Meeting the Energy
Energy access continues to be the key energy system challenge facing sub-Saharan Africa. Globally, an estimated 1.3 billion people lack access to modern energy – 590 million of them are in sub-Saharan Africa.130 Electrification rates across the region are among the lowest globally, with an average 15% in Tanzania and Mozambique; the figure for the latter dropping to 1.7% in rural areas.
Reducing energy poverty is a key development enabler but, overall, governments have been unsuccessful in securing investment for grid development. A number of local and international initiatives have dotted the region with off-grid projects involving renewables and diesel generators, with both government- and donor-led initiatives struggling to achieve economic sustainability and scale.
Diesel generators remain one of the region’s key sources of electricity, especially so in resource-rich countries where fuel subsidies make fossil-fuel options more affordable and attractive than alternative grid development or renewable options. According to estimates from one African research and advocacy organization, Nigeria’s installed power-generating capacity in 2010 was just over 6,000 MW, with estimates for power from distributed private diesel generators reaching 28,000 MW. 131 Aside from the inefficiency and environmental impact of directly burning liquid fuels, the stability of power supply from diesel generators in rural areas is entirely dependent on the consistency of fuel supplies. The lack of effective transport infrastructure and fuel theft are some of the larger issues affecting energy supply from distributed diesel generation.
A number of donor-led initiatives have focused on deploying small-scale renewable capacity to isolated communities, a less capital-intensive solution than main grid development. Most of these initiatives have struggled to achieve scale and become self-sustaining. In common, to an extent, with the global picture, there are significant barriers to investment in and deployment and uptake of renewable energy. Cost is particularly relevant, with poverty in the region combined with high fuel subsidization rates, posing a barrier to commercial investment in renewable capacity. Furthermore, to ensure the long-term sustainability of renewables, technology must be matched to local requirements and build local maintenance capacity. A number of business models are emerging which address some of the challenges, especially around affordability. An example is Simpa Networks in India. It sells distributed solar PV systems through “progressive purchase” contracts, through which customers make a small initial down payment for the product and top up their payments in small user-¬defined increments using a mobile phone. The payments add towards the final purchase price, which, once fully paid, unlocks the system permanently with no further costs.132
Institutional barriers also limit the success of energy access initiatives and the development of national power sectors. In resource-rich countries such as Nigeria and the Republic of Congo, policies and government strategy have focused on securing revenue from upstream oil and gas production and growth of associated industries while failing to redirect revenues, create the necessary investment frameworks or prioritize energy access targets. In Nigeria, the privatization of the power sector currently underway seeks to rectify this investment challenge. Moreover, several nations are tackling this challenge by setting up government bodies with the express mandate to focus on addressing rural electrification challenges. In Mozambique, the FUNEA (Fundo de Energia), brings together the ministry of energy with the ministries of finance, agriculture and industry and commerce to develop off-grid and mini-grid solutions that address the energy access issue but also draw economic development into the equation.
Within the region, South Africa has been most successful in improving access rates, increasing access in rural areas from 37% to 64% over the period 2000-2010. The country set ambitious targets and channelled significant investment into developing power-generating capacity and a distribution infrastructure. Although this did not keep pace with increased power consumption (leading to rolling blackouts in 2008), a number of electricity-specific investment frameworks and policies are addressing the challenge. The escalating costs for the electricity sector of infrastructure development are likely to impact further achievement of energy access targets. To finance its growth plans, Eskom – responsible for generating 95% of electricity in South Africa – has had to seek government approval to increase pricing by 20-25% over the 2010-2013 period.
Providing affordable and environmentally sustainable access to energy to 590 million people in sub-Saharan Africa represents a huge challenge. The World Bank estimates that since the mid-1990s, external finance to Africa’s power sector has averaged around US$ 600 million per year of public assistance, plus a similar volume of private finance.133 To achieve the goal of universal energy access, the IEA estimates that cumulative investments of US$ 1 trillion will be needed through to 2030.134
A number of initiatives have been borne from the urgent need to provide access to modern energy. The Sustainable Energy for All (SE4All) initiative, created in connection with the Rio+20 Human Development Goals, seeks to achieve universal access to energy by 2050. Additionally, Power Africa, a US-led initiative, has formed partnerships with several countries in the region to support investment in power infrastructure development and deployment of renewables.
SE4All has made an initial commitment of US$ 32 million in direct investment to support universal energy access. Power Africa has committed over US$ 7 billion over the next five years to add 10,000 megawatts of more efficient electricity generation capacity, as well as attracting private sector investment of US$ 9 billion to develop 8,000 MW of generating capacity – 5,000 MW of which will be added by GE in Tanzania and Ghana.
Given the scale of the challenge, current levels of donor and direct investment cannot achieve universal access to energy. Initiatives such as SE4All and Power Africa can be instrumental in attracting direct and foreign investment, but donor-led activities are unlikely to be sustainable if the implemented business models are not accompanied by the necessary investment frameworks and support structures.
The high investment requirements of infrastructure development, especially in rural areas – for both grid expansion and capacity increase – mean the energy access challenge will most likely be addressed through a combination of on-grid, off-grid and micro-grid solutions. Off-grid solutions include the provision of home plug-and-play solar kits including batteries and Pico (low consumption) LED lights. The Lighting Africa initiative has to date provided access to modern energy through off-grid solar solutions to 6.9 million people in Africa135 by focusing on improved cross-stakeholder collaboration, standardization of technologies and products and information sharing, and in supporting the development of micro-finance funds. As part of Power Africa, the US African Development Foundation is launching a US$ 2 million “Off-Grid Energy Challenge” to provide grants of up to US$ 100,000 to African-owned and operated enterprises to develop or expand the use of proven technologies for off-grid electricity benefitting rural and marginal populations.136 However, this level of investment is small compared to the scale of the challenge. Signs of progress in on-grid solutions are also emerging, with the first commercial wind farm in the region adding 52 MW137 to capacity in Ethiopia in 2012.138
In face of the energy access challenge, a positive market indicator is that financing is shifting away from the traditional grant model and moving towards finding sustainable market solutions, providing implementation support and identifying best practice examples with scale potential. Donors and initiatives such as SE4All are starting to focus on “bridge financing” or catalyst funding to scale up existing, tested technologies and solutions.
External Perspective: The Role of the Private Sector in Providing Energy Access across Sub-Saharan Africa
Global Managing Director,
Accenture Development Partnerships
Global Managing Director,
Accenture Development Partnerships
The real challenge, however, comes now. To maintain momentum, the UN declared 2014 to 2024 to be the decade for action. Indeed, despite a slew of funding commitments, pilots and entrepreneurial activity, efforts remain largely fragmented and opportunity capture at scale limited.
So, what can be done to achieve scale? An integral part of the solution lies in greater involvement of the private sector. Well placed to create sustainable and replicable business models, its access to capital outshines that of many governments in the region. With an estimated US$ 50 billion a year required to support universal access to energy from now until 2030,142 its role should not be underplayed. This role entails making use of and channelling existing capabilities to solve this global crisis. Five key actions are recommended:
- Target efforts where there is likely to be greatest impact.
- Create demand-side driven offerings.
- Be innovative in developing sustainable business models.
- Embed solutions into local communities while retaining the ability to scale.
- Make use of existing technologies to increase efficiency, scalability and impact.
Firstly, the sector should target efforts where there is likely to be greatest impact – both where the need and the political support is greatest. While government support for energy access has been pledged, this in itself is insufficient, and needs to be underpinned by an enabling policy environment. The importance of this was highlighted in Vietnam, where strong political support in addition to policy incentives that maximized the country’s natural resources helped achieve an electrification rate of 98% in 2010.143 The private sector must work with governments across sub-Saharan Africa to define policy frameworks that most effectively create sustainable markets. President Obama’s recent announcement of “Power Africa”, aiming to establish a partnership between governments and the private sector, is a step in the right direction.
Secondly, the private sector should take a demand-driven approach and use its understanding of consumers to develop sustainable offerings. Too often, efforts aimed at increasing access to energy attempt to provide energy as an end in and of itself. However, energy is a commodity and thus to create demand it is important to consider the services that consumers want and are willing to pay for – and how these might differ by country and culture. For example, efforts made over the past decade to increase access to cleaner cooking facilities often paid too little attention to cultural traditions and instead focused on mass production of products which did not meet the requirements of local demand – resulting in a plethora of discarded cook stoves across the region. While initiatives such as the Global Alliance for Clean Cook Stoves are currently working to define more holistic and collaborative approaches, it is important to keep the early lessons learned in mind.
Furthermore, for these offerings to be sustainable, the private sector will need to use its capacity to innovate to develop viable business cases. Energy demand in rural parts of sub-Saharan Africa is currently low, often rendering the business case for many services challenging to establish. The private sector will therefore need to be creative in making the business case work. One solution being trialled by the Rockefeller Foundation’s Smart Power for Environmentally-Sound Economic Development (SPEED) initiative is the concept of a micro-grid anchor tenant. SPEED aims to use the power needs of cellular towers as an anchor load to support the return on investment and overall project economics of a cleaner power infrastructure that would serve the larger needs of the local community. Still in the early stages, efforts such as these should be monitored and, if successful, mirrored.
These solutions further need to balance local community buy-in with the ability to scale. Although many entrepreneurs have experienced substantial success in expanding energy access across sub-Saharan Africa, these efforts have often relied on intangible factors such as community support or local personalities, making them challenging to scale or replicate. Thus, the private sector should use its understanding of how to scale a business to carefully balance these two factors.
Finally, the private sector should use existing technology at its disposal to help develop more efficient, sustainable and scalable solutions. As a starting point, the high penetration of mobile phones in sub-Saharan Africa provides companies with the opportunity to more quickly reach rural communities, to facilitate and simplify payment schemes and to maintain customer contact – helping to increase local buy-in. Mobisol, SharedSolar and M-KOPA are among those using mobile technology to improve their offerings.144 Companies can also harness technology to increase efficiency and cut costs in supply chains – whether spare parts management or the provision of maintenance.
The private sector has many existing capabilities, and should begin channelling these to scale access to energy in sub-Saharan Africa. Through the Energy Access for Development Impact, Accenture is actively exploring ways in which it can use its wide breadth of capabilities, assets and networks to create greater and deeper impact. Indeed, while the social and economic development impacts of energy access are well understood, use of these capabilities will help to prove the business case for the private sector and, in turn, further accelerate progress. Paired with multistakeholder collaboration, we have the chance to make the UN’s decade for action count and help to propel overall economic development and prosperity across the region.