Powering Last-Mile Connectivity

POWERING LAST-MILE

February 26, 2018

Source: Bloomberg POWERING LAST-MILE 2

Summary Nearly 4 billion people are not connected to the internet today, representing a significant opportunity for both socioeconomic development and business. Bridging this “digital divide” requires affordable and reliable access to electricity. Electricity will be essential to power and expand all stages of providing internet access, from backhaul and base stations to charging consumer devices.

Poor power supply across much of the developing world forces mobile network operators to spend an estimated $3.8 billion annually on diesel fuel to power their infrastructure. For consumers in areas with poor electricity access, charging smartphone batteries is costly and time-consuming. This directly curbs the use of smart devices and online platforms. If current trends continue, the lack of electricity access will continue to act as a significant barrier to universal connectivity.

A combination of technological advances and innovative business models now provide alternative approaches to powering connectivity at the “last mile.” Partnerships between mobile network operators, energy companies and startups that focus on operational efficiency, new technology development, and innovative business and financing models can drive internet access and electrification for billions of people.

Source: Bloomberg POWERING LAST-MILE 3

Powering last-mile connectivity Globally, some 3.8 billion people are unable to connect to the internet.1 Known as the “digital divide,” this lack of access is most pressing in developing countries. While 80% of Europeans used the internet in 2016, only 25% of people in sub-Saharan Africa were online that year.2 The gap is especially wide in rural areas, where new infrastructure is needed, service is operationally costly and telco revenues are low.

Closing this digital divide can in developing countries. GSMA, study finding that for every 10% create huge development and which represents mobile operators increase in global RIA use, GDP per business opportunities. Access globally, expects that Asia and capita increases by over 0.3%.8 to the internet transforms lives by Africa will add 1.3 billion new expanding access to education smartphone connections between With such a rapid rise in smartphone and health care, increasing civic 2016 and 2020.6 Already, one in use, what prevents universal internet participation, growing businesses four mobile connections in Africa access? Availability and affordability and boosting gender equality.3,4,5 used a smartphone in 2016, while are two of the main barriers, and Additionally, universal connectivity there was only one fixed broadband both are exacerbated by unreliable, provides a massive business connection for every 200 residents.7 unaffordable or unavailable power.9 opportunity across industries, from Access to internet-connected Power is a crucial element at all mobile network operators (MNOs) to smartphones enables economic stages of the connectivity value entertainment firms to fast-moving opportunities by increasing access chain: from running network consumer goods companies to to apps that allow location-based infrastructure to powering the health care providers. services, payments, chats or devices that consumers use to get photo and video sharing. Known online. Yet, across much of the Cheaper and better smartphones broadly as rich interaction apps developing world, reliable electricity are currently upending the way in (RIA), such software has a positive remains expensive and hard to get. which people access the internet socioeconomic impact, with one

Europe Sub-Saharan Africa 80% used the internet in 2016 25% used the internet in 2016

1, 2, 9 Inclusive Internet Index 5 State of Connectivity: 2014 3 The Internet and Sustainable Development 6, 7 The Mobile Economy 2016 4 Reaping Digital Dividends: Leveraging the Internet for Development in Europe and Central Asia 8 The Economic and Societal Value of Rich Interaction Applications (RIAs) POWERING LAST-MILE 4

Getting more people online requires more reliable electricity Even with electrification continuing in the world’s least developed countries, nearly 700 million people will still lack electricity in 2030.10 Without a change in course, the expansion of the electricity grid will be limited by the same factors that have held it back in the past: infrastructure cost, low demand in rural areas and sometimes, a lack of political will.11

Without access to electricity in over 60% of adult Facebook users stations on diesel fuel instead of grid the home, connecting to internet reported not being able to charge electricity is not just expensive, it also services is a significant challenge, their device regularly due to lack of requires tower operators to run a primarily due to the difficulty and electricity, limiting their use of the complex fuel supply chain. Globally, cost of device charging. Even though platform and other services. mobile network operations (MNOs) people might live in communities and cellular tower operators spend covered by 3G networks, their Poor electricity supply also limits $3.8 billion for diesel fuel annually, smartphone use will be limited if they network reach and increases according to Bloomberg New Energy lack electricity at home. operational costs. Running base Finance (BNEF) estimates.

Off-grid consumers travel up to 15 kilometers per week to charge their phones at small kiosks, often paying around $0.10-$0.30 per battery charge. Depending on the location, kiosk charging can constitute over a third of the total cost ($2-$7 per month) of owning an internet-capable device (Figure 1), and a significant portion of household income. Such conditions make daily charging prohibitive and curb smartphone ownership and use. Facebook research in Nigeria found that

10 Energy Access Outlook 2017 11 Decentralized energy systems for clean electricity access POWERING LAST-MILE 5

Figure 1 | Estimated cost of off-grid The Link Between smartphone ownership Cost ($/month) Electrification and Connectivity 20 Use of the Facebook platform can often serve as a proxy for 15 broader internet use,12 and provide new insights into the barriers to universal connectivity. 10

Initial research from Facebook and 5 the University of Massachusetts Amherst shows that household electricity access can have India Kenya wanda Nigeria Tanania a strong causal effect on Vendor charging Calls & SMS Data Handset connectivity. The research teams analyzed two aggregated and Source Bloomberg New Energy Finance, esearch ICT frica, Facebook. ssumes that handset costs are distributed over 36 months. Five battery charges per week. anonymized datasets: internal Facebook app data for users in Kenya and data from the Kenya Power and Light Corporation. Figure 2 | Estimated status of power supply to telecom towers Results show that households recently connected to the electricity grid show a significant Nigeria 52% 44% 4% , and lasting increase in device utilization and new account 50% 16% 34% , Senegal NMBE F TWES (2017) creation on the Facebook platform. Tanania 31% 36% 33% , Key Results Cameroon 26% 14% 60% , Each new grid connection 13 Myanmar 24% 18% 59% , resulted in: • One additional smartphone 10% 75% 15% , India connected to the platform hana 5% 21% 74% , • 0.52 new users actively engaging on the platform Cote dIvoire 5% 15% 80% , within the first 12 months Kenya 5% 8% 87% ,

Off-Grid Weak-Grid Reliable Grid To our knowledge, this is the first time

Source Bloomberg New Energy Finance estimates compiled from various sources and that a causal relationship between company interviews. Note numbers on the right side of the bar chart are total tower counts. better energy access and connectivity could be statistically shown.14

12 Facebook research found that approximately 80% of Kenyan adults who were online in 2015 used Facebook 13 The analysis focuses on the overlap between two consumer groups, limiting overall reach: (1) Facebook users with location services turned on and (2) KPLC customers with active/paying accounts in Jan-March of 2015. 14 Various other research highlights the correlation between energy and connectivity access. See for instance: The centrality of electricity to ICT use in low-income countries. POWERING LAST-MILE 6

Solar and battery storage are now cheap enough to play a key role

Small-scale photovoltaics (PV) and storage have started to gain traction as primary energy sources for remote infrastructure and communities, particularly when combined with innovative financing structures.15 The critical components for such systems are rapidly becoming cheaper. Bloomberg New Energy Finance data show an 82% cost decline for PV modules and 76% for stationary Lithium Ion battery packs between 2010 and 2017.16

% cost decline for 82 solar since 2010

cost decline for % Lithium Ion battery 76 packs since 2010

Source: Bloomberg

15 5 Distributed Energy Trends in Emerging Markets 16 Volume weighted average Lithium Ion battery pack prices in 2017 were $209/kWh, primarily seen in the EV sector. Stationary storage developers can expect to pay a premium, with possible large volumes prices of $240/kWh. POWERING LAST-MILE 7

Powering the consumers of new connectivity

Energy access companies are using these technologies to power connectivity with various business models, from small portable solar kits for individual households to village-scale microgrids that can power local businesses and cellular infrastructure (see Table 1).

Table 1 | Solutions for powering connectivity

Targets Solutions Notes

Portable solar Provides basic lighting and phone charging, from manufacturers like d.light, Households kits Greenlight Planet, Omnivoltaic, and others.

Solar home systems sold with a financing plan, from actors like m-Kopa, Off-grid Pay-as-you- Households Electric, Mobisol, and others. Consumers often pay for use of the energy service via go solar mobile money.

Community-scale power systems, often built and operated by startups like PowerGen, Electric Vine Industries or Husk Power, which supply electricity through Communities Microgrids a local distribution network. Consumers pay for the amount of electricity they use, often through prepay models.

Phone Mobile or stationary kiosks to provide more localized phone charging and other Individuals charging services, such as SolarKiosk or ARED, often powered by a battery, solar or other kiosks sources.

Electricity distribution companies such as Tata Power Delhi or Kenya Power & Households Grid extension Lighting Co have significantly boosted legal electricity connections and revenue collection in informal urban areas through targeted outreach or financing plans.

Source: Bloomberg New Energy Finance, Facebook. POWERING LAST-MILE 8

Powering connectivity infrastructure

Expanding a cellular network More than a million cellular towers batteries, hybrid power systems typically involves the construction in developing countries are off-grid can save MNOs or tower operators of new towers for the base stations or have at best extremely unreliable up to 54% of the energy cost for an that connect mobile phones to the grid supply.17 These towers typically off-grid tower that a conventional wider network. However, remote rely on diesel generators for diesel generator would incur areas present unique challenges, primary power during large parts of (Figure 3). Many tower operators including increased operating costs the day to avoid interruptions to the nonetheless prefer to rely on and lower customer density. A mobile network. Such generators, established technologies or shy combination of cheaper, distributed and the fuel they consume, can away from the far higher capital solar-powered energy for make up 40-50% of the operating expenditure for solar. This opens conventional cellular infrastructure, costs of a tower. an opportunity for specialized and smaller, more efficient base providers that can operate and stations designed to plug coverage One solution is already available in finance solar energy for towers and gaps in the main network could the market today. Composed of a help telecoms reduce the cost of reach more people at lower cost. mix of solar, diesel generator and serving remote areas.

Figure 3 | Solar hybrids will be up to 54% cheaper than diesel for off-grid towers Cost of Electricity ($/kWh) 0.8 .76 .71 0.7 .64 0.6 .52 .52 0.5 .41 .41 .40 0.4

0.3 .29

0.2

0.1

0.0

Nigeria Tanania India

Diesel Generator Diesel Generator Solar Hybrid + Battery

Source Bloomberg New Energy Finance based on company interviews, omer Pro, Climatescope. Note iesel transport cost is not included.

17 Green Power for Mobile POWERING LAST-MILE 9

Opportunities abound for partnerships and intervention Innovators across the world are working to boost access to electricity and connectivity. However, to meet Sustainable Development Goals (SDGs) 7 and 9, which call for universal access across both sectors, scale must be achieved faster. Without more entrepreneurs, more extensive distribution networks, easier access to capital and supportive enabling regulatory frameworks, there will be little traction. Partnerships between the connectivity and energy sector offer opportunities to accelerate progress toward both goals. MNOs, utilities and energy access startups can work together not just through investment, but also through operational collaboration and joint innovation.

Collaborate Lumos Global and MTN partner in Distribution and logistics Mobile network operators are pay-as-you-go solar business usually household brands with Lumos is a pay-as-you-go solar In addition to sharing retail major distribution networks selling startup in Nigeria and the Ivory points of presence and SIM cards, air time credit top-ups Coast. The company works in last-mile distribution and other related products. These close collaboration with MTN, infrastructure, MTN customer distribution channels can also serve Africa’s largest MNO. Lumos’ service staff can also address as valuable routes to market for service is co-branded and sold basic Lumos client requests. solar home system companies, directly in MTN retail outlets.19 Co-branding increased leveraging existing MNO sales points, consumer awareness and logistics hubs and brand association. The partnership has enabled reduced quality concerns. Conversely, MNOs can enter into Lumos to ramp up its retail Customers can also pay for the revenue share agreements for these network quickly in new markets. service directly via MTN. services, as well as significantly boost customer loyalty by extending the range of services on offer.18

18 For more about collaboration for off-grid solar kits distribution, read GSMA’s report. 19 Lumos Mobile Electricity POWERING LAST-MILE 10

Sharing data MNOs and pay-as-you-go solar to the telco’s systems are more innovation, build consumer awareness companies can also benefit from easily accessible. The IPN Hub, and push for appropriate regulations. sharing consumer data, and recently developed by GSMA, is Alliances between energy access thereby better understand customer a promising example of ways to and connectivity companies can characteristics and requirements. ease mobile money adoption by help to share best practices, explore Better data and analytics can the energy access sector, and partnership opportunities and 21 enhance customer acquisition, accelerate deployment. collaboratively develop appropriate retention and upselling strategies technology solutions. This kind of Deployment partnerships for both parties. Each can also coalition also makes it easier for use the data to develop marketing MNOs struggle to source reliable regulators to understand the common campaigns, plan expansion, low-cost power at the last mile, while challenges that affect both energy local energy providers, particularly enhance customer service or even and connectivity - such as licensing, microgrid operators, require more improve customer credit assessment customer identification or data privacy stable sources of bankable revenue. when financing product purchases. - and to create enabling environments Deployment partnerships present an through effective policy. opportunity, with both sides improving Payments and mobile money financial and operational performance.

Most pay-as-you-go solar Through effective joint planning and The Telecom Infra Project (TIP) companies rely on mobile carriers co-deployment, specialized energy is one example. Founded in 2016, to collect the large numbers service companies can offer MNOs TIP is an industry initiative focused of small payments from their lower rates, while providing electricity on engineering solutions for network customers, either through mobile to nearby households and businesses. deployment, created by mobile money services or directly from One example, OMC Power, operates network operators, equipment a customer’s balance. Both with this business model across India. suppliers, project developers, approaches boost MNO revenue.20 integrators and startups. Within Energy access could be expanded Industry coalitions TIP, various working groups, like more rapidly if such partnerships In early stage technology markets, OpenCellular (see below), develop and the necessary Application broad-based industry coalitions are solutions to address barriers for Programmer Interfaces (APIs) a common means to accelerate improved connectivity.

20 The Symbiotic Relationship Between PAYG Solar and Mobile Money Ecosystems 21 Mobile Money Instant Payment Notification Hub POWERING LAST-MILE 11

Innovate

Research, development and business model innovation The basic technologies for most innovative energy and connectivity ventures, such as solar, batteries or smartphone components, are readily available today off the shelf. However, costs need to be reduced for these businesses to achieve scale, requiring innovation across the product chain, including standardization of key components and improved monitoring and remote management. Opportunities for innovative product development include smart meters and energy- efficient appliances, as well as software to reduce soft costs across payments, supply chain and customer service.

MNOs and other large corporations can support these efforts in various ways: • Small research grants that allow new product testing (such as Microsoft’s Affordable Access Initiative Grant Program) • Startup accelerators and competitions that foster business model and process innovation (such as Fenix International’s participation in the Orange Fab accelerator) • Seed and early stage capital to build a business case for tested technologies (Orange later participated in Fenix International’s Series B round) • Sharing expertise by allowing employees to support partner startups in product development POWERING LAST-MILE 12

Small-cell networks and alternative infrastructure Rural connectivity is primarily tower solution that costs $7,000 using unlicensed spectrum, such supplied by large cellular base with a 2G base station with a as Wi-Fi and TV whitespace, have stations with a range of over 20 range of 1-2 kilometers. The power also begun to emerge. Initiatives kilometers that require at least one consumption of this base station is like Express Wi-Fi, BRCK and kilowatt of power (and often much targeted for under 15 Watts, with Mawingu are testing various network more). While this infrastructure the entire tower (including backhaul) configurations to deliver broadband makes sense in dense areas, it consuming less than 50 Watts. The services to both urban and rural often becomes operationally costly OpenCellular project is also working areas. The power requirements for for rural areas with small, sparse on an LTE base station with a these services are similar to that of population clusters. A network power consumption of 55 Watts. small cells, and can provide additional of smaller access nodes could Since the specifics of each site vary opportunities for companies that can potentially reach communities in a so much in population dispersion, supply the appropriate equipment, more targeted way while reducing revenue and terrain, the flexibility of software and services. overall power consumption. small-cell infrastructure can enable network operators to optimize To realize the gains from more A number of companies have their deployments. Modeling distributed infrastructure, power been working on building such using representative parameters sources also need to be flexible and connectivity infrastructure. To help from India showed that small- robust so they can be deployed and accelerate progress, Facebook cell infrastructure could be more managed efficiently. As part of the launched the OpenCellular project economical than diesel-powered OpenCellular project, Facebook has under TIP to develop open source macro towers even less than 10 launched OpenCellular Power, hardware and software for small- kilometers outside of cities.22 an open source project to support cell base stations. One of the an ecosystem for power equipment project group members, Nuran Similar to the push for small cells, specifically designed to support Wireless, is aiming for a complete distributed rural access networks connectivity equipment.

Figure 4 | Potential alternatives for last-mile connectivity

Cell Tower Small Cell Antenna Wiﬁ Hotspot Grid or solar hybrid Solar Solar (1,500 3,000 Watts) ( 50 100 Watts ) ( 50 100 Watts )

Source: Bloomberg New Energy Finance, Facebook

22 ACM Digital Library POWERING LAST-MILE 13

Invest

Early stage equity Venture and impact equity investment the impact fund of French utility Engie connectivity access. An increasing in startups remain one of the most invested in Fenix International’s Series number of financial intermediaries popular ways for large companies to B round in 2015. A little under three are offering tailored products for experiment with new approaches, years later, its Africa business unit energy access and off-grid solar get visibility into the market and acquired the company. companies, including SunFunder, benefit from the gains of early stage responsAbility, Lendable and investment. Energy and equipment The most successful approaches SIMA. Many are starting to develop giants like GE and Shell are no longer could move beyond equity investment structured finance vehicles, which strangers to the electricity access to operational partnerships, allowing represent more commonly bankable sector, and have participated in startups to tap into their investors’ structures for impact and commercial financing rounds worth as much as networks and expertise. Engie’s investors to participate in these $55 million. acquisition of Fenix International, markets. Many still employ blended for instance, is expected to make it finance structures, where affordable, While the majority of deals are still in easier for the startup to tap Engie’s risk-tolerant capital from development early stage equity, some companies capital partners for debt to finance finance institutions and impact like Off-Grid Electric, M-Kopa, customer purchases. investors enables the participation of OMC Power or Lumos have gone commercial investors. Boosting this far beyond the seed stage and raised Debt capital pool of capital can accelerate the tens of millions of dollars. Large Debt, and local currency debt in development of energy access debt companies can accompany new particular, is one of the largest markets that support innovative, but ventures as they mature. For instance, challenges to improved energy and capital-heavy business models.

Source: Bloomberg POWERING LAST-MILE 14

DISCLAIMER “No portion of the Bloomberg New Energy Finance content (“Content”) is intended as an offering of financial instruments or investment advice, and no portion of the Content should be construed as a recommendation to “buy,” “sell” or “hold” an investment. BLOOMBERG MAKES NO WARRANTY REGARDING THE ACCURACY, CORRECTNESS, COMPLETENESS, QUALITY, OR TIMELINESS OF THE CONTENT. TO THE MAXIMUM EXTENT PERMITTED BY LAW, BLOOMBERG DISCLAIMS LIABILITY FOR ANY INACCURACIES OR ERRORS IN THE CONTENT FROM WHATEVER CAUSE OR ANY LOSS OR DAMAGE ARISING THEREFROM. BLOOMBERG, BLOOMBERG PROFESSIONAL, BLOOMBERG MARKETS, BLOOMBERG NEWS, BLOOMBERG ANYWHERE, BLOOMBERG TRADEBOOK, BLOOMBERG TELEVISION, BLOOMBERG RADIO, BLOOMBERG PRESS, BLOOMBERG.COM and BLOOMBERG NEW ENERGY FINANCE are trademarks and service marks of Bloomberg Finance L.P.”