An Evidence Review: How Affordable Is Off-Grid Energy Access in Africa? 1

An Evidence Review: How Affordable Is Off-Grid Energy Access In Africa? 1 AN EVIDENCE REVIEW: How affordable is off-grid energy access in Africa? March 2017 An Evidence Review: How Affordable Is Off-Grid Energy Access In Africa? 2 AUTHORS ABOUT Kat Harrison is Associate Director of Acumen’s This report was commissioned by CDC Group Lean Data team and leads its work in the energy and prepared by Kat Harrison and Tom Adams sector. She has extensive experience in both of Acumen. The views presented in this paper impact measurement and renewable energy having are those of the authors and do not necessarily previously founded the Research and Impact team represent the views of CDC. at SolarAid. Kat has been Chair of the Global Off For more information on this report, please reach Grid Lighting Association (GOGLA) Impact Working out to Kat on [email protected]. Group since its formation in 2013 and led the development of the harmonised impact metrics for the off-grid energy sector. Kat conceived and managed the sector’s most extensive collection of large-scale, experimental evaluations into the impact of solar lighting, working alongside partners including Stanford University, Google, Berkeley, and the United Nations Capital Development Fund. Tom Adams is Director of Acumen’s Lean Data team heading the organisation’s work to understand the how and why of creating social value through patient capital investing. Prior to Acumen Tom worked for the UK Department for International Development (DFID), first as Country Economist in Nigeria and subsequently leading its Wealth Creation and Climate Change team in Ethiopia. Tom has also worked as a diplomat for the Foreign and Commonwealth Office (FCO) and as an Economic Advisor to various UK Government departments. He began his career at Credit Suisse. An Evidence Review: How Affordable Is Off-Grid Energy Access In Africa? 3 EXECUTIVE SUMMARY This report provides a Global energy access is a challenge for our time 1.2 billion mostly poor, mostly rural people live without review of the evidence of the electricity across the world today. Lack of energy access affordability of energy access disproportionately affects the poor. It harms their prospects of working their way out of poverty, forces them into the in sub-Saharan Africa (SSA). paradox of spending up to one hundred times more than those in developed countries on inferior energy products, and exposes them to life-threatening indoor pollutants. The It includes information drawn from a combination of an introduction of the Sustainable Development Goals (SDGs) extensive literature review, early insights from Acumen’s in 2015 brought focused attention to the question of energy Energy Impact Series1, and direct-consumer based data access. Goal 7 focuses on achieving access to affordable, collected by Acumen and SolarAid. reliable, sustainable and modern energy for all by 2030. While this report was commissioned to look at affordability of energy more broadly it has in large part focused on off- grid solutions and solar in particular. This is for two reasons. First, access to established grid-based energy covers less than a third of the population of SSA. Second, in the off-grid SEVEN EARLY INSIGHTS ON space, solar is leading the way compared to other modern AFFORDABILITY & ADOPTION alternatives in terms of reach and ability to distribute. We believe that many of the lessons from the solar sector will be transferable to other energy solutions. A mixed approach + Poorer households appear to spend a relatively larger is the only way energy access goals will be reached and this share of their total expenditure on energy than will include both grid and off-grid, and options beyond solar. wealthier families. Though access to energy for cooking is a critical area of energy consumption energy use for cooking is a very specific + There are indications that consumers are fairly price and separate sub-sector and we have not looked in any detail sensitive (demand is price elastic). at sectors such as clean cookstoves. + The poor are generally accessing solar where it is The report covers the following. First, a brief background available, but only pico-lights are reaching the extreme of the energy access problem and a snapshot of what is poor.² known about markets for energy access across SSA. Second, + Consumers want financing, and offering it may help an analysis of affordability based largely on observed drive sales. However, customers may not always spending patterns and income levels of consumers. Third, understand what they’re signing up for. an assessment of the availability and efficacy of financing to improve energy access. Fourth, a look into some of the wider + Lack of both product awareness and trust still presents considerations beyond affordability that affect adoption of a challenge for adoption. energy access. Finally, recommendations for further research to address some of the gaps in knowledge. + Customers typically state a combination of access to more and brighter light, improved energy reliability, and reduced expenditure as the most important benefits of solar products. 1. A series of monthly articles featuring 2. Pico-solar lights are small, portable insight from the suite of energy solar lights that provide a single light + Access to solar is increasing rapidly but it is highly evaluations we are currently point, often with an integrated panel, concentrated in a few countries. undertaking to complement our Lean and sometimes with mobile phone Data approach. The introduction can be charging capacity. found here An Evidence Review: How Affordable Is Off-Grid Energy Access In Africa? 4 Energy markets in sub-Saharan Africa penetrated deep into African markets. SolarAid data from Kenya, Malawi, Tanzania, Uganda, and Zambia shows that of Of the 1.2 billion people without energy, half of these live in customers buying the simplest solar-powered lights costing Africa. The International Energy Agency (IEA) reports that around $10, 82% live below the $3.10 poverty line. Acumen’s SSA remains the only region in the world where the number data, collected using the Progress out of Poverty Index, has of people living without electricity is actually increasing. shown similarly encouraging ability of companies to reach Overall Africa currently has 147 gigawatts of installed poorer consumers. Using weighting from sales, 36% of the capacity, a level comparable to the capacity China installs customer base of five SHS and mini-grid companies across every 1-2 years. In 37 of the 49 countries of SSA the number four East African countries lives below the poverty line of people without electricity has increased since 2000. Even at $3.10 per person per day.6 It is, of course, hard to draw these depressingly low numbers tell only half the story. concrete conclusions from such a small number of data Even where people can access energy, prices for grid-based points, but if any conclusions could be drawn, it would be connection across SSA are disproportionately high and that only pico-lights are currently reaching the extreme poor energy reliability low. in a meaningful way. Beyond that, penetration may have as much to do with the available customer base as it does Solar energy has the potential to close the energy gap product type. However it is not all doom and gloom. According to The Economist the recent growth of the solar market has led to an estimated 600,000 households in Africa gaining access to Customers are price sensitive modern energy for the first time in the form of solar home Recent research has shown that demand for pico-solar 3 systems (SHS). In terms of total sales the market has been products is fairly price elastic. The same research also 4 led by pico-solar lights , but business model innovations such discovered, not surprisingly, that poorer households spend a as pay-as-you-go (PAYG) financing are now attracting much relatively larger share of their total expenditure on energy, of the limelight. In theory they should lead to improved but as families become wealthier, energy expenditure falls accessibility and affordability of higher capacity systems. as a proportion of total expenditure. The poorest quintile Industry experts predict the number of home-power systems of Kenyan customers spent ~10% of their total expenditure on African roofs to double in 2017 alone. A growing number in energy compared to the average across all households of of businesses are emerging to serve and scale this market ~5%. This is building a picture of a keen, yet price-sensitive customer and also that targeting deep into the base of the Solar is increasingly in reach of poor consumers pyramid may be a promising marketing strategy. The growth in solar has been driven by a dramatic reduction in production costs - down 80% since 2010 and likely to fall Customers want financing, but are not always further - alongside continued technological improvements. financially literate In Kenya, for example, an average small-scale solar home Along with efforts to drive down prices, considerable system costs in the region of US$120. This is roughly attention has been paid to financing as a way of making 5 equivalent to 5% of a poor family’s total annualised income. access to more powerful energy products more affordable. Given that estimates of average household spending on Acumen’s data suggests that financing is an attractive option energy - predominantly lighting and phone charging - range for customers. For one SHS company, 53% of customers said from 3-15% of total income, solar purchases can represent that the reason they selected the company was the financing an attractive household level rate of return. SolarAid on offer (just 3% commented on price). SolarAid piloted PAYG research has found that households purchasing entry-level for pico-solar lights in Kenya in 2015 and found purchase or pico-solar energy products are able to recoup the cost of rates for entry-level solar lights increased from 10-15% of the product from reducing spend on alternative sources of targeted customers to 20-50%.

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