Traditional power grid infrastructures reach their limits in booming Africa
According to the International Energy Agency (IEA) Africa’s demand for electricity is expected to increase by more than two-thirds between 2016 and 2040. The electrification rate in Africa’s urban areas averaged 71 percent while that in rural areas was only 23 percent. Two out of three Africans still live in rural areas, and, unlike in other parts of the world, rural populations in Africa are still expected to grow. At least 110 million people (out of 640 million) still living without access to electricity in Africa live in urban areas. Most are within a stone's throw from existing power grid infrastructure. For example, in Kenya, about 70% of off-grid homes are located within 1.3 km of an electric power line. Without any other options, these citizens are forced to either go without power or use kerosene, an expensive and oftentimes dangerous fuel that pollutes and creates fire hazards.
A significant solution for off grid access to electricity
Renewable energy has the potential to substantially assist many African countries to have access to electricity, which is essential for the reduction of poverty and to ensure economic growth. Given the lack of electric power supply, the growth and demand for small-scale solar, wind and geothermal technologies providing power to people and business, is rapidly expanding. The use of decentralized renewable technologies is especially useful in the further and outlying areas as it is easier to install a more cost-effective solution in order to be less reliant on transporting electricity from power plants via transmission lines, which becomes very expensive. Decentralised renewable energy technologies offer a significant solution for off grid access to electricity.
Less risks, lower costs
In a "pay-as-you-go" (PAYG) business model, a company essentially rents consumers a solar home system that comes with a battery, a solar panel, a charge controller, LED bulbs and a mobile charger. Basic systems have enough power to charge phones and lights, and larger ones could power small appliances like radios or TVs. Consumers use basic mobile phones to make payments on a daily, weekly or monthly basis. Customers pay for the level of energy service according to their needs and budget. The companies typically offer flexible payment terms and varying lease lengths, which reduces upfront payments and gives customers the flexibility to pay from savings or current revenue. This helps to reduce risks (such as non-payment) and thus lowers costs for consumers and suppliers. The daily cost of an entry-level system is similar to the amount customers would spend on alternative energy sources, such as candles, kerosene, and batteries.
Technological and financial innovation
PAYG solar energy is dependent on whether customers can get a phone signal in their areas of residence. It involves a simultaneous growth not only of the solar and clean-energy sectors, but also the growth of the telecommunication sector as well as the finance sector, through the developments made in mobile payments.
PAYG entrepreneurs have already raised $360 million in financing and currently provide energy services to over 750 000 customers mainly in East and West Africa. The key to their success has been an innovative financing model that uses the latest innovations in mobile payment systems. The companies are typically active in both peri-urban and rural settings, supplying products mainly to low-income households, but also to small business operators.
Sophie Méritet, Director of Sciences Po’s “Energy, environment and regulation” Executive Masters Program