The Rise of Off-Grid Solar Power in Rural Africa

For the most part, domestic solar power has long remained the luxury of the world's more developed countries.  However, in isolated regions like rural sub-Saharan Africa where there is no central power grid, an entirely new strategy using solar power has been developed in order to cope with the lack of access to electricity and the attendant commercial and social impact. 

For years, solar power has been championed as a potential solution for the millions of people without access to electricity across the planet, but high costs and slow technological progression has left it largely out of reach for many. Around 1.2 billion globally are living without access to the power grid - it's estimated that they spend about $27 billion a year on lighting and mobile-phone usage, with kerosene the traditional source of energy in rural areas.  The effect is that the cost of power for these people is significantly higher than in much of the developed world.

Over half of these people live in sub-Saharan Africa, with around 80% in rural areas. A number of countries in West Africa rank among the least electrified in the world, with many (Mali, Liberia and Sierra Leone among them) having no established national grid.

However, things may be changing - various factors have driven recent growth in off-grid solar power in sub-Saharan Africa:

(i) Costs: technology costs have fallen significantly (for example, in recent years the price of a residential panel has dropped by around 70%), whereas the extension of power lines in remote areas can cost as much as $175k per mile.

(ii) Mobile technologies: pay-as-you-go financing systems have made many solar panels more affordable than fossil fuels. 

(iii) Improving regulatory environment: some African governments have begun to adopt national energy policies that have created favourable environments for progress.

International Investment

International investors are increasingly teaming up with governments and entrepreneurs in order to take advantage of this growing sector.

As is typically the case in the developing markets, much of the early-stage higher risk investment has come from the public sector.

For example, in 2015 the UK's Department for International Development (DFID) announced a long term project, Energy Africa, with the development goal of universal access to affordable, reliable and modern energy services by 2030. Together with African governments, investors, businesses, NGOs and private sector investors, DFID will work to increase investment in off-grid energy and accelerate the delivery of off-grid solar energy systems to households across Africa. This project follows in the wake of the US Power Africa initiative which has been the catalyst for a variety of renewable energy projects across Africa that will connect to the national grids (such as solar farms in Rwanda and the first wind power project in Senegal).

Other public sector international investment has also come via development finance institutions (DFIs), government backed financial institutions which provide long-term finance for private sector enterprises in developing countries.

For example, Finnfund, the Finnish Government's DFI, this year provided debt finance to Mobisol, a German-based solar service provider that provides rent-to-own solar home systems to customers in East Africa. Mobisol's solar home systems consist of a solar panel, equipment to attach it to the roof, a battery and a solar controller - when installed the largest 200W system is able to provide enough electricity to power bright efficient LED lights, radios, mobile phones, TVs and other household and consumer appliances. In addition they are also powerful enough to run small businesses, thus enabling entrepreneurs to operate in areas they might otherwise have not been able to.

Explaining why this sector is an attractive one for DFIs, Tuomas Suurpää, a Senior Investment Manager at Finnfund, said:

"Electrification is something that promotes growth of a national economy and entrepreneurship. In many cases it is cheaper to install a solar power system than to expand the electrical grid. It also has positive environmental impacts – households without electricity would generally use kerosene for lighting, which creates carbon dioxide emissions as well as unhealthy indoor fumes".

But the sector has not just been attracting interest from the public sector – as the market has begun to mature, international investors are increasingly making substantial financial commitments to the sector.

One of many start-ups who has been on the receiving end of this influx of investment is BBOXX Limited, an award winning UK-based designer, manufacturer and distributer of solar powered battery packs to markets across Africa and the developing world. BBOXX recently completed a funding round of US$15m, with several global investors on board.

One of the investors was global private equity group Bamboo Finance - Christian Schattenmann, Energy Fund Manager at Bamboo commented:

"Distributed energy is the best and most cost effective solution for off-grid markets and consumer financing solves a critical missing link in the distribution energy supply chain in off-grid markets. BBOXX removes a critical barrier to reaching low-income communities".

The Future

Despite all this recent growth, it is worth noting that the market for solar panels in off-grid areas in developing countries remains relatively small – only a very small proportion of the 1.2 billion people globally who live without power are able to access these sorts of products.

Moreover, as the sector grows there is no doubt it will face significant challenges, among them the fact that Governments have traditionally focused on larger power projects that provide electricity to industrial or urban areas, sometimes leaving rural areas isolated.

Nonetheless, if start-ups and investors are able to ensure that services like Mobisol's and BBOXX's remain cheaper than expanding the power-grid in rural areas, then there is no reason why off-grid solar power can't be the future of electricity in rural areas throughout the developing world.