The world has a problem. According to the World Bank, 1.1 billion people lack access to any form of modern energy service, and more than double that number lack access to adequate, reliable, affordable, and safe energy services. Most of the energy poor live in rural India and Sub-Saharan Africa. And most own a mobile phone (that needs charging), have lighting (dirty-burning kerosene lamps), and cook food (mostly on open fires).
Illnesses resulting from the indoor air pollution of these fires kills more people per year than HIV/AIDs, malaria, and tuberculosis combined. It is actually the number one killer worldwide of children under five. So the energy poor, who have traditionally not been seen as a viable customer base for the energy industry, are doubly penalized: They often pay up to 20 times more per kilowatt-hour equivalent compared to grid prices for the energy they do use, and they pay in terms of health and wellbeing.
In addition to the billions of un- and underserved individuals living in energy poverty, the World Bank’s Enterprise Surveys have found Sub-Saharan African businesses experience an average of 8.3 power outages per month lasting an average of 4.6 hours each. This adversely affects all aspects of doing business and developing attractive markets.
This situation is known as the “poverty trap.” But rather than focus on the trap, we must focus on the way out, and the essential role the power sector can play.
This Big Problem Is an Even Bigger Opportunity
Bringing modern energy services to emerging markets has become a global priority. Beyond its role in ending the poverty trap, it is also a mammoth business opportunity for power generation, transmission, and distribution. But it will require new, decentralized ways of thinking.
To address energy poverty in the region, in 2012, ECOWAS (the Economic Community of West African States) found that while 75% of the region’s 600 million inhabitants would be best served by conventional grids, 104 million more remote inhabitants would be most economically served by an estimated 156,000 mini-grids, and an additional 47 million would be best served by stand-alone systems. Globally, the International Energy Agency says the economics dictate an even higher percentage of new electricity infrastructure should be decentralized and renewable: 36% mini-grids, 20% standalone, and only 45% conventional grids.
A $500 Billion Market
Demand for decentralized energy solutions that have become more affordable and technologically refined over the past decade is growing rapidly and becoming mainstream in emerging markets. It is starting to attract hundreds of millions of venture capital dollars as well as both commercial and institutional lenders. The African Development Bank recently committed to mobilizing $55 billion to deliver universal energy access on the continent within a decade. The potential market globally for distributed renewable energy products and related appliances is estimated at up to $500 billion. The energy poor who have no access to electricity spend an estimated $30 billion annually on kerosene. That’s money on the table for the power sector.
And customer demand is there: Just a handful of businesses combined—including Off Grid Electric, Nadji.Bi, Greenlight Planet, d.light, and Solar Aid—serve more customers than many of the world’s largest electricity utilities. Bloomberg estimates that the off-grid lighting and household electrification sector will light up close to 100 million homes by 2020.
Significant new revenue potential exists in these markets for multinational power companies, which brings bankability and access to balance-sheet financing, sophisticated sales and marketing operations, policy influence, and quality control. Already some, like Schneider Electric, ENEL, and Total, are seeing the opportunity, taking action, and investing.
Some of the biggest opportunities for power producers in emerging markets is found not in selling kilowatt-hours, but in services—charging, lighting, cooling—with innovative prepayment methods. Businesses such as Mobisol and Off Grid Electric are doing this with small individual home systems, of which they have been selling tens of thousands per month over the past year. And companies like Inensus have found success using prepayment for more-powerful mini-grids that can really spur economic progress.
“Energy as a service” works because it removes the burden of high up-front costs; the end user owns an individual home system after a few years of monthly payments. Although poor, customers in emerging markets are willing to pay more per kilowatt-hour for decentralized rather than grid power because, in most cases: the grid won’t arrive in the foreseeable future; even if it does, connection fees average over 100% of average monthly wages in many countries; the kerosene and mobile phone charging kiosks they would otherwise use are more expensive than both grid and off-grid electricity; and off-grid solutions may be less powerful but are much more reliable than today’s poor-quality grids.
With customer acquisition for off-grid renewables accelerating quickly, and the data collected forming usage and credit histories that financiers can use to build trust in the “bottom billion” as a viable business model, what the market needs now is for the wider energy sector to start embracing these changes as a new and important growth opportunity.
With more than 2 billion people still waiting for decent energy services they can afford, power companies unburdened by legacy thinking have a chance to sell a lot of energy to a lot of new customers.
Increasing energy access is a “no brainer,” said executive Jerome Schmitt of Total, the largest energy provider in Africa and a top solar provider, at the recent International Off-Grid Lighting Conference. “We want to be a better energy provider for all people… [but] we cannot do it alone, we need partners.”
What are we waiting for?
— Aaron Leopold is deputy director of advocacy of Power for All, a collective of public and private organizations dedicated to delivering universal energy access before 2030. He is also the global energy representative at Practical Action, a nonprofit working on energy access.