How can we harness business to close the energy gap in Africa?

Power is routinely cited by large and small businesses as the most significant barrier to their success, adding huge costs to them and their customers. Poor infrastructure slows foreign direct investment and limits countries in their attempts to diversify their economies away from primary commodity export.
 
Unreliable or inaccessible power has a cost that goes beyond GDP figures and business growth, impacting on healthcare and education outcomes, which in turn have long-term implications for the future prosperity of individuals and societies.

The International Energy Agency estimates that more than 620 million people in sub-Saharan Africa live without electricity.  While 950 million people will gain access to electricity in Africa between 2014 and 2040, demographic expansion will mean that 75 per cent of the population will still be without power.

A step-change in investment into electricity generation, distribution and efficiency is needed over the next quarter-century to unlock the potential of Africa’s demographic boom.  This was the focus of a report published recently by Business Fights Poverty and the Initiative for Global Development (Click here to find out more and to download the report here)

Join our panel to discuss the following questions:

1. What is the real, day-to-day impact of Africa’s energy gap?  What are some practical examples of the impacts on the ground?

 

2. What are the opportunities for business to be part of the solution to closing the energy gap?

 

3. What building blocks need to be put in place by governments and other development partners to harness the potential contribution that business can make to closing this gap, and by doing so helping unlock the Continent’s potential?

 

Editor's Note:

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Tim makes a couple of very good points of how governments and development partners can facilitate expanding energy access in Africa.  Indeed, a number of governments are doing just that -- whether it be DFID and USAID support for governments, developers and civil society or others, such as OPIC or AfDB, taking on private sector transaction costs.

However, there's a real question as to whether this assistance represents a subsidy with a different name.  Why would it be necessary if these business models could stand on their own, independent of any assistance?  What are the structural inefficiencies or obstacles that prevent these businesses from taking off without the assistance?  That's ultimately where we need to focus our efforts - whether governments, civil society or the private sector.   Ultimately, even with the "subsidies," these business models run the risk of failure when the subsidy runs out....

Certainly - Ashden case studies on a variety of energy access enterprises can be found at https://www.ashden.org/winners

Zahid Torres-Rahman said:

Thanks for joining the discussion, Ellen.  Can you share a link to where people can find out more?

Ellen Dobbs said:

Ashden would very much agree that central utilities are not the sole solution in closing the energy access gap. We have seen real progress in business-based approaches to distributed electricity - such as Off Grid Electric in Tanzania. But financing remains a major challenge, particularly access to working capital and flexible loans.

Christopher Camponovo said:

Christian - I'm one of those people who argues that central utilities are not the sole solution...and, as you say, there are a number of challenges with smaller distributed generation projects.  One of the biggest problems is one you haven't mentioned -- that is, coming up with commercially viable models that can be financed.  The challenge is that the traditional project finance model isn't working for these smaller projects in Africa -- due largely to actual and perceived risk on the part of lenders....

I guess this is where business can be part of the solution...by developing innovative financing models and promoting distributed generation to close the Africa energy gap.

Governments first need to give greater priority to investment in the power sector. Most of the investment in energy is for extraction and export, resulting in years of underinvestment. Governments and organisations in the power sector need to be held more accountable. Utilities need to be made financially sustainable, with more business-like incentives and cost-recovering tariffs. International public finance can help realise this change.

Secondly, the risks to investors need to be mitigated, through guarantees, pre-project subsidies, etc.

That brings us to the end of the live chat segment of this discussion.  We'll leave the discussion open, so please do continue to post your comments and ideas.

A huge thank you to our panel, all those who posted comments, and to all of you for joining us today.

If you'd like to read more about this topic, take a look at the report we have just published with the Initiative for Global Development, and the accompanying blog series:

Thanks everybody - any further questions to me, or about DFID programmes on energy access in sub-Saharan Africa, feel free to contact me through the BFP portal.

Renewable energy also means that African countries will not be endlessly having to import fuel - and draining so much money away in endlessly paying other countries for the fuel. Most European fuel generation is based on imported coal, gas and diesel. African countries have an opportunity to avoid this drain on their economies.

Thank you for the great discussion. African's problems will mostly be solved by African people themselves, but as you can observe from this discussion it mostly non-Africans trying to figure the answers for Africa. I urge more Africans to join forums like this and learn from it. 

The problem I've observed is most solutions are just one aspect to the greater problem.  Like missionaries giving shoes that last months or doctors coming to give check-ups and distribute medicine.  Not that these efforts are not noble ones but they are not sustainable, long-lasting ones that change people's lives to make them more productive and healthy.  We have to think in a more holistic philosophy in designing a solution.   Let's identify interrelationships of multiple problems:  how is power related to stable, safe, functional housing?  how is power related to health?  how is power related to nutrition?  how is power related to commence and e-commerce?  how is power related to education? how is power related to agriculture?  Now, connect all those to show all the things the solution has to address. 

Christopher has a good point, the key question for me is scale ... if a project is to work at scale it needs appropriate pricing, which offer means small per-unit profit, if that is insufficient to cover operating costs UNTIL you reach scale, then a subsidy/grant is an appropriate way of getting there. For example neither Lumeter nor SEAL are covering their operational costs from margins yet.  

BUT if a business model is going to make a per-unit *loss* even at scale, then this is where subsidies/grant's are inappropriate because scale can never be achieved with a per-unit loss.

The simple question to ask is .... if your business increased by a factor of 10 would it require more or require less subsidy. To solve poverty at scale needs business models where scale makes them easier, not a business model where scale means we need even more grants/subsidies.



Christopher Camponovo said:

Tim makes a couple of very good points of how governments and development partners can facilitate expanding energy access in Africa.  Indeed, a number of governments are doing just that -- whether it be DFID and USAID support for governments, developers and civil society or others, such as OPIC or AfDB, taking on private sector transaction costs.

However, there's a real question as to whether this assistance represents a subsidy with a different name.  Why would it be necessary if these business models could stand on their own, independent of any assistance?  What are the structural inefficiencies or obstacles that prevent these businesses from taking off without the assistance?  That's ultimately where we need to focus our efforts - whether governments, civil society or the private sector.   Ultimately, even with the "subsidies," these business models run the risk of failure when the subsidy runs out....

Brilliant line of thought Lawrence in other words power shortages affects real lives.

Lawrence Schaefer said:

The problem I've observed is most solutions are just one aspect to the greater problem.  Like missionaries giving shoes that last months or doctors coming to give check-ups and distribute medicine.  Not that these efforts are not noble ones but they are not sustainable, long-lasting ones that change people's lives to make them more productive and healthy.  We have to think in a more holistic philosophy in designing a solution.   Let's identify interrelationships of multiple problems:  how is power related to stable, safe, functional housing?  how is power related to health?  how is power related to nutrition?  how is power related to commence and e-commerce?  how is power related to education? how is power related to agriculture?  Now, connect all those to show all the things the solution has to address. 

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