Article written by Siyabonga Mazibuko with support from his teacher Chris Ahlfeldt as part of the Environmental Finance Course with the University of Stellenbosch Business School.
Africa’s need for clean, affordable, and reliable energy
According to the World Bank (2020), a total of 840 million people in the world still do not have access to electricity, with African populations making up 75% of this number. Many people in Sub-Saharan African countries live without electricity, which has a negative impact on pertinent economic and socio-economic issues such as economic growth and development, inequality, poverty, access to education and information, and effective delivery of healthcare services.
Since 2007, South Africans, notably entrepreneurs and SMMEs (small, medium, and micro enterprises), have been negatively affected by persistent and worsening load shedding. In 2019 power shortages, load shedding, and rolling blackouts were significant contributors to the 0.3% reduction in South Africa’s GDP growth rate, which is equivalent to R8.5bn of the country’s real GDP (Instinctif, 2020). During periods of load-shedding, businesses lose millions of Rands, with the high energy-consuming manufacturing and mining sectors being the hardest hit. Power shortages not only impact businesses but more severely the community as a whole; they cause disruptions in schools, affect the quality of healthcare services in communities that already have low resources, and more. According to a study completed by Adair-Rohani et al. in 2013, only 36% of hospitals in sub-Saharan Africa have reliable access to energy. This is a particularly concerning developmental challenge when considering Africa’s high prevalence of Malaria, Tuberculosis, HIV/Aids, Covid-19, and the frequent emergence of health crises such as the Ebola virus in West Africa. Poor access to energy constrains the research and development required to combat these health challenges and the ability to effectively operate sophisticated medical equipment used by healthcare service providers. As such, reliable access to electricity is essential for effective health service delivery.
Energy sector bottlenecks and inequality in income distribution result in the more affluent parts of society benefiting disproportionately from sophisticated energy systems relative to underprivileged groups. A person living in a developing nation like most African countries is expected to pay 60 to 80 times more per unit of energy compared to a person from a developed nation like the United States of America, United Kingdom, Germany, or Japan (Africa Progress Panel, 2015). Electricity price hikes, unreliable power supply, congested grids, and concerns over the environmental impact of traditional coal-based energy generation lead to people looking towards off-grid power to address these challenges. Due to the high unemployment rates in Africa, many people turn to entrepreneurship in both the formal and informal economy to make a living. These entrepreneurs are the most severely impacted by the high cost of energy and the unreliable supply thereof. As such, off-grid solutions can offer much-needed reprieve for entrepreneurs and SMMEs so they can focus on their core businesses and improve their products and services.
Off-grid energy solutions for Africa
Off-grid energy solutions such as residential wind turbines, geothermal energy, micro hydroelectricity, and solar and wind hybrid systems are sources of energy that are disconnected from the national grid. These solutions are independent of large utilities’ value chains that usually dominate energy supply. They often are also reliant on natural and renewable sources to generate energy sustainably. Given Africa’s climate and proximity of most African countries to the equator, solar energy is one of the most abundant renewable energy solutions on the continent. South Africa has a successful renewable energy programme to increase the production of industrial-scale renewable energy which offers anecdotal evidence of the viability of solar energy as an approach to improving access to energy for millions of people in Sub-Saharan Africa. According to Aliyu et al., 2018, the cost of photovoltaic modules was initially expensive but has decreased significantly as the technology has become more widely used around the world. An alternative such as small-scale wind poses other challenges such as higher cost at smaller scale, but has potential in some applications.
Off-grid energy solutions have enjoyed a growth trajectory over the past few years with applications in irrigation, water pumping, lighting, refrigeration, small-scale e manufacturing, and powering medical centres (Aliyu et al., 2018). Using off-grid energy solutions is not focused only on generating power for households, but commercial firms can also adopt off-grid energy alternatives for their businesses. In 2016, the R60-million new corporate building constructed by FNB and Wesbank was underpinned by solar energy. Their car parking lot was used as a renewable energy generator for its workers and the surrounding communities around their Fairland Campus in Johannesburg (Writer, 2017). Through this project, FNB managed to use solar energy to supply its own electricity requirements, reducing its dependency on the local grid and reducing its carbon footprint.
The costs of installing off-grid energy solutions are a major concern that has resulted in uncertainty of private home users with respect to adopting these new alternatives. In an interview of 119 villagers Hirmer & Guthrie, 2017 noted that villagers sometimes prefer using traditional energy sources such as candles as opposed to off-grid energy solutions while others raised concerns about over-heating of mini-grid systems in their homes, weather fluctuations, and lifestyle changes (being more aware of how much electricity is being used). These findings highlight a lack of understanding of the benefits of renewable energy and poor access to information on these energy alternatives.
Reaching Sustainable Development Goal 7
A target set out by the Sustainable Development Goal 7 (SDG 7) entails that by 2030 renewable energy should provide 60% of universal electricity access, and stand-alone and mini-grid systems will provide the means for almost half of new access (IEA, 2020). The off-grid energy market is widely diversified, focusing on generating power for electric lighting and the use of other essential electrical appliances such as phone charging, solar lanterns, and solar generators. To increase the penetration of off-grid solutions and to make progress towards achieving SDG 7, policies should encourage investment into and usage of these off-grid energy alternatives.
To achieve SDG7, off-grid energy systems should be easily accessible to people living in rural and remote areas. Ngoepe et al. from the Bertha Centre describe the various innovative off-grid energy solutions as favourable for rural people. These off-grid energy financing methods include various approaches like pay-as-you-go (PAYG), a business-to-customer model, energy-as-a-service, and rent-to-own models. These different types of models can make off-grid solutions more cost-effective by allowing flexibility for users to choose the model most suited to their circumstances, and some can even lead to ownership of the system installed in their homes after a certain period of time. Exploring these options can positively impact an underprivileged community, offering people the opportunity to start their own businesses and to focus on other activities that are positive for economic development, such as education. The service providers of these off-grid solutions can train locals on the installation and maintenance of the equipment and in the sales and marketing of these products, which would contribute towards addressing Africa’s significant unemployment challenge (IRENA, 2018).
Which business models are working in Africa?
Financing models such as PAYG provide off-grid energy solutions at affordable prices which is helpful to people in underprivileged communities who may not afford once off lump sum payments. End-users (community members) pay installation fees to have these renewable systems installed in their homes and then pay affordable instalments for the energy used or pay to own the renewable energy systems through the use of mobile payments (IRENA, 2020). Leveraging of mobile technology innovations has been a key enabler for off grid energy solutions where users may not have access to formal financial services, particularly in East Africa (IRENA, 2018).
Off-grid energy providers like Azuri Technologies, M-Kopa, and Nova Lumos provide a rent-to-own model for their off-grid energy systems. After 18 – 36 months, the user is usually allowed to gain ownership of the renewable energy system (Ngoepe et al., 2016). The energy-as-a-service model usually works like a subscription-based service, where customers pay for every unit of electricity that they use. Companies like ZOLA (formerly Off-Grid Electric) offer this type of energy service. The customer is not required to pay an upfront fee to gain access, and they will not have to manage the solar system (Ngoepe et al., 2016)
Companies like Azuri Technologies are witnessing high growth levels and have penetrated the off-grid energy solution market in 12 African countries using the PAYG model. Azuri Technologies attracted numerous global awards with its innovative off-grid energy solution, “Azuri HomeSmart,” which provides lighting even in cloudy weather conditions. They recently announced a new partnership with Multichoice, where they will be the first off-grid energy company to launch a pay-as-you-go solar TV package. Communities that use off-grid energy solutions in Kenya will now be able to access DStv content through this partnership.
The PAYG business model has seen the most success in East Africa, but South Africa also has some experience with this approach. In 2013, the South African government partnered with the iShack project to provide PAYG service to informal communities. In this project the local municipality pays a free basic electricity monthly subsidy of R50 into residents’ payments (Sustainability Institute, 2021). Supporting off-grid energy start-ups allows them to increase their footprint, resulting in cost efficiencies due to economies of scale. It also allows for the generation of expertise, which is positive for economic development.
Conclusion and next steps for Africa’s off-grid energy sector
PAYG methods have been successful in using off-grid solutions to provide electricity access to the 600 million Africans that often at times don’t have reliable energy supplies mainly in East Africa. Off-grid energy solutions have played and will continue to play a vital role in improving access to electricity in African communities. Business models that aim to employ and empower locals in each market will also have the largest impact and can help address global inequality. There is potential to build on these efforts and apply lessons learned to other countries across the continent including South Africa which still depends on expensive and unreliable coal electricity. Despite initially being viewed in a negative light, off-grid energy solutions have proved their worth and will transform the power sector while simultaneously reducing climate-related risks. These off-grid alternatives are one of the most exciting developments in energy supply and will continue to play a significant role in improving the economic development of the African continent.
Photo: Example of off-grid solar plus battery storage configuration from Specialize Solar Systems
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