Unlocking the grid
There are signs that the off-grid solar generation market is about to mature – has the time come for careful investment in this sector? Pete Carvill finds out
Off-grid solar energy is far removed from the minds of many in the West – but it is increasingly common in developing countries. Clean and socially responsible, off-grid solar is lifting millions out of poverty and has the potential to do the same for countless more. It is also attracting colossal amounts of investment, and promises to remain on an upward trajectory.
Off-grid solar is produced and used exclusively on-site, instead of off-setting the use of grid energy or earning money for its owner through feed-in tariffs. According to 2019 figures, it accounts for roughly 85% of all off-grid solutions.There are three broad areas: pico, medium, and large-scale. It is important to understand the difference, since the off-grid solar market is really three different markets under one umbrella.
Pico is used to describe small devices such as torches, lamps and radios that charge throughout the day and are used after sunset. These products, such as the Little Sun Original and d.light’s A2, have made up 83% of all sales in the sector since 2010. This is also the area with the most players in it, all jostling to bring out the best products and capture the largest market share.
In the medium bracket, solutions tend to be based around small single buildings such as family dwellings, rural schools and clinics. Here, a single array with a handful of panels is installed. This area has seen heavy investment: in 2013, Coca-Cola partnered with One Degree Solar to place 100 solar-powered kiosks in Kenya over six months. Similar schemes in conjunction with organisations such as AB InBev, Munich Re, Total, Siemens and Ericsson have been rolled out across Ethiopia, Botswana, Tanzania, Rwanda, Ghana, Jordan and Bangladesh.
Large off-grid solar installations are for rural setups such mines, replacing the use of fossil fuels for power generation. The costs are amortised over a number of decades.
“Off-grid solar helps users save money and protect the environment”
This is all happening within a rapidly growing market. A recent report from Wood Mackenzie, Strategic investments in off-grid energy access: Scaling the utility of the future for the last mile, states that this technology helped 400m people gain access to electricity between 2010 and 2017. This number is expected to increase to 740m by 2022. There is room for growth, too: the World Bank’s Off-Grid Solar Market Trends Report 2020 states that market penetration stands at only 17%, and that the sector has seen investment of US$1.5bn since 2012. Figures supplied by the Global Off-Grid Lighting Association (GOGLA) state that the sector has an annual value of US$1.75bn.
Growth remains outstanding. As the World Bank report states: “Sales revenues are growing rapidly at 30% annually due to increased sales of higher-priced, PAYGo-enabled products that provide increased levels of energy service. In 2016, the industry reached a significant milestone, surpassing US$1bn in annual turnover. Since then, turnover has continued to grow rapidly to reach approximately US$1.75bn in 2019. This represents an annual growth rate of 30% over the period 2017 to 2019.”
This growth in turnover “is bolstered largely by increasing sales of larger systems, predominantly through PAYGo-enabled solar home systems, that provide higher service levels to customers.”
There is evidence that the market is seeing the investment it needs, although it is unclear whether this will be enough. For this growth to continue at current rates, the World Bank report states that investment of up to US$2.2bn will be needed during the next five years. Even so, Wood Mackenzie reports that investment in off-grid, mini-grid and universal access projects is growing steeply, with commitments rising 37% between 2016 and 2017, and 22% between 2017 and 2018. This comes
at a time when GOGLA and the World Bank’s Lighting Global programme are reporting record six-month levels of off-grid solar deployment, with nearly 700,000 solar home systems and 2.8m solar lanterns sold.
The market is now reaching a level of maturity: between 2010 and 2012, market growth was 245% a year; between 2012 and 2015, it was 79%; and it fell 2% between 2015 and 2017. The market rose again by 10% between 2017 and 2019, and has since stabilised.
Light in the dark
Across the globe, 840m people have no access to electricity, and a further 1bn are connected to an unreliable grid. Off-grid solar helps users save money and protect the environment, and its knock-on effects include economic boons such as improved educational outcomes and job opportunities in the installation and maintenance of these systems. This boon could be immense. Firstly, there are the direct savings. According to Wood Mackenzie, a utility grid connection for a rural village costs between US$500 and US$2,200 per connection, but a small-scale solar setup costs only between US$80 and US$550.
The data analytics firm 60 Decibels found that rural schools with an off-grid system were able to stay open for an hour longer each day. There are also the cost savings that come from eliminating the need for expensive, dirty, and dangerous fuels such as kerosene.
An independent energy source also means independence for consumers. 60 Decibels found that nearly a fifth were using off-grid solar for profit-making activities. In its report Why Off-Grid Energy Matters, the organisation found that “the most-common uses were power for bars, restaurants, shops, or kiosks. For solar water pumps, the use was linked to agriculture, and for TVs, business customers often ran video halls.”
The environmental impact may also prove substantial. 60 Decibels found that for the relatively low price of US$5 for a solar lantern instead of kerosene, consumers could reduce their CO2 and black carbon emissions by 461kg per year – about 10% of that produced by the average car during the same period.
The market for off-grid solar could be game-changing during the next decade. It is also a relatively nascent sector. The questions around financing run deep, and many still find their way to businesses with bad practices. However, make no mistake about the potential here. The only questions are who will harness it, and how.
Pete Carvill is a freelance journalist.