Electrification offers big business for SMEs
The development of a stable, reliable and sustainable electricity grid is fundamental to the African growth story, but while large-scale infrastructure projects are critical, we must not ignore the opportunities available to small and medium-sized enterprises.
According to the African Development Bank, 640 million Africans have no access to electricity and if one looks at Sub-Saharan Africa excluding South Africa, per capita consumption is just 180kWh compared to 13000 kWh per capita in the US and 6500 kWh in Europe.
While the problem is clear, it is very difficult for a small business to see an opportunity unless the rest of the ecosystem is aligned. What is your motivation to invest if regulation, access to capital and a lack of political will are going to hold back investment in the sector?
In this regard, I believe that all SMEs currently operating or aspiring to operate in the energy sector should familiarise themselves with UN Sustainable Development Goal 7 (SDG7): Ensuring access to affordable, reliable, sustainable and modern energy.
When the goal was announced, the core issue was that 3 billion people rely on wood, coal, charcoal or animal waste for cooking and heating while indoor air pollution accounted for over 4 million deaths per year. The current energy mix accounts for around 60% of total greenhouse gas emissions, despite the adoption of renewable energy solutions across the globe.
The starting point for tackling this challenge is ensuring that there is sufficient generation capacity for the grid and this has seen a number of large infrastructure projects being commissioned. While generation is important, we must not lose sight of the two other elements in the electrification journey: Distribution and Transmission.
When looking at the African continent, we need to remember that many countries operate a centralised parastatal controlled power grid responsible for all 3 of these elements. These models are not fit-for-purpose in the changing energy ecosystem particularly after the COVID-19 pandemic has put enormous financial pressure on State-Owned-Entities (SOEs).
A country like Uganda has understood that its electrification challenges are multi-faceted – what works in the city will not be as effective in rural communities. This has led to the establishment of the Rural Electrification Agency whose mandate it is to find innovative ways to connect rural households to save electricity solutions. A simple example here is that 1 out of every 5 Ugandan households can’t afford to wire their in-house electricity safely. Subsidised training and deployment of electricians to support this, means that the cost of electrification for consumers, drops while creating a safer electrification network.
If one considers that only 26% of rural Ugandan households are to be connected by 2022, this represents a clear market opportunity.
In a similar vein, “Smart-metering” solutions are becoming an increasingly popular tool for management of supply and demand as previously un-connected communities are being added to centralised grids. The installation and maintenance of these solutions are an ideal opportunity for small businesses to carve out their niche.
Off-grid solar and roof-top installations are other perfect examples of where SMEs have an opportunity to benefit. The South Africa roof-top solar market is expected to grow by 9.5% per annum up until 2026 while UK-based consulting firm Kleos Advisory believes that the African off-grid solar market could be a $24bn per year market.
Innovators like Azuri Technologies are shaking up the African continent with “Pay-As-You-Go” solar solutions which allow you to create further off-grid solutions which are now rolled out in over 12 countries in Africa.
“Microgrids” and battery storage solutions are also becoming more popular as the technology advances. Founded in 2011 PowerGen is a Namibian-founded business with a growing presence in Africa. They have developed a variety of Microgrid solutions which connect over 120 communities daily with solutions which are “digitized, decentralised and “decarbonised”.
Businesses who are able to deliver solutions of this nature will perfectly align with SDG7 and be a catalyst for small businesses, creating a win-win solution for the ecosystem.
Africa is tired of being left in the dark and Absa looks forward to working with innovators in the energy sector who have identified solutions to change the trajectory of the continent. DM/OBP
Daily Maverick © All rights reserved