The Power of Off-Grid Power

Every decade or so, an unexpected turn of events -- sometimes technological, other times political -- fires the imagination of the global development community. A renewed sense of transformative possibilities takes hold.

The surge in microfinance during the early 2000s, for example, led to the international “Year of Microfinance” by 2005.

Off-grid renewable energy is on the verge of just such a buzz. This year has been declared the “Year of Light.” It is easy to see why.

Roughly 1.3 billion of the world’s poorest still have no access to electricity. Small-scale, off-grid renewable power, mostly solar, is now accomplishing what far too many governments in developing nations have failed to do for generations: supply remote homes and businesses with comparatively low-cost energy for basic needs.

The benefits of electricity for poverty alleviation are multi-faceted. The installation of a renewable energy source, which in some cases can now take less than a day, means that work hours can be extended, children can study longer, streets can be safer at night, and cell phones can be used for business, political participation, and health care information.

There are four drivers of this trend.

The costs of renewable energy technologies, most specifically solar photovoltaic, have dropped sharply over the past few years, and they show every sign of dropping even further. Renewable energy technology, in an ever-growing number of locations and economies, is rivaling and beating the cost of fossil fuel-based energy.

Business models for off-grid energy are rapidly evolving in ways that allow consumers to buy small, on-demand increments of power. A company such as Simpa Networks, for example, allows consumers in India to use their cell phones to pre-pay for a few hours of power while also purchasing solar equipment on an affordable installment plan. Consumers get a la carte power immediately, rather than hoping for grid-based power to reach them.

Children do their school homework under a solar light provided by Simpa Networks, a Seattle company that used OPIC financing to introduce affordable solar power technology in remote Indian villages [OPIC Photo].

The benefits of providing power are so immediate, obvious and numerous that off-grid initiatives, unlike sectors that take longer to deliver results, have been able to attract increasing amounts of grants and non-traditional sources of capital.

The single most important fact, however, is that we are witnessing the birth of a vibrant market -- an ecosystems of innovators, entrepreneurs, investors, and the green shoots of a secondary market for distributing risk. And when markets move, they have transformative, not just incremental, impact.

At a time such as this, with so many ideas and inventions swirling around in the public and private sectors, it is important that we not let the hype get ahead of the reality. The provision of energy is not simply a technological challenge. It is an economic, financial, political and even cultural challenge.

Precisely which segments of off-grid power -- portable devices, home systems, or village-scale systems -- are the most financially sustainable in the long-run is still unknown. Should off-grid systems be financed with project finance structures like other larger-scale sources of power? Will the payments of customers be aggregated and securitized as a way of decreasing the cost of capital available for these projects? These are open questions.

Many of the one billion without power reside in patchworks of small, decentralized communities and, as a result, projects lean toward being smaller and somewhat customized. This poses several problems. Legal, engineering, and other site assessment costs are disproportionately high components of project development costs. Economies of scale are difficult to achieve, making it difficult attract investors.

The off-grid market is still by any measure an infant industry for investors. The degree of downside risks for investors are difficult to assess. New products are being introduced so rapidly that the resale value of, say, a lightly-used solar panel from a project in Mozambique is almost impossible to quantify, if not zero.

Image of Earth’s city lights created with data from a NASA system used to map the locations of permanent lights on the Earth’s surface. [Data courtesy Marc Imhoff of NASA GSFC and Christopher Elvidge of NOAA NGDC. Photo by Craig Mayhew and Robert Simmon, NASA GSFC.]

 

There are legal issues. The owners of massive legacy grids, for example, may challenge the ability of off-grid generators to compete for consumers. Consumers new to electricity services may not always understand the true costs they are assuming in an off-grid system.

My agency, the Overseas Private Investment Corporation (OPIC), the U.S.. development finance corporation, has one of the most enviable mandates in the global economy. We are tapping into the dynamism of the American off-grid clean energy industry, catalyzing capital into developing nations, collaborating with our private sector partners to overcome these types of challenges, and improving lives of the poor in the process.

Even more exciting is the fact that OPIC is helping nations “leap-frog” existing economic and technological approaches to providing power, just as cell phones leapfrogged telephone land lines.

Off-grid power systems, without question, will be a cornerstone of power provision for hundreds of millions of people in the developing world, probably sooner than many predict. Challenges remain, but they will be no match for the convergence of promising forces underway.

 About the Author: Elizabeth Littlefield serves as President and CEO of the Overseas Private Investment Corporation, the U.S. government’s development finance agency.

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Comments

Comments

George G.
|
Indiana, USA
October 22, 2015

I bought. A small solar. panel to charge my mobile phone . I like. it. Free power .

Evie P.
|
Indiana, USA
November 8, 2015
For too long, so many brilliant projects and great innovators have not been discovered or cultivated for lack resources. Because of these small sources of electricity, some of the most rural parts of the globe can become connected to the developed world. While it seems like there are so many great things about this off-grid power and it's overwhelming adoption, one question that was barely touched on is: how sustainable is this growth? Are these off-grid power generators reliable? Are they a viable way to power entire towns, and eventually, entire regions? Or is this method (while seemingly great at the present moment) going to lead to deep-cutting energy infrastructure problems after it expands beyond capacity?
A home lit at night by an off-grid power program in Nigeria [OPIC Photo].
October 21, 2015

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