Digest Africa Analysis: Can Clean Energy Startups Solve Africa’s Poor Energy Access Problems?

The 7th UN Sustainable Development Goal is affordable and clean energy. This goal aims to ensure universal access to affordable, reliable, and modern energy services by 2030. Globally, 800 million people lack access to electricity of which about 75% are in Africa. The average electricity access rate in Africa is 43% which is less than half of the global access rate of 87%, according to the 2019 Africa Energy Outlook.

There has been tremendous work done to bring electricity access to millions of Africans with both governments and the private sector doing their part. The number of people accessing electricity for the first time doubled from 9million a year between 2000-2013 to 20million between 2014-2019, a rate that outpaces population growth. The number of people without electricity in Africa hit an all-time high of 610million in 2013 and declined to  580million around 2019.

According to the 2019 Africa Energy Outlook Report, Nigeria with 77million, the Democratic Republic of Congo with 79million, and Ethiopia with 60million have a combined 216million people without electricity, representing 37% of those across the continent. West Africa, with 174million people, is the region with the most number of people without access to electricity followed by East Africa with 165million and Southern Africa with 131million. In terms of electricity access rates, the best performing Sub-Saharan countries were Seychelles and Mauritius that have up to 99% of their population accessing electricity, followed by Cape Verde with 96%, South Africa with 94%, Gabon with 92%, Kenya 85%, and Ghana with 85%.

The worst performing countries were DRC with 9%, the Central African Republic with 3%, and  South Sudan with only 1%. The lack of electricity access constrains modern economic activities, the provision of public services, and the general quality of life. It also limits the adaptation of emerging technologies in banking, education, agriculture, and finance.

For Africa to meet its energy needs by 2030, it will need to triple the average number of people getting access to electricity for the first time from the current 20 million to 60 million annually. Failure to do so, 9 in 10 people across the world without electricity will live in Sub-Saharan Africa in 2030. Grid electricity across the continent is plagued by failures. There is a need for a major overhaul and big investment for it to meet and fulfill the energy needs of people and businesses. And governments have not been particularly good at making this happen due to high levels of corruption and incompetence across the continent. The solution might be private sector off-grid energy startups.

Globally, cleantech startups are providing alternative sources of energy for households and factories. This is different in Africa. These startups are improving electricity access rates by bringing electricity to rural and remote areas as well as low-income households in urban areas for the first time. Africa is blessed with natural resources like the wind at the coasts and all-year-round sunlight for the majority of countries. Advisory firm Kleos Advisory estimates Africa’s renewable energy market to be valued at $24 billion per year. Investors have taken note of this opportunity and have backed energy startups across the continent.

The energy sector has raised $700m since 2015, according to Digest Africa data. Only Financial Services ($1.7bn) and E-commerce ($947m) have raised more across the same period. The Energy sector ranks fourth with 214 deals behind Financial Services with 535 deals, E-Commerce with 250, and Health Technologies with 221 deals.

Across various African countries, energy startups rank among the most funded. In Kenya, 5 of the 10 most funded startups are energy startups. These are D.Light, M-Kopa Bboxx, Greenlight Planet, and Azuri Technologies. They have raised a combined $650m which is 65% of the amount raised by the 10 most funded startups there. 

In Nigeria, Lumos Global (5th), Starsight (15th), and Rensource (16th) rank in the top 20 most funded startups. They have raised a total of $176m.In Ghana, PEG Africa is the most funded startup there with $56.54m raised. It is joined by Redavia ($898k) in the top 10. Even in small venture capital economies like Ethiopia, HelloSolar is the 6th most funded startup having raised $1m. In Uganda, SolarNow ($17.8m) is the 2nd most funded startup in the country behind asset finance startup Tugende ($24m)  but ahead of payments solution Neopenda ($1.51m). In Rwanda, OffGrid Box has raised $3.7m and is the country’s 4th most funded startup. This pattern continues in other Sub-Saharan countries.

Renewable energy will make up half of Sub-Saharan Africa’s energy generation by 2040, but as Africa grows, so will its electricity needs. 43% of Africans in 2040 will belong to the middle or upper class. Their spending capacity will increase and so will their electricity needs. It is estimated that Africa’s electricity needs will increase by 1,600 terawatt-hours(TWh) by 2040. 

The clean energy startups will need to tap into this potential and valuable investment must be made into the sector. These startups in Africa are only able to raise 20% of the funds that they need per year and the majority of this funding goes to startups with an expatriate as a founder or cofounder because they have connections to investors in New York, Silicon Valley, or Europe. Investors will need to cast the net wider and increase their appetite for risk by funding local entrepreneurs.

The pay-as-you-go model employed by most energy startups across Africa needs a lot of investment to break even. This model is very important in fighting the lack of energy access because of its affordability. A customer deposits a certain amount in the region of $30 to get a full solar system that costs between $500- $1,000. The customer takes the system home and pays the rest in installments using mobile money for a year or two. In some instances, the solar system is installed for free or at little cost and the customer pays a small monthly fee of about $7.

Energy startups will also need to lobby governments to give them some relief when it comes to taxes and other investment perks. Most of the solar systems and batteries sold in Africa are made in China. Governments should ensure these panels are made in Africa so that the cost can go down. This will be by giving out land in industrial areas to investors to build such factories and tax holidays for these companies to break even faster and also charge less for each panel than those manufactured abroad. With time, off-grid solar systems can also be added to the national grid.

It is highly unlikely that the clean energy startups can single-handedly solve Africa’s energy access problems, but they can be well equipped to solve it much better than governments probably will. The potential is there: the question is, how much of it will be tapped into? This will go a long way in answering how far clean energy startups can solve Africa’s energy access problems.

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