Addressing electricity market barriers for end-users in Africa
Over the years, development funding and energy targets have focused on gaining more supply of megawatts and connections rather than ensuring that end-users can use electricity.
For example, between 2000–2008 electricity supply expansion represented almost half of the $4 billion the World Bank approved for investment in energy access.
A new Rocky Mountain Institute (RMI) report released on Monday addresses current market barriers for end-users, and showcases the value of investing in electricity demand projects in rural Africa.
“Imagine running internet fiber to a community of homes that could not afford a computer. This is exactly like what is happening in many electricity access efforts in Africa today,” noted Eric Wanless, RMI’s Programme Lead.
Currently, in rural Africa, mini-grid companies and electricity distribution companies struggle for profitability, consumers and businesses struggle to use electricity.
In Uganda, for example, more than half of the rural concession operators are not yet financially viable, and the average electricity usage is at 185 kWh per customer/year, significantly below the sub-Saharan African average of 485 kWh per capita.
Customers cannot afford the equipment and cannot afford the electricity to run them. Thus they use significantly less energy than they could be using, hampering economic development and leaving distribution companies serving such communities in a difficult spot.
The report recommends that end-use stimulation is needed to bridge this gap.
The report, Closing the Circuit, Stimulating End-Use for Rural Electrification, showcases the value of investing in electricity demand, or end-use, offering key learnings for development partners:
- Develop financing mechanisms that help businesses and consumers better afford equipment, such as irrigation pumps, or switch from diesel-run equipment to electric, such as with flour mills;
- Reduce power costs by resizing high capacity, mini-grid power systems using electricity contracts with larger customers to sign up for electricity load before grid design;
- Provide incentives to stimulate private sector sales of electric equipment to agricultural coops, using levers such as customer education roadshows, financial guarantees to equipment sellers, and bulk purchasing agreements;
- Update national electrification programmes and strategies so that demand considerations are key alongside supply expansion.
“We believe there is an enormous opportunity for development partners, governments, and investors to focus effort on providing the financing and training needed to enable consumers to identify and afford energy efficient and productivity-enhancing equipment alongside ongoing supply expansion efforts,” said Scarlett Santana, RMI senior associate and co-author of the report.