Gesper Mndeme is a 31-year old farmer, father, and part-time business student in Tanzania. He used to stumble through the pre-dawn darkness by way of a flickering candle to prepare the morning meal for himself and his daughter, Sunny. A kerosene flame from an old water bottle lit their 200-square-foot hut while emitting plumes of toxic smoke. Now for less than the $1 he used to spend daily on kerosene and candles, he and his daughter enjoy two LED lights, a cell-phone charger, and a radio. The soft sound of local Tanzanian rhythms fills the moist morning air as he prepares cassava and vegetables.
Worldwide, 1.3 billion people live without access to electricity, while another 1 billion experience significant rolling blackouts. Nearly 97 percent of them live in Sub-Saharan Africa and developing Asia, and lack of reliable electricity creates a massive drain on education, manufacturing, and retail. More than 50 percent of businesses in Sub-Saharan Africa identify electricity as a major constraint to their operation compared with just 27 percent citing transportation.
But that soon will change. The confluence of five dynamics will electrify the continent within a decade. These include the rapidly declining price of solar energy, increased battery capacity per dollar, the proliferation of mobile phone commerce, innovative consumer finance techniques, and creative for-profit business models. Here’s a look at each:
1. Cheaper solar electricity. Swanson’s Law, which states that solar cell prices fall 20 percent for every doubling in industry capacity, is finally beginning to play out. Lower prices for solar panels in the developed world make this renewable energy competitive with electricity. This competitiveness fuels a virtuous cycle of increased spending on R&D, which further decreases panel prices.
The price per watt of solar electricity has decreased 44 percent since the end of 2011, and all trends point to even lower costs with economies of scale. Sub-Saharan Africa is ideal for solar energy, as it receives more solar radiation than almost anywhere else in the world. Lack of infrastructure and ineffective public energy bureaucracies make it unlikely that the 85 percent of Africans off the national grids will ever connect to them. Just as cell phones displaced landlines in the developing world, solar energy will bring electricity to the masses, displacing kerosene and candles.
2. Greater battery capacity per dollar. Since consumers typically require the most electricity at night, they a need low-cost, high-capacity battery to store energy from the sun. Thanks to the R&D efforts of trail-blazing companies such as Tesla, the cost of lithium ion batteries has decreased 42 percent since 2009 and is expected to decrease another 70 percent by 2020. It is finally possible to combine basic battery technology with photovoltaic energy to create home systems that even bottom-of-the-pyramid consumers can afford. Off Grid Electric, an early stage venture in Tanzania, utilizes this combination to offer 2-5 LED lights, a cell-phone charger, and a radio at an all-in cost of 65 cents per day. The company has doubled its users in the last year and aims to light a million homes by 2018.
These gains in solar and batteries mean that Gesper Mndeme can enjoy the benefits of home lighting for 40 percent less than the kerosene that dirtied his clothes—and lungs. Approximately four million people worldwide die each year from illnesses attributable to household air pollution. Children younger than five account for 50 percent of premature deaths from fuels such as kerosene.
3. Industry disruption worldwide. The proliferation of smart-phones, and with it mobile money, offers extensive business and social opportunities. Approximately 75 percent of the world’s population uses a smart phone, and research estimates that there will be more phones (approximately 7.3 billion) than people by the end of 2015. Companies such as M-Pesa in Kenya are connecting to historically dormant consumers through the use of mobile money, and by providing customers with an easy-to-use, phone-based payment mechanism, rural solar companies can lower their costs and quickly reach operational scale. This option was not available five years ago.
4. New financing mechanisms. With the expansion of mobile money comes PAYGO financing. Lack of collateral and credit history have been a massive impediment to credit extension in the developing world, and PAYGO financing offers a creative work-around. In Africa, customers can pay 10-30 percent of the overall product cost, and then buy pre-paid energy on a daily, weekly, or monthly basis with the potential to own a solar system in 3, 5, or 10 years. Meanwhile, companies such as d.light have partnered with large-scale employers such as Del Monte Foods to utilize an employee’s future salary as collateral for energy purchases; d.light sells a solar lantern to the employee, who pays it off in subsequent pay periods. These creative financing mechanisms allow the poorest consumers to maximize their purchasing power and begin building credit history.
5. New business models. The maturation of the solar market in the developed world, pioneered by companies such as Solar City, has provided a template for rural electrification. This has led to additional venture and commercial capital funding—off-grid solar companies raised $63.9 million in 2014 and a staggering $42 million in January 2015 alone. These companies now sit with the same venture capitalists that advised their predecessors in the developed world to tackle impediments such as last-mile distribution, asset finance, and customer acquisition. These companies have transitioned from nonprofit or social enterprise status to purely for-profit companies focused on efficiency and accountability.
In that small neighborhood on the outskirts of Arusha, dusk has given way to darkness. Gesper Mndeme flips a switch, and light floods his home and the adjacent courtyard. His daughter sits down to translate Swahili into English, and outside, children imitate football players, neighbors discuss the day’s events, and a vendor sells ripe bananas. Africa is moving from darkness into light—and it is only the beginning. A group of Western-educated social entrepreneurs are harnessing the local-level knowledge and expertise of their developing-world counterparts to build innovative, for-profit business models that leverage the mass proliferation of mobile technology. They are transforming the off-grid landscape, but their successes and failures will inform social entrepreneurs in social sectors ranging from financial inclusion to government transparency. Their trail-blazing path may one day serve as the primary business model for social change around the globe.