One of the most pressing developmental challenges in sub-Saharan Africa is the dire need for modern energy services among the energy-poor, low-income communities who are beyond the reach of economically viable electricity grids. Some three-quarters of Africa's rural population lack access to electricity, forcing them to rely on expensive and dirty fuels like kerosene for lighting and diesel for generators--if they can afford them at all. Fortunately, a quiet energy revolution is underway, lighting up and powering African households and entrepreneurs with off-grid solar photovoltaic (PV) energy.
Recent years have seen rapid growth in the market for small-scale solar home systems (SHSs), which comprise solar panels, batteries, inverters and a distribution board. A number of decentralised energy service companies (DESCOs) have established themselves in African markets, including M-Kopa, Off-Grid Electric, d.Light, Bboxx, Mobisol and Nova Lumos. Collectively, they have raised in excess of $360m in financing and currently provide energy services to over 700,000 customers in East and West Africa. The key to their success has been a financing model that uses the latest innovations in mobile payment systems.
Pioneering DESCOs provide integrated renewable energy solutions comprising hardware, software, distribution, and financing. The companies supply affordable SHSs in varying sizes, together with efficient LED lights, mobile phone chargers and a variety of basic electrical appliances such as radios and TVs. Several of the DESCOs launched their operations in East African countries--principally Kenya, Rwanda and Tanzania--and more recently have begun to expand in West African countries such as Ivory Coast. The companies are typically active in both peri-urban and rural settings, supplying products mainly to low-income households, but also to small business operators. Their aim is often not simply to supply products, but to forge long-term relationships with their customers as energy service providers.
To overcome the challenge of rural "last mile" distribution, DESCOs use informal local supply chains to deliver their products at the lowest possible cost. The companies use sophisticated information technology systems--including web platforms, mobile apps and two-way SMS--to communicate with their customers and to manage SHS access and operations.
The financing model requires different forms of finance along a continuum, including start-up capital...