Monday
March 20
2017

Tanner Methvin

South Africa’s Energy Schizophrenia: Why Hasn’t the Country Achieved Affordable Power for the Poor?

Editor’s note: Throughout 2017, NextBillion is organizing content around a monthly theme, dedicating special attention to a specific sector alongside our broader coverage. This post is part of our focus on the environment for the month of March.

The predominant historical approach to providing new energy connections has been to extend the existing grid network. In many countries throughout Africa, however, both the public and private sectors have realised that building more centralised energy capacity and extending the grid system using non-renewable energy sources is both economically unfeasible and environmentally detrimental. That has led to the emergence of a broad spectrum of decentralised renewable energy models to fill the void. This is both timely and relevant, because energy access has proven to be one of the most effective mechanisms to combat poverty. Providing energy into low-income households creates opportunities to study, engage in commercial activities and enhance safety in ways that were previously impossible.

South Africa is an energy anomaly from the rest of the continent in almost every way possible. Its energy generation, electrical infrastructure and renewable energy provision are extraordinary by comparison. It produces almost 50 percent of all the energy generated in sub-Saharan Africa’s 49 countries, yet it’s home to only 5 percent of the continent’s population. This energy powerhouse provides 85 percent of its citizens with access to grid-powered electricity in comparison to the average of 43 percent in other sub-Saharan countries. Yet, within this backdrop, 60 percent of South African rural households have no access to electricity, large sections of low-income urban settlements have no access, and over 40 percent of the households that are connected are considered energy poor, spending upward of 20 percent of their monthly income on power.

Since my company, Impact Amplifier, and I are based in South Africa and interact with a wide variety of social enterprises designing and operating alternative energy provision models, it was clear that not enough was understood and available regarding alternative means of providing energy to the poor. This motivated us to undertake a nine-month research process to review the decentralised renewable energy business models being used in poor communities globally; if and how they have been tried in South Africa; and the potential these models have for expansion. As a firm believer in the power of the private sector to create lasting, innovative solutions to the challenges confronting the poor, we wrote a report, “Energy Provision at the Base of the Pyramid – Are there viable business models to serve South Africa’s low-income communities?” to support entrepreneurs, researchers, public benefit organisations, government and other institutions interested in creating economically sustainable energy solutions at the base of the pyramid.

We settled on five distinct energy access business models for low-income communities to review in detail:

  • Biogas, a technology that transforms decaying organic waste into gas for cooking, heating or energy. It is best suited for rural or farming areas within households, schools/clinics and small/micro enterprises with easy access to organic waste materials. Generally, the business model is to sell and construct the biogas units for outright ownership and maintenance by the individual users.
  • Solar home systems, or stand-alone photovoltaic systems for lighting and appliances which typically include one or more PV modules, a charge controller and at least one battery. These systems are best suited for rural or dispersed urban areas. Various business models are used, which include the users buying the units outright, on credit, or the business owns the system and rents time on it to the end users.
  • Mini/micro grids use a set of electricity generators (usually solar or wind), and possibly energy storage systems, interconnected to a distribution network that supplies electricity to a localized group of customers. Mini grids are best suited for dense urban areas where the users are all clustered together. The prevailing business model is for the business to build, own and operate the system, selling time on it to the end users.
  • Solar kiosks are self-functioning systems that not only produce their own energy, but also store additional energy in battery banks or mobile batteries to charge other products. These kiosks are best suited for rural areas where there are congregations of people, such as in or near a school. The business rents out charged batteries to be taken home, charges appliances on site (phones, tablets, laptops), and may stream television and provide other internet services.
  • Solar appliances are self-sufficient, portable devices that can be recharged, either powered by a small built-in solar cell or linked to a solar-charged battery. Solar appliances are suited for both urban and rural environments. The prevailing business models are business-to-business sales and sales directly to end users.

What we discovered is that many of these models have gained traction in other parts of the world; however, South Africa’s off-grid energy ecosystem – which includes 15 percent of the population – is very immature by comparison to many other African countries. Almost all the above models, except biogas, have been tried in South Africa, but none have been able to scale. Some were poorly structured government programmes, which tried solutions when the technology or expertise was immature, or simply were mismanaged. Multiple NGOs have provided energy solutions to various communities, but none were designed as commercial models nor moved beyond a single community in the main. Meanwhile, a new breed of entrepreneurs has entered the market within the past three years that have developed a range of different solutions. However, none to date have been able to scale their ventures.

What isn’t discussed in this report is why South Africa, with its substantial generation capacity and relatively consistent supply, is defined by vast extremes between the energy rich and poor. Why hasn’t all of its historic energy success sufficiently addressed energy access or affordability for the poor? There are a few things I believe are happening simultaneously that have caused this schizophrenic personality:

  • The public sector has taken the position that providing basic services to the poor is its mandate. One of the promises of a free South Africa has been that every household will be connected to the grid and provided with a monthly grant of basic electricity. This promise, although over 20 years old, is still the prevailing public sector narrative, and until very recently was being exclusively delivered via the centralised electrical grid. This position has not created an enabling environment for entrepreneurs to fill the gaps in the low-income market, and has functioned as a dissuasion to entrepreneurs, as it is considered the domain of the public sector.
  • The size of the potential market for these energy solutions, although large in numbers, is small by comparison to other countries in sub-Saharan Africa. When international businesses are looking for markets for their products, the bigger the better, so South Africa has not been the top choice to model, trial and scale many of these solutions.
  • Finally, 20 years of democracy has not erased the racial, social and economic divides that defined South African for centuries. One of the consequences of this division is a lack of understanding across communities. People with the technical energy education, experience and access generally have no idea how poor people live on a daily basis. So it is difficult to design solutions for people and places you don’t understand and or are uninterested in figuring out.

South Africa has the greatest potential in sub-Saharan Africa to make energy universally accessible. Realising this potential will only be possible, however, if the public sector creates the enabling environment, entrepreneurs enter the market with innovative models and have the financial backing to stay in business through a steep learning curve, and communities are prepared to let go of the promise of free electricity and adapt alternative solutions.

 

Tanner Methvin, a partner at Impact Amplifier, has worked in the field of social innovation for the past 20 years.

Photos courtesy of Impact Amplifier

 


 

 

Categories
Energy, Entrepreneurship, Environment
Tags
alter, Base of the Pyramid, business development, energy, entrepreneurship, environment, financial inclusion, government, innovation, Off Grid Energy, solar