Pay-As-You-Go solar power

In her thesis, Moncayo notes that harnessing solar energy and converting it to off-grid battery power is not a new idea in Africa. She reports that the United Nations Environment Program claims that off-grid lighting solutions are “a multi-billion-dollar market”. At present, reliable and cost-effective Solar Home Systems (SHS) with 20-50 W solar panels that can power LED bulbs and charge a battery are widely available in the region. How are these affordable to the poor Sub-Saharan African population? Moncayo notes that off-grid energy enterprises have adapted their business models to suit their customers. These include Pay-As-You-Go (PAYG) or rent-to-own schemes that allow flexible access to solar energy for as little as 50 US cents per day. Moncayo reports that one of the best-known providers is BBOXX, a start-up founded in 2010 that has now sold over 85,000 systems, reaching 425,000 people, in over 35 countries. Such access to Solar Home Systems has been welcomed as they enable the poorest to save both time and money. Moncayo states in her paper that before they had access to these systems, the typical customer had to spend more money on kerosene for less lighting quality and travel nearly twice a week to charge their phone.

Lack of initial finance

The problem with the schemes currently in place is that they need initial finance.  Moncayo reports payback periods of about 18 months for each system. For a company to achieve financial stability, they need to sell fast and grow fast. However, even when they are able to expand quickly, they have difficulties to pay back short-term loans with their business proceeds. According to Moncayo, philanthropy, public financing, banks, private equity and venture capital have proven unable or unwilling to match Sub-Saharan Africa’s demands to finance off-grid energy. She investigates how impact investments are stepping up to contribute to fill the gap and help to get off-grid power to the masses. Impact investments are investments made in companies, organizations or funds that intend to create positive social and/or environmental impacts, while also attaining a financial return. Moncayo reports that in 2015, from the $16.1 billion supplied by impact investors in West and East Africa, $4.2 billion were dedicated to energy. She notes that most of these did not invest in off-grid options, but those that did are largely multilateral development banks, Development Financial Institutions (DFIs), impact investing funds and corporate impact investors. The support offered by these actors is now also getting ordinary investors interested in off-grid opportunities.

Impact investments are more than finance

Moncayo is also keen to highlight the main non-monetary contributions of impact investors. The first is their obvious contribution to the development and availability of off-grid energy systems. They attract new investors and connect them with providers, including those that are social-neutral. As impact investing is a cooperative, rather than a competitive sector, capital can be aggregated for co-investment, cutting transaction costs. In addition, impact investors can provide off-grid companies with technical assistance and help them grow their networks. Investors get involved in the governance of companies to help preserve their social objectives. Through the impact assessment of their investments, they have the information at hand to further improve the value proposition of enterprises. Overall, the introduction of impact investor capital and management practices strengthens and endorses the entire off-grid sector.

Energy for all by 2030

To attain access to clean energy for all, globally, by 2030, the OECD and the EIA, Energy For All- Financing Access For The Poor report (2011) stated that $48 billion needs to be invested each year. Moncayo notes that, if Sub-Saharan Africa requires 80% of all off-grid electrification, it would need investments of $5.6 billion a year. Based on figures supplied by Bloomberg New Energy Finance, Moncayo estimated that $188 million in impact investments were made in the Sub-Saharan African off-grid energy sector in 2015. This is just 3.3% of that required by the OECD Energy for All Case for that year. Based on projections for the increase in impact investments in the coming years, she predicts that by 2030, the impact investments dedicated to the off-grid energy sector in Sub-Saharan Africa will have the potential to finance 44% of the OECD Energy For All Case annual budget. Moncayo concludes that this is likely to be less than 1% of the estimated multi trillion-dollar impact investments predicted for 2025 by the Global Impact Investing Network. However, she notes that her analysis highlights the power of impact investors, who are emerging as engine for the global economy and key players in tackling the challenges that the world faces today.

By Mónica Moncayo Escobar – “Role of impact investing in financing access to energy for off-grid populations in Sub-Saharan Africa.

Join His Excellency Dr. Bashir Ifo, President, ECOWAS Bank for Investment & Development, Ben Good, Chief Executive Officer, Energy4Impact and other impact investors to discuss how to deliver affordable, reliable and clean energy to over 600 million Africans, faster, at the 3rd Africa Impact Investing Leaders Forum taking place on 25th – 26th October, 2018 in London. Register interest here

Although small-scale solar providers focused on the rural off-grid market have been the darlings of the development world, they generate just enough electricity to power more than a few basic appliances such as light bulbs, fans, and televisions. These improvements are undoubtedly an important improvement, but the vision for energy access should embrace a more comprehensive and robust potential. Improvements in quality of life and productivity should be the centerpiece of the agenda for powering Africa. A sustainable vision is required to identify feasible, durable solutions. Unless government and industry stakeholders invest in larger renewable systems, we will continue to champion an unsustainable model of sustainable development.

While African governments have increasingly framed renewable energy as the linchpin of their climate change and development strategies, solar energy still remains largely dependent on public sector capital from sources like the World Bank and the African Development Bank. At present, Africa lacks sufficient investment to fund enough energy projects to achieve universal energy access by 2030. In 2015, the African Progress Panel found that current energy-sector investments in Africa are about US$8 billion a year—less than one-sixth of the US$55 billion per year required to meet electrification targets. And even those funds won’t meet the renewable energy sector’s financing needs.

According to a recent Power for All report, only 11 percent of World Bank energy access funding and 1 percent of African Development Bank funding went to decentralized renewables between 2011 and 2014. With climate mitigation funding in flux due to the U.S. withdrawal from the Paris Agreement, Africa’s solar industry must rapidly develop more capital-efficient ways to reach consumers outside of the grant-based or subsidized rural electrification model or risk future impediments to growth.

Solar companies providing subsistence-level energy to consumers with poor economic prospects have provided an important basis for the industry’s development. Investors betting on the off-grid rural market are right about the transformative impacts of models like M-KOPA, which enables customers to repay the cost of a $200 entry-level solar system over time. These systems provide the means for children to read at night, and they improve household health by reducing reliance on dirty fuels like kerosene. However, if these investors hope to generate long-term growth and improve economic livelihoods, solar systems must be able to generate enough output to power products like refrigeration, which improve food security, or irrigation and agricultural machinery, which enable productivity in the increasingly promising smallholder-led agricultural industry in sub-Saharan Africa.

Likewise, water heating is a staple and important aspect of daily urban living. Enhanced access to electricity shouldn’t just be a stop-gap solution: it should provide a means of reducing poverty and create better conditions for healthier, more financially stable lives in the long-term. As governments and development partners work to catalyze Africa’s green revolution, energy generation must play an essential part of the story. In Kenya, for example, energy accounts for nearly 15 percent of agricultural input costs. Harnessing enough energy to enable customers to expand their discretionary income is a critical path to improving the customer experience while also helping the energy industry’s profit margins—everybody wins. Electrification efforts that focus solely on basic solutions will not uplift the continent as a whole.

For renewable energy to create scaled impact, greater focus is needed on urban and peri-urban locales, which are often neglected in the race to power Africa. The sheer number of customers in urban areas means that efforts to improve electrification among all residents will reduce marketing and distribution costs. Although the electricity deficit is most stark in rural villages, the continent’s most developed cities from Nairobi to Johannesburg also confront irregular power, which, given the rapid urbanization trends in Africa, will become an ever-greater problem as more slums spring up on the urban periphery.

According to the Honourable Akinwumi Ambode, Governor of Lagos State, nearly 86 people enter Lagos every minute of the day—a rate 10 times that of New York. As new settlements crop up, the grid has yet to keep pace with the scale of development. Because the cost of solar power has gone down by 80 percent since 2010, renewable energy solutions have become an increasingly appealing option to expand access to energy in urban environments, the primary drivers for Africa’s economic growth. In these environments, community-level mini-grids and individual solar home systems are models that can deliver higher returns for customers and solar providers alike. Expansion of solar provision in urban areas can subsidize the costs of expansion of solar power in rural communities, and translate into a more commercially sustainable approach to achieve universal and, equally as important, reliable electricity access for more Africans.

As hubs of innovation, urban areas also offer more opportunities to experiment with various types of solar solutions on a large scale. It is hard to imagine testing a scalable power system in a small village—distribution and maintenance would be expensive due to infrastructural and access issues, and piloting a scalable system in a population-limited area is difficult.

Urban settings are ideal testing grounds because research shows that innovation in urban areas grows at the same rate as populations because it increases more opportunities for personal interaction and leads to exposure to new ideas. Directing more investment towards urban energy solutions can improve local resilience by helping balance the over-stretched power grids found in most African countries, and facilitating nationwide energy efficiency.

Expanding electrification in rural Africa is an important step towards building an inclusive future, but the solar industry’s preoccupation with last-mile off-grid solutions will not deliver transformative growth for the continent. Empowering entrepreneurs at a scale that enables them to grow their businesses and generate more economic employment will require firms and investors alike to balance urban with rural concerns, and immediate energy access with a longer-term, sustainable vision.

By Ademola Adesina is the Founder and CEO of Rensource, a West Africa-focused distributed energy services company.

However, an assessment of the continent’s progress in combating climate change brings to mind a popular African proverb: “A large chair does not make a king”—in other words, huge implementation challenges remain. Africa’s policy makers, however, are eager to meet these challenges, believing that achieving the objectives of the climate change deal could unlock the continent’s socio-economic potential.

Signed in late 2015, the Paris Agreement entered into force on 5 October 2016. One month later, at the COP22 (Conference of the Parties to the United Nations Framework Convention on Climate Change UNFCCC) in Marrakech, Morocco, world leaders formally adopted the Marrakech Action Proclamation, which recommitted parties to full implementation of the Paris Agreement. And implementation has since started.

As of April 2017, of the 143 countries that have so far ratified the agreement, 33 are in Africa, including Benin, Burkina Faso, Cameroon, Chad, Ethiopia, Gabon, Gambia, Kenya, Nigeria, Somalia, Tunisia, Uganda and Zambia. That is 60% of the total number of African countries.

Beyond the ratifications, many countries have also fulfilled a key requirement in the agreement by formulating their Nationally Determined Contributions (NDCs). The NDCs are the countries’ individual efforts to achieve climate change goals. In their NDCs, the majority of African countries indicated plans to prioritize climate proofing development activities, especially in economic sectors such as agriculture and energy.

An example of climate proofing in the agriculture and energy sectors is the restoration of ecosystems, a development that is already gathering steam on the continent. Agenda 2063—a set of aspirations formulated by the African Union (AU) to point the way to prosperity on the continent—also highlights ecosystem restoration as a way to catalyze socio-economic development.

The AU maintains that by applying ecosystem-based adaptation in the agriculture sector in combination with clean energy, countries can add agro-value chains, spur food security and increase economic opportunities along the value chain, while simultaneously lowering carbon emissions and conserving ecosystems.

Currently, Africa’s development challenges are many. One serious disadvantage is that more than half of its 1.2 billion population lives on less than $1.25 per day—the standard threshold for absolute poverty. Also, about 60% of Africa’s unemployed are youth. Food security is also a problem: a quarter of Africa’s population goes to bed hungry, while more than 200 million Africans suffer from severe malnutrition.

Africa’s strengths

To respond to these challenges while implementing the Paris Agreement, experts say African countries should maximize the potential of key sectors capable of boosting socio-economic development. In other words, the focus should be on agriculture, food production and clean energy, among other sectors.

Africa’s strengths lie in its immense natural resource potential and other ‘sweet spots’, including having 65% of the world’s arable land and 10% of its inland freshwater resources. The continent’s renewable energy potential can be realized through hydro as well as solar power. Harnessing these resources in a sustainable way will boost Africa’s development.

Agro-value chains in Africa, if properly harnessed, can reduce poverty two to four times faster than any other sector, according to the World Bank. The agricultural sector’s projected value by 2030 is $1 trillion, and this sector could potentially provide 17 million jobs, says the Bank.

The Paris Agreement accentuates the opportunities in Africa’s economic sectors; what remains is for countries to implement the agreement with full attention to domestic development needs.

Ecosystem-based adaptation

The UN Environment, which promotes sustainable environment through sound policies and practices, is providing technical and other forms of assistance to African countries implementing the Paris Agreement to enable them to adequately address socio-economic challenges, particularly food insecurity and unemployment, as well as macroeconomic growth.

The Ecosystems Based Adaptation for Food Security Assembly (EBAFOSA) is one of the initiatives to power sustainable agro-industrialization. EBAFOSA is facilitated by the UN Environment supported by the AU and state and non-state actors, including private-sector partners. Ecosystems-based adaptation for food security consists of methods of agricultural production that promote conservation and sustainability through integrated management of land, water and living resources.

Many of the 40 African countries implementing EBAFOSA are successfully using a combination of policies and other operational interventions to address socioeconomic priorities, offset carbon emissions and protect ecosystems.

In the Democratic Republic of Congo, for example, a group of young agri-preneurs (agricultural entrepreneurs) are using clean energy to process cassava (an indigenous climate resilient crop) into flour. They then package and standardize the flour before selling it. An agri-preneur can rake in up to $4,000 weekly. This business model reinforces the overarching argument for green initiatives, which is that it can be a win-win: protecting the environment can also benefit the bottom line.

A boost for SDGs

A green initiative such as that of the Congolese agri-preneurs will contribute to Sustainable Development Goal (SDG) 13 (combating climate change), SDG 7 (affordable and clean energy), and SDGs 1 and 2 (tackling poverty and boosting food security).

In Kenya, the use of information and communications technology to garner pertinent information for financing purposes is increasing agricultural production and promoting a clean energy value addition. Through EdenSys, an end-to-end agri-business management app for mobile phones and computers, enterprises engaging in EBA and clean energy agro-business activities can post their financial records online and use them to apply for loans. A number of microfinance institutions are providing these loans, which indirectly contributes to the SDGs pertaining to climate change, clean energy, the elimination of poverty and food security.

In Makueni County in eastern Kenya, the UN Environment is helping local authorities create a climate change fund. The plan is to make the fund a financing pool for climate resilience activities, particularly those focusing on ecosystems-based adaptation for food security. The fund will be the first of its kind in Africa.

Makueni County’s climate fund goal is to set aside 50% of its portfolio as collateral for loans of up to 10 times the security sum. Enterprises engaging in ecosystems-based, adaptation-driven agriculture and clean energy value addition could benefit from such loans.

While Africa may have lagged in development in the past decades, the Paris Agreement provides an opportunity to accelerate socioeconomic development. Instruments such as the global SDGs, the AU’s Agenda 2063 and the Paris Agreement are creating the policy framework and operational paths to sustainable development, experts say.

So far Africa’s climate change implementation activities are encouraging. The questions are how much longer countries can maintain the momentum and how much support, especially financial, will come from abroad. On these, the jury is still out.

By: Richard Munang and Robert Mgendi

Having recently moved into their new house built on a stand acquired in the new settlement of Budiriro 5B Extension — neighbouring thousands of houses built by banking institution CABS under the Budiriro Housing Scheme — life would have been most unpleasant without any source of power supply, as Zesa-powered electricity is yet to reach the area because getting connected to the utility’s power lines is proving to be a cumbersome process filled with hurdles.

But power problems are slowly becoming a thing of the past as people in the area have been left with no choice but to turn to solar power.

While the investment in a solar panel and battery was initially made sulkily, the Chirayas were soon to realise turning to solar energy was one of the best decisions they could have ever made. While it might have taken sacrifice to fund the initial setting up of the solar connection in their home, the return on investment that immediately followed has left them without any hint of regret.

“I have to admit that before we connected to solar power, I wished Zesa would hasten to connect the area so we would avoid the costs, but I have since changed my mind,” said Chiraya with a beaming smile.

“With our solar panel and battery, we are able to power lighting for the whole house, the entertainment set [television, home theatre system, DStv] and to charge all our cellphones. We use gas to cook and we are planning to invest in another battery so we can also power the fridge and other electrical gadgets.

“The best part is that since we installed solar energy, there has not been a day we have gone without power supply. My kids are happy too; they get to do their homework uninterrupted and the TV can be switched on all day without us worrying about any extra costs. All we need is the sun, but even without as much sun, the battery still manages to charge.”

For Chiraya, the best part about using solar energy is not having to constantly worry about electricity bills, or the power cuts that have characterised Zimbabwe for years. High electricity bills and going without power and fumbling in the dark trying to locate a candle, are now things of the past for her family.

Back in the day — when Zimbabwe’s economy was still strong and Zesa could be counted on to provide an adequate power supply — solar energy was viewed by many as a preserve for those in very remote areas. It seemed solar panels had been manufactured specifically for marginalised rural areas located far from civilisation. But the crumbling of the economy and the subsequent power shortages that saw Zimbabwe having to import electricity from other countries was, however, to see a shift in the way people perceived solar energy. For the first time, solar energy became an appealing alternative even for the urban folk.

That for the first time, the Kariba Dam — that had for years been a major source of power generation in Zimbabwe — is experiencing the lowest water levels and has been generating less and less electricity, might have also been the wake-up call many needed to eventually decide to look to solar as a real option. This is especially so for those who are moving into houses in newly established suburbs that have spouted all over, but are not yet connected to Zesa’s power supply such areas include, parts of Damofalls, Southlea Park, Caledonia and Glaudina, among many other areas.

Today, the only regret that many that were forced by the power problems to resort to solar energy have, is that they did not realise solar power’s benefits much sooner. Those that are harnessing it couldn’t be happier as it has proven to be the most reliable source of power they can access. As long as the sun is still shining, they will never have to worry about running out of energy — and Zimbabwe has a lot of sunshine, the intensity of which may only get worse as the full effects of climate change continue to be felt. But even when there are a lot of clouds, solar energy continues to replenish itself.

Turning to solar does not only present a win-win situation for those that harness the energy, which comes in abundance; it is a great stride in the country’s push towards green energy, as the traditional method of getting energy harms the environment because fossil fuels have been proven to highly pollute the areas we live in. Solar energy does not contaminate the homes or anything outdoors. If the whole of Zimbabwe goes solar, it would be a monumental achievement along the way to going green.

The environment is enabling for Zimbabwe to become a solar nation!

lFor feedback, email at
cmasara@standard.co.zw

The math for Africa’s clean energy future is adding up. Solar lamps are spreading like fireflies across Ghana. A first-of-its-kind solar farm in Rwanda is providing electricity for 15,000 rural homes. Utility-scale solar and wind projects are being built in Morocco and Kenya. As technology costs keep tumbling, centralized and decentralized renewable projects such as these will become increasingly attractive, especially when compared with the costly diesel fuel generation that provides much of the continent’s power in rural areas.

Yet, as reporter Tom Jackson previously pointed out in this magazine, hundreds of millions of Africans — including more than 75 percent of the populations in countries such as Ethiopia, Sierra Leone and Uganda — are still living without power. The gap is especially glaring in sub-Saharan African countries, which account for 13 percent of the world’s population but a whopping 48 percent of the global population without access to electricity. Even those who have electricity face very high prices for insufficient and unreliable supplies.

The continent’s continued dependence on yesterday’s energy solutions is due in large part to money — or the lack of it. There’s simply not enough investment capital flowing into African clean energy projects.

The dearth of private institutional investor capital, such as U.S. and European pension funds, which manage trillions of dollars, is especially glaring. While utility-scale projects such as Morocco’s 510-megawatt solar project and Kenya’s 300-MW wind project have secured key financing to begin construction — the first 160-MW phase of Morocco’s project will begin operating later this year — nearly all of the capital was from public sector sources such as the World Bank and African Development Bank.

It’s important these projects are being built. In fact, they were largely responsible for global clean energy investments reaching a record US$131 billion last year in developing countries, including a highest-ever US$12.6 billion in Africa and the Middle East. Two African countries, South Africa and Kenya, attracted more than US$1 billion in clean energy investments in 2014.But public investment is not enough. Despite having a staggering potential solar capacity — an estimated 8.8 million MW in sub-Saharan Africa alone, according to management consulting firm McKinsey — renewable energy installations are not happening at nearly the rate necessary to reach the Clean Trillion goal of more than quadrupling investments in global clean energy by 2030.

“Private-sector involvement is critical and central to effectively delivering new capacity [in Africa],” concludes McKinsey’s recentPowering Africa report.

In sub-Saharan Africa alone, an additional US$450 billion in power-sector capital investment is needed to cut power outages in half and achieve universal energy access in urban areas by 2040, according to the IEA’s Africa Energy Outlook report. Mini-grids and off-grid systems, especially those using solar, hydro and wind, hold especially strong promise to bring substantially more power to rural areas, the IEA report concludes.

So what’s keeping investors on the sidelines in Africa, home of many of the world’s fastest growing economies?

It’s about creating trust. Investors hate risk — whether real or perceived. They need assurances that regulations are stable and will not shift. They need to be absolutely sure that their investments, whether direct or indirect, will generate reliable, attractive long-term returns.

Let’s start with government signals. More African countries need to adopt targets, policies and regulations that support renewable energy production. A case in point is Sierra Leone, which still makes it very hard for independent power producers to operate. An encouraging sign is a growing number of African countries —Egypt, Kenya, Uganda and South Africa, among them — now have feed-in policies where the government guarantees a price (often at a premium) to compensate producers for certain types of renewable energy. Rwanda is another: The country has set ambitious goals to expand renewable energy and recently unveiled the region’s first solar mini-grid, serving 15,000 rural households.

Enacting policies to reduce capital costs and risks is also important. Governments can help reduce transaction costs by promoting contract standardization and securitization.

De-risking policies can also help. A key reason Kenya’s US$1 billion wind project near Lake Turkana is moving forward, for example, is that the African Development Bank provided US$24.5 million in risk guarantees to cover potential delays in finishing a key transmission line, which is crucial for the project.

The fact that many sustainable energy projects are too small to attract large investment funds is another hurdle. One type of financing innovation that offers early promise in some emerging markets is that of Yieldscos, publicly traded companies that finance new clean energy projects by offering investors the promise of steady dividends based on project cash flows. Among those taking advantage is Sun Edison’s Yieldco, TerraForm Global, which operates clean energy plants in South Africa, India and several other countries generating nearly 1,000 MW.

It’s easy to quibble that more must be done to smooth Africa’s operating environment for renewables, but evidence is growing that clean energy is gaining ground and opportunities exist.

Success breeds success. As more financing innovations are utilized and more projects are successfully completed, investors — especially private institutional investors — will have no choice but to join Africa’s clean energy future.

By Peyton Fleming