DE – RISKING OFF GRID SOLAR BUSINESS IN AFRICA
Sub – Saharan Africa remains the poorest region in the world in terms of per capita GDP and human development indicators. With over 70 percent of Africa’s poor living in rural areas with limited access to energy, the region is further exposed to the negative impacts from global warming, which further exacerbate poverty. Furthermore, governments have been unable to reach rural areas with productive services due to logistical challenges and resource limitations. Without proper intervention, the region will continue to experience growth characterized by high emissions, low energy access and deteriorating living standards.
However, transformational opportunities exist to bolster the future of sub-Saharan Africa towards a more sustainable green economy. By harnessing private sector innovation and finance over the next five years, rural households and businesses will be supported to access low carbon sources of energy.
While governments have a responsibility to ensure improved living standards for its citizens, private sector contribution is still needed to realize positive and sustainable growth in all sectors of the economy. One such initiative is the Africa Enterprise Challenge Fund (AECF); demonstrating consistently over the years that financing private sector businesses targeting the rural poor is the most effective way to achieve sustainable development in areas conventional commercial lenders consider too risky to invest their money. The AECF has a track record in the delivery of innovative solutions to the challenge of energy access and agribusiness development that bring about transformational change.
The AECF’s Renewable Energy and Adaptation to Climate Technologies (REACT) funding window demonstrates how business innovation in renewable energy has the potential to reach Africa’s rural poor in ways that heavy public sector investments into grid extension are over-stretched to deliver. Further, the profit motives of businesses build in; i) a desire to reach scale, and, ii) an inherent long-term sustainability for companies seeking to reach wider markets for their solutions while keeping pace with projected population growth rates. With previous REACT funding, entrepreneurs have rolled out some of the best global innovations, developed and packaged into locally grounded and appropriate solutions, to meet the needs of the market and with a strong potential to scale.
Most of the funding from REACT has been invested in East and Southern Africa. To date REACT has invested in 71 East African businesses, which have leveraged US$150 million in follow – on private sector funding, benefiting over 500,000 rural households.
The time is right to build on the successes of REACT to expand its reach to other parts of the continent and catalyze both the existing and promising new solutions for off-grid household solar systems – this is the premise on which REACT Household Solar (REACT HS) funding is anchored.
The Southern and West African regions are natural targets for extension of the REACT model. Even though the markets for off-grid electricity in Southern African countries (in particular Malawi, Zambia and Zimbabwe) are expected to grow at a slower pace than has been demonstrated in East Africa, continued investment in the sector through REACT HS will stir up the required growth over the next five years. Sierra Leone, in West Africa, is also an exciting country for REACT, it is an emerging market where entrepreneurial support is really required to build a stable middle income economy – more so, in the energy sector.
REACT HS funding is designed to provide patient capital that de-risks private sector companies to invest. A typical REACT investment is a business idea that already has a level of proof-of-concept and shows high potential for scale but is still in the early stage and a high risk for commercial investors to fully embrace. REACT Household Solar (REACT HS) will provide funds to incentivize private sector investment in off-grid household solar energy in Malawi, Zambia, Zimbabwe and Sierra Leone.
REACT HS funding focuses on off – grid household solar, working with private sector businesses to create the most needed impact to over 300,000 rural households and rural businesses. Private sector innovation has shown that, in addition to the potential market opportunity, there is a strong latent demand right across the continent for off-grid solar home solutions that bring electricity into households. Further drivers in the market place include the growth of mobile phone telephony and data services, mobile payment systems, global innovations in battery and LED technologies and organized community based development structures.
Blog is written by Victor Ndiege, Portfolio Manager, REACT. The REACT HS window is funded by UK aid from the UK government.