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Barriers to Scaling Productive Use of Energy

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This article is part of a series by GET.transform and Sun-Connect News about the changing nature of the Productive Use of Energy (PUE) landscape. We hope to inspire a new dialogue on Energy for Rural Industrialisation, inviting practitioners to discuss opportunities and shape the sector to capitalise on emerging trends. Join the conversation through the hashtag #E4RI on LinkedIn or Twitter.
If you would like to contribute to the discussion, please send your blog or article to mail@sun-connect.org.

Before analysing obstacles to Productive Use of Energy (PUE) promotion approaches, it is important to highlight the barriers experienced by rural end-users which continue to prevent uptake of PUE applications in Africa. These barriers have been analysed through different studies, though so far not listed methodically. A literature review and confirmation with practitioners enables a summary of key barriers as follows.

Limited demand and poor market linkage

Rural producers in Africa often struggle to unlock demand for their produce due to their geographic location and market position. This is a key barrier to rural economic development. We have seen an over-supply of locally available resources, like fruit and vegetables, in several off-grid areas. If these producers cannot get their (enhanced) product to a larger market where it can be sold, then an investment in equipment and/or processes which add value is financially unviable. From a value chain perspective, it is critical to assess the level of demand and market linkage before, or in addition to, intervening with PUE promotion for value addition on a commodity. Interestingly, urban demand can also be suppressed by inadequate volumes of rural supply of raw material – a vicious circle – as the sourcing of small quantities is unviable for larger distributers.

Poor availability of appropriate PUE equipment in the areas that need it

People and businesses in rural areas with poor electrification have frequently reported having limited access to machinery, tools and equipment. Retail stores often concentrate on necessities such as groceries, or at most, small household electronics. Hardware stores that sell power tools, kitchen appliances, and farming machines are generally only found in larger towns. Yet, even in these cases, the quality of the equipment is usually low and there is generally no after-sales support. PUE equipment found in agricultural regions is often provided by NGOs and donors. The range of available equipment is thus limited, with promoters focusing on particular technologies rather than allowing a natural market to develop. It is important to assess if inadequate availability is a cause of low uptake or an outcome of other barriers. PUE companies have also suggested promoters should not make equipment available to end-users through direct subsidies, arguing this stifles development of a natural hardware market, and distorts healthy competition by giving new subsidised recipients an artificial advantage over pre-existing operators who may have invested their own money to buy their PUE equipment.

High upfront equipment costs and low affordability

Another barrier found in almost all the studies reviewed in the context of Africa is that most PUE equipment that can lead to enhanced economic activity is relatively expensive for the targeted end-users. Solar pumping and irrigation, mills, cooling equipment and even many of the power tools and appliances used in the services sector range from several hundred to several thousand USD. Farms in Sub-Saharan Africa tend to be too small to generate an income above the poverty line of USD 1.90 per day. With average annual incomes in general ranging from around USD 400 to USD 900 in 2021, access to credit and affordable interest rates is another barrier (see below).

Low access to consumer credit and high interest rates

Without the financial means to invest upfront, a large proportion of the target group will require financial services to invest in PUE equipment. The limited outreach of banks into rural areas, high interest rates and the terms/collateral requirements continue to suppress uptake. Our interviews confirmed that high bank interest rates are a major barrier to purchasing equipment for both end-users and suppliers. We are observing numerous PUE companies developing product finance solutions for end-users, but it is still difficult for suppliers to secure capital at an affordable rate, given the business risks. When it comes to small stand-alone solar equipment, EnDev has warned that Pay-As-You-Go sales mechanisms are unlikely to bear great success. Such equipment is often adapted for both power supply and payment modes, making it relatively expensive. Furthermore, a very large range of applications is required to cover a sufficient cross-section of rural economies. While mills, pumps, cooling and cooking are receiving a lot of attention, a full range of power tools, ICT, processing and packaging, beauty and textiles and so many others are just as important, and these cannot all be adapted for Pay-As-You-Go solar. A more flexible financing instrument to cover all this is necessary.

 

Excerpt of: Productive Use of Energy 2.0: New Scaling Opportunities and Innovations in the Sector (GET.transform) 2022

 

Download the full study.

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Jesse Njehu
12 days ago

Morning, can you provide information on the latest micro- loans and Grants