For Africa to realize its full economic and social potential, the continent will require robust power infrastructure to deliver affordable, clean energy to all of its citizens, including those in rural areas.
Africa is currently at a crossroads in terms of how it will pursue the development of its power infrastructure: on one side, the typical infrastructure lenders and donors like the World Bank are advocating for multi-billion dollar loans and grants to national governments in order to deploy massive generation, transmission, distribution, and connectivity projects. On the other side, an emerging ecosystem of private energy companies are trying to bring power to more people through market-driven approaches.
There are strong arguments for both approaches. Those who support large-scale public sector efforts are correct that power is a low-margin, high volume business which requires scale (such as one achieves through a national utility monopoly).
They are also justified in their belief that access to power is a right for all citizens and that poor rural customers should not be asked to pay more for energy than affluent urban customers. In nearly every region of the world, rural electrification has been driven by large-scale government subsidy programs which were essentially progressive transfers of wealth from urban taxpayers to their less economically empowered fellow citizens in rural areas. There is a strong moral and political argument for this approach. To deprive rural African consumers of this public sector support and force them to bear their own full costs for power could be considered unfair and unethical – or at least historically abnormal.
Despite these arguments in favor of a public sector approach, the billions of dollars injected into Africa for infrastructure over the past decades has not yet solved the energy access problem, and over 500 million Africans still go without electricity. This is due in part to limited funding and competing priorities: a government may often choose a railway or road project instead of a rural electrification project. It is also due in some measure to limited institutional capacity in many African countries. Some African governments and national utilities have lacked the technical and administrative capacity to effectively manage large electrification projects.
Whatever the reasons, the lack of public sector progress in energy access has provided fertile soil for private sector approaches to grow. In the past five years the trends of expanding mobile money platforms, cheaper solar technologies, and high efficiency lighting products has given rise to the solar home system industry in Africa. These companies provide consumers with basic energy services on a pay-as-they-go basis with systems that typically provide a few dozen watt-hours per day (in the range of 0.01 – 0.20 kWh/day) which is enough for their customers to use LED lighting in their homes, charge their phones, and even watch television.
Fueled by international venture capital, private equity, and philanthropic foundations, the growth in this sector has been impressive and over 500,000 households in East Africa now benefit from energy generated by such systems. There are some issues with solar home systems as a solution, which include their high cost for energy (around $5.00/kWh, versus $0.20/kWh on most grids), their relatively short lifespan (2-5 years), and their limited power capacity (they can’t readily cater for productive loads), but the solutions they have brought to the market have allowed millions of African to live better lives with cleaner power.
Market-driven innovation like that demonstrated by the solar home sector in Africa should be embraced and encouraged, and the African power sector should find ways to merge this private sector dynamism with the public sector’s rightful focus on social and economic equality. Right now, the private and public sectors prefer to reside in their ideological echo chambers rather than collaborate to solve the energy access problems that they both share, and the resulting lack of alignment ultimately hurts the millions of people who still lack power on the African continent.
The reality is that both ideological sides need each other’s help in order to solve this critical challenge facing hundreds of millions of people. While the public and private sector approaches are currently discordant, they are not mutually exclusive. Strong collaboration between private and public sector actors is not only possible, but necessary.
The World Bank, their donor and lender allies, and African governments should embrace the fact that the involvement of private companies in the power sector will:
- increase the speed with which we can solve energy access challenges,
- encourage technology and business model innovation,
- improve power reliability and customer service,
- create a channel through which demand stimulation projects can be undertaken,
- and create a healthily competitive energy services environment.
On the other hand, private sector companies and investors should not ignore the fact that solar home system customers are paying over 100 times more per kWh than customers on the main grid, and that by rejecting public sector collaboration they are depriving rural Africans of a benefit that poor rural customers in every other country have enjoyed: subsidized energy access.
The private sector must aim to bring innovation to the market which will ultimately enable low-cost energy at kWh-scale (not just watt-hour scale) to enable productive loads. And the private sector should strive to deliver solutions that can integrate with a broader grid system to ensure that rural and urban consumers converge upon using the same energy system in the decades ahead. Micro-grids offer one promising avenue through which to achieve these goals.
For their part, the supporters of public sector electrification programs should acknowledge the vitality and dynamism that the private sector can bring to the energy access challenge in Africa, and make subsidized capital available to both the public and private sectors. Without this subsidy parity between public and private sector, international donors and lenders and local governments are implicitly keeping the door shut for private sector engagement with the African energy access challenge.
The future for power in Africa is bright. With the right vision and policies, Africa can use its power infrastructure deficit as an advantage as it leapfrogs to building the energy system of the future while connecting hundreds of millions of people to modern electricity services. In order to achieve this vision the public and private sector factions within the industry will need to learn to see the problem holistically, and work together to solve it.
Sam Slaughter is CEO / Co-Founder of PowerGen Renewable Energy.