(Em)Powering Africa

If someone asked you, “What’s the biggest challenge we’re facing today in the energy sector?” I’m pretty sure most of you would say: “combatting climate change,” “reducing our energy consumption” or “supporting renewables.” So would I.

And we would certainly be right. There’s another challenge that those of us living in industrialized countries tend to forget, however, namely: achieving universal access to energy.

Energy is such a matter-of-fact commodity that it is inconceivable how we could live without reliable access to it. Try to identify one activity that does not depend on reliable access to energy. My guess is it will not be that easy.

Still, other regions of the world are living worlds apart from us. Around 1.2 billion people live without access to energy, most of them in Africa. I would like to dwell on this continent because

Africa really reflects the challenges of better energy access, but also the formidable hopes and opportunities made possible by technology and innovation.

During a recent journey to Senegal and Mali, I met with a variety of decision-makers, public authorities, local entrepreneurs and CEOs of utilities. We talked about various issues, such as rapid urbanization, diversification of energy sources, public health, education etc. But there was one issue in particular that kept coming up and was viewed as the most pressing: better energy access. Everyone I met and discussed with was convinced of this fact: ensuring affordable, reliable energy access to broad layers of the population would unlock their countries’ economic potential and improve the living conditions of the population.

So what does the situation regarding energy access in Africa look like at the moment?

On the African continent, about 635 million people live without access to energy, and this number is increasing due to demographic growth (International Energy Agency, 2014).

On-grid power generation capacity amounts to 160 GW on the continent, which equals the installed capacity of Germany, whereas there are 15 times as many people living in Africa as in Germany. Moreover, the amount of capacity in operation is significantly less due to poor maintenance of power stations. Frequent power outages are the result. Furthermore, on-grid power capacity is not evenly distributed: 99% of the population in Northern Africa and 85% of the population in South Africa have access to electricity while less than 10% of the population of Central African Republic, Chad or the Democratic Republic of Congo are connected. Overall, there is an extremely low electrification rate in Africa’s rural areas.

Electricity tariffs are, in many cases, among the highest in the world, and they weigh on companies’ productivity and economic growth. On average, sub-Saharan electricity tariffs are between $130-140/MWh. In comparison, electricity tariffs in Latin America, Eastern Europe and East Asia are around $80/MWh (IEA, 2014).

A lack of access to electricity often results in households relying on expensive, inefficient and hazardous alternatives, be it costly back-up generators running on diesel or traditional use of biomass for cooking stoves. Wood fuel accounted for nearly half of total primary energy supply in Africa in 2013. This accelerates the pace of deforestation and has adverse impacts on human health. According to World Health Organization estimates, nearly 600,000 people died of indoor air pollution in Africa in 2012, which is more than the number of people dying of tuberculosis, HIV and malaria in Africa each year.

Will Africa be trapped in this circle of poor energy access and low development?

I believe that Africa is at a turning point here. I am convinced that universal, affordable and reliable access to modern energy is within the continent’s reach.

And remember: I run a business, not a philanthropic organization. So I should be wary of unrealistic predictions.

There has been much debate about the time frame in which universal energy access could be achieved in Africa. The International Energy Agency believes that there will still be as many as 300 million people without electricity access in sub-Saharan Africa in 2040, while the African Development Bank or the Sustainable Energy for all Initiative believe that universal access could be achieved by 2030.

For my part, I see at least three reasons to be optimistic.

First, as some political leaders have decided to address the energy issue, better regulation is being implemented in a number of African countries.

A stable, regulatory framework effectively drives costs down and attracts investors and industries. Morocco’s excellent regulation made it possible to announce the construction of wind energy capacity that will deliver electricity at a record-low cost of €28 per megawatt hour. Better regulation has enabled the Ivory Coast to double its capacity in less than 5 years and allowed South Africa or, more recently, Zambia to lower solar photovoltaic costs. Those examples, among others, could inspire other countries on the continent.

Next, there is the structural decline in the production costs of renewables, which is making it possible to tap into the vast resources of Africa.

Until recently, renewables were expensive solutions for rich countries – with lower levels of solar radiation. But times have changed: costs are going down and investors are interested in renewable energies, considering them a low-risk and attractive investment to add to their portfolio provided that the power purchase agreements are solid. Renewables may not be sufficient as they are intermittent, but with the complement of natural gas on-grid and power storage off-grid they will play a larger role in the energy mix.

Lastly, I am impressed by the vitality and audacity of innovation in Africa, which is helping to overcome difficulties long held to be insurmountable.

Vast territories and low population densities make investments in grid extension economically non-viable in many cases. But the development of off-grid and mini-grid technologies as well as the progress of storage systems could make a tremendous difference and accelerate the pace of rural electrification in Africa.

Solar home systems (SHS) provide examples of off-grid technologies: they consist of solar panels, which can power at least a few light bulbs and small appliances, such as a television, fan and mobile phone charger. In the future, the capacity of these systems will probably increase. They are already developing very well in Eastern Africa in the wake of mobile telecommunication and mobile money prepayment. Moreover, these solutions are very affordable: energy expenditures with SHS account for 5% of total income and are even below telecommunication expenditures.

Mini-grids provide an enhanced service level. They are village, town or district scale electrical distribution networks capable of operating autonomously from the main electrical grid and are powered by renewable energy, backed up by batteries and/or diesel.

Thanks to mini-grid and off-grid technologies, access to power does not necessarily mean access to the national grid anymore. Let me stress this point: these are not temporary solutions. In some countries, mini-grid and off-grid technologies are part of the strategic energy plans designed by public authorities allowing them to provide affordable energy by cutting costs on transport networks.

Some examples: Rwanda expects to provide energy access to as much as 20% of its population with off-grid solar systems by 2018.

Senegal, through its rural electrification agency, has installed 35 hybrid (solar photovoltaic, battery and diesel) mini-grid systems, with plans to install 41 more (World Bank, 2014).

Mali is pursuing a decentralized approach to rural electrification, allowing local energy companies and initiatives (communities, NGOs) to generate electricity. Around 400 mini-grid installations are already in place.

These solutions will not replace centralized solutions: large cities and large industries will of course keep on relying on national grids. Nevertheless, decentralized systems will play an essential role in the electrification of rural areas.

We are moving towards a dual system: just as Africa leapfrogged landline telecommunications and saw a rapid expansion of mobile telecommunication, some regions of Africa could dispense with the national grid and expand access to energy through decentralized technologies.

In the future, this could lead to reverse technology transfer, from South to North.

Innovation goes beyond these technologies. An important constraint to the development of solar home systems (SHS) is high up-front costs. SHS are more efficient than kerosene and, in the long run, they prove to be cheaper. But many families do not have enough cash to buy such systems up-front and so they stick to more traditional solutions. To overcome this difficulty, various companies have developed micro-leasing. Instead of acquiring SHS on the spot, consumers pay for the system through daily or monthly micro-payments.

Another challenge is posed by the risk for business from extending credit financing to customers. Industries are wary of providing a service to customers they are not sure will eventually be paid off. Here again, however, some companies have come up with a clever solution: “pay as you go” technology. Customers are using mobile payments to pre-purchase a certain amount of electricity. The system is blocked automatically if payment is not made and cannot be used again until credit is recorded. This way credit risk and collections difficulties are significantly reduced.

All these developments signal a positive trend toward achieving universal, affordable access to energy, which is the key to unlocking economic growth and development for many countries.

From street lighting to functioning health facilities, reduced exposure to indoor pollution, better allocation of time otherwise spent harvesting wood, access to clean water, access to education, mobility etc. Almost every aspect of people’s lives gets improved in the wake of better energy access.

Power, centralized or decentralized, will definitely foster economic development. With reliable, affordable access to energy, African businesses will be able to move up the value chain, each according to its own competitive advantage, its own industrial policy, its own human genius. For instance, farmers in the Ivory Coast harvest crops, but they do not transform them because they are unable to compete with foreign businesses facing far lower energy costs. Thus, crops are shipped overseas to be transformed… and others are extracting the bigger share of the value added to the final product. This can change with the energy evolution underway in Africa.

Finally, this evolution has far-reaching geopolitical implications.

It will cement the independence of African countries as they come to rely on their own resources instead of imports. Even for oil and gas exporting countries such as Nigeria or Tanzania, it will help, because it will allow them to dedicate more of their national production to exports while cutting the cost of power for the other economic sectors.

Improved quality of life, economic growth and political empowerment: they all could, in Africa and in every other part of the world, be sparked by energy.