Opinion: State-Owned African Electricity Monopolies Should Stop Seeing Off-Grid Solar As Competition

Written by Staff

From The Economist.

Off-grid solar, an industry that barely existed a few years ago, is now thought to be providing power to perhaps 600,000 households in Africa.

The pace of growth is accelerating in a continent that, more than any other, is rich in sunshine. Industry executives reckon that over the next year the number of home-power systems on African roofs will grow by 60-to-100 percent.

Kenya’s M-Kopa, the market leader, has installed 400,000 systems and, at its current rate of growth, may add another 200,000 to that number over the next year. Smaller rivals such as Off Grid Electric (based in Tanzania), Bboxx (U.K.) and Azuri Technologies (U.K.) may well double their client base over the same period.

This fast pace of growth suggests that, if sustained, off-grid connections will within a few years outstrip the rate at which people are being connected to the grid, leapfrogging power lines in much the same way that mobile phones bypassed fixed-line telephone networks.

This promises not just to improve millions of lives but to help deal with a chronic shortage of power that, the World Bank reckons, trims about 2 percentage points from Africa’s annual economic growth.

Just a few years ago the idea that off-grid systems could fill the gap seemed preposterous: the market was dominated by charities giving away solar-powered lanterns that could produce a few hours of light at night. But as technology and venture capital firms have entered the market, the industry has quickly evolved, helped by three developments:

The first has been an 80 percent fall in the cost of solar panels since 2010 to as little as $0.52 US per watt of capacity, according to the International Renewable Energy Agency.

The second and more important innovation has been the pay-as-you-go business model, based on selling electricity as a service rather than selling solar cells.

A bevy of companies have sprung up offering to install systems and then charge customers a weekly or monthly fee. This allows poor households to have part-use of solar systems costing as much $250 that they would struggle to buy outright. Many firms have connected their systems to mobile phone networks so that they can bill customers using mobile money and cut them off the moment a payment is missed (some are building in Wi-Fi routers to offer internet connections, too).

Default rates are low because many rural Africans already spend $100-$140 a year on kerosene lamps and candles, and another 15-to-25 cents each time they charge their phones.

The third big change has been in the development of devices that use less electricity. The most important of these are light-emitting diode (LED) bulbs, which provide illumination with about 20 percent of the energy of conventional bulbs. But energy savings are also spreading to phones, TVs, fans and radios.

Azuri Technologies is taking this a step further by building intelligent solar systems that learn how their users typically use energy. The system then uses this information to ensure it never leaves them in the dark. If a cloudy day reduces the amount of power it collected then it will imperceptibly dim the lights and TV to keep them running.

The biggest constraint to faster growth is a shortage of finance, since most off-grid firms are putting up the money for new installations, but are only getting paid back by their customers over time.

A second constraint is production. Mansoor Hamayun, the CEO of Bboxx, laments that he can’t make systems quickly enough. “It’s not about a lack of demand…we run out of stock frequently,” he says.

Home solar will not solve all of Africa’s power problems. Off-grid power will not displace the traditional sort when it comes to big industries.

For the moment many policymakers in Africa see the two technologies as competing and fret that off-grid power companies will eat into the customer base of state-owned electricity monopolies.

Instead they should encourage the competition that is lifting the burden of rural electrification from the state while allowing it to concentrate its investment in improving power supplies in those areas where it can be used to power industrial growth.

Read more at The Economist.