Is the off-grid sector at risk?

Recently a few but well-known brands in the African off-grid industry’s went bankrupt which has raised questions on the long-term viability of current off-grid business models. The Alliance for Rural Electrification, as an entity which brings together market actors all along the decentralized renewable energy value chain, stepped up to demystify that idea and presented an article with a number of key recommendations on how to move forward and turbocharge the off-grid sector, so that SDG7 can move from being a global political goal to an actual reality on the ground.

Today there are over a billion people in the world without access to electricity, from which the majority lives mostly in rural areas of Sub-Saharan Africa and South-(East) Asia.

It has been found that the best approach to fight energy poverty and allowing local economic growth and sustainable development, the best approach to electrification, is through renewable energy off-grid systems since they are often the best fit when looking to enable productive use and interlinking sectors such as energy and agriculture or water, thus laying the groundwork for long-term local economic development.

Despite the recent shift of the public sector from providing grant-like instruments to blended finance that has incentivised some improvement in current business models, access to finance is still one of the main barriers of the sector.

Besides costly short-term venture capital, the sector faces other challenges such as the hardest-to-reach clients, market distortion due to heavily subsidised fossil fuels and central grid and often inadequate and unsupportive policies and regulations.

On the other hand, renewables have become the technology of choice and electricity is the fastest-growing source of final energy demand. In particular, the off-grid electricity access sector attracted a record USD 512 million of corporate investment in 2018, up 22% from the previous year, despite the abovementioned challenges. Indeed, distributed renewable energy systems will remain the core solution to provide power where the traditional grid is non-existent, inadequate, not cost-effective or too distant. The energy needs and corresponding market size remain enormous, and the market is giving positive signs. The International Energy Agency (IEA) has found that decentralised systems, led by solar PV in off-grid systems, will be the least-cost solution for three-quarters of the additional connections needed to provide universal electricity for all.

In essence, public investors should drive the development of innovative financing mixes, crowding in private capital, accelerate their internal procedures, and set up mechanisms to de-risk investments in the off-grid sector. Initiatives such as the recent EU External Investment Plan and ElectriFI are great examples of this. Other ideas include more public-private-partnership (PPP) pilots and result-based financing (RBF), containing a healthy combination of smart grants and concessional finance.

Decentralised renewable energy is the best and, in many cases, only option available to bridge the energy access gap and boost sustainable development for most of the 1 billion people still lacking electricity.

To achieve universal energy access by 2030, public and private stakeholders must come together now to make investment in DRE a top priority and ensure the right conditions for the off-grid market to realise its full potential and overcome persisting challenges. Decentralised energy solutions are the answer to move forward towards SDG7, and its successful development will power the future of hundreds of millions of lives.

Read the complete article here.