LONDON – Imagine you woke up tomorrow without access to modern energy. You have no fridge, cooking stove, or air conditioning. Your kids can’t do homework after sundown. You can’t charge your mobile phone. Welcome to the world of Africa’s unconnected – and to a market failure that is destroying opportunities for development on an epic scale.
Almost 150 years after Thomas Edison invented the light bulb, some 620 million Africans – two-thirds of the region’s population – live without access to electricity. An even greater number use biomass for cooking, with over 90% of people in rural Malawi, Tanzania, and Mozambique using straw, dung, and firewood. The resulting household air pollution contributes to 600,000 deaths annually – half of them children under the age of five.
The international community has set the goal of guaranteeing universal access to electricity and modern energy by 2030. Yet the number of people lacking access to electricity in sub-Saharan Africa is on the rise. Based on current trends, there will be 15 million more people living without electricity in the region in 15 years.
Africa’s poorest residents pay for their lack of access to energy not just with their health, but also with their very limited incomes. The recent Africa Progress Panel report Power, People, Planet (of which I was lead author) puts total spending on energy products by people living on less than $2.50 a day at around $10 billion annually.
The African energy market is inefficient and unfair. While the minority of Africans connected to national grids – most of whom are wealthy – benefit from cheap, heavily subsidized electricity delivered through state utilities, the unconnected majority pays about $10 per kilowatt-hour of energy delivered in the form of charcoal, batteries, candles, and kerosene. To compare, the average American pays 15 cents. In other words, some of the world’s poorest people are paying some of the highest prices for energy.
An effective solution to this problem exists: solar-power technology. According to African Progress Panel estimates, poor African households would save $58 a year, on average, by installing solar panels – money that they could spend on education, health, and productive investment. The firms providing those panels would, of course, also benefit considerably from tapping this large new market.
So why has the market for solar power yet to take off? Part of the problem is that poor households cannot afford the up-front costs of solar technologies. While the price of solar panels has fallen by more than half in the last few years, even a $150 entry-level package remains far beyond the means of someone living on less than $2.50 a day. The challenge for investors – and for governments – is to lower the cost of connecting to solar energy.
The good news is that some innovative companies are already developing new business models that address the underlying market failure. The Nairobi-based M-KOPA – which has connected more than 200,000 households in Kenya, Uganda, and Tanzania to solar power – enables their customers to acquire a solar kit for a small deposit. Households then purchase credit on a pay-as-you-go basis, through mobile phone technologies, until they own their system outright. Other companies are using a similar model to provide solar lamps and more efficient cooking stoves.
But the renewable-energy market is emerging far too slowly in Africa – especially when one considers that Bangladesh has delivered 3.5 million small photovoltaic systems to urban slums and poor rural areas over the last five years. The key to Bangladesh’s success was government programs that created an enabling environment for private investment through micro-credit, risk guarantees, and small installation grants. Aid played an important, but residual role.
Unfortunately, the energy debate in Africa has focused almost exclusively on the development of power infrastructure, without considering access. The underlying assumption, shared by aid donors like the World Bank and the African Development Bank, is that more investment in the national grid, coupled with utility reform, will cause power to trickle down to the people.
But, while it is true that more power is urgently needed, this approach ignores a few inconvenient truths. For one, delivering affordable energy to the poor does not figure prominently in the priorities of Africa’s state utilities, which function largely as vehicles for delivering cheap electricity to the wealthy, creating opportunities for patronage, and, as in the case of Tanzania, enabling large-scale institutionalized theft. Moreover, few African governments have even the semblance of a credible national plan for delivering affordable energy to their citizens.
A new approach is needed – one that takes advantage of Africa’s abundant hydro, solar, wind, and geothermal assets to fuel a low-carbon energy revolution. To some extent, such a revolution is already underway, with renewable energy supplying national grids in countries like Ethiopia, Kenya, South Africa, and Rwanda at competitive prices.
But much more must be done to fulfill the potential of renewable technologies to deliver power to the poor through devolved off-grid systems. With strong government leadership and active private-sector engagement, such systems could catalyze a transformation in how African countries approach energy delivery. African governments could begin by converting the $20 billion they now spend subsidizing energy consumption into investments in connecting low-income households to power.
Aid donors could also do more. Kofi Annan and the Africa Progress Panel have called for the creation of a “global connectivity fund” to help finance the risk guarantees, credit, and other market arrangements needed to support innovative business models delivering energy to the poor. It is tough to think of an investment with the potential for higher returns.
With the right regulatory environment and sufficient financing, renewable low-carbon technologies could do for the energy sector what mobile phones have done for telecommunications. In Africa, that would mean empowering the most disadvantaged people, while making the region richer and greener. Given the extent to which a lack of power impedes growth, job creation, and poverty reduction, there is no time to waste.
Kevin Watkins is Director of the Overseas Development Institute.
Copyright: Project Syndicate, 2015.