Upya Notes from the Last Mile: Outlook for off-grid solar in 2021
As we ring in a new year, we reflect on some of the successes of 2020:
- Nations are continuing to address the Sustainable Development Goals.
- A Biden administration promises the launch of a far-reaching green policy.
- Off-grid solar products are becoming more affordable with better components.
- The reduced global emissions as a result of the pandemic have provided a glimpse of the impact global action can make.
So what does the future look like for solar home system (SHS) adoption in Africa?
Where are we now?
Digitalisation within the off-grid energy sector has had a significant impact in accessing remote, off-grid households in sub-Saharan Africa. The rapid development of technology that collects, stores, transfers and analyses digital data generated by end users is reaching large audiences in the global south. As a result of Africa’s technological leapfrogging (with affordable smartphones and a relatively high permeation of mobile connectivity), the creation of mobile money services has created a bottom-up method of poverty alleviation. Not only does mobile money bridge the gap between access to banking and financial infrastructure, but also allows easy, person-to-person money transfers with minimal fees, boosting transparency and reducing cash theft. Off-grid digitalisation has also been applied to mini-grid systems and clean cooking solutions, allowing households to buy improved biomass or LPG cookstoves under a PAYG system.
While sub-Saharan Africa (SSA) continues to electrify at a slower rate to other regions in the global south, it has nonetheless made significant strides towards clean energy access. SSA’s electrification rate has increased from 23% to 43% between 2000 and 2017. Ghana and South Africa have been most successful in implementing national electrification strategies and policies. Additionally, the declining cost and increasing availability of digitalised equipment has disrupted traditional business models and governance structures. Many African governments are looking to off-grid solar solutions as viable alternatives to the expensive and time-consuming extension of on-grid infrastructure.
Key drivers of the digital transformation
Below are some of the key drivers that are facilitating the digital transformation across sub-Saharan Africa:
Africa is leading the world when it comes to mobile money development. Mobile money on the continent has evolved in response to a significant population of unbanked Africans. Mobile money initiatives have been spearheaded largely by Mobile Network Operators (MNOs), who have gradually taken the place of traditional, brick-and-mortar banking systems. Mobile money services have shown significant potential across Africa with providers in Kenya, South Africa and Namibia winning significant penetration amongst the poorest communities. Networks in Guinea, Senegal, Togo, Benin and Madagascar have seen the percentage of low-income adults with mobile money accounts grow by 2–10 times over the past three years.
PAYG platforms such as ours provide an all-in-one solution for off-grid distributors, overcoming challenges such as product distribution in rural areas. By utilising digitalised Customer Relationship Management (CRM) tools, software platforms can increase efficiency and speed of sales, monitor and improve agent performance, map asset distribution and undertake market research. Such platforms can also control inventory, detect faults and malfunctions, help with asset recovery, and improve the after-sales experience for end-users.
Internet of Things (IoT)
GSM two-way communication between manufactured devices and service providers’ servers allows for the development of fully connected, PAYG-enabled solar products. Solar home systems with embedded machine-to-machine networks can record proof of payment via mobile network, reducing the need for a field agent to visit an end user in-person to record payment.
The growth of mobile network operators and infrastructure in rural areas is bridging the gap to mobile and electricity access. In order to facilitate a mobile money transaction, only a 2G connection is required, which is becoming more widely available even in the most remote of locations.
Challenges to solar adoption
A number of uphill challenges remain in achieving widespread adoption of off-grid solar products. Poor financial support, weak governance, and corruption continue to obscure successful electrification policies in many sub-Saharan African countries. Additionally, many countries continue to pursue policies that contradict sustainable practices, such as subsidies for kerosene or an import tax on solar products (most of which come from abroad). A further issue is population growth; in absolute terms, the total number of people without access only decreased for the first time in 2013, owing significant population increase across SSA.
There are also a number of obstacles for end users: a lack of digital literacy, the need to own a smartphone, and the risk of the SHS becoming obsolete if a government chooses to erect mini-grid or on-grid infrastructure. In South Africa, for example, households do not wish to be included in SHS electrification programs for fear of being classified as electrified, thereby excluding them from future introduction of more efficient technologies or expansions of their local grid. To add to this, most electrification occurs in urban areas due to a lower cost of bringing electricity than rural areas; urban households are also more willing to pay for it, owing higher incomes.
Furthermore, the advancement of off-grid energy is uneven across the SSA region; more than half of people electrified from 2011 are in Kenya, Ethiopia, Tanzania and Nigeria. In contrast, nations such as Ethiopia and Zimbabwe have struggled to keep pace with population growth, and national electricity access rates diminished rather than grew.
Lastly, there are a number of negative externalities that emerge as a consequence of embracing solar, off-grid technology. These can include an increased dependency on smartphones and the promotion of unsustainable and unnecessary consumer goods behaviour (which can potentially make modifications to a community’s social structure).The possibility that electricity may be used for entertainment (football matches, video games) instead of for sustainable and ‘healthy’ development remains an issue for some communities.
What does the future bring?
A business-as-usual approach predicts the global SHS sector to expand at an annual rate of 80–90% in the next five years, amounting to the sale of some 25 million units. These targets form a huge step towards providing clean, modern, affordable universal access to electricity by 2030, as outlined by the seventh Sustainable Development Goal.
It is estimated that by 2022, the off-grid solar market will become a $8 billion industry, overwhelmingly driven by PAYG companies. However, despite the SHS market raising over $773 million in funding in the 2013–2017 period, most investment were addressed to a small number of companies. These include M-KOPA, Fenix International, Mobisol, Nova Lumos and BBOXX, all of whom were in their growth phase and became mature businesses. Other players investing in the off-grid energy market include Total (who aim to electrify 25 million people by 2022), Shell, EDF and Iberdrola. Shell has announced an initiative to provide electricity access to 100 million people by 2030, while EDF has partnered with Sun Culture to pilot a ‘Pay-as-you-grow’ scheme that provides solar irrigation systems to farmers.
Furthermore, it is estimated that the off-grid solar jobs market in East Africa alone will rise from 77,000 to 350,000 in 2022. This is because the PAYG off-grid model requires more customer support representatives, sales agents and technicians (and fewer managers, who command higher salaries). There are an increasing amount of upskilling initiatives and training programs being run by companies. The Lighting Africa program provides nine, three-day training days for off-grid energy distributors, while Zola Electric have created a ‘Zola Energy Academy’ that recruits and trains 40 local employers each month.
Lastly, there are a number of opportunities that last-mile distributors must capitalise on in order to have an even more successful year. This includes the increasing mobile money adoption rate on the continent, an increasing number of PAYG platform providers, market potential in untapped countries, the increased affordability of solar panels, LEDs and batteries, remote monitoring, and the reduction of security risks associated with collecting and transporting cash to and from rural areas (meaning fewer attacks and robberies of field agents).
The following policy recommendations have been formulated by academic Davide Mazzoni to help governments speed up rural electrification and provide better access to off-grid solar products:
Better-designed electrification programmes
The solar home system should be considered a viable and effective solution and first step onto the energy ladder. An appropriate electrification programme should identify the best technological option in every location, rather than an off-the-shelf approach. For example, companies and governments should identify sites where mini-grid or a grid extension is more appropriate; this could be done via various geospatial modelling techniques. Governments should strengthen dialogue with private-sector companies to promote the exchange of information, allowing for the improvement of electrification planning and determining which system is most appropriate.
Adjust off-grid regulations
Governments should reduce or abolish import duties and taxation on off-grid solar products, digital platforms and appliances that aid with sustainable development. They should remove limitations on mobile money transfers for energy usage, and implement/adopt national (or better yet, global) lighting standards, such as those formulated by Lighting Global. This should then be rolled out to include mini-grid and clean cooking technology.
An appropriate business environment allows lean bureaucracy on licencing and constructive labour market regulations. This includes the hiring of local sales agents and maintenance workers and entering into symbiotic partnerships with distributors and manufacturers. Additionally, low levels of corruption are vital to allow for the transfer of valuable stock from port to warehouse. Forming synergies with local actors (shops, gasoline stations, banking agents and kiosks) allows for successful freight transport, even to rural areas and over long distances. Local police stations or post offices could be mobilised for storage if there are no warehouse facilities.
Mobile money regulation
In order for off-grid, PAYG-enabled solar to be successful, there needs to be a suitable mobile money landscape. Mobile network operators are key to promoting financial inclusion and fostering access to electricity, however many governments that refuse to allow MNOs to provide mobile money services. Nigeria has only recently begun granting licenses for mobile money operators, albeit with restrictions. More transparent and collaborative policy on mobile money regulation will lower the barriers towards universal electrification.
In spite of adverse challenges, 2020 has been a significant year for the promotion of off-grid, solar initiatives. This year at Upya, we are proud to have supported a number of projects, including the Solar Cow and our ongoing work with Givewatts in rural Kenya. A favourable global climate for renewable technology and decreasing cost of both hardware and software promise an even more successful year in 2021. Upya is ready to facilitate transfer to solar energy in all landscapes and we look forward to the year ahead.
This blog piece is informed by data from Davide Mazzoni’s academic paper: ‘Digitalization for Energy Access in Sub-Saharan Africa: Challenges, Opportunities and Potential Business Models’