In life, there are many things we take for granted. One of them is electricity. We rarely take the time to consider and appreciate our ability to see in the dark or cook a warm meal. The reality, however, is there are large areas where electricity is still a scarce asset. In fact, more than half of sub-Saharan Africa does not have access to electricity and the entire power sector remains underdeveloped. McKinsey’s study found that GDP and electricity consumption are positively correlated, and the majority of sub-Saharan African countries score low on both vectors[1].
While there is progress, only 33% had access to electricity in 2009, this number has increased to 48% in 2018, significant work is still needed to reach UN’s goal of electricity for all by 2030[2]. The situation is especially bleak in rural regions, where only 25% of the population have access. Fortunately, technological improvements have driven down costs and allowed start-ups to enter the market, offering alternative solutions to households underserved by the grid[3](i.e. decentralised solar energy).
What are the possible solutions to challenges on the ground?
As technology improves, the different ways to provide electricity increases. For low income families, pico, low power photovoltaic systems (0-10W), is a great option to power small individual devices such as cell phones. On the other end of the spectrum, for communities in unserved or underserved areas, mini-grids (<10 MW) create a distribution system isolated from the main grid supply, but they do require significant upfront investment. In the middle, for poor / middle-income households, we have Solar Home Systems (SHS) (10-100W), which can provide electricity to fuel a standalone residence and require relatively little investment in comparison.
There are currently a number of players in the Solar Home Systems (SHS) space, including sector veteran M-KOPA. M-KOPA provides low-income families with affordable financing, enabling them to one-day own the solar technology to power their household. Traditionally, off-grid households spend 50 cents per day on energy sources like kerosene, candles, and batteries. This amounts to 25% of daily income and can be dangerous, with kerosene posing both a significant fire and health risk. M-KOPA offers solar lighting, TVs, and fridges to provide essential functions, and smartphones to upgrade living standards and earning potential. The company is striving to offer the best products by partnering with hardware designers to increase energy efficiency. In fact, their TV is 3 times more efficient than the best model in the UK.[4]
Not only do they offer superior products, M-KOPA’s financing model allows customers to make micro-payments through instalments, typically at 50 cents to $1 per day (comparable to daily energy costs for kerosene or batteries), and after nine-12 months of regular payments, customers would acquire ownership over their SHS. During this period, customers build up credit history, which unlocks access to higher-tier products like cash loans, insurance, cooking stoves, and satellite TV. The savings for individual households are substantial at $650 over the lifetime of each solar system. This translates to more money available to spend on food and children’s education.
Aside from the incredible direct impact on low-income and off-grid communities, the clean energy provided by M-KOPA’s SHS is also driving change on the climate agenda. The company estimates that over its lifetime, a SHS will avoid 1.7 million metric tonnes of carbon dioxide and black carbon. M-KOPA is also focused on the circular economy, reusing 80% of returned e-components, which helped bring 55,000 very-low income households onto the platform.
As a product, SHS is significantly safer than kerosene. Where one in three customers have experienced an accident or negative health complication with kerosene – most commonly related to breathing difficulties, house fires and burns – 60% of customers have reported improvement in their health with SHS.
If we look at impact away from the individuals, companies like M-KOPA are also fuelling job growth in sub-Saharan Africa. M-KOPA invests significantly in recruiting and training their workforce, and they currently employ over 850 staff members globally as well as 2,100 direct sales representatives across East Africa. Employees are provided opportunities for growth and can chart their own career path[5].
How can we do more?
While private sector development with SHS has been instrumental in delivering electricity to those living in the dark, what they bring to the table is not sufficient and public sector involvement is critical for success. Support is needed in two forms: a) public investment in the form of subsidies and b) creating an environment that would attract private investment.
Given the tough unit economics on SHS and low purchasing power of customers, subsidies would provide economic backing for these companies to continue their mission. The IEA estimated that the level of investment required to achieve electricity for all in sub-Saharan Africa is 27B dollars per year from 2018 to 2030, which is double the amount of current financing[6].
Developing countries often pose high geopolitical risks and volatile business environments, which may prevent investment from the private sector. In order to keep up momentum and build on the great work that has already been done, it is important to foster an environment that attracts private funding, including supportive policy reforms, clear and favourable regulations for off-grid energy, stable local currency and business environment, and developed infrastructure with good roads and a network of distribution partners for last mile distribution of products[7]. We need coordination and support from domestic players, local leadership, and the international community for decentralised energy solution providers to continue bettering the life of millions and to reach UN’s goal of electricity for all.
Featured image: A man is cleaning solar panel at Shanta Gold mine by Deo photographer is licensed under the Creative Commons Attribution-Share Alike 4.0 International license.
[1] Castellano, A. et al., 2015. McKinsey & Company Powering Africa. Available at: https://www.mckinsey.com/industries/electric-power-and-natural-gas/our-insights/powering-africa.
[2] World Bank, 2018. Access to electricity (% of population) – Sub-Saharan Africa. World Bank Data. Available at: https://data.worldbank.org/indicator/EG.ELC.ACCS.ZS?locations=ZG.
[3] Corfee-Morlot, J. et al., 2019. Achieving clean energy access in sub-Saharan Africa. OECD Case Study. Available at: https://www.oecd.org/environment/cc/climate-futures/Achieving-clean-energy-access-Sub-Saharan-Africa.pdf.
[4] M-KOPA, 2021. Available at: https://m-kopa.com/.
[5] Ibid.
[6] Corfee-Morlot, J. et al., 2019. Achieving clean energy access in sub-Saharan Africa. OECD Case Study. Available at: https://www.oecd.org/environment/cc/climate-futures/Achieving-clean-energy-access-Sub-Saharan-Africa.pdf.
[7] Kendall, A. & Pais, G., 2018. Bringing (solar) power to the people. McKinsey. Available at: https://www.mckinsey.com/~/media/McKinsey/Business%20Functions/Sustainability/Our%20Insights/Bringing%20solar%20power%20to%20the%20people/Bringing-solar-power-to-the-people.pdf.
Ina Liu (MBA 2021) is Co-President of the Women in Business Club and VP of Events for the Impact Consulting Club at London Business School. Prior to LBS, Ina studied business at Wharton, University of Pennsylvania and was a project leader with the Government of Canada. Ina completed her MBA summer internship with Bain in their Boston office. Ina is an intern for the Wheeler Institute, contributing to the creation of content that amplifies the role of business in improving lives.
The Wheeler Institute is seeking to understand, illuminate and offer solutions to the challenges faced by the developing world, with an aim to identify the role of business in addressing these challenges and a focus on the implications and actions for those in developing countries. In support of our students, we approach this blog section as a reflective platform and a space where individuals can generate debate as long term agents of positive change.