iceland (100%) and Norway (98%), among the global economies powered by green energy. This is according to Gulf, Gas and Power UK (January, 2020). Energy plays a critical role in driving an industrialisation goal which in turn results in economic growth characterised by increased production, more job opportunities, better incomes, increased innovation and advancement and reduced dependence on other economies (reduced spending on imports).
Fossil fuels have served the population for many years and created the convenience we all seem to enjoy and are almost dependent on. Paradoxically, generation of clean energy to some extent relies on fossil fuels either directly or indirectly through production of equipment (e.g. solar panels and wind turbines), installation, operation and maintenance of renewable energy power plants. Renewable energy has significant GHG mitigation potential when generated and used efficiently.
Developed countries lead the pack in promoting the use of “clean energy” after experiencing explosive economic growth from “dirty energy”. It therefore seems unfair and unrealistic to expect developing countries to rely on “clean fuels” to achieve an ambitious industrialisation dream. This is a subject that can sustain a lively debate from sunrise to sunset, but we all need to agree that industrialisation should not be pursued at the expense of the environment and consequently the society.
For developing countries with abundant renewable energy resources, the opportunity to industrialise lies in “cleaning” the world, enhancing energy security and improving their balance of payments deficits in relation to fossil fuel related imports.
Can Kenya’s SMEs industrialise on renewable energy? The uncertainty is not due to Kenya’s capacity to generate and distribute energy from renewable resources, but emanates from the cocktail of factor ingredients that are fuelled by energy to yield industrialisation. Lowering production costs through cheaper energy is just one element of the production chain. The key to successfully industrialising SMEs lies in working backwards; First identify the target market, secondly determine the quality requirements of the target market and thirdly set up or redesign efficient production facilities. This creates a strong argument that for SMEs to benefit from the adoption of climate smart energy technologies, through enhanced energy efficiency and reduced production costs, they need to innovatively reevaluate their business models.
Kenya’s SME sector can ride on the renewable energy wave towards industrialisation, especially for the SMEs that are not automated, are semi–automated or are in need of an equipment upgrade. This presents an opportunity for them to adopt environmentally sound technologies to enhance their energy efficiency while achieving an automation objective with relatively low transition risk. Such a move will also improve their competitive position and enable them to capitalize on shifting global consumer and producer preferences by placing a greater emphasis on their carbon emission reduction processes when marketing and labelling their products.
To close the loop, SMEs may need appropriate financing to position themselves for sustainable growth. Those that have captured sustainable demand for their products and have good governance structures are better placed to attract catalyst financing from suitable partners. They present ideal targets for impact investors with climate change mitigation mandates, who may in addition offer them business advisory services. Also, they create an opportunity for local financiers seeking to green their loan portfolios so as to reduce potential exposure to climate related risks.
By Christine Mwangi