1 topic, 2 key figures, 3 startups to draw inspiration from
According to Bloomberg NEF’s 2020 Climatescope findings, for the first time, renewables accounted for the majority of new capacity added (127 GW) in emerging markets (excluding mainland China and India). Indeed, many emerging countries are now embracing renewables for their environmental benefits but also their decentralized model, better suited to their situation.
Despite all the progress made, there are still 770 million people who do not have access to electricity, mostly in emerging countries. The rise of renewable energy in these countries has been made possible thanks to global financial support. Funding in these regions reached $21.3 billion in 2017, nearly double the 2010 level, according to the UN. It also coincides with a decline in the price of renewables. Some would even argue that it is now cheaper to invest in solar than coal in many jurisdictions (no climate risk, stable price, growing demand). In addition, emerging countries have a high natural potential for renewables. Ethiopia, for instance, is starting to tap into its strong hydropower capacity and has added 254 MW in 2019. With a total of 4,000 MW, it is the leading African country in terms of installed hydropower capacity today. In Kenya, the solar potential is rather high given its insolation rates, with an average of 5-7 peak sunshine hours and average daily insolation of 4-6 kWh/m2.
Therefore, in emerging countries where the infrastructure network is not yet mature and has a low coverage rate, distributed renewable energy systems are often a good alternative to connecting to a centralized grid or to relying on fossil fuels for electricity. These systems are either connected to community-level or micro-grid systems or are isolated household-level devices and systems for heating, cooking, and productive uses. The advantages of more distributed models include applicability to small and remote areas, reduced transmission and distribution losses, the allowance for direct and local private investment, local employment, and in some cases, improvements in reliability, speed of deployment, and local spill-over costs. Of the 26 million households relying on such renewable decentralized systems, there are primarily 20 million relying on Solar Home Systems (small-scale solar PV), 5 million households through renewable mini-grids; often powered by hydro energy, and the remainder through small-scale wind turbines and biomass digesters.
Thus, in emerging countries, decentralized renewable energy infrastructure is installed in place of the centralized electricity network in developed countries, as they do not have the same requirements in terms of maintenance and expected return on investment. The business models have also been adapted to the countries’ economic situation. Payment methods, for instance, are adapted to the low bank penetration rate and small payment amounts. In many countries, it is possible to pay with mobile credits or to pay-as-you-go (PAYG). Under PAYG schemes, customers typically pay a small initial fee for a solar charger kit, a portable system, and a control unit, and then pay for the energy they need, either in advance or on a regular basis according to their consumption. This payment method has spread at an average annual growth rate of 140% since 2013 – East Africa has accounted for most of this growth, thanks to a strong mobile money ecosystem. Startup BBOOX, for example,installs solar panels in households that can power up to five lights, a television, radio, torch, or a 12V battery, paid with PAYG mobile money. This is also what the subsidiary of ENGIE Fenix International offers. It provides access to energy via PAYG solar home systems to more than 500,000 customers in Africa. Additionally, with ENGIE PowerCorner, ENGIE supplies electricity to rural populations in villages across Tanzania and Zambia through smart mini-grids powered by solar energy and battery storage, used by households, local businesses, and public services. All these services are enabled by digital financial solutions such as mobile money and PAYG technologies. Finally, startup Offgridbox has developed and installed modular, compact units that provide renewable energy from solar panels on the roof and purified water in off-grid areas. 400 households can come and pay-as-they-go for drinking water and electricity.
The deployment of renewable energy in emerging countries has also benefitted from government and international organization support. It is clear that these countries do not have a sufficient national electricity network, thus governments, through regulation and financial support, participate. For instance, Kenya, Rwanda, and Tanzania all removed the VAT on solar products in 2014–2015. Another great example is the UN-supported international program Daunekhola micro-hydro system in Nepal. This micro-hydro system provides electricity and generates additional revenues for 116 households, and increases agricultural productivity thanks to the water flowing out from the system.
However, these new distributed renewable electricity models still face major challenges, which include high financing costs, lack of access to finance and long-term capital, and insufficient technical know-how for the operation and maintenance of renewable energy technologies. The Covid crisis also put a stop to this deployment, as fossil fuels and traditional industries received the majority of sovereign pandemic support. Moreover, to be sustainable in the long-term, there is still a lack of end-of-life management of these energy devices. A secondary market for small-scale renewable systems – such as PV panels – could benefit both producers and households.
To conclude, the diffusion of renewable energy in emerging countries is highly localized. Although its adoption is still scattered and dependent on regional incomes, it is best suited to local needs and does not rely on a costly and sclerotic infrastructure network. This market is surging and all actors, from local startups to Western corporations, are addressing it.
2 Key Figures
618 renewable energy in emerging countries startups
– excluding China – registered by Tracxn
Renewable energy market expected to reach $1,512 Bn by 2025
The renewable energy market was estimated at $928 Bn in 2017 and is expected to reach $1,512 Bn by 2025, at a CAGR of 6.1%
3 startups to draw inspiration from
This week, we identified three startups that we can draw inspiration from: Kingo, SunCulture, and Sistema.
Kingo is a Guatemalan start-up. It provides pre-paid solar power based solutions to rural communities without access to an electricity grid. The users of their prepaid product can connect 3 light bulbs and 1 cell phone to the system at any one time. Additionally their technology is designed and manufactured to withstand rural living conditions where dust, heat, insects, rodents and moisture are all factors in need of consideration.
SunCulture is a Kenyan start-up that develops and offers solar-powered irrigation systems. It combines solar-powered water pumping with low-pressure drip irrigation systems. The system delivers water directly to crop roots. They also offer a Pay-As-You-Grow option that allows you to pay in small monthly installments.
Sistema is a Kenyan start-up that provides biodigester to produce biogas from organic waste. The biogas can be used for residential and farming activities. They are operating in India, Kenya, Colombia, Mexico, and Nicaragua. They also offer pay-as-you-go payments.