Over the past five years, Africa has seen an explosion in growth of residential solar and mini-grid companies, driven by lower cost solar and batteries, ubiquitous mobile money platforms and innovative financing mechanisms.
These companies have found ways to deliver power to millions of African consumers for the first time and have started to show how countries within Africa can be leaders of the future global energy system, a system that will be distributed, smart, and renewables-based.
Despite these promising efforts from the private sector, however, companies working to get power to more than 600 million people without access to power still face massive policy and financing headwinds. While public sector grid extension projects are heavily subsidised by large-scale donor and government programmes, residential solar and mini-grid firms are largely left without such concessional financial support. Instead, private firms focused on energy access are directed to find ‘commercially viable models’ for rural electrification, even though their public sector counterparts are heavily subsidised, and rural electrification has never been achieved without concessional financial support on any continent in the history of the world. The historical precedent of supporting rural energy access is an important one, as it helps to avoid the morally and politically untenable situation where the rural poor pay the highest price for power.
While donors like the World Bank should be commended for implementing various programmes globally to support residential solar and mini-grid companies focused on energy access, their support is relatively small in scale and tends to be focused on softer sector-enabling initiatives or working capital facilities. Meanwhile, these same global funders support public sector grid extension projects with massive direct subsidies like the Last Mile Connectivity Project (LMCP) in Kenya. The LMCP programme, as an example, provides the government of Kenya with over US$700 million of artificially cheap loans to pass on to its public utility as grants amounting to hundreds of dollars per household connected. Similar programmes exist in Tanzania and other African countries.
Imagine the progress that efficient, customer-centric private renewable energy companies could make, and the improved cost and services they could provide their customers, if they were incentivised with hundreds of dollars for every customer they connected to power?
Much is said by funders about enabling a clean, distributed energy system and encouraging private sector participation as we seek to build the energy system of the future in Africa.
The money tells a different story though, as 20th-century-style grid extension and transmission projects are massively subsidised by funders while innovative new approaches are largely left to fend for themselves to see if they can somehow, for the first time in the history of rural electrification, find purely commercial models with zero public support (with the burden of higher costs ultimately falling on rural African consumers).
To drive innovation, to build the energy system of the future in Africa, and to connect 600 million people to power for the first time, we must level the playing field and create parity between old approaches and new ones. If we don’t, it is rural consumers who will ultimately lose.