Rural Electrification: Off-Grid Pay-as-you-Go Solar--Groundwork for Future Energy Solutions in Africa

by Shane Hall, Lux Research

As part of the U.S. Climate Conference (COP 22), USAID has awarded $4 million to companies targeting off-grid solar expansion in Africa as part of the $36 million Scaling Off-Grid Energy Grand Challenge Enterprise. The announcement is the latest development in a push for solar development in Africa with ambitions of bringing solar power to the over 600 million people in Africa without access to electricity who rely on hazardous solid and liquid fuels (mainly wood and kerosene) for light and heat. Assuming a five-person household size and an average pay-as-you-go residential solar system size (50 watts), the total market potential for off-grid African homes is approximately 6 GW, which is only around 10% of global solar capacity installed in just 2015; however, the IEA expects sub-Saharan African energy demand to more than triple by 2040. The following companies received an undisclosed portion of the $4 million:
 

Company Name

Countries of Operation

Model/Technology

 Greenlight Planet

Nigeria and Uganda

 Pay as you go

 D.Light

Kenya

 Call-center and online presence to support direct distribution

 Fenix

Zambia

 Solar-kit

 Orb Energy

Kenya

 Financing

 Vitalite

Zambia

 Pay as you go

 Peg Africa

Ghana

 Digital solar payment

 Shinbone Labs

Benin and Ghana

 Solar-kit

 Village Energy

Uganda

 Distribution and service network

 

The companies in this list fall in line with existing trends for cash-poor rural electrification markets; pay-as-you-go and complete single home solar-kit systems are the dominant methods for targeting need-based consumption, such as lighting and cellphone charging. Microfinancing (Orb Energy) and digital payment methods (Peg Africa and Shinbone Labs also claim to be working on a digital payment platform) move to address the investment risk concerns involved in the sub-Saharan Africa market due primarily to corruption and lack of reliable local partners. Many solar companies in the market have directly coordinated with local cellphone providers to connect with customers and use the same payment method established by cellphone providers to decrease the risk of nonpayment or embezzlement. This is part of a greater trend, where mobile device and internet access precede local power generation, which drives power demand growth and ultimately solar sales. This is not the first investment in rural electrification in sub-Saharan Africa via solar power; in fact, President Obama’s Power Africa initiative is targeting between 3 GW and 4 GW of new solar (both utility and residential scale) by 2030.

One of the primary barriers for solar development in Africa has been a lack of reliable development partners; however, foreign investment working with growing locally-based solar developers has driven recent demand. Lumos Global, an African solar development company, recently raised over $90 million for solar project development in Nigeria. The company also uses a pay-as-you-go solar model.  M-Kopa Solar, a project developer based in Nigeria, has already brought solar power to over 140,000 African residents and entrepreneurs (approximately 1.12 MW based on 8 W average system size). Other small-scale business models, including solar charging kiosks, also work to provide the minimum required power access to mobile phone users. In the short term, expect African solar demand to remain a small fraction of total solar installations and only meet the minimum consumer power needs. However, pay-as-you-go solar developers with a verified installed capacity raise customer awareness and provide reliable development partners for foreign investors, which will facilitate large-scale distributed solar deployment. 

Additionally, in the long term, pay-as-you-go solar developers are creating an untraditional residential power generation dynamic, where distributed solar is becoming the incumbent technology competing against a growing grid. Given proper funding and the projected African energy demand growth, pay-as-you-go solar companies are poised to become the future energy providers of rural Africa by fostering grid independence via residential solar power systems – and eventually community-level solar plus storage microgrid solutions.

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Global Update
SEMI
www.semi.org
January 4, 2016