In a world of growing interconnectedness, we are forced to face the stark inequality of other’s divergent experiences – including the impact of climate change on the poor. Sustainable economic development and global peace mean not just the absence of violence but increasing opportunity and potential for humans to thrive. To ensure universal access to affordable, reliable and modern energy services by 2030, the world can make no more important bet than on bringing off-grid solar electricity to the 1.2 billion people on Earth currently living in darkness.
Imagine a world in which the rooftop of nearly every household in the developing world holds a small solar panel to provide not only light, but electricity to charge their phones, radios, TVs, and eventually, refrigerators, small appliances, and stoves. Even the lowest-income households would have access to basic electricity, thus saving money otherwise spent on kerosene. Imagine a world in which households far from the grid can access clean, affordable electricity by turning their rooftops into energy generators. As households increase energy consumption, they earn and save more, thus contributing to a positive trajectory.
Now, imagine micro-grids with smart meters linked to cell phones that utilise mobile payments; and new DC appliances, all of which could help households, enable small business creation, and encourage other increasingly productive uses of clean electricity. In Sub-Saharan Africa alone, 621 million people are not currently connected to the existing power grid. Despite US$ 31.5bn already committed to grid extension through 2018, progress on reaching the poor thus far has been particularly slow, expensive and reliant on non-renewables, including diesel and coal. Daunting as this may seem, the precipitous drop in the cost of solar energy and the ubiquity of mobile technology on the continent present an enormous opportunity. Since 2009, photovoltaic solar module prices have dropped more than 75%, contributing to rapidly declining costs across the solar industry.
Our work at Acumen over the last decade has taught us that low-income customers will pay for products that are affordable and add value. d.light alone has brought solar products to more than 54 million customers and is currently on track to reach 100 million by 2020.
Companies like M-KOPA, Mobisol, and Off-Grid Electric are proving the growing demand and financial viability of pay-as-you-go in-home solar systems. These are just a handful of the successful innovations of the past few years, both in the technology and in the business models that bring such products and services to market. In the midst of these rapid changes, it is possible to see off-grid solar energy not simply as a bridge to the grid, but as a destination in itself.
However, the accelerated evolution of this sector has revealed a number of ways in which this energy ecosystem is broken. This affords a challenge and an opportunity to rethink the ways that we can support its successful maturation. The primary obstacle is that governments are too focused on the historical solution – extending the existing grid – which is extremely expensive, and will likely take decades instead of years.
We have had some limited success in moving millions of people to the first rung of the energy ladder to solar lighting, all with a private sector approach. But the prospects of successfully scaling this model without involving the entire energy ecosystem are unclear. Large chunks of the value chain – mainly in marketing and distribution – remain missing or weak. There are too many small, mostly under-funded companies trying to do too much with too little capital.
Entrepreneurs building an off-grid energy ecosystem will have to combat an entrenched status quo in three areas: government, with a vested interest in extending the grid; diesel and kerosene mafias; and customers themselves, who know the ins and outs of working with biofuels every day. Fear of change is the greatest ally of the status quo, but intrepid entrepreneurs committed to leading the charge have an opportunity to offer an attractive alternative to the people who need it most.
The international community will need to leverage two trends – the falling cost of solar, and the advancements in mobile technology – to move distributed solar energy sharply beyond this inflection point. The falling cost of solar allows high-quality, affordable, and most importantly, scalable solutions to be made available to consumers as they move up the energy ladder. Mobile technology advances enable access to and engagement with those same consumers through metering, billing, and payments enabled by their existing mobile networks.
There are a number of ways to accelerate this new approach, but it is paramount to take a human-centred approach that recognises the poor as customers instead of passive recipients of charity. Before we provide solutions and support demand, we must understand the energy needs of the poor, their purchasing power and how we can move them up the energy ladder and into the modern energy market.
Social enterprises are closest to these low-income customers and are driving innovation to find faster, more efficient solutions to provide the poor with new opportunities and the promise of a brighter future. But we need to bridge the funding gap by investing catalytic capital in this under-invested sector. That will require a mix of strategic grants and long-term investment capital. The more precious of the two is grant capital structured in a way that can leverage significant private investment.
To grow these companies, entrepreneurs committed to serving the market require a unique mix of early-stage start-up capital (financed by philanthropic-backed patient capital investors), working capital (which should at least in part be made available in local currencies with government guarantees, credit enhancements and other concessionary vehicles) and consumer financing. Guarantees should also be utilised as incentives for local banks to create working capital facilities in local currencies − something woefully absent from the African energy sector, particularly in countries with significant devaluations of their currencies.
Specifically, grant funding is needed to create first-loss reserves to make bets on making the off-grid market more attractive to private investors. Grant capital is also important for technical assistance, both for management (building real talent in this nascent sector, especially at middle and senior levels) and for the R&D needed to bring better, lower-cost technologies (metering and batteries) to the market to help companies build upon their models and attract outside investment.
At the macro level, governments will also have a substantial role to play in ensuring an enabling environment for early-stage energy companies operating in developing markets. Reducing tariffs on imported components and guaranteeing bulk orders for solar products can facilitate more ambitious research and design while concessionary financing and discounts can lower prices even further.
This will not be easy. Igniting a solar revolution aimed at the poor will require innovative funds that invest in and support solutions across the energy ecosystem. Long-term investment funds combined with adequate technical assistance funding will enable a focused, accountable push not only to strengthen individual companies but to build solutions across the value chain – from marketing, financing and distribution to service/repair. Used correctly, these funds can create the models needed to show the world that off-grid solar solutions not only transform billions of lives but do so in ways that are cheaper, more efficient, faster and cleaner than by extending the traditional grids.
The success of the full off-grid solar ecosystem will provide energy access to large communities in a financially and environmentally sustainable way. In addition to the direct impact on the lives of millions of people, a fully functioning ecosystem will prove to governments and the market the value of this model for the future.
We have a chance to solve long-term energy poverty and avert a climate crisis. There is no better way than ensuring universal access to clean, affordable electricity. We don’t have dignity unless all of us have dignity, and there’s no better bet we can make than this.
Jacqueline Novogratz is the founder and CEO of Acumen.
This is an extract from 17 Big Bets for a Better World, a new book from consulting firm Dalberg. The book presents 17 ideas to reduce global poverty and improve lives from thought leaders who detail how the world can collectively can reach the global goals set forth by the UN last year. Contributors include leaders from a Prime Minister and a Nobel Peace Prize winner to an artist and Michelin-star chef. You can buy the book here.