CASE STUDY

Electricity is the foundation of the modern world. In an era when artificial intelligence can put expert knowledge in every pocket and satellite broadband can connect villages far from fiber networks, the tools that power daily life and economic progress depend more than ever on reliable, affordable power. 1 Decades of technological progress and falling manufacturing costs have turned the economics of electricity on their head. Today, solar is being deployed faster than any other power generation technology in history. Combined with battery storage, it offers new potential for energy security and independence. In sub-Saharan Africa, a decade of bottom-up investment in distributed renewable energy much of it led by a generation of private operators willing to test new models and backed by concessional capital willing to take new risks – has brought the technology to maturity and proven its viability in communities that traditional electrification models had left behind. Yet levels of electricity access on the continent remain stubbornly low. Africa is now the epicenter of energy poverty and absolute gains are not keeping pace with population growth. The easy wins of grid densification have been made and private solar companies, having struggled to scale, are concentrating on higher-demand, higher-value customers. Rural communities, which account for 82 percent of the region's off-grid population, are being left behind as private capital pulls back and the pace of new connections slows. 2 For policymakers, businesses, financiers and development partners, developing solutions to address these low-access areas at scale requires a fundamentally different approach. The customers served to date have generally had greater ability to pay and lived in denser or more accessible areas; the next wave is poorer, more rural, more dependent on agriculture. What drives the cost of delivering electricity sustainably is not just the hardware but the service around it: installing, maintaining and running distributed energy assets across difficult terrain, at low density, for customers with limited ability to pay. The current subsidy models built around the cost of hardware do not address the long-term cost of keeping the lights on. The geographic challenges and household budget realities are largely fixed. But they are exacerbated by a structural problem in how the sector is financed. Globally, electrification has been treated as a social and national infrastructure imperative, underwritten by the state. In Africa, constrained budgets have limited the public backstop, leaving a gap that small-scale distributed solar has tried to fill. As a result, the companies providing these solutions operate in an unstructured market, where they and their financiers bear demand, payment and currency risks. This has too often led to poor outcomes for customers and investors alike. The result is that for private sector interventions, capital costs are roughly two times that of infrastructuregrade financing. Fragmented delivery and short-term incentives make this worse: most companies don’t have the scale or density of deployment needed to bring costs down, or the balance sheet stability to focus on continued long-term energy access for the poorest customers. The cost of that inefficiency is ultimately passed to the consumer in the form of expensive power solutions, limiting uptake. As things stand, many rural African households cannot pay the full cost of access to reliable and adequate power. If sector actors are to succeed in delivering service at scale that is reliable and affordable, new models are needed for financing and delivering electricity to the people who need it most.