Innovation at the crossroads of utilities & DRE to accelerate energy access for African people
After a period of quiet co-existence, decentralised energy companies and utilities are starting to work hand in hand, an auspicious sign for the African power sector
The landscape of energy in Africa is evolving rapidly as the continent faces increasingly significant economic challenges. Demand for affordable and reliable power is growing continuously, but supply remains stagnant. Decentralised or distributed renewable energy (DRE) companies face financing challenges that limit their scalability, while centralised utilities paradoxically struggle with overcapacity as distribution networks become the continent’s main bottleneck. On medium and low voltage networks, technical and commercial losses can reach up to 50%.
Historically, the DRE sector, initiated by energy access startups, has grown in disconnection with African utilities, and even governments. In most countries, the centralised and decentralised energy worlds are still living in a state of “cautious co-existence”. But as the number of off-grid and weak-grid African households is growing instead of receding, energy practitioners of all obedience need to think outside the box to decisively advance Africa’s energy agenda.
As investors in the African energy space for nearly a decade, we’re seeing encouraging developments.
In the political spheres, the recent Freetown Declaration is a good example of continued national political support for DRE as a least-cost option to advance the universal electrification agenda. The groundbreaking announcements of Mission 300 are also opening opportunities for many players. Beyond the energy access agenda, the 2024 Electricity Regulation Act effectively unbundling Eskom in South Africa sets a clear example of political drive to strengthen the existing grid and improve customer experience by leveraging the potential of distributed energy resources.
There’s already a wide variety of real-life examples of areas in which DRE companies and utilities are mutually reinforcing each other. We at Gaia Impact are particularly monitoring three very promising trends.
- C&I solar: reliable power turbocharged by wheeling
Solar rooftop C&I operators, offering reliable renewable power at no upfront costs to commercial and industrial clients across the continent, are arguably one of the greatest success stories coming out of the first decentralised solar innovation waves. Utilities initially felt threatened by those newcomers as they started to claim their best customers. But in Southern Africa, utilities start to see the very tangible benefits of distributed generation capacity. In South Africa, load relief from customers switching to solar was among the factors that allowed Eskom to turn their operations around and put an end to outages. Going forward, wheeling agreements will direct a significant piece of the C&I cake towards utilities, while massively increasing attainable market size for C&I operators. Other SAPP countries are joining in: in Zimbabwe for instance, ZPC is piloting wheeling agreements with a local startup, NeedEnergy.
- Consumer centric solutions driving adoption rates at the edge (and now at the core) of the grid
The DRE sector has long focused on key challenges that African utilities are grappling with: low uptake, revenue collection, last-mile distribution in low density areas. Innovative, customer centric solutions have been developed by solar home system distributors and mini-grids operators. Such efficient “paygo” tech stacks and client management processes are increasingly informing modernisation efforts within utilities, sometimes with the help of specialised companies such as Beacon Power Services.
Innovation can also come from utilities. The “Utilities 2.0” pilot led by Umeme in Uganda partnered with DRE providers such as mini-grids operators to train and onboard “grid ready” customers at the edge of the grid. This approach has notably been scaled in Nigeria in the recent years, resulting in healthy growth of the minigrids sector.
- Data-driven bankability of assets to secure a variety of funding sources
One of the paradoxes of the African energy sector, as a utility advisor once told me, is that “mini-grids operators cannot afford to put five customers on the same meter, but utilities do”. Rural mini-grids smart meters report usage data every second and can be operated remotely, but most urban customers are still stuck with unreliable prepaid meters, or no meter at all. As a result, “utilities are flying blind” and struggle to attract financing to maintain their distribution assets, deemed poorly bankable.
Among large energy funders, the World Bank is pushing hard for utilities to take the same data-driven approach to infrastructure operations and client management as the one the DRE sector has implemented since the onset. Things are changing fast. The Digital Energy Facility, financed by the AFD, is pairing DRE startups and utilities to foster innovative grid management solutions. 15 pilots are live across the continent, paving the way for massive smart meter rollouts, to the benefit of millions of clients.
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