Grid operators are wondering how to transition to a distributed, low-carbon electricity system, but such systems are already taking shape in Africa and bringing energy and prosperity to the masses
RADICAL CHANGE
The energy transition demands an overhaul of the way western energy systems are designed a commercialised
AFRICAN TEMPLATE
Clues to the future could come from Africa, where distributed grids are increasingly the standard
KEY QUOTE
The future of energy may be forged in Africa
South Australia in November 2022 demonstrated how evermore extreme weather patterns will affect electricity grids and why traditional electricity networks are not prepared. The state saw its biggest blackout since 2016 as fierce storms trashed the electricity network. Around 163,000 homes and companies lost power after more than 423,000 lightning bolts hit the ground in a single morning. State utility SA Power Networks had more than 500 reports of fallen wires, but the main cause of the blackout was a failure on the grid interconnector between South Australia and Victoria. Flooding on the River Murray was set to make things worse, SA Power Networks warned on November 11th, 2022. The river inundated surrounding areas later that month. “The higher the flows the more disconnections that will be required and once disconnected it could be weeks or even months before power can be safely restored,” said SA Power Networks’ Paul Roberts.
FRAGILE GRIDS Half a world away, Germany was also bracing for grid outages. Wary of fuel shortages arising from the conflict in Ukraine, German authorities were considering contingency plans to move money around the country if cash machines were to be put out of action by power cuts, newswire Reuters reported. These examples show how traditional grids are increasingly falling short of their duty to provide constant energy supplies. Once hailed for their reliability, fossil-fuel power plants are now subject to energy security concerns, resulting in high electricity prices and interruptions in supply. The immense scale of these generators has major consequences for the grid in the event of a fault. Similarly, the hub-and-spoke topology of traditional grids, with electricity transported over long distances via overhead lines, makes them vulnerable to climate impacts such as those seen in Australia.
DISTRIBUTED BENEFITS This picture is changing with the advent of distributed renewable energy, where the energy you consume might come from your rooftop solar array as much as from your grid connection. Producing power close to where it is consumed means there is less danger of major blackouts. Rooftop solar is now competitive with grid supplies in many parts of the world and if your panels fail then nobody else is affected. Utilities and grid operators in developed economies know their grids will ultimately be more distributed and renewable, but transitioning their infrastructure to deal with this shift is not easy. You cannot simply rip out a traditional grid and replace it with a distributed one.
NEW OPPORTUNITIES As well as changes to the grid architecture, distributed grids come with new business opportunities—such as peer-to-peer energy trading—threatening to upend the well-established commercial models that developed economy power networks are built on. However, there is a continent where such grids and business models are already entering the mainstream. Sub-Saharan Africa is home to three-quarters of the almost 800 million people worldwide who currently do not have access to electricity. As this changes, African nations are adopting decentralised, low-carbon grids out of necessity—rather than a desire for innovation.
GAP IN THE MARKET For many in this region, energy is a luxury rather than a commodity: in a year, the average Nigerian uses less than a third of the electricity consumed by an average American fridge. Getting electricity to these people using a developed-nations grid model is hard because utilities in Africa mostly do not have the money to spend on poles, cross-country wires and large generation assets. Distributed generation is expanding to fill this gap. In March 2022, analyst firm Wood Mackenzie estimated that up to a fifth of the $350 billion that could be spent on sub-Saharan electricity networks will go into off-grid systems. “Decentralised, bottom-up, solar-and-storage grids could not only reshape Africa’s energy future but carry important lessons for the next generation of thinking on utility business models globally,” says the report. “The future of energy may be forged in Africa.”
MARKET DRIVERS There are three trends driving energy adoption in sub-Saharan Africa, according to Wood Mackenzie. The first is massive population growth: while most other regions in the world will see shrinking populations over the coming decades, the number of Africans will almost double, to more than two billion, by 2050. Growth will continue past 2100. Another trend is rapid urbanisation, with metropolitan areas accounting for 80% of the region’s population growth. This will roughly triple the size of many African cities, with 13 of the world’s 20 largest urban centres expected to be in Africa by 2100. Finally, four-fifths of the economies in sub-Saharan Africa are expected to double their gross domestic product by 2050, with Ethiopia, Kenya, Mali, Mozambique, Tanzania and Uganda among the world’s fastest-growing nations. All this means Africa will have a voracious appetite for energy. Electricity demand, which has already doubled in the last 15 years, will grow four times by 2050, Wood Mackenzie believes. Even as countries such as Mozambique rush to exploit fossil fuel reserves, regardless of the environmental consequences, the big winner in this stampede for power will be solar.
SOLAR CONTINENT Almost half of Africa’s grid supplies will come from solar power by 2050, Wood Mackenzie predicts, with roughly another fifth being provided by wind. Off-grid, solar is expected to largely oust diesel generation, which currently exceeds grid-connected power capacity in at least 17 African countries. This could free up large amounts of cash since diesel costs currently add up to $20 billion a year, or around 80% of total electricity spend—even though generators only cover 7% of total electric demand. Solar energy costs a fraction of what Africans pay for diesel. In South Africa, for example, the levelised cost of electricity from diesel is around $0.45 per kilowatt-hour (/kWh), while for solar it is less than $0.05/kWh. The reason solar is not being adopted more quickly is that the upfront cost of panels is higher than that of generators. Cost remains an issue for solar adoption in developed economies too, but in Africa, new business models are emerging to overcome this problem. These typically involve mobile payments, giving developers steady revenue streams to support “build, own and operate” business models avoiding the need for capital expenditure on the part of customers.
UTILITY 3.0 As of 2020, such digital business models had helped bring clean electricity to an estimated 370 million consumers across sub-Saharan Africa, Wood Mackenzie says. There is also demand for solar energy in the commercial and industrial buildings sector, creating a market that Wood Mackenzie estimates could be worth $62 billion by 2030. The analyst foresees this off-grid solar demand creating utility models that are ahead of those seen in more developed regions. Whereas utilities in developed economies are seeing the emergence of what Wood Mackenzie calls Utility 2.0, characterised by customer-owned, behind-the-meter energy generation and storage, Africa is moving straight to Utility 3.0. “Off-grid electricity service provision—initially for residential customers beyond the grid through the pay-as-you-go business model—is becoming an enabling mechanism for a host of other goods and services,” says the firm.
DRAWING INNOVATION This market evolution offers important lessons for how energy providers in developed economies might drive revenues in future. UK-based start-up Bboxx uses a single technology platform and payment scheme to deliver everything from solar energy to electric motorbikes. “The reason we picked Africa as a location for what we consider to be an extremely sophisticated form of technology is that, in many cases, Africa is leapfrogging to a new era,” says Bboxx’s Mansoor Hamayun.Leapfrogging is something Africa is good at. It did so in telecommunications, passing over traditional wireline networks in favour of mobile. More recently, it has also leapfrogged in finance, moving straight to mobile payments. Now, as distributed generation spreads across Africa, it is forcing developers, regulators and grid operators to manage electricity systems with millions of power plants instead of dozens. “That is the future of energy everywhere,” Hamayun says. “That changes the fundamental technical architecture,” he says.
GREATER INTERACTION African power provision is leading to new modes of interaction between utilities and their customers. In developed economies, the customer rarely sees a utility worker—the companies try to minimise interactions to save money, carrying out most functions remotely. This distant relationship often does little for customer relations and makes it hard for utilities to cross-sell or up-sell services. In Africa, if a rooftop solar array or battery breaks down then someone must go out and fix it. “When you have physical assets installed at the household, you’re invested into the household because part of your company’s assets is sitting inside someone else’s home,” Hamayun says. “That relationship can unlock other services.” Having established a foothold in African homes, companies such as Bboxx can offer value-added services ranging from internet connections to household insurance, he says. Plus, they can do so cost-effectively because they already have customer relationships, field personnel, billing platforms and so on.
EFFICIENT OPERATIONS The reality of having more assets spread across a entire region means power providers are also under pressure to work as efficiently as possible. With distributed generation, “You can’t send your best engineer to a power plant anymore because that will be horrendously expensive,” Hamayun says. “You have to predict problems before they happen.” In practice, this means using tools such as digital twins that are only just beginning to be deployed in developed-economy utilities. “Many people in London might be able to afford inefficiencies like paying an extra hour of someone’s time to figure out what’s wrong with something,” says Hamayun. “That sort of luxury doesn’t exist in Africa. You have to be extremely cost-efficient.”
UNIQUE CHARACTERISTICS Energy policy in Africa is also more advanced than many would imagine, Hamayun says. In Europe, for instance, installing solar and batteries is a lifestyle choice, whereas in Africa policies are skewed towards supplying the poorest sectors of society. The African context is notable for two other features, Hamayun adds. One is that African customers tend to be more informed about energy issues than their counterparts in developed countries. “Energy [there] is not a given, it’s a struggle,” says Hamayun. The other feature, born out of the necessity to scale rapidly and efficiently, is that Africans are aware when certain initiatives fail and “people’s willingness to try something different is quite high”, according to Hamayun. “That results in an ability to do things much quicker.” This is not to say that Africa does not have serious energy problems. The continent is struggling to meet the electrification needs of millions of off-grid customers.
MINI-GRID POTENTIAL A November 2022 industry roadmap published by energy systems developer Husk Power Systems claims the mini-grid industry needs to grow tenfold to meet the United Nations’ sustainable development goal of universal energy access by 2030. “In spite of the urgent need, the mini-grid industry has yet to produce a profitable company,” says the roadmap’s lead author Brad Mattson of Husk Power and the Africa Minigrid Developers Association. “There are strong signs that the industry is maturing, but remaining barriers to sustainability and scale require a new level of ambition and clarity, and a proven formula with quantifiable metrics.” Nevertheless, “In Nigeria, Uganda and other parts of Africa, we’re already seeing governments recognise the potential for distributed mini-grids to relieve the burden on physically struggling utilities,” says Husk Power’s William Brent. “These grid-interconnected mini-grids also deliver better service and can strengthen grid resilience. Mini-grid developers are also more advanced than many utilities in integrating technologies like machine learning and smart metering,” he adds. The question is whether utilities and grid operators in developed markets can learn from this experience. “Developed markets like the United States seem to have forgotten that their rural energy infrastructure started with collective-owned distributed grids,” says Brent.
CARBON NEGATIVE “Just like agriculture is going back to the future with regenerative practices, hopefully utilities will do the same with distributed energy,” Brent says. Hamayun says some power providers in developed economies are already taking note, with companies such as EDF of France and Mitsubishi of Japan taking part in Bboxx initiatives and being able to experience the company’s innovations first-hand. They could be in for an interesting time as African markets evolve. Notwithstanding Africa’s significant challenges, Hamayun says there is massive potential, particularly if carbon credit markets get involved. “A household that chooses to go solar and do clean cooking offsets six tonnes of carbon per year,” Hamayun says. “In other words, some of our customers are the first global citizens that are becoming net zero. They can become carbon negative. Where we build things in a sustainable way, Africa has the potential to become the first carbon-absorbing continent on Earth. That makes Africa super important to us all,” says Hamayun. •
TEXT Jason Deign