Mini-grids, mobile payments and smart meters are all helping to create an off-grid model of electricity provision in Africa, helped by bottom-up funding and low-cost solar power, according to Michael Gera, managing partner and co-founder of specialist venture capitalist firm Energy Access Ventures (EAV).
EAV has received a EUR 10 million commitment from the European Investment Bank and recently made its first investment in a company called Off:Grid:Electric, based in Tanzania.
There’s a lot of buzz around electrifying Africa at the moment. Why now?
‘People now see that there is a very strong correlation between economic activity and access to power. If you are living in darkness you have less wealth, you live in fear of going out at night, your children can’t study after the sun sets, your business has to shut down when it gets dark if it requires more than a kerosene lamp to operate. Access to electricity is the screaming need that underlies everything else.
‘Over the last 10 years the quality of governance in Africa has improved immeasurably. Governments are far more accountable than they used to be. This makes for an easier regulatory environment. The moment electricity becomes a shared good you have to have regulations and a good regulator makes a huge difference. Across Africa you are seeing a far more enlightened attitude. As a result, investors have begun to realise that there is a phenomenal economic and developmental potential locked up in the millions of people who cannot be integral parts of the economy because they have no electricity – and there are now millions of dollars of private investment to fix this problem.’
Are there any new technologies you are particularly excited about?
‘There’s really clever technology enabling mini-grids. A mini-grid is where you have a local generation source – e.g. a solar farm just outside the village – supplying hundreds of households. One challenge has been how to affordably meter these households. It needs a significant reinvention of the concept of metering because you need meters that are very cheap and can also register the tiny amounts of power being used.
‘Another clever development is mesh technology, which allows these smart meters to talk to each other and send information up to the company so they can monitor consumption patterns.
‘On the usage side we are seeing improvement, including lower power consumption, of appliances that work in an off-grid environment.
‘But at the end of the day success depends not so much on the new technology but on execution. The biggest skill we need is the ability to work in a remote community.‘
So the time is ripe - but why not wire everyone up to the grid?
‘If you take a maize farmer in Iowa or sheep farmer in Scotland, their access to electricity is subsidised by the state. Someone has to run a cable over maybe 50 miles of fields, which is expensive. And the operating costs are extremely high because you lose a lot of electricity along the way. Yet the tariff for that farmer is more or less the same as for someone in the city. The state has taken the view that it will subsidise this set-up forever.
‘There’s a growing awareness that in Africa it’s not going to happen that way. There isn’t that sustained commitment to never-ending subsidies. Also, the population densities are really low coupled with a high growth rate.
‘However, the good news is that Africa has a second chance to leapfrog a generation of technology. In the same way that mobile phones have obviated the need for landlines in much of Africa, significant reductions in the cost of renewable (especially solar) energy generation and data transfer via the mobile phone network have made feasible distributed, off-grid electricity generation.
‘Taken together, it is now economically and politically feasible to wire up a community off-grid.’
You are trying to sell to the poor - how can it pay?
‘Yes, we are talking about the poorest of the poor in some of the poorest countries in the world.
‘Africa has a second chance to leapfrog a generation of technology.’
Michael Gera, Managing Partner and Co-founder, EAV
‘The off-grid solar energy companies sell small 10 watt panels plus a battery controlling circuitry and lights/ phone charge to each customer. The company will service units in case of issues.
‘They use pay-as-you-go technology (each solar kit contains a SIM card that needs to be topped up with payments made via mobile phone in order to continue working until the cost of the panel is repaid). Most households in Africa seem to spend about USD 3 a week on kerosene, they don’t have more than that. So, what solar home system providers aim to do is to enable their customer to pay for the system via a stream of affordable payments – ideally close to the USD 3 per week they are saving by switching away from kerosene. They typically pay using mobile payment systems such as MPESA in Kenya which pretty much everyone has.
'As this technology is rolled out it will also create jobs for local people installing and maintaining the units.’
It can’t be that simple – what are the obstacles to mass rollout?
‘One of the most interesting challenges is lack of communication between the on-grid and off-grid worlds. On the one hand, you have the on-grid world, with the 150-year-old central grid model that has served so many so well. On the other hand, you have an intrepid band of off-grid entrepreneurs with innovative mini-grid and solar home system ideas.
‘We need better communication at the political and investment interfaces between the two communities. This would lead to capital being better invested.’
How does the money get from big funders like the European Investment Bank down to rural African villages?
‘Our fund, Energy Access Ventures, is a venture capital fund with an impact mandate. Impact investing is an idea that has emerged over the last years whereby you seek to judge your investments not just on the basis of return, but also their ability to deliver a social good. EIB, for example, allocates capital to funds or companies that have this dual mandate.
‘We fund entrepreneurial, relatively early-stage companies who are active in bringing electricity access into sub-Saharan Africa. Typically they are mini-grid or solar home system solutions adapted to their particular country of operation.’
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