The Development Challenge, and Opportunity, of Electrifying Africa

Extending electricity to rural Africa remains one of the largest development challenges on the planet. 620 million people remain unplugged to any power grid.

And the primary reason for that is affordability.

In the 1940’s, countries like the U.S. had access to inexpensive raw materials like copper, timber and coal to power its vast new land. Those same commodities aren’t as inexpensive anymore today – driven say by demand for copper as the pace of sustainable energy projects has picked up.

Solar electricity, on the other hand, is becoming inexpensive, in part because the price of solar panels is falling at the same time time that modern appliances and light bulbs are getting more efficient.

For example, eight years ago in 2009, a radio, a mobile-phone charger, and a solar system big enough to provide four hours of light and television a day would have cost a Kenyan $1,000. Now it’s less than half at $350, and is projected to fall to $200 by 2020.

The Opportunity

Thus it’s no surprise that funding, much of it from private investors based in Silicon Valley in the U.S. or Europe, is now flowing into region in this sector.

More than $200 million in venture financing funded projects last year, up from $19 million in 2013.

Startups like M-Kopa, which launched in Kenya but originated in the U.S. in 2011 now has half a million pay-as-you-go solar customers.

D.light, a competitor with offices in California, Kenya, China, and India, says that it is adding 800 new households a day.

Sales of pico solar systems, popular products for powering gadgets such as lights, small appliances, mobile phones, tablets, and other portables in the region, have risen by over 10 million in just 4 years.

Impact investors would do well to heed such trends in the region where the confluence of such opportunities to earn returns while solving an important social good is starting to come together.

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One of the biggest obstacles to the growth of solar power in the region is the lack of available cash.

Many of these companies are essentially banks as well as utilities, providing loans to customers who may have no credit history. That can make it hard to figure out what to charge people.

“What you see in this space is at least eight to ten decent-sized pay-as-you-go solar companies, all trying to parse through what the actual end price to the customer really is,” says Peter Bladin, who spent many years in leadership roles at Microsoft and now invests in several of these firms. Bladin first started studying distributed solar—solar electricity produced near where it is used—in Bangladesh, where the Nobel Prize winner Muhammad Yunus used his Grameen microcredit network to finance and distribute panels and batteries.

Lacking that established financial architecture, companies in sub-Saharan Africa are constantly experimenting with different plans: Off-Grid began by offering ten-year leases, but found that customers wanted to own their systems more quickly, and so the payments are now spread out over three years.

PEGAfrica customers buy their system in twelve months, but the company gives them hospitalization insurance as a bonus. Black Star is a true utility: the customers in the communities where it builds microgrids will always pay bills, but the charges start at only two dollars a month. (The business model depends on customers steadily increasing the amount of energy they buy, as they move from powering televisions to powering small businesses.)

Companies like Burro—a Ghanaian outfit launched by Whit Alexander, the Seattle entrepreneur who founded Cranium games—sell lamps and chargers and panels outright, saving customers credit fees but limiting the number of people who can afford the products.

“We have to think about the future,” says one American entrepreneur Xavier Helgesen, co-founder of Off-Grid Electric. “But also sell something people want today.”

Sources: The New Yorker, Africa Progress Panel