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Africa: Clean Energy Most Cost-Effective
AfricaFocus Bulletin
June 30, 2014 (140630)
(Reposted from sources cited below)
Editor's Note
"From off-grid LED lighting to 'Skinny Grids,' we can now provide
energy access with a fraction of the amount of power we used to need.
More importantly, we can unlock affordable initial interventions --
like lighting, mobile phone charging, fans, and TVs plus a small
amount of agro processing -- to help people get onto the energy
ladder today rather than forcing them to wait decades for a grid
extension that may never come. ... It's important to understand that
we aren't just imagining this clean energy market growth -- it's
already happening." -- Justin Guay, Sierra Club
According to a new report from the Sierra Club, off-grid renewable
energy is not only better for the climate and the environment; it is
also more cost-effective in increasing access to electricity. Making
the parallel to mobile phone technology, the report makes clear that
investing primarily in expensive power for the grid, through large
gas-fired turbine plants or giant hydroelectric schemes, makes about
as much economic sense as it would have to invest in landlines rather
than mobile phones a decade ago. In fact, Africa has the potential to
take the lead, emulating the mobile phone trend by bringing
exponential growth to clean energy alternatives.
This AfricaFocus Bulletin contains a short article by Justin Guay,
one of the authors of the report, as well as excerpts from the full
report.
In contrast to the "all-of-the-above" energy approach of President
Obama's initial Power Africa announcement a year ago, giving greater
priority to off-grid energy is already gaining new momentum in policy
circles as well. It was high on the agenda of the U.S.-Africa Energy
Ministerial (http://www.usafricaenergyministerial.com/;
http://allafrica.com/stories/201406061042.html)in Addis Ababa earlier
this month. And the new version of "Energize Africa," just introduced
in the Senate, stresses the important role of off-grid renewable
energy, with more explicit mandates than in the House version (which
was called "Electrify Africa").
Neither the administration nor the legislative initiatives focusing
on electricity in Africa include new funding, so their impact depends
on encouragement to the private sector through loan guarantees or
other support provided by specific agencies, such as USAID, OPIC, or
EXIM Bank. The headline numbers announced are largely public
relations; what will count is which projects actually get
implemented. The alleged trade-off of climate damage vs. rapidly
increasing energy access is spurious, as new clean technology is
already cheaper and more quickly implemented as well as more
environmentally friendly.
For previous AfricaFocus Bulletins on climate change and related
issues, visit http://www.africafocus.org/envexp.php
For previous AfricaFocus Bulletins on economic issues, visit
http://www.africafocus.org/econexp.php
++++++++++++++++++++++end editor's note+++++++++++++++++
Off-Grid, Clean Energy Access Market Valued at $12 Billion
Justin Guay, Sierra Club
June 18, 2014
Co-authored with Vrinda Manglik, Associate Campaign Representative,
International Clean Energy Access
http://www.huffingtonpost.com / direct URL:
http://tinyurl.com/m6nj7do
One in five people around the world, approximately 1.3 billion
people, lack access to electricity.
Today, the Sierra Club is releasing a new report -- "Clean Energy
Services For All (CES4All)" -- showing that off-grid clean energy is
the right tool for the energy access job. That's because it's the
fastest, cheapest, and most effective means of ending energy poverty
-- and it's going to create a $12 billion annual industry by 2030.
Working with Evan Mills of Lawrence Berkeley National Lab and Stewart
Craine of Village Infrastructure Angels, we have provided one of the
first estimates of future growth for the rapidly expanding clean
energy access market. Today, excluding grid extension, this market is
estimated to be a $200-250 million industry annually. However, we
project a 26 percent compound annual growth rate that will enable
growth that reaches a $12 billion annual market by 2030 -- when
universal electrification is achieved. To put that in perspective,
the U.S. residential market for solar in 2013 was only $3.76 billion.
It turns out our central thesis has been right all along -- small is
big.
Central to our 'CES4ALL' model is the notion that energy efficiency
unlocks the energy access ladder. Energy efficiency measures that are
currently available allow energy access to be delivered for 50-85
percent less energy input, which enables dramatically reduced capital
expenditure.
From off-grid LED lighting to "Skinny Grids," we can now provide
energy access with a fraction of the amount of power we used to need.
More importantly, we can unlock affordable initial interventions --
like lighting, mobile phone charging, fans, and TVs plus a small
amount of agro processing -- to help people get onto the energy
ladder today rather than forcing them to wait decades for a grid
extension that may never come.
As incomes expand and markets evolve, these populations will upgrade
and expand their energy services, in turn creating a bottoms up,
distributed, democratized grid.
It's important to understand that we aren't just imagining this clean
energy market growth - it's already happening. The fact is that the
off-grid energy market is growing rapidly, with estimates of 95
percent compound annual growth rates in sub Saharan Africa alone. In
Bangladesh, 80,000 solar home systems are being installed every
single month while neighboring India has promised solar for all by
2019.
Similar to how solar leasing unlocked the market for residential
solar use in the United States, this off-grid market has been
unlocked by business and financial model innovations, like mobile
money-enabled "pay-as-you-go" systems. These innovations have primed
the off-grid sector for further rapid growth, similar to what the
mobile phone industry experienced a decade ago.
But if there is one message we need to leave you with it's this: show
us the money!
In order for the market to reach its full potential by 2030,
entrepreneurs need financing now. We estimate that financial need to
be roughly $100 million in new investments in off-grid clean energy
manufacturers over the next three years. The investment needs of
consumer finance companies in this market will require even larger
investments -- $400 million over roughly the same time period.
Combined, approximately $500 million is needed in the next two to
three years, consistent with a letter from industry to the World
Bank.
In short, this off-grid energy market has a tremendous opportunity to
catalyze a solar revolution for the masses -- one that will help
democratize energy, create local jobs, and decarbonize new power
systems in one fell swoop. The only thing standing in its way is
access to the financing to make it happen. Private investors are
already stepping up to the plate with $45 million invested in just
the past four months, but international financial institutions like
the World Bank are nowhere in sight.
It's time we held these development institutions accountable. It's
time they finally built the equitable, sustainable, and democratic
systems that distributed clean energy make possible. It's time for
clean energy access for all.
Clean Energy Services for All: Financing Universal Electrification
Stewart Craine, Evan Mills, Justin Guay
June 2014
[Excerpts only. For full pdf report, with tables and charts, go to
direct URL: http://tinyurl.com/lo3al8r]
Executive Summary
One in five people around the world, approximately 1.3 billion
people, lack access to electricity. Prevailing estimates of the
investment required to end this energy poverty rely on a flawed
analysis from the International Energy Agency (IEA) which calls for
unrealistic investment levels at inappropriate growth rates for
inefficient energy delivery. We propose a new approach to end energy
poverty that is founded on a clean energy model of delivery and
reflects real world investment opportunities and needs. Taken in sum,
we believe this approach -- Clean Energy Services for All (CES4All)
-- represents the cheapest, most effective means of delivering on
energy access goals, and we urge public and private financiers to
align investment priorities accordingly.
Key Findings Include:
Energy efficiency unlocks the energy ladder.
Affordable energy efficiency advances are shown to unlock energy
access. The energy efficiency measures currently available allow
energy to be delivered for 50-85 percent less energy input, enabling
dramatically reduced capital expenditure. From off-grid LED lighting
to "Skinny Grids," we can revolutionize the cost and effectiveness of
rural electrification. Thanks to these energy efficiency advances, we
can deliver energy access with a much lower amount of power. However,
we do not envision these initial services (lighting, mobile phones,
fans, TVs, and a small amount of agro-processing) to be the limit of
energy access. We have prioritized energy access for rural
populations in an effort to get them on the energy ladder with
immediate basic interventions. This will enable them to move out of
poverty as incomes expand and markets evolve.
Investment needs are overstated.
The IEA's estimated investments needed for total global energy
access, $640 billion over 20 years, is between 300-500 percent higher
than current investments in energy access. ...
We have found that energy access can be delivered much more cost
effectively. For example, energy services for appliances, including
television, fans, lighting, mobile phone charging, and power
appliances like refrigerators, can be provided for approximately $200
billion, which is 69 percent lower than IEA estimates.
$500 million in public investment is needed now.
Per our analysis, $100 million for new investments in off-grid clean
energy manufacturers is needed within the next three years to
catalyze the growth of the industry. The investment needs of consumer
finance companies in this market will require even larger investments
of $400 million over the next two years and will be consistently 8-16
times higher than the investment needs of the manufacturers.
Combined, approximately $500 million will be needed in the next two
to three years, which is consistent with a letter from the clean
energy industry to the World Bank.
This investment will unlock a $12 billion annual clean energy
services market for the poor. The energy access industry, excluding
grid extension, is currently estimated as a $200-250 million industry
annually. We project a 26 percent compound annual growth rate (CAGR)
which will enable the industry to grow to a $12 billion annual market
as universal electrification is achieved. By 2030, the solar lantern
market alone will reach $125 million per year in investment
opportunities while mini-grids and solar home systems will each
become $5-7 billion product segments. However, this investment is
exponential - starting at roughly $170 million in annual investment
and growing to $5-10 billion in annual investment by 2030 - enabling
half of all people receiving clean energy services to be serviced by
the fast growing, off-grid market. All told, there will be an
estimated 700 million new clean energy service connections.
The off-grid market is already growing rapidly.
The off-grid solar lighting market is growing rapidly, with estimates
of 95 percent CAGR in sub-Saharan Africa alone. In Bangladesh, 80,000
solar home systems are being installed every single month. Similarly
to how solar leasing unlocked the market for residential solar in the
United States, the off-grid solar market has been unlocked by
business and financial model innovations -- like mobile-money-enabled
pay-as-you-go systems. These innovations have primed the sector for
further rapid growth, similar to what the mobile phone industry
experienced a decade ago.
Achieving Clean Energy Services for all by 2030.
It is estimated that it will take until 2025 to reach 50 percent
market penetration, and the last half of this market will be reached
in the remaining five years. This is a more realistic adoption rate
than the simplified near-linear progress assumed by IEA. This
underscores the vital importance of initial interventions (e.g. solar
lanterns) -- which we do not count as full energy access -- that
allow rural populations onto the energy ladder today rather than
forcing them to wait decades for even basic energy services to
arrive.
Energy access investment can improve the human condition. Improved
energy access has been shown to provide 38 percent of the increase in
Human Development Index (HDI) from current poverty levels towards
significant poverty reduction by 2030. This is achieved, for example,
by eliminating the use of kerosene and saving significant cash
expenditures while enabling children to attend school one year longer
than normal and creating healthier indoor and outdoor environments.
This is thanks to less energy-driven pollution.
Background
Approximately 1.3 billion people -- around 250-300 million households
globally -- lack access to electricity. Many additional households
and businesses suffer from highly intermittent power supplies. The
United Nations has set a target of ensuring all people on the planet
have access to sustainable energy by 2030 -- a plan known as
Sustainable Energy for All or "SE4All." This report examines the
access to electricity component of that target, with a specific focus
on the best mix of interventions to deliver electricity access and
the finance required to deploy these solutions.
Existing Models and Assumptions
The International Energy Agency (IEA) has suggested that $9 billion
per year is currently being invested in energy access globally. While
this may rise to an average of $14 billion per year between
2010-2030, one billion people will still lack access to electricity
by 2030. The IEA suggests that a total of $48 billion per year is
required to attain energy access for all by 2030.
The IEA model focuses on three different interventions: grid
extension, mini-grids, and off-grid solutions. For each of these
interventions, the IEA assigns a percentage of the increased energy
access investment required to achieve their total energy access
goals: 36 percent for grid extensions, 40 percent for mini-grids, and
24 percent for off-grid solutions. However, current investments in
energy access are nearly all in the form of grid extension,
necessitating concerted efforts to align the IEA recommendations with
current E4All expenditures.
...
[But the] total investment estimated by the IEA for E4All -- $640
billion over 20 years -- represents an investment between 300-500
percent higher than current investments in energy access. ... the
IEA's aspiration does not appear attainable within real-world budget
constraints. Therefore, we need an alternative, pragmatic approach
that is reliant on fast-growing distributed clean energy solutions to
meeting the E4All objective.
The Energy Ladder
Along with concerns over how much power people in off-grid areas
should consume, many discredit initial energy access interventions --
such as solar lanterns -- as not representing "full access." Rather
than viewing these interventions as an end goal, however, they should
be viewed as a part of the "Energy Ladder." ...
Off-grid solutions provide a critical first step onto the energy
ladder with basic energy services such as lighting, mobile phone
charging, fans, and now, super-efficient televisions. Once these
basic needs are met, many populations are capable of expanding their
energy consumption to include higher level needs like refrigeration
or even agro-processing.
Rather than waiting for all needs to be met at once (i.e. grid
extension), off-grid interventions help get populations on the energy
ladder on a time scale that accelerates impact: days and months, not
the years and decades they often must wait for centralized power
plants and grid extension. Lighting and mobile phone charging are the
beginning, not the end of energy access. While distributed renewables
are essential for rural populations, they also fill important needs
for other populations. For many urban Africans and the growing middle
class, the centralized grid is unreliable and provides just a few
hours of power each day. Solar companies have found an important
customer base among grid-connected populations seeking more reliable
power through solar and battery technology. Solar panels on these
roofs help to keep the electricity flowing even when the grid is not
working.
Finally, distributed generation can empower the poor. Often, the poor
have not been afforded access to modern energy services due to
governance reasons as much as technological or economic reasons.
Decision-makers may not see expanding affordable access as a
priority, and the poor often lack the means to hold them accountable.
With the deployment of distributed generation such as SHS (solar home
systems), access to energy is no longer dependent on where the grid
will be extended or how much utilities can charge. The smaller
project size associated with distributed clean energy removes the
ability of governing elites to centralize and control resources and
limits opportunities for corruption.
...
Energy for Access -- How Much is Enough?
Energy access debates continue to be defined by attempts to define
"access" as a raw supply of energy. This is often measured in
megawatts of supply built or miles of transmission and distribution
lines installed. Rarely, if ever, is it measured by households
connected or, more importantly, services provided. Failing to
prioritize services can lead to wasteful use of energy and capital,
both of which are in scarce supply.
For example, replacing incandescent light bulbs with LED light bulbs
delivers the same energy service for 50-85 percent less energy. The
most energy efficient fans move four to eight times as much air per
watt as less efficient fans. ...
By ensuring access to efficient appliances, peak loads for the
initial rungs of the energy ladder drop dramatically. This reduces
peak evening loads to expected daytime agro-processing energy
demands. Hence, it is possible to consider that, with aggressive
demand management, reasonable access to energy can be delivered for a
fraction of the energy typically required -- but only if
implementation focus and investor/donor demands target delivery of
services, not kilowatt hours.
Business as Usual Means Failure as Usual
Time is ticking. It is now 2014. The surge of billions in investment
that the IEA model requires has not come. Even the recently announced
$7 billion "Power Africa" program from the Obama administration is
likely to end up being directed more towards new generation capacity
from grid-connected power stations than to off-grid projects. Should
the program bring access to 20 million households over the next 5-10
years as targeted, this will not even keep up with the population
growth rate in Africa. Faster, cheaper deployment models must be
considered.
...
Off-Grid Innovation: Mobile Phones, Pay as You Go Solar, And Tower
Power
In 1998, mobile phone penetration in developing countries was just
one percent. Today, roughly 75 percent of global mobile connections
originate in emerging markets. Going forward, four out of every five
new mobile connections will come from the developing world where
reliable grid access is scarce. That means for much of the world's
underprivileged, access to mobile networks has surpassed access to
energy, water, and even basic sanitation, leaving an estimated 550
million people with phones whose usage is constrained by the cost and
availability of charging them. This mobile phone penetration in rural
areas has simultaneously created the demand for power to keep phones
charged, and the supply infrastructure backbone innovative approaches
to off-grid energy service provision. Two of the most promising
approaches stemming from mobile expansion are pay-as-you-go solar
services and "Tower Power."
In the early periods, interim sales of smaller 0.2-10-watt solar
systems are included, but as this is not considered "access," the
model assumes that all households purchasing such products do so to
get onto the energy ladder. But the model assumes that they will
upgrade to more comprehensive systems by 2030 that provide "access."
This includes 10-100-watt SHS, mini-grids and grid extensions. In
this upgrading model, the total household systems installed will
exceed the 250-300 million households that lack access today.
Clean Energy Intervention Classification: Five electricity- supply
technologies have been defined as useful sub-categories of the micro
energy supply industry, and average retail prices have been included:
Pay-as-you-go solar utilizes mobile money platforms and Machine to
Machine (M2M) technology to allow customers to pay for energy in
small amounts as they use it. Mobile money -- money loaded onto cell
phones -- unlocks a solar array providing payment flexibility and
built-in financing that, much like solar leasing in the developed
world, overcomes the up-front cost barrier to solar deployment.
Mobile money platforms that enable pay-as-you-go solar are still
nascent, but already M-Pesa in Kenya has enabled over 15 million
people to access the financial system and accounts for $12.3 billion
in transactions. The Groupe Speciale Mobile Association, an
association of mobile operators known as GSMA, found that 60,000 payas
-you-go solar services were sold in sub-Saharan Africa in 2013
alone.
In addition to the pay-as-you-go opportunity, the dramatic increase
in mobile phone users in rural parts of the developing world has
created a distributed infrastructure of off-grid cell phone towers.
The GSMA estimates that, as of 2012, 639,000 off-grid "base stations"
had been built.
These base stations have traditionally been powered by diesel
generators reliant on increasingly costly and volatile diesel prices.
As a result, mobile phone providers are seeking stable, reliable, and
less costly clean energy alternatives. Entrepreneurs are now
leveraging this infrastructure that provides anchor demand to deliver
"community power" to surrounding communities. They achieve this goal
by building excess capacity into the cell tower system, which can
then be sold to local communities via mini-grids, transportable
batteries, or by directly charging applications on site.
According to this model, cell phone operators provide anchor demand
and a stable revenue stream, third party entrepreneurs own and
operate the clean energy plants, and local communities receive
electricity and provide revenue for the entrepreneur. In essence,
this model surpasses the need for centralized grid infrastructure by
piggybacking on the most successful leapfrog technology to date:
mobile phones. The GSMA forecasts the potential for 200,000 community
power projects capable of providing electricity to 120 million people
worldwide.
The most exciting aspect of this model is the other services that are
able to piggyback on the distributed electricity infrastructure.
Already companies are pioneering models to deliver distributed Wi-Fi
services as well as electric transportation.
AfricaFocus Bulletin is an independent electronic publication
providing reposted commentary and analysis on African issues, with a
particular focus on U.S. and international policies. AfricaFocus
Bulletin is edited by William Minter.
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