Foster Renewable Energy Investment in sub-Saharan Africa

March 31, 2015, a diverse group of investors, entrepreneurs and practitioners gathered at a roundtable at UNICEF New York headquarters. The roundtable kicked off conversations around “the financing and business models for renewable energy solutions in sub-Saharan Africa.”  Rhys Marsh, an energy investor by trade and a member of a team that visited the Burundi Innovation Lab in summer 2014, moderated the discussion.  Below is a quick summary.

The discussion started out with a brief overview and update of energy-focused initiatives at UNICEF Burundi’s Innovation Lab. The Bujumbura-based team shared their integrated strategy for rural electrification and community engagement, where the focus is not on a technology product, but all elements of the local ecosystem. (Find out more about their work here.) Everyone at the table agreed. As a group, participants identified four parts on the value chain that could hinder the adoption of renewable energy products and services.

Four main barriers preventing the uptake of renewable energy products & services in sub-Saharan Africa:

  1. Upfront cost to customers
  2. Risks customers bear when selecting products or services appropriate to their needs and their resources
  3. Market readiness – local recognition of the value of the quality renewable energy products as well as local capacity to maintain and repair them
  4. Data and information availability – what are the daily usage or willingness to pay at the individual, household and municipal levels

Recommendations from the group:

Having identified the main difficulties, discussants shared their observations and recommendations based on their respective experiences in starting up, managing or investing in businesses in renewable energy.

  1. Entrepreneurs and investors need to understand the market

There is clearly a bifurcated market consisting of households and communities.  As a starting point, it would be helpful to examine different types of users and their usage by conducting thorough market research. When doing such research, some good questions to ask may be:

  • Who are your consumers?
  • What are the income levels of your target users? ($0-1, $1-3 or $3-5 per day)
  • How much are your target users currently paying for energy, and how much value the potential solution would add to that?
  • What are the available distribution channels?
  • What is the policy environment?

The list goes on. Knowing the market, however, is not likely to be enough to guarantee a success. Market readiness will influence the performance of business models, which leads us to the next point.

  1. Development organizations need to prepare the market

When renewable energy companies enter a base-of-the-pyramid market, the possibility of failure is high. One of the reasons is low market readiness, meaning basic infrastructure, regulatory policies and labor force etc. As pointed out by a participant, donor/aid agencies and international development organizations almost always need to prepare the market with some up-front grants before the private sector could enter the market.

  1. Both the public and private sectors need to invest in the ecosystem

Extending energy access is not an issue of money or technology; rather, it’s about creating a sustainable ecosystem.  One gap in the eco-system identified at the roundtable is local capacity to maintain and repair renewable energy products that have been installed.  As a result, products are often left unused only a few months after their installation. This means a sustainable business model may need to have a community engagement and income-generation component. More advisory or consulting services (provided by either the public or private sector) may be needed to provide consumers with information.

  1. Public and private sectors should find ways to bridge the data and information gap

Knowing the complexity of the ecosystem, how can information about individual components of the system be collected and disseminated? For example, how do we know if products and services are being delivered to the people needing them, if people are actually using them, and if the user experience is satisfactory? To obtain this information, a monitoring system to gather data cheaply in real-time is needed. Currently, only bits and pieces of such information exists.

 So… What could UNICEF’s role be in renewable energy?

 

Far from the electric grid, health centers in Burundi often rely on other sources of energy
Far from the electric grid, health centers in Burundi often rely on other sources of energy Photo (c) UNICEF Burundi/Berndtsson

 

Building infrastructure (or installing solar panels) is certainly not UNICEF’s mandate. However, UNICEF has a role to play when it comes to understanding the most vulnerable and energy-deprived communities, especially by bringing into the discourse the impact of renewable energy initiatives on children’s wellbeing.  A few points have been raised during the roundtable:

  1. Sharing of failure and success for efficiency

It is likely that someone may have figured out a good solution for a problem another person is struggling. Sharing of success stories and lessons learned helps reduce duplicated efforts and boost efficiency. UNICEF Innovation encourages the sharing and documentation of failures and lessons learned in the public domain (examples here).

  1. Leveling of data and information

UNICEF serves and communicates with marginalized populations whose needs and constraints may not be recorded or shared easily. Some of them would spend 25 cents (or up to a third of their income) per day to charge their phone and communicate with UNICEF via text messages. This unique position allows UNICEF to collect important energy usage information, such as usage hours per day, cost to income ratio etc. By doing so, UNICEF could help bring down the cost and risk of financing.

Furthermore, as people and organizations try to bridge the gap of information and data access, it will become increasingly critical to standardize the method and format of data that is being collected, so that they can be used across organizations.

  1.       Networks

With a global network of partners and the ability to communicate with end users, UNICEF could add value by linking public and private sectors, mature and emerging markets, end users and service providers, entrepreneurs and investors.

Next Steps

We will be working on a Terms of Reference for market and operational research to answer questions raised and issues highlighted at the roundtable.  This would include a landscape analysis of the market, including different segments, main players, use cases, existing business models, gaps and trends. Stay tuned.

By Zhiyao Ma

Analyst, UNICEF Innovation Unit, NYHQ

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