Feeling the Burn: How a Switch from Oil to Affordable Solar Can Electrify Africa

Feeling the Burn: How a Switch from Oil to Affordable Solar Can Electrify Africa
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This week, Off.Grid:Electric, a company which delivers clean energy to people in developing countries, was recognized with the 2014 Citi Ashden Award for Innovation in Finance in London. Erica Mackey, Co-Founder of Off.Grid:Electric, and Eugene Amusin, Senior Vice President at Citi Microfinance, discuss Off:Grid's innovative approach to providing affordable electricity in rural Africa.

When the sun sets, one out of five people in the world do not flip on a light switch - instead, they light a wick, combusting oil or wax in the process. Burning oil for light is the world's most uneconomic use of fossil fuel and every year, $25 billion worth of jet fuel in the form of kerosene is used through oil lamps. While developing countries continue to enhance their currently limited grid capacity, more than one billion people have limited options.

Providing safe electricity to these households is an opportunity to improve the lives of many people, and companies like Off.Grid:Electric see this goal as critically important. Solar technology can produce a lumen of light for 335 times less the total cost. Given these economics, conventional wisdom suggests people would move away from burning oil for light - but solar adoption in Africa remains near one percent.

The reason behind this is far from obvious, and it took the founding team of Off.Grid:Electric one year of research at Oxford and another year of living full time in Tanzania to figure out. The main barrier keeping solar from being adopted is risk. Risk of poor quality, risk of damage, lack of service infrastructure, expensive loan payments, and lack of technical understanding all hinder the adoption of traditional solar energy systems.

For too many people, the challenge is that one bad financial decision can have significant opportunity costs - margins for failure are razor thin. When examining the use of mobile payments in Africa, pay-as-you-go systems reduce the risk of adopting new technology and increase the efficiency of delivering products and services to underserved communities.

Similarly in this case, eliminating risk requires a relatively simple solution: providing solar energy as a utility service, not a product. What Off.Grid:Electric does differently is that customers do not pay for lights that don't work. Models like this ensure it is the company's responsibility to keep the lights on, incentivizing them to invest in the most reliable technology and maintain a service network to respond quickly to problems.

A long term service relationship dramatically reduces the cost, both upfront and lifetime, for customers, and puts the customers' interests at the heart of the company's mission. Similar to the mobile phone industry, customers can determine their own 'payment plans' using a pay-as-you-go system of mobile money payments, which is convenient for the customer and operationally efficient for Off.Grid:Electric.

Providing distributed electricity for the 1.6 billion people who lack it could - over the next decade -become potentially as revolutionary as the mobile phone industry. Earlier this month, the U.S. House of Representatives passed the Electrify Africa Act, approving a plan to bring power to 50 million Africans through grid solutions.

There are also a half billion Africans whose homes will never be a viable option for grid power, and we need to finance inventive businesses that are targeting solutions for them too. Innovative approaches like Off.Grid:Electric's have the potential to enhance the quality of life for so many people, and that is why the company received the 2014 Citi Ashden Award, which recognizes outstanding sustainable energy leaders.

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