Africa Going Off the Grid
January 13, 2017
The energy revolution
While the world electrification rate is roughly 84%, 632 million people do not have access to electricity in sub-Saharan Africa. This divide is even more glaring between urban and rural areas, where only 19% of the population is connected.
Despite the continent’s fast-growing urbanization rate, the total lack of access to energy is still a reality for 65% of the population. The failure to provide basic access to power is partly attributable to an underdeveloped and ill-maintained distribution infrastructure, as well as corruption.
The continent’s ongoing economic emergence and the growth of a middle class have, however, brought to light the major hindrance to development caused by such a shortcoming, hence the launch of a number of initiatives to address Africa’s energy transition.
Power Africa: Mixed results and an uncertain future
Aimed at enabling access to electricity by adding 60 million new electricity connections in sub-Saharan Africa, “Power Africa” was launched in 2013 by President Obama in partnership with both governmental and private sector African stakeholders. The $9.7 billion plan, however, fell short of its goal to double electricity access on a continent where two out of three people currently lack access.
Despite an inspirational launch speech in which President Obama promised the program would “bring light where currently there is darkness”, progress has stalled for a number of reasons including lack of infrastructure and corruption. As Power Africa has delivered less than 5% of new power generation in the past three years, the pace of institutional reforms is slowing down and President Obama’s ambitious pledge to ramp up electricity to 30,000 mw by 2030 is far from being met.
The inauguration of Donald Trump as President of the United States is likely to add to the uncertain lingering on the future of Power Africa, as he predicted “every penny of the $7 billion going to Africa”, the original budget allocated to President Obama’s program, “will be stolen – corruption is rampant!”. Despite Mr. Trump’s full-throated campaign rhetoric and stated hostility for trade agreements, it is too soon to worry about a dramatic turn in U.S. policy toward Africa, especially since it has benefited from bipartisan support from Congress throughout the past three administrations.
From mobile phones to sustainable energy
Demand for energy by households is growing fast, outpacing infrastructure change and public policies aimed at addressing the power challenge. If the grid is unlikely to expand fast enough to satisfy this demand, pioneering business models relying on pay-as-you-go (PAYG) payment models could push off-grid solar energy to reach 9 million households across Africa by 2020.
The PAYG business model has been attracting new investments and entrepreneurs for the past decade, especially since the cell phone ownership surge in Africa, a more than tenfold increase since 2002. Sub-Saharan Africa, the global epicenter for mobile money as a driver of financial inclusion, is a fertile ground for innovative solutions to the energy challenge, both in terms of distribution and sustainability. The “new and cleaner” power generation evoked by President Obama is currently being developed off the grid, by pioneering PAYG start-ups such as M-Kopa, linked to the Kenyan mobile money transfer service M-Pesa, and used by 250,000 households as of September 2015.
Relying on solar panels and a high mobile penetration, these companies can reach rural areas, in which distribution is one of the biggest challenges to serving off-grid markets according to Off-Grid Electric. Centers of small-scale solar power are blossoming all over Africa, overcoming some of the challenges faced by large centralized projects.
Challenges ahead for a new deal on energy
Despite the early success of off-grid solar energy access through PAYG payment models, challenges remain likely to slow the growth of the industry. In its 2016 report on off-grid solar market trends, Bloomberg New Energy Finance highlights four potential weaknesses of the PAYG industry.
First, long lead times are unlikely to be cut because of administrative inertia and the need to adapt to local preferences. Second, geographical differences. These pose a daunting question since the difficulties of M-Pesa to export its model outside of Kenya. Third, the demand for debt financing to fund PAYG businesses is a factor likely to slow the development of the industry in new markets. Finally, the possibility of a failure of a PAYG start-up would increase the perceived risk of investment, a scenario that is unlikely as most PAYG businesses currently remain small-scaled, but remains as a necessary consideration.
While keeping those risks in mind, the off-grid solar industry is currently dynamic and fast-paced with a high potential impact for growth. As foreseen by the African Development Bank when they organized an innovation workshop aimed at exploring innovative solutions to accelerate market growth of the PAYG model.