As the sun sets every night over developing countries, more than a billion people are plunged into darkness, and forced to rely on polluting light sources such as kerosene. Eighty percent of them live in rural areas, and have been waiting for electricity to arrive—and they’ll continue to wait for decades more if the world continues business as usual. In fact, according to the International Energy Agency, delivering electricity through conventional energy sources, with no new significant new policies, would still leave a billion people without electricity in 2030.1
So what have we learned from the past about what’s worked and what hasn’t for energy access? Let’s start with what hasn’t worked. We know that although 1.7 billion people obtained connections to electricity through government programs between 1990 and 2010, the rate was only slightly ahead of the population growth of 1.6 billion over the same period.2 The problem is exacerbated in Africa, where the overall situation worsened, leaving 550 million people without electricity today. Furthermore, past electrification efforts occurred unevenly throughout developing countries, evidenced by the jarring disparity in energy access between rich and poor, and between rural and urban communities. This is why 99.6 percent of Africa’s off-grid population resides in sub-Saharan Africa, and 94 percent of India’s off-grid population is spread across rural areas.3,4 In both regions, those who are connected to the grid in rural areas receive only the remainder of the cities’ electricity supply and face frequent power outages as well as limited hours of power every day. It would not be an overstatement to call this energy injustice.
What we did learn from the past, and what energy entrepreneurs providing solutions to universal energy access agree on is this: deploying decentralized renewable energy solutions is essential to changing the status quo. And solar energy, due to its falling cost and rising efficiency, has become the renewable energy of choice to increase energy access in the developing world. Solar is economically viable without subsidies for off-grid communities, and comes without the negative health impacts of conventional, “dirty” fuel.5 The opportunity for solar energy to leapfrog the electricity grid in developing countries is so large it’s become hard to ignore.
Decentralized Solutions for an Off-Grid Solar Revolution
The variety of solar products that are tailored for off-grid communities is surprisingly large. There are essentially three tiers of off-grid solar products: The first tier consists of small solar lights like the basic but sturdy d.light S2 pocket solar light that costs about $10 and is suitable for single tasks such as reading. The second tier, which includes the Sun King Pro, has greater multifunctionality because it also charges cellphones and provides brighter lighting than the first tier. The third tier is much more advanced, like the ReadySet solar home system that’s capable of powering multiple LED lights and multiple cell phones in a single day’s charge. Often, the third tier systems are modular, allowing consumers to climb the so-called energy ladder, at the top of which they can enjoy enough solar power to have televisions and small refrigerators. It is clear from the range of products available that for every family wanting to switch to solar, there will be the right product to get them there, regardless of their starting level of energy demand. Families could even start small with the most affordable and basic solar light and use the money saved from no longer buying kerosene to acquire more and better solar products for their homes. This is arguably a quicker way for communities to escape energy poverty than to wait for the arrival of the grid.
Today, higher quality solar products are becoming affordable to consumers of off-grid solar around the world because solar businesses are taking financing into their own hands. To make products more affordable, solar businesses have been implementing direct financing programs through micro-loans, leases, and consignment models. But one of the biggest challenges with customer financing has been the associated logistical cost for receiving repayments from customers living in remote areas without electricity. Now, because of the recent growth of mobile money systems, new direct financing approaches like the “Pay As You Go” (PAYG) model have emerged, allowing people to pay their solar energy payments via their cell phones. Leading names of the PAYG model include Simpa Networks, Angaza Design, and Azuri Technologies, and they’re quickly gaining traction.
However, getting products to people who need them wouldn’t mean much if they break easily. Quality assurance remains a key challenge as more and more companies that manufacture and sell affordable solar products emerge with the hope of filling this enormous market demand. A recent McKinsey study projects 40-50 gigawatts of potential solar projects in the off-grid and isolated grid markets, presenting a huge financial opportunity. This means that the number of competing companies will keep increasing.6 Fortunately, the clean energy community has taken action to ensure quality products are getting to the right hands. Most manufacturers of high quality products provide warranties and work with distributors and retailers to set up village maintenance hubs and provide after sales service. To prevent market spoilage with bad products, Lighting Global—a joint World Bank and International Finance Corporation initiative—has developed quality standards for solar lighting products and shares their product test results with energy practitioners around the world. Clean energy entrepreneurs are also very active when it comes to sharing their field experiences and discussing best practices for solar light distribution in hard to reach places. (A visit to luminanet.org, the social network for the global off-grid lighting community, provides strong evidence of this.)
Who Will Finance the Off-Grid Solar Revolution?
Any clean energy entrepreneur will tell you that a principal challenge to achieving scale is access to finance. While decentralized solar solutions create affordability for the customer, the financing burden typically falls on the solar companies. Because solar projects are capital intensive, they require debt financing to scale. This might mean inventory finance for shelf-like products or project-oriented working capital for microgrid projects. For example, the former is needed because companies must wait for the duration of the payback period to recoup their sales revenue, a period that could be as long as 36 months for some products. The subsequent working capital burden stifles growth and dramatically slows the sale of additional products. Without working capital loans, companies are unable to expand, let alone maintain inventory, even when demand for their product is high.
Banks and traditional financing institutions have yet to step up to the plate and lend to solar companies serving low-income customers in emerging and developing markets because they are deemed too risky. There have been a few attempts by microfinance institutions to enter the space by offering end-user financing, but they often lack the capacity and know-how to do so. Hence, these off-grid solar companies represent the “missing middle” and have limited financing options. To solve their financing burden, alternative solutions are needed.7
Solving Energy Poverty through Participatory Finance
The company I work for, SunFunder, has a mission to propel off-grid solar energy around the world. A few months ago, Audrey Desiderato, my colleague and co-founder of SunFunder, spent some time out in the field with Off-Grid:Electric, an off-grid solar company based in Tanzania, where she currently lives and where only 15 percent of the local population is connected to the electricity grid. She attended a training session for their M-POWER agents where they were asked why they want to become agents and sell solar lighting and cellphone charging devices to their community to earn commission. Their responses (translated from Swahili), were:
“I want to give people an alternative to save them from the harmful effects of kerosene.”
“Solar is a solution that fits all parts of the community—both rich and poor people.”
“I’ve seen in my village that children living in houses with M-POWER solar energy study more.”
Energy access touches on all aspects of people’s lives and produces immediate economic, health, education, and environmental benefits that are noticeable and fairly easy to measure. But delivering modern energy solutions is not a one-size-fits-all, vaccine-like program; it requires a deep understanding of local market needs, appropriate technologies, robust distribution channels and innovative payment mechanisms. This is why decentralized solutions are key, so each can be tailored to local context. Hence the challenge and opportunity of energy poverty then belongs to local problem solvers, i.e., entrepreneurs who are already on the ground working out different effective models.
Those local problem solvers are exactly the type of people that SunFunder champions. We are solar finance and international development practitioners, designers, programmers, and entrepreneurs. Our goal is to support off-grid solar companies in developing countries by helping them overcome their lack of access to finance. The United Nations has declared 2014 to 2024 as the Decade of Energy Access, but we are not of the opinion that meetings, press releases, and grand new programs provide us with a measure of progress towards energy for all. Instead, we measure progress through the number of families who have leapfrogged from firewood, candles, and kerosene straight to solar-powered LED lighting solutions.
Our solution is simple:
- We meet, vet, and select high-quality impact partners that need working capital finance to reach more households.
- We allow anyone in the world to make loans to these companies through our crowd-lending platform and network of investors.
- Companies get access to affordable debt finance; investors get repaid within 12 – 24 months: and more households have solar energy.
In just over a year, SunFunder’s community of crowd-lenders has funneled over $130,000 into 10 projects that benefit over 50,000 people. The combined efforts of everyone in the SunFunder community have helped families in the Philippines, Zambia, Uganda, Kenya, and Tanzania switch from kerosene to solar and leapfrog the electricity grid. It’s truly a global collaboration: our team comes from the U.S., France, India, Indonesia, and Colombia; our SunFunder community consists of over 500 individuals from 34 countries; and each one of our seven solar partners operate out of more than one country.
Our impact thus far covers only a small slice of the energy needs of 1.3 billion people. But we firmly believe that decentralized solar energy solutions are effective approaches for the world to ensure the “all” in the UN-backed initiative Sustainable Energy for All by 2030. While our efforts may be a small step to get there, many small steps lead to big accomplishments, which in this case is to lift more than a billion people out of energy poverty.