Sub-Saharan emerging economies host millions of potential modern energy consumers – the majority are rural dwellers in areas which infrastructure development has difficulty reaching.
The World Bank’s Tracking SDG7: The Energy Access 2018 report highlights the very real danger that sub-Saharan countries will lag behind the global universal electricity access goal, which aims for 92% access by 2030. An estimated 90% of the population who will continue living without electricity access in 2030 are located in sub-Saharan Africa.
In this context, according to the report, about 60 million people in Africa are now utilising off-grid solar as a power source, making up 10% of electricity consumers. The Off-Grid Solar Market Trends 2018 report, published by IFC, states that with an approximately 7% annual grid-reach increase since 2010, Africa’s overall grid coverage remains less than 40%. While the importance of grid-expansion should not be underrated, the geospatial analysis suggests that decentralised systems are the lowest cost option for an overwhelming 75% of disconnected communities in sub-Saharan Africa.
The impact of an off-grid venture
Access to affordable energy opens hundreds of socio-economic doors that may alleviate extreme poverty, allows for skills development or even facilitates political freedom. For rural dwellers, energy access enables the delivery of basic human rights through something as simple as food and water security.
According to Tracking SDG7: The Energy Access 2018, sub-Saharan Africa is the only region where access to clean cooking has outpaced population growth.
More off-grid solution providers are adjusting their relationship with customers through supporting entrepreneurial initiatives and income-generating activities.
Combined with the availability of affordable white goods and productive use appliances, ventures such as barber-shops, charging stations and restaurants grow demand as well as generate capital that will be paid back into the electricity market.
Electricity access also unlocks opportunities for skills development and knowledge transfer.
Internet access avails endless amounts of information, ranging from daily news to online learning materials. Different services have made uneven progress across the continent. The exceptionally rapid spread and development of mobile phones and service coverage has surpassed access to energy to a point whereby people have reasonably priced 3G internet access, yet they are required to factor in the additional cost of getting the phone charged in a local shop.
IRENA has estimated that people spend approximately $84 in Ethiopia and $270 in Mauritania a year on offgrid lighting and mobile phone charging, making up to 3-5% of annual household expenses. This estimation does not cover transportation costs to reach charging stations, states the World Bank report.
Off-grid solutions have been successful in combating frictions of this kind, with solar home systems, rooftop solar and portable solar systems having reached a level of affordability and convenience to respond to consumer needs – which, in terms of demand, remain low.
In addition to unlocking the economic potential of self-sustainability for small and rural populations, access to energy has serious implications for political participation and good governance.
With people being able not only to follow politics from a top-down perspective, but also to listen to commentary via television, radio and internet, the opportunity arises to make informed decisions when participating and engaging with local, regional or national politics. The widespread access to information suggests wider transparency and accountability, considered as the foundations of good governance.
What are the off-grid challenges?
Firstly, the heterogeneity of off-grid solar markets within the industry means that there will always be localised challenges ranging from policy and implementation to supply, demand and maturity of the market.
Plug-and-pay SHS have benefited immensely from strong mobile money ecosystems in East Africa, with PAYGO businesses raising $773 million of investment during the past five years.
This sum equals an impressive near 85% of all raised funds, with four companies responsible for 67% of those PAYGO investments (Off-Grid Solar Market Trends Report 2018).
Financing options and finding debt providers are a major stumbling block for off-grid companies entering the market.
The business model for off-grid continues to be touch and go, with investors looking to ensure bankability. As stated in the report, PAYGO business models are identified as potentially appropriate for microfinance investment vehicles (MIVs) and could have positive implications for solar PAYGO companies. MIVs currently manage approximately $10 billion of capital, which could be tapped into.
For decentralised solutions to really make an impact, enabling an environment that allows entrepreneurs to thrive, needs to be ensured. The policy needs to keep up with the electricity demands, as well as with the emerging options to meet those demands. In order for African countries to leapfrog in providing energy, the regulatory institutions and frameworks need to be in dialogue with the solution providers.
What makes the off-grid market such an exciting business space?
The initial excitement regarding business opportunities in bringing electricity to 600 million people in Africa has matured and become more aware of local, regional opportunities, constraints and market dynamics. The progress made thus far sustains the enthusiasm. The offgrid market has benefited from the global discourse on ‘green revolution’ that lends a support for innovation in and expansion of renewable energy generation technology.
Companies in the sector have become increasingly aware of the longterm value of their customers and moving away from one-transaction relationships.
According to Off-Grid Solar Market Trends Report 2018, this shift is due to: • Innovations in financing that are allowing higher overall spend on energy (e.g. PAYGO is relaxing the norm that customers will only spend up to 2-3 months of disposable income on a given product).
- Access to a wider product set including household appliances and services, allowing the sector to provide services for a wider array of consumer needs.
- Rising real incomes (7% annual increase in South Asia and 3% increase in sub-Saharan Africa since 2009), although the distribution of this rise is uneven across geographies and income groups.
A widening range of product categories, PAYGO business models, increasing market entry and private sector engagement from a diverse and global pool of manufacturers and distributers, increasing commitment from investors (over $500 million raised in the past two years), as well growing awareness and regulatory support from the government are all driving the booming off-grid sector as we are approaching 2020 (Off-Grid Solar Market Trends Report 2018). The funds made available for this sector have doubled annually between 2012 and 2016, with the off the grid sector expected to grow 25% year-on-year.
The Africa Energy Forum: Off the Grid Summit, which takes place in Addis Ababa, Ethiopia, in March 2019 is inspired by the fact that East African giants Ethiopia, Kenya and Tanzania have been able to increase energy for their population by 3% annually since 2010. Off-Grid Solar Market Trends Report 2018 draws attention to the fact that considering the overall increase in modern electricity access in sub-Saharan Africa, East Africa accounts for 80% of the shift.
The relative stability of the regulatory and investment climate and increasing availability of decentralised systems (off-grid solar in particularly) have turned Ethiopia and Kenya into real success stories of delivering energy access, while Tanzania and Uganda have also made remarkable progress through growing off-grid solar options.
The rate of grid expansion has made it clear to Africa’s energy leaders that an off-grid market that is here to stay, plus the socio-economic growth facilitated by off-grid solutions, entails countless business opportunities for energy consumers and business developers equally. ESI