The new business case for providing electricity to the world's poorest
Even in the most isolated, impoverished places, markets are emerging around off-grid energy solutions. And customers are willing to pay. Is global energy poverty an overlooked business opportunity waiting to be discovered?
You are weightless, floating 300 kilometers above the ground. Up here, the sky is black both day and night. The horizon you see is the curvature of Earth, the bending edge of the colossal blue sphere. Sweeping clouds are suspended over its continents, but through their cover, a nighttime city view materializes, evident from the cluster of lights on the surface.
The incandescent landscape before you reveals the essence of human development — illuminated by central grid systems — a mosaic of global transmission lines, wiring, conductors and cables that power the majority of the world's population. Arranged end-to-end, they could wrap around Earth 137 times.
Who gets to light their cities at night?
Move the slider to explore where in the world electricity is plentiful at night. The orange dots indicate the location of the Power Struggle fellows' reports. Data courtesy of Marc Imhoff of NASA GSFC and Christopher Elvidge of NOAA NGDC.
But focus your eyes on the photo’s dark spots and a story of the world’s energy poor begins to emerge.
Often the most rural and impoverished, these blacked out areas are home to 1.2 billion people, disconnected from centralized grid networks and, due to financial and political challenges, experts say, the grid won’t reach them for decades.
In the absence of electricity, their everyday struggles mirror those of people who lived at a time when humanity still thought the planet was flat. Women spend hours collecting firewood for cooking and cleaning. Children study by candlelight. Food is easily spoiled.
The world’s experts agree that universal energy access is possible for these places in just 15 years. The technology exists and we’ve electrified populations before. Between 1990 and 2008, almost two billion people gained access to electricity, more than the corresponding population growth over that time period.
"The key is to think of energy access not as a problem, but as an opportunity."
And yet, for various reasons, grid connections to the world’s remote populations continue to stall.
Many governments lack the political will to connect rural areas. Utility companies often won’t justify the up-front investments without a critical mass of electricity users. Development financiers want to help, but institutions like the World Bank are much more geared to fund a few major infrastructure projects than they are to assist thousands of small, scattered ones. Others are stuck in a waiting game as permitting and construction for major projects like dams and power plants can take years. Now it may be up to private businesses to try their hand at filling the gap in electricity services.
So how is universal access to energy possible?
“The key is to think of energy access not as a problem, but as an opportunity,” explains Aaron Leopold. Leopold is the director of Power for All, a group of companies and organizations that believe the solutions are found in private businesses selling services “beyond the grid.”
Off-grid products provide small-scale energy services that range from solar lanterns for basic lighting to solar home kits used to power household lights and simple appliances.
And customers are willing to pay, according to a report by Bloomberg New Energy Finance.
Off-grid populations in sub-Saharan Africa spent more than US$14 billion on kerosene lamps, battery torches and candles in 2014, despite the majority of people having a daily income of less than $2, Bloomberg reports.
“The companies are new, the space is new, the customers are new and because they’re poor they’ve never been thought of as a viable customer base,” says Leopold. But he explains that the companies with innovative vision are turning things around with creative ways to finance off-grid solar projects.
One such company is M-Kopa. With a name that means “to borrow” in Swahili, M-Kopa offers micro-loans as a way of making their $165 solar home systems affordable to Kenyans who live on less than $2 a day. Customers pay $35 upfront and then make daily payments of 45 cents for a year.
M-Kopa is tapping into this market by allowing its customers to make daily payments using their cell phones, recognizing its convenience since Sub-Saharan Africa contains 80 per cent of the world’s energy poor, but has almost as many cell phone users as Europe. In its three years of operation, M-Kopa’s annual revenues total $5 million.
Companies like M-Kopa are growing, presenting a $3.1 billion market opportunity for the off-grid solar industry in the next five years, according to Bloomberg Energy Finance.
But, despite their success, critics like the Breakthrough Institute argue that solar lanterns and solar home systems don’t address any activities that demand energy beyond the household scale. For example, if farmers can’t refrigerate crops and prevent spoilage or clinics can’t access reliable power, communities won’t be able to get out of poverty. In short, off-grid solutions don’t offer the transformative power that grid electricity does.
“The ideal case would be to just put a large-scale mini-grid in the middle of the countryside and you wouldn’t need these solar home systems,” responds Leopold. But even though businesses are starting to pop-up in the mini-grid space, they are still facing challenges that off-grid solar businesses are overcoming. “The repayment period is slow and the upfront capital costs are very, very high,” says Leopold.
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But if more companies see the potential market in these developing areas, how will the dark spots in the astronaut’s photos change? What will astronauts’ photographs look like decades from now? Will they show dark expanses, illuminated transmission lines connecting to one focal point or bunches of scattered lights?
Shonali Pachauri, who served on the Executive Committee of the Global Energy Assessment, views energy access as a continuum. For her, it’s important to consider how solar home systems can be integrated with central grids to allow for the kind of development that helps alleviate poverty.
One way of doing this is to reconcile the lifespan of solar home systems with the possibility of grid extension down the road.
“There is a need for a long-term vision,” says Pachauri.