Business Daily (Nairobi)
Steve Mbogo
3 July 2009
Power equipment is emerging as the next growth segment area in the leasing industry as companies dash for energy security in the face of increasing unreliable supplies from the national grid.
The government has announced that it will distribute at least one million energy saving bulbs to households to conserve 49 megawatts of electricity while manufacturers plan to shift production from the off peak evening period.
Small producersKenya Power and Lighting Company, the power distributor, has been signing new supply contracts from indigenous small scale producers while KenGen, the main generator of electricity, has been decisively moving towards alternative sources such as geothermal and wind.
These moves present unprecedented leasing opportunity for bulk power equipment as well as retail services to households and the small industry sector like in the case of solar power panels and conduits.
Lack of awareness, however, remains the main stumbling block to the realisation of the leasing potential as most firms opt to buy their own contingency systems.
The opportunities in Kenya match the findings of a just unveiled research by Frost and Sullivan that power equipment rentals are increasing in importance in alleviating the energy crisis facing the continent.
"Power rental companies that are able to provide rental services at a competitive price with robust after-sales support can expect to gain significant returns," said energy industry analyst Mr Jeannot Boussougouth.
Leasing companies in the country are however still waiting to pick up the spoils.
"It has been slow to pick up perhaps because of lack of awareness," said Paul Njeru of Vehicle and Equipment Leasing company.
But the industry is drawing inspiration from motor vehicle leasing which has been robust in the last few years, despite having had a subdued run earlier. Power equipment leasing in Kenya is still an "informal business", said Anthony Gakuru, the managing director of Power Hire company.
"The challenge is to make clients understand the gains of leasing power equipment," he said.
For instance, a generator that would cost a company Sh2 million to buy would cost the same company Sh120,000 to lease, freeing up some money that can be used for other purposes.
This laid back appreciation of leasing power equipment is also prevalent among household consumers who because of high electricity costs would be expected to tap solar energy.
Hire purchase companies which offer near leasing services to households said the solar power equipment has been moving slowly in the last few years.
Stephen Kibe of Kukopesha Limited said the company was thinking of dispensing with the sale of solar equipment altogether.
"We sell one solar power equipment from one shop in two months. It has become too slow," said Mr Kibe. Other companies expressed similar sentiments.
He said rural electrification has meant most of their clients are not overly interested in solar power as most prefer the prestige associated with electricity from the national grid.
Revenue growthFrost & Sullivan research found that power rental markets in Angola, Botswana, Egypt, Kenya, Nigeria, Mozambique, and South Africa together earned revenues of Sh6 billion million in 2007 and estimates this to more than double by 2014 to reach Sh12.4 billion.
"A combination of limited generation capabilities, robust economic growth and more attractive payment models will support market expansion," said Mr Boussougouth.
He said a strong pipeline of infrastructure development projects will keep the market bullish over the long term."
The power rental market is set to remain robust despite a lack of a rental culture in many African countries. The below 100KVA range, which accounted for 46 per cent of the total demand in 2007, is poised to continue as the most important power range.
The research shows that governments or utilities constitute the largest end-user segment, accounting for 64.5 per cent of the total demand, with the trend expected to continue.
"However, market penetration will not be easily achievable due to the lack of available stock, persistent skills shortages, the difficulty in providing strong after-sales support, the lack of a rental culture, and the perception that rental is still expensive due to increasing fuel prices," said Mr Boussougouth.
One of the key reasons why companies have preferred to purchase rather than hire in the past has been the high cost of renting generator sets.
This has been compounded by the continuous rise of fuel prices. This will need to be urgently addressed if market potential is to be maximised.
It says power rental companies will need to increase the number of machines available, adopt more flexible payment terms, develop strong relationships with key customers, such as the public utilities, and ensure product availability and reduced lead times.
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