Lighting up the Far Reaches of the World
More than a century after the first utility began operating in San Francisco, there are still over 900 million people in the world without electricity. Some 600 million are in Sub-Saharan Africa, where difficult terrain and long distances make it hard to connect to national grids. Millions more live on remote islands in the Pacific.
Until recently, it appeared that many of these places wouldn’t get electricity anytime soon. But the price of solar panels and batteries has dropped, and a new group of entrepreneurs has figured out how to use them to light up far corners of the globe. They’re providing off-grid energy as a service, an innovative business model that spares governments and municipal authorities the massive up-front investment in power infrastructure.
Electrification pays huge dividends beyond just lighting the night so that families can gather, and children can do homework. It brings new industry and technology to poor regions. It eases pressure on forests as people cut fewer trees for fires. Clean sources help heal the climate by slashing the use of kerosene lamps and generators that run on dirty diesel fuel.
Distributed energy resources, as the new systems are known, come in many forms. The key is that generation happens closer to the end user with, say, solar panels on the roof of a house. Sometimes, the sources are linked into a mini-grid, a network that serves a limited number of customers and can operate in isolation from a country’s national grid.
In one village in the West African nation of Togo, solar systems power homes, schools, shops, and streetlights for more than 4,000 people. The service is provided by a U.K.-based company called Bboxx that bundles the equipment, installs it, and manages its operation.
Bboxx serves more than 100,000 people in Togo alone, and a total of 2 million across Africa.
“Mini-grids and solar-home systems are an elegant way to provide power to places that big utilities can’t reach, either because of geography or because the grid extensions are not financially viable due to low electricity consumption,” says Jessica Stiefler, a senior underwriter at MIGA.
Stiefler is one among many at MIGA who are pushing hard on mini-grids and other distributed generation solutions, such as solar-home systems and localized power solutions for commercial and industrial users.
The projects are a natural fit for MIGA because they are often in fragile or low-income nations and regions that investors won’t consider because of political and/or economic risks. MIGA insured Bboxx’s operations across Rwanda, Kenya, and the Democratic Republic of Congo (DRC). The company has a large and growing presence in these countries, improving the lives of more than 480,000 people in Rwanda, 470,000 in Kenya, and 90,000 in DRC.
In Sierra Leone and Liberia, MIGA backed investors in Escotel, a company that retrofits remote mobile phone towers with solar panels, batteries, and sophisticated remote power-management systems that improve their operational performance and slash their use of diesel fuel by 75 percent, on average.
According to IFC, power consumers in emerging and developing countries spend more than $50 billion a year on fuel for backup generators, emitting 100 megatons of CO₂. Building more sustainable mini-grids will cut those numbers.
“Our operations are capital intensive, and, by their nature, they are located in fragile countries,” says Escotel CEO Michel Hubert. “The ability to share the political risk with MIGA was a very important consideration for investors, and it helped us raise capital.”
Two other mini-grid enthusiasts at MIGA: Nabil Fawaz and Paul Diop.
Fawaz is sector manager for manufacturing, agribusiness, and services at MIGA. He has worked to drive private investment in fragile and conflict-affected regions, such as Afghanistan, Bosnia and Herzegovina, and the West Bank and Gaza. For him, mini-grids are a way to boost economic activity in fragile countries. History shows that along with electricity comes manufacturing and other business.
“Mini-grids can literally jumpstart a local economy,” Fawaz says. “With electricity comes internet access, lighting, and a host of productive uses, including manufacturing.”
Fawaz worked on a similar project in Gaza, a place plagued by blackouts. There, MIGA issued $7 million of guarantees to put solar panels on the Gaza Industrial Estate, which houses 32 businesses. Before the solar investment, power outages halted their operations and idled workers in a region desperate for well-paying jobs.
What excites Diop, and Stiefler is how MIGA can mobilize capital for a mini-grid project. Very often, the hardest part is raising money, and to raise money, the sponsor must manage risk, something MIGA does every day in developing countries.
“Private investors are often wary of mini-grids because they operate in politically uncertain and challenging regions,” Diop says. “Having MIGA’s cover puts those concerns to rest.”
To energy investors, distributed energy projects such as mini-grids don’t look like traditional, independent power projects. Revenue from a mini-grid is much smaller and less predictable. The smallest utility-scale renewable energy project is at least 1 megawatt in size, according to Bloomberg New Energy Finance. The typical mini-grid is just one tenth that size.
And in terms of planning, it’s hard to estimate demand for electricity in a rural region that’s never had it. Billing mini-grid customers is also harder because banks are often scarce in places without electricity.
Harder yet, distributed energy regulations haven’t caught up with technological advances in most countries, Stiefler says. What happens when the state-owned grid reaches a region served by a mini-grid, bringing less-costly electricity to customers there?
“This uncertainty is slowing private sector finance,” Stiefler says. “Through MIGA’s political risk mitigation instruments, we are catalyzing private sector investment by helping investors assess and balance risks and rewards.”
The problems will find solutions, Stiefler says, because the need for reliable and low-carbon energy is so great, and distributed energy solutions have so much potential. They solve what she calls an energy trilemma. The world needs three things: Energy security (to remain in service during catastrophes like Typhoon Goni in the Philippines last year); energy equity (universal access to affordable energy); and environmental sustainability (renewable energy solutions that mitigate and avoid environmental harm and climate change).
Investors are beginning to see how technology is coming together to make mini-grids and off-grid energy a promising investment. Solar panels and batteries become more affordable every year. Wireless networks like the ones that Bboxx and Escotel are part of making it possible to communicate with far-flung customers, and mobile money enables payment without putting a bill in the mail.
Soon, more investors will see that the time for distributed energy solutions has come. Stiefler, Fawaz, Diop and their teams at MIGA are out there working to convince them.