"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
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
[Excerpts only. For full pdf report, with tables and charts, go to direct URL: http://tinyurl.com/lo3al8r]
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.
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.