4 Reasons Why Off-Grid Energy Is Grown Up and Ready to Scale

Sometimes good ideas take off right away. Nobody
buys suitcases without wheels
 these days.

Other great ideas, however inevitable, need more time. Off-grid
energy, running the gamut from solar home systems to microgrids in
small villages, seems to have fallen into this category.

Former UN Secretary-General Ban Ki-moon launched the Sustainable Energy for All
initiative in 2011. The UN launched the Sustainable Development
Goals in 2015. Off-grid companies like d-light and Mobisol have
been operating for years. 

Yet despite billions of dollars invested, and the backing of
some of the world’s biggest energy companies, the off-grid energy
sector still has not scaled quite as much many might have
expected.

But things are finally changing very rapidly, according to
industry leaders at Greentech Media’s first
Off-Grid Energy Access Forum
, held last week in London. 

All the signs suggest many of the thorniest barriers to scale
have been overcome. Here are four reasons why experts say the path
is finally clearing for electricity companies to reach “the next
billion” customers.

1. Companies are focusing on what they’re good
at

Many early entrants in the (largely) pay-as-you-go solar home
system market sector tried to do everything.

Companies developing hardware and software in house often wound
up becoming a manufacturer. Next they might have branched out into
distribution and logistics, before also becoming a consumer utility
and microfinancier.

Today, many vertically integrated players are narrowing their
focus to what they’re best at, while new entrants are tending to
stay in one part of the value chain.

Trying to everything is “very, very hard,” said Emma Hawkins,
director of corporate finance at PEG Africa.

PEG Africa, a distributor of pay-as-you-go home solar systems,
is about to expand to its fourth country, and it’s done so without
having to raise as much capital as some of its vertically
integrated peers because it never ventured into expensive product
development.

“You have to decide as a company what is in our DNA: Are you a
product company or is it the financing?”

“The offshoot of that is that it becomes easier to explain what
you are to an investor, if you’re a distribution or a tech or a
product company and that allows you to tap into different kinds of
investors,” Hawkins said in London. “Your business model is more
easily understood by investors.”

Leslie Labruto, head of energy at the early-stage equity
investor Acumen, noted that early vertically integrated companies
had laid important foundations for the off-grid sector. She can see
space in the market for companies taking both approaches.

“We wouldn’t be where we are without some of those early
pioneers making mistakes,” Labruto said.

2. Big data making a big difference

Big data has come a long way over the past few years, and
off-grid companies are increasingly making use of the gains.

BBOXX, another pay-as-you-go solar provider that recently

landed an investment from Mitsubishi
, said it’s using data to
better understand system performance in the field — helping to
inform future investment and procurement decisions. 

The company is also using data to help “understand who are good
customers are and how we could sell more things to them.”

Consider a customer who — according to data sent back —
might only be using half their home battery’s capacity. Brianna
Schuyler, who leads the data team at Fenix International, said a
customer like that could be informed about their spare power and
potentially sold a radio, TV or other appliance that would improve
their quality of life while making better use of their battery.

At the same time, the customer is developing a record of
creditworthiness that gives off-grid companies more to bargain with
when developing strategic partnerships. Over time, the data gleaned
could itself become a revenue generator.

3. Demand is there in spades

Ben Attia, a research analyst at Wood Mackenzie, used Nigeria as
an example to highlight the enormous market opportunity for
off-grid energy systems.

The country of 190 million people has 13 gigawatts of installed
generation capacity but only one quarter of that actually gets
transmitted out to consumers, due to inoperative plants, line
losses and other factors.

Unsurprisingly, citizens and business in the fast growing
economy are taking matters into their own hands, and there’s an
estimated 40 gigawatts of diesel generators now running in the
country.

“Nigeria’s population is growing faster than the grid,” said
Alistair Gordon, CEO of the solar provider Lumos Global, which is
focused largely on Nigeria. “The opportunity is enormous,” 

“Energy is very aspirational and people move up what you might
call the energy ladder,” Gordon told GTM. “They get a new job,
they want a bigger TV, they need more power. So, you have to have
the flexibility in your solution to deal with that — people are
changing.”

That means scalable solar and battery systems and working with
energy-efficient appliances to get the most out of the systems that
are in place.

Gordon pointed out that in the time the solar-based off-grid
energy market has been around, demand has jumped from lanterns and
fixed lighting to fans, phone charging and TVs.

4. Europe’s utilities helping local governments

Incumbent and often government-backed utilities in emerging
economies could be considered a major hurdle of progress, Attia
said. Their performance is woeful, especially in Sub-Saharan Africa
where they’re bleeding money.

“When we started working with Zola Electric in Cote D’Ivoire
there was a huge pushback from government entities, national
utilities,” said Valerie Levkov, senior vice president for
Africa, Middle East & East Mediterranean at EDF.

“What we did, because we are EDF and doing lots in the
country, negotiating with IPPs for example, we came back with an
argument,” Levkov said.

“We told them to look at the cost — real cost — because if
you compare the cost of appliances and the cost per kilowatt-hour,
it is less than the lowest possible grid system cost. It’s all
about education.”

Putting the ground work in early ensures you didn’t suffer at
the hands of bad regulation further down the line, Levkov
added.

EDF partnered with BBOXX in Togo, where it also works with Zola
Electric. And today, Togo is one of the countries that’s clearing
the path for off-grid, clean, distributed power at large
scale. 

Support for off-grid energy now reaches all the way up the
country’s president, said BBOXX CFO Thomas Chevillotte.

As a result, local financing support helped negate dreaded
currency risk and partnerships with both local telecoms companies
and the post office gave it a step up in terms of distribution and
logistics.

Next step: Go deep or go wide?

Lumos’ Gordon points out that while companies like EDF who
“have the ear” of the governments are extremely useful for
educating regulators and politicians, he views consumer education
as even more important. 

As the sector looks to scale, that’s the big focus for Lumos.
“The hurdle for us is consumer education,” Gordon said. 

“Our target, or our competition, is a generator, a small
generator. The generator exists because the grid isn’t giving the
customer what they need or is not reliable enough. But generators
are very expensive.”

“An on-grid customer is paying $50 per month and an off-grid
customer is paying $70 for fuel,” Gordon said. “If they can get
their energy from solar for $15 from solar, that’s a big change.
The challenge is education.”

The question of growth was summarized repeatedly in London as
“go deep or go wide”.

The scope for the former, through added services, is huge. Once
an off-grid company has a relationship with a customer, they can
potentially deepen that commercial relationship in myriad ways,
from health and crop insurance, which reduce the chances of a
“shock” stopping a customer from making their solar payments,
to telecoms hardware and services, loans, cookstoves and water
pumps.

Still, some experts were wary of complicating the offering
before achieving a critical mass of customers.

Regardless, a host of a strategic invetsors are pouring money
into off-grid energy access, from EDF to Shell to Uber. With
funding, the proof of concept, a growing market, and reams of data
coming in, the off-grid energy sector now appears to be pushing on
an open door.

Source: FS – GreenTech Media
4 Reasons Why Off-Grid Energy Is Grown Up and Ready to Scale