The lack of access to affordable, reliable energy is a barrier to development; whether that be powering autoclaves and centrifuges in rural clinics to improve health indicators or powering local agricultural processing to retain more of the value of production locally. The African Development Bank estimate that 645 million Africans, nearly 60% of the continent’s population, don’t have access to electricity. The rapid urbanisation of Africa also means that the urban/rural divide becomes ever larger, with rural areas often being forgotten in efforts to modernise. The so-called ‘Bright Light Syndrome’, where the young migrate to cities in search of opportunity, only serves to exacerbate this problem.
So how to address this energy access imbalance when extending the national grid to these rural areas is often seen to be impossibly expensive. The International Energy Agency (IEA) estimates that by 2040, as a result of the falling costs of ever-improving technology, 70% of new rural power supply will be most affordably provided by off-grid technologies and microgrids. Currently, these efforts to electrify rural areas are being carried out largely by international private sector players with little or no support from National Government. Is there a case for subsidising the private sector to achieve national development goals? Can the domestic private sector be supported to keep more money in-country?
Subsidies for energy access is a disproportionately contentious subject. Researchers estimate that the global fossil fuel industry is subsidised to the tune of US$5.3 trillion (6.5% of global GDP) every year, and yet this staggeringly high sum raises few eyebrows. If implemented correctly, energy access subsidies could be the catalyst that tips the nascent rural off-grid sector into rapid scalability.
Our journey starts with what was arguably a failure of subsidies. Brighterlite, a commercial outfit selling solar home systems (SHS) in Myanmar, had planned their sales strategy in close cahoots with the national government and after close consideration of an US$80 million World Bank SHS electrification program. Both were selectively applying subsidies for these systems specifically in border areas of the country and Brighterlite determined to ply their trade in other, non-border areas.
The problems came when the government started blurring the boundaries of where it was applying the World Bank funded subsidies and where it was not. As a result, potential customers in non-subsidised areas became reluctant to purchase a system from Brighterlite, in the hope that the subsidies might soon be extended to their area. Eventually Brighterlite, originally from Norway, had to pull out of Myanmar at a loss of US$2 million that had been invested.
Sam Slaughter, co-founder of the Kenyan-based microgrid company PowerGen, argues that we need to “embrace subsidies” and that “without subsidies the African rural consumer will be unique, they will bear the full cost of their power which has never happened on any other continent in the history of electrification.”
So why the disconnect? How can subsidies be applied in a way that supports the private sector rather than crowding it out?
Tobias Engelmeier, Managing Director and Founder, TFE Consulting GmbH
Tobias is an entrepreneur and advisor with experience in organisational change and growth-oriented business models. He has founded Bridge To India and India Goes Solar, and has worked for investors, technology companies and governments on managing industry transitions. He founded TFE Consulting to provide consulting services on industries that are undergoing rapid transformation.
Sam Duby, Africa Director, TFE Consulting GmbH
With 10 years of field experience and having founded an award-winning IOT energy access company in East Africa, Sam is well aware of what it takes to deliver successful projects in developing countries. He is an expert in appropriate design and implementation, leveraging PAYG, community and cross-sector engagement and financial studies focused on the energy access and frontier technology space.