Markets - 29/July/2021

Emerging markets gain from the digital evolution of energy

Technology start-ups in Africa are making use of the roll-out of mobile phone networks to bring digital innovation to remote areas through pay-as-you-go models for services that can increase prosperity. For the first time, smallholders can afford solar panels for electricity while others can sign on to thriving energy-as-a-service business models that do not require an initial capital outlay

Innovation is bringing electricity services to areas of the world almost unreachable by traditional wires


 

SOLAR APPEAL To attain a secure electricity supply communities are jumping straight to solar power

DIGITAL LESSONS The unique grid conditions of sub-Saharan Africa has lead to the development of monitoring systems that are highly innovative by Western standards

KEY QUOTE For many of those people, who are just trying to secure their livelihoods and their energy supplies, climate is not at the front of their mind. But the really interesting thing is that most purely business-driven decisions these days are actually very climate-friendly

 


 

Sub-Saharan Africa exemplifies the challenges facing the energy business in many emerging markets. The vast sub-continent has little in the way of infrastructureless than half the population has access to electricitybut a pressing need to provide basic services to a growing population.

It has also been hard hit by the Covid-19 pandemic with economic activity expected to have dropped 3.3% in 2020. The need for services has sparked rapid invention and innovation. Digital projects and technology start-ups are tackling the energy transition and battling the devastating effects of climate change.

Aptech Africa specialises in providing solar systems to power water pumps in rural areas, which otherwise use dirty and expensive diesel generators. The company not only provides a clean power source but also uses an innovative business model. It began operations in South Sudan in 2011 and now has a presence in more than half a dozen sub-Saharan markets.

When it first launched, Aptech asked for a 30% down payment before installing its solar-powered pumpsbut this was a significant amount of money for some communities. As a result, Aptech developed a pay-as-you-go business model using mobile payments. “Instead of paying for the system, people just pay for the water on a per-litre basis,” says Aptech’s Laura Corcoran.

Pay-as-you-go, or energy-as-a-service, business models are gaining in popularity in emerging markets because companies and individuals rarely have access to the kind of capital required for the upfront purchase of generation technologies such as solar photovoltaic (PV) systems. Now, a growing number of mini-grids and renewable energy systems are being installed across Africa by developers that remain the owners of the system and sell electricity to customers on a utility basis.

However, these customers are not adopting renewable energy merely for environmental reasons. “For many of those people, who are just trying to secure their livelihoods and their energy supplies, climate is not at the front of their mind. But the really interesting thing is that most purely business-driven decisions these days are actually very climate-friendly,” says Svet Bajlekov, co-founder and chief executive of AMMP Technologies, a company that provides remote monitoring services for developers that sell clean energy to African businesses.

“We participate in the hybridisation of diesel with PV, moving away from diesel, [but] people are not doing that because they’ve decided they want to be climate-friendly. People are doing that because it’s cheaper, it’s cleaner and it’s more reliable,” Bajlekov says.

 

STRAIGHT TO SOLAR

The desire to secure electricity supply is compelling communities to move straight to solar power, leapfrogging the transition that has taken place in more advanced economies over the past decades. The lack of prior infrastructure creates the need for digital innovation to manage the assets.

AMMP Technologies emerged from Rafiki Power, an off-grid solutions division within German utility giant E.ON. Its service allows African renewable energy developers to remotely monitor portfolios of power generation plants. In parts of Africa it can be hard to find local people with the right skills to monitor and maintain solar plants and the associated hardware. AMMP Technologies’ systems collect information from the plants either using data loggers or by connecting to the software used by inverters or similar equipment. “If they already have an internet connection on site, we can just pull that data,” Bajlekov says.

The nature of sub-Saharan off-grid energy setups has forced AMMP Technologies to create a monitoring system that is sophisticated even by Western standards. While most industry monitoring platforms focus on a specific type of generation asset, such as solar panels or wind turbines, the AMMP Technologies software can monitor anything from a diesel generator to a battery.

“One of the reasons we’re excited to be in emerging markets is that we see innovation happening much quicker than it does in developed markets,” Bajlekov says. “Storage is a new story in Europe and North America. But if you look at the African market, storage has been there for the last decade or two, because what are you going to do without it?”

 

FINANCING CHALLENGES

Digital innovation in sub-Saharan Africa is being helped by the rapid rollout of mobile phone networks, which Bajlekov says has proceeded quickly even during the coronavirus pandemic. Other regional trends hamper the deployment of new technologies and business models, particularly the lack of access to capital.

In March 2021, research by the Centre for Climate Finance and Investment at Imperial College Business School in London found that emerging markets were missing out on investor interest in climate change and sustainability-related investments. “Unlike developed markets, where there has been a surge in green-dedicated funds, very few such vehicles exist in emerging markets,” says the report.

“As such, there is little natural demand for green bonds at present. Moreover, most of the emerging market fixed income asset class is too volatile, illiquid and risky to attract capital from dedicated developed market green managers.”

 

CORPORATE GOVERNANCE

Underscoring the need to mobilise funding, the report notes that the typically cloudy United Kingdom has cumulatively installed more solar capacity than the whole of Africa. There are several reasons why green bonds and similar sources of finance find it hard to penetrate emerging markets, including a lack of clear frameworks for achieving climate goals and what the report calls “political constraints”.

On the ground, observers confirm that poor corporate governance is an issue for innovation funding. The development of microgrids has been slow in many sub-Saharan nations because the projects are subject to regulation that was designed for large infrastructure schemes such as dams and coal-fired plants. Additionally, “Corruption is still endemic in many of these countries,” says William Brent, chief campaign officer at Power for All, an advocacy group. “There’s a lot of instability politically, there’s a lot of migration and a lot of conflict,” he adds “It is very difficult for investors to feel like they’ve got a risk profile that they’re comfortable with.”

 

SKILLS ISSUES

Another potential issue for digital innovation is a lack of tech-savvy workers. Although mobile technology is now familiar to most people in emerging markets, few have the technical skills needed for tasks such as software development. This is “both a constraint and an opportunity” according to Anthony Boden from Charles River Associates, a global consulting firm.

“New technology requires a supply chain, installation, maintenance and education on how to use the products. It takes time to develop teams but this is true with any new technology,” he says.

Indeed, one of the big benefits of digital innovation in emerging markets is not only that it can help speed up energy transition and climate change mitigation measures but that it can provide jobs and deliver economic prosperity. This is why emerging markets are still seeing high levels of innovation despite the challenges that entrepreneurs face in accessing funds and overcoming political and administrative hurdles.

 

SUPPORTING FARMERS

Projects backed by digital tools are frequently delivering environmental and social benefits even when they are not directly linked to the region’s climate or energy activities. Sub-Saharan Africa leads the world in the development of mobile payment systems, which enable the pay-as-you-go models that are helping to bring solar power to millions of households and businesses.

Another example of a non-energy-related digital innovation concept that could help in the fight against climate change is Babban Gona, a services company set up in 2012 to help Nigerian smallholders improve the yield of their land.

Recognising that smallholders are often forced to adopt unsustainable agricultural practices, Babban Gona preaches climate-smart habits such as trimming rather than felling trees and ploughing crop residues back into the soil instead of burning them. Digital innovation is key to Babban Gona’s success. “Most people think of Babban Gona as an agricultural company or a financing company but at the end of the day we are a technology company,” says the firm’s Kola Masha.

Babban Gona provides packages that include financial support, training and development, agricultural inputs such as fertiliser, and access to storage facilities and markets. This mix can help a smallholder double the profit they get from a hectare of farmland, mostly thanks to technology. For instance, Babban Gona offers smallholders a mobile app that they can use to track seed germination rates to help forecast crop yields. “We have the single largest technology organisation dedicated to smallholder farmers on the continent. In the last 18 months, we’ve developed well over 40 different applications,” says Masha.

 

Fertile land Emerging markets in sub-Saharan Africa and southeast Asia can be hubs for innovation thanks to digital tools with prices low enough to make them accessible. (PHOTO: Jason Andrew)

 

The motivation for setting up the business was to help secure an economic future for Nigeria’s youth, Masha adds. The country will see around 80 million young peopleroughly equal to the entire population of Germanyentering the workforce between 2010 and 2030, Masha says. Nigeria is already seeing rising levels of insecurity as a result of high youth unemployment.

Babban Gona is backed by the Gates Foundationset up by technology entrepreneur Bill Gates and his wife Melindaas well as various development finance institutions. It has supported 40,000 farmers in 2020 and aims to support 330,000 by 2030. In doing so, it is also helping to extend climate change mitigation measures across Nigeria.

 

INVESTING IN SOLAR

Some of Babban Gona’s tools are highly innovative, including what Masha believes might be the world’s first artificial intelligence-enabled decision support tool for smallholders. Beyond helping farmers to cultivate the land in a more sustainable way, Masha believes Babban Gona is also contributing to the energy transition. Once smallholders can earn more than subsistence wages from their land, they often look to invest in solar systems, he says.

“We’ve had examples of members going into their tenth year that started farming with us with 1.5 hectares. Today that farmer is farming over 15 hectares. If you visit his home, he’s got solar panels all over the roof, because now he can actually afford it,” he says.

On top of helping to fund the growth of solar in the region, Masha says Babban Gona may also speed up vehicle electrification in Africa. The company owns Nigeria’s largest motorcycle fleet and is pondering a switch to electric models. “It’s going to be a while before we start seeing a bunch of Teslas on the road,” he says. “But it may not be that long before we start seeing electric motorcycles and that could have a huge impact on sustainability.”

 

Growing wealth Mobile phone apps help smallholder farmers increase their crop yields, with the resulting extra income invested in rooftop solar panels for electricity. (PHOTO: Jason Andrew)

 

REAL-LIFE PROBLEMS

Babban Gona only operates in Nigeria today, but it has launched an academy programme to train entrepreneurs on how to set up similar schemes elsewhere. The concept has massive potential for Africa’s agriculture, economy and energy systems, yet it is unique to emerging markets.

Organisations such as Babban Gona are delivering surprising levels of innovation, despite challenging circumstances. They are also revealing some of the limits of what innovation can achieve. “People in the West tend to see digitisation as a cure for everything,” says Bajlekov of AMMP Technologies.

“A few years ago, we realised that it just isn’t. Across a lot of emerging markets, there are very deep problems, like a fundamental lack of basic services, basic infrastructure, poor governance and things like that. They are not the kinds of things that digitisation can necessarily solve.” •

 


TEXT Jason Deign PHOTO Jason Andrew

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