Special Report: The off-grid solar revolution lighting up Sub-Saharan Africa

Foreign investors and African governments are investing hundreds of millions of dollars in new power generation capacity across Africa in an effort to boost base-load electricity and create a more stable operating environment for their economies and businesses to grow.

From solar parks in the north and the south of the continent, to the mega dams in the east and west, along with scores of new independent power producers (‘IPPs’) in between, national grids are finally beginning to make up for decades of power sector neglect and under-investment.

Most of this increased centralised electricity provision is destined to supply power-hungry industry and regional power markets, and very little will find its way to the more than 600m of the continent’s 1.2bn population who do not currently have access to grid-based electricity.

Yet at the same time, the World Bank, among other development finance institutions and private sector investors, are bringing new solutions to Africa’s accumulated power deficit, thereby triggering a revolution in the decentralised provision of power through off-grid solar technologies.

In a 2009 report, the World Bank estimated that Africa would require an annual investment of US$40bn between 2010 and 2020 to bring the continent in line with other emerging market regions. But until relatively recently investment was running at barely a fraction of this target.

Now, however, the continent is awash with utility-scale power projects. Ghana has added more power generation capacity in the past year than at any time in its history, including the US$900m, 340 MW, Cenpower IPP, operated by Sumitomo; the US$400m, 155 MW, Nzema Solar Power Plant under construction by Blue Energy; and 450 MW from two Turkish power ships that will supply the grid for a decade.

Neighbouring Ivory Coast also plans to double its power generation capacity to 4,000 MW by 2020 to meet demand for power, which is growing at 10% a year, and to export to the 14-member West African Power Pool, where supply has consistently failed to keep pace with demand.

Moreover, Ethiopia is currently quintupling power generation to 10,000 MW by building a series of mega dams, including the 6,000 MW Grand Renaissance Dam – Africa’s biggest hydro-electric scheme – along with the US$1.2bn, Ethiopia-Kenya Electricity Highway, a 2,000 MW capacity, 1,068 kilometre electricity interconnector, which will bring surplus Ethiopian electricity to Kenya for reticulation to other East African Community power markets.

Along with the two giant 4,800 MW Medupi and Kusile coal-fired power plants now under construction in South Africa, Pretoria is also well advanced in adding 17,800 MW of green power under the country’s world class Renewable Energy Independent Power Producer Procurement Programme (‘REIPPPP’) initiative, under which more than 6,000 MW of power has already been procured from an impressive 92 IPPs – 30 of which are currently operational.

Further major external support is forthcoming. Under US President Barack Obama’s Power Africa initiative – enacted into law by Congress in February with the passage of the Electrify Africa Act –  the US has pledged to boost power generation in Ethiopia, Ghana, Kenya, Liberia Tanzania and Nigeria by 10,000 MW, providing access to electricity for 20m households by 2018. Although Power Africa got off to a slow start, it is now helping to finance the 1,000 MW Corbetti geothermal power plant in Ethiopia, funding for 500 MW of wind power in Kenya, including US$250m for the delayed 310 MW Lake Turkana wind power project, and support for the 450 MW gas-fired Azura power plant in Edo state – Nigeria’s first independent IPP in more than a decade.

These are only a fraction of the number of utility-scale power plants currently under construction or in the pipeline, leading to a significant augmentation in Africa’s centralised power provision. But the real revolution is taking place in the decentralised sector of the market, where a confluence of factors including falling technology costs and new pay-as-you-go (‘PAYG’) business models are reaching parts of Africa traditional power plants cannot reach.

Indeed, when the International Finance Corporation first began work on solar power some 15 years ago, home solar systems cost between US$500 and US$1,000 to install – way beyond the reach of rural Africans living on less than US$2 a day. During that time, the efficiency of solar systems have improved 10,000%, while the cost of LED lights and photo voltaic (PV) cells has fallen by 85%.

As prices went down, efficiency went up, and a vast new market appeared on the horizon – both in Africa and the rest of the world. The same 40 watt solar panel which 10 years ago barely powered a 25 watt light bulb can now run four LED lights, a colour TV, a mobile phone charger and a radio. But what is really making it possible for pico-solar lanterns, home solar systems and solar-powered mini-grids to take off in remote rural areas – leading to exponential growth for the companies providing these services – is innovation around the business model.

By way of example, M-KOPA Solar, the Nairobi-based installer of home solar systems, uses mobile phone technology to lease off-grid power systems in Kenya, Tanzania and Uganda. The company is one of the fastest growing solar energy providers in the region using the PAYG model, has acquired more than 300,000 customers, and is adding 500 new customers every day. It requires a down-payment of Ks53,500 (US$34), and a daily fee of Ks50 – payable via Safaricom’s M-Pesa mobile payments platform – but if customers keep up the payment for a year, they own the PV system.

Further, the Overseas Private Investment Corporation (‘OPIC’), the US Government’s development finance institution, and now part of the Power Africa initiative, last year allocated US$15m to Txtlight Power Solutions, a subsidiary of Netherlands-based Nova Luma, to help finance the delivery of 70,000 roof-top solar panel kits using the lease-to-own model with the help of South Africa based mobile phone provider MTN, which has more than 50m customers in the country.

Moreover, Lighting Africa, part of the World Bank Group’s contribution to the Sustainable Energy for All (‘SE4ALL’) initiative, has provided 35m Africans with clean, affordable and safer lighting and energy in 11 African countries, and aims to reach 250m people across the continent by 2030.

Market penetration for off-grid solar products in the East Africa region alone is currently estimated at around 3%, so the development of PAYG business models, which aim to collect micro-commissions on a high customer density base, is likely to be considerable. Given the high cost and slow pace of grid extensions, growth in off-grid solar solutions is likely to be exponential – a potential African governments are only now beginning to see clearly.