Affordable electricity is a fundamental driver of economic activity. We see this in countries where cheap electricity has allowed them to create entire industries. Iceland doesn’t have any aluminum, but is the largest producer of aluminum per capita in the world. Why? Because Iceland has some of the cheapest electricity rates in the world: five US cents per kilowatt hour (kWh) for commercial customers. Affordable electricity is critical for every scale of business, from the aluminum smelting companies in Iceland, to the 600 million people in Africa who still lack access to power. Those 600 million need electricity to light their homes and run their businesses.
For markets where diesel costs less than $1.50 per liter, as is the case in much of rural Africa, businesses cannot afford to use electricity at prices above $0.50 per kWh to run agricultural machinery like a grain mill or a water pump. Above that level, a grain miller or farmer may resort to using a diesel generator or, more likely, will do the work by hand. But the economics of rural electrification makes it challenging to provide electricity below that price, and so diesel machinery continues to dominate the rural off-grid market.
Cross-subsidized tariffs are needed to make rural electrification affordable
The cost of electricity, typically measured by the levelized cost of energy (LCOE), is much higher for rural customers than for urban and peri-urban customers. Rural customers are remote and often more dispersed, and so have higher logistics and infrastructure costs to connect and service. This is true whether electricity is provided through main grid connections, mini-grids, or solar home systems.
The U.S. International Development Finance Corporation (DFC) and Shell Foundation (the UK-registered charity) today announced a new collaboration to bring affordable renewable energy to more than 5 million people in low-income areas of Africa and Asia by 2025.
The organizations recently signed a Memorandum of Understanding (MOU) that enhances their ability to support the growth of social enterprises that deliver essential renewable energy services to people living on $2 to $10 a day in off-grid areas, with the aim to enhance income, education, health, and women’s economic empowerment.
More than 800 million people worldwide currently lack electricity, and 2.8 billion more people have unreliable access, constraining recovery from the COVID-19 pandemic and long-term economic growth. This collaboration seeks to address the lack of investment into innovative small and medium-sized enterprises, particularly those owned by, led, or supporting women, that can address this challenge.
As part of the MOU, Shell Foundation intends to deploy more than $45 million grant funding by 2025 to build a pipeline of fast-growing, high-impact businesses that deliver distributed renewable energy (DRE) to households, farmers, and businesses in off-grid areas. DFC hopes to approve up to $100 million early-stage debt and equity to support the growth of these businesses and leverage capital for further scale subject to these projects meeting DFC’s eligibility criteria.
THE WINNING IDEAS AIM TO ADDRESS THE MAJOR CHALLENGES THAT HAMPER AFRICA’S FULL DEVELOPMENT
The electrification of a health centre through renewables, a solar-powered fridge to support the cold chain of farmers, and a platform to empower women through renewable energy: these are the three projects that won the 2020 Micro-Grid Academy Young Talent of the Year Award. The three winners are Norah Magero and Elly Kevin Oriko, both from Kenya, and Eileen Phoebe Lara from Uganda, and their achievement was announced this morning by Salvatore Bernabei, President of the RES4Africa Foundation.
The Award was launched last summer by the RES4Africa Foundation, the promoter of the Micro-Grid Academy, thanks to the support of Enel Green Power: the main aim of the initiative was to reward young African talents who, thanks to particular projects and initiatives, seek to address the major environmental and social challenges that hamper the full development of African countries.
These Micro-Grid Academy students were able to make the most of the training they received, they demonstrated to be able to return and amplify the knowledge they acquired by creating a real project to bring a concrete impact in their communities” states Salvatore Bernabei, “They demonstrated their ability to think out of the box, to be the change that is needed, and I’m glad today to announce the winners of the first edition. Congratulations Eileen, Elly and Norah: you have demonstrated that empowering the youth means empowering the development of entire communities.
by Matteo Di Castelnuovo, SDA Associate Professor of Practice
ONE OF THE FUNDAMENTAL DRIVERS TRANSFORMING THE ENERGY SECTOR IS CHANGING: END USERS, WHO NOW HAVE GREATER FREEDOM OF CHOICE AND CAN BECOME PRODUCERS THEMSELVES THANKS TO TECHNOLOGY. FOR COMPANIES IT REPRESENTS A RADICAL BUSINESS CHANGE.
Who are the end consumers when it comes to energy? Their role and behavior are changing compared to the past. In a recent article, along with SDA Bocconi School of Management's Andrea Biancardi, "A New Paradigm in the Electricity Sector: Key trends and stock performance of European utilities," published in the European Energy and Climate Journal, we mapped and analyzed the six main drivers that are leading the transition to a more efficient and sustainable energy system. The first, perhaps the best known, is the decarbonization of the energy sector. The second is that of decentralization, i.e. the progressive growth in the number of small-scale electricity production plants, typically based on green technologies. The third driver is represented by digitalization, a trend common to most sectors. And the fourth is that of electrification, which is perhaps the most visible even to the layman: our energy consumption is increasingly becoming electricity consumption. The fifth, fundamental for promoting an acceleration of the rate of innovation in the energy industry, is that of industrial convergence.
This highlights how a growing number of subjects from other industries (Google, Apple, Tesla, Shell, VW, etc.) are rapidly “converging” towards the electricity sector thanks to new business opportunities that are emerging.
But there is a sixth and final driver, which is defined as the activation of the final energy consumer. In this case, we are referring to the radical change in the behavior and role of consumers, mainly as a result of the recent evolution in a few key factors: these include technological innovation (e.g. smart meters), more effective regulation of incentives (e.g. dynamic fees), market information that is easier to access (e.g. supplier apps and offer comparison sites), and a greater awareness of the environmental impact caused by energy production and consumption. Specifically, not very proactive or passive historically (e.g. with a very inelastic demand, to use an economics term), energy consumers are now gradually beginning to take action and interact with energy supply companies, but also with the market itself.