22 October 2015

Markets can deliver energy to millions in Africa

By Grant Shapps

Around 600 million people in Africa – two out of three – are locked into poverty because they do not have electricity. On my first visit to Tanzania after becoming a Minister at the UK”s Department for International Development, I was struck by the difference energy at home can make to a person’s life.

Demand for energy represents an incredible opportunity for global investors. In fact some are starting to wake up to this as I discovered when I met Liquid Net and other investors in New York last month.

Currently, it is estimated that Africans pay as much as 66 times more for their electricity than someone in the UK. Meanwhile, economic growth is stifled as power outages cost countries in Africa 1-2% of their annual GDP.

The benefits of change couldn’t be clearer and the impact could be huge. And the key thing is that with the latest technologies and business models, it can largely be delivered by the market.

An alignment of factors means that the time to invest in a solar revolution in Africa is now. The price of solar photovoltaic panels has plummeted in recent years, battery technology has radically improved and electrical appliances have become more energy efficient. Added to this, the spread of mobile payment systems is enabling people to pay for electricity on a micro pay-as-you-go basis, for less than they already spend on kerosene.

On current projections universal access to energy will not be achieved until 2080 and with large investment in the grid, only 40% of need will be met.

Off-grid solar presents a solution today. Clean and affordable technology, pioneered by British companies such as Azuri and MKOPA, already offers households immediate energy access.  With $70bn (£45bn) a year spend on dirty kerosene and charcoal alternatives, this is a market opportunity and it’s growing. Last year the market turnover was $300m.

The market is maturing in countries such as Kenya and Tanzania and others are starting to move.  The top firms in the sector have closed substantial funding rounds, and more are seeking to follow in their footsteps.

The UK government is committed to this sector and has already provided seed capital to stimulate private investment in East Africa since 2010 through programmes such as our Africa Enterprise Challenge Fund.

But I recognise that while the opportunity is great, the challenges can also be significant – red tape, regulatory barriers and access to finance can act as a disincentive to wider investment in solar energy in developing countries.

Earlier this year, I met with investors, including Richard Branson, whose company Virgin Unite is exploring investment in Africa, and Seth Merrin, of investment group Liquidnet, to better understand some of the concerns of potential investors.

This collaborative approach has helped shape what the Energy Africa campaign is set to achieve and reaffirms why the time to act is now. Against the backdrop of our commitment this year to the Global Goals, we have the knowledge and impetus to bring energy to millions of people in Africa.

The launch of the campaign today – alongside Kofi Annan in London – is bringing together African governments, funders and financiers, businesses and solar experts to kickstart this work. Together we can create the basis for household solar market expansion and make a real difference to the lives of millions.

Grant Shapps MP is Minister of State at the Department of International Development in the UK government.