The Economist: Private firms are driving a solar revolution in SA – BizNews

African poverty is exacerbated by energy poverty, with 600 million people lacking access to electricity. Solar power offers a solution, as evidenced by South Africa’s increased solar capacity and reduced blackouts. The growth of decentralized renewable energy (DRE) is creating jobs and improving lives. However, legacy utilities face challenges, and extending grids remains crucial for broader electrification. The solar revolution in Africa could transform economies and provide global lessons.

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From The Economist, published under licence. The original article can be found on www.economist.com

© 2024 The Economist Newspaper Limited. All rights reserved.

Unreliable grids and falling costs are persuading companies to go off-grid ___STEADY_PAYWALL___

African poverty is partly a consequence of energy poverty. In every other continent the vast majority of people have access to electricity. In Africa 600m people, 43% of the total, cannot readily light their homes or charge their phones. And those who nominally have grid electricity find it as reliable as a Scottish summer. More than three-quarters of African firms experience outages; two-fifths say electricity is the main constraint on their business. If other sub-Saharan African countries had enjoyed power as reliable as South Africa’s from 1995 to 2007, then the continent’s rate of real gdp growth per person would have been two percentage points higher, more than doubling the actual rate, according to one academic paper. Since then South Africa has also had erratic electricity. So-called “load-shedding” is probably the main reason why the economy has shrunk in four of the past eight quarters.

Solar power is increasingly seen as the solution. Last year Africa installed a record amount of photovoltaic (pv) capacity (though this still made up just 1% of the total added worldwide), notes the African Solar Industry Association (afsia), a trade group. Globally most solar pv is built by utilities, but in Africa 65% of new capacity over the past two years has come from large firms contracting directly with developers. These deals are part of a decentralised revolution that could be of huge benefit to African economies.

Ground zero for the revolution is South Africa. Last year saw a record number of blackouts imposed by Eskom, the state-run utility, whose dysfunctional coal-fired power stations regularly break down or operate at far below capacity. Fortunately, as load-shedding was peaking, the costs of solar systems were plummeting. Between 2019 and 2023 the cost of panels fell by 15%, having already declined by almost 90% in the 2010s. Meanwhile battery storage systems now cost about half as much as five years ago. Industrial users pay 20-40% less per unit when buying electricity from private project developers than on the cheapest Eskom tariff. In the past two calendar years the amount of solar capacity in South Africa rose from 2.8gw to 7.8gw, notes afsia, excluding that installed on the roofs of suburban homes. All together South Africa’s solar capacity could now be almost a fifth of that of Eskom’s coal-fired power stations (albeit those still have a higher “capacity factor”, or ability to produce electricity around the clock). The growth of solar is a key reason why there has been less load-shedding in 2024.

Read more: SA farms are embracing solar energy, kissing Eskom goodbye

Other Africans often point out that they have had load-shedding for much longer than South Africans. About half of African firms rely on diesel generators; in Nigeria their capacity is almost four times what the grid can reliably supply. But change is afoot: nearly two-thirds of mines in sub-Saharan Africa produce renewable energy or are in the process of installing renewables. In Nigeria, the phasing out of petrol subsidies last year accelerated a shift to cleaner energy. In a symbolic acquisition in 2022, Shell, an oil giant present in Nigeria since 1937, bought Daystar Power, a startup that has provided solar-power systems to many large domestic businesses.

Over the past decade the number of startups providing “distributed renewable energy” (dre) has grown at a clip. Industry estimates suggest that more than 400m Africans get electricity from solar home systems and that more than ten times as many “mini-grids”, most of which use solar, were built in 2016-20 than in the preceding five years. In Kenya dre firms employ more than six times as many people as the largest utility. In Nigeria they have created almost as many jobs as the oil and gas industry.

“The future is an extremely distributed system to an extent that people haven’t fully grasped,” argues Matthew Tilleard of CrossBoundary Group, a firm whose customers range from large businesses to hitherto unconnected consumers. “It’s going to happen here in Africa first and most consequentially.”

Ignite, which operates in nine African countries, has products that include a basic panel that powers three light bulbs and a phone charger, as well as solar-powered irrigation pumps, stoves and internet routers, and industrial systems. Customers use mobile money to “unlock” a pay-as-you-go meter. Yariv Cohen, Ignite’s ceo, reckons that the typical $3 per month spent by consumers is less than what they previously paid for kerosene and at phone-charging kiosks. He describes how farmers are more productive because they do not have to get home before dark and children are getting better test scores because they study under bulbs. One family in Rwanda used to keep their two cows in their house because they feared rustlers might come in the dark; now the cattle snooze al fresco under an outside lamp and the family gets more sleep.

In April the World Bank and the African Development Bank launched a flagship scheme to expand electricity access in sub-Saharan Africa to 300m additional people by 2030. The World Bank suggests that under its most cost-effective scenario roughly half of those would be connected via off-grid, dre systems. But since the costs of solar kits are still prohibitively expensive for some of the poorest people in the world, the bank and donors are planning to subsidise the upfront costs through programmes that pay dre firms to set up in remote rural areas. The bet is that this, together with more policy certainty from governments (around, say, repatriation of profits and future plans for the grid), can bring in more private investment.

Read more: 🔒 Solar power giants are providing more energy than Big Oil: David Fickling

Yet there is a limit to how much can be done by avoiding legacy utilities. The World Bank reckons that the most cost-effective way to electrify the other half of its 300m target is by extending existing grids. Many African utilities have monolithic structures—in the jargon, they control the generation, transmission and distribution of electricity—long “unbundled” in other parts of the world. Most are, in effect, insolvent: more than half in sub-Saharan Africa cannot cover their operating expenses, partly because governments insist on setting consumer tariffs below the cost of supply.

The spread of solar may make things even worse for them. Some analysts suggest Eskom could enter a “death spiral” as its best customers go off-grid. Other utilities are perhaps even more vulnerable. Kenya Power receives 54% of its revenues from roughly 700 entities, less than 0.01% of its total customers.

A few utilities are changing with the times. Namibia, one of the sunniest countries, last year made it easier for private producers to sell electricity into the regional power pool. It sees its future role as more of a platform for the buying and selling of electricity than as a generator and distributor. But others are resisting change. Senegal, Mozambique and Tanzania, for instance, still tangle up dre firms in red tape. Other countries are hoping that the “geopolitics of solar” will mean that foreign powers seeking influence in Africa will pay to build the solar plants that their bankrupt utilities cannot otherwise afford, argues one industry veteran. In May Mali, which last year welcomed the Wagner Group of Russian mercenaries, announced that a subsidiary of Rosatom, a Russian energy giant, would build west Africa’s largest solar plant. It is hard to see any purely commercial investor having gone for such a project.

That is one eye-catching aspect of Africa’s solar revolution. But most of the continent is undergoing a more subtle—and significant—experiment in decentralised, commercially driven solar power. It is a trend that could both transform African economies and offer lessons to the rest of the world.

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