The four barriers for the diffusion of solar energy technologies in Africa: Trends in Kenya
The diffusion of Modern Energy Technologies (MET) in Africa has been found to be very low especially for solar energy systems. The installed solar PV capacity in Africa is a major issue of concern globally. This low trend in technology adoption is of global interest because Africa enjoys some of the best solar radiation levels in the world averaging between 4-6kWh/m2/day for most of the year. It was initially speculated that the low uptake of solar technology was associated with the continent’s high poverty levels and low awareness of and limitations in technical capacity; nevertheless, the introduction of Mobile Telephony Technology (MTT) has cast some doubt on those speculations due to the rapid assimilation and diffusion of the technology in several African countries. Lack of suitable environment, lack of affordable funds, lack of awareness and lack of capacity building seems to sum up the barriers to PV penetration and thus explain the African PV paradox whereby the best served countries in terms of solar radiation are the lowest in terms of PV installations.
The diffusion of solar and other modern energy technologies (MET) in African countries is considerably low with the solar penetration rate rising from 1% in 2010 to between 3% and 4% in 2013. Paradoxically, countries on the African continent that lie within the Sunbelt region are exposed to the best solar radiation regime globally, receiving between 4 and 6kWh/m2/day in most months of the year.
The Sunbelt is defined as the region of the planet that is found within ± 35o latitude. Incidentally, despite having the best solar resource, this region makes up only 9% of the global installed PV capacity today. Moreover, the Sunbelt region is home to 75% of the world’s population and represents 40% of the global electricity demand. In essence, the region has the highest demand for electricity services today and 80% of the expected global electricity demand growth will come from Sunbelt countries. In addition, a survey carried out by the European Photovoltaic Industry Association (EPIA) in 2010 into 66 countries within the Sunbelt region revealed that the region actually had the potential to achieve an installed solar PV capacity of 1.1TW by 2030. However, the EPIA report indicated that several changes and actions would be necessary in order for such an ambitious capacity to be achieved. This projection is pegged on significant changes in the regulatory issues in the 66 Sunbelt countries as well as significant drops in the LCOE from solar systems.
In the past, the poor diffusion of MET in the developing countries – particularly in rural or remote areas – was attributed to poverty and ignorance. However, recent market dynamics have challenged this theory in that the Mobile Telephony Technologies (MTT) industry has had great success in market penetration in the same environments and under tougher conditions due to the lack of subsidization or donor support.
In order to identify major challenges of solar technology diffusion in Africa, a review of previous documentation into the subject of the penetration of METs in Africa was undertaken. Special emphasis was placed on solar energy technologies and the limitations of adoption in the Sunbelt region as opposed to the regions outside the sunbelt zone that have had better performance in the implementation of solar energy projects, despite having limited solar energy resources.
Once the challenges on the global scope had been identified, more reviews were carried out to find out what the specific challenges were in the regional settings. These reviews saw the evaluation of factors affecting the penetration of MET in Kenya and Uganda. As it was identified that the penetration of METs was significantly surpassed by the diffusion of MTTs, a study of the factors that contributed to such a variation was warranted. For this study, a review of research carried out to investigate the diffusion patterns of the MTTs versus the METs8 was undertaken in order to compare the two technologies and pick out key lessons.
The four challenges facing diffusion of METs
The limited diffusion of solar technology in Africa can be attributed to a wide range of factors associated with players on every level of the value chain from the end user through to the investors. Despite the global viability and growth in the solar energy market in the developed world, African countries continue to lag behind, representing less than 1% of the market demand for solar energy.
A study carried out in Kenya in 2013 (Lay et al., 2013) sought to define the cross-sectional energy ladder as it applies to the choice of lighting fuel in Kenyan households. The various factors affecting this fuel choice were examined, and were found to include education level and income bracket of the household heads, the average household expenditure, ownership of the dwelling, potential grid access, rural/urban setting of the household and the prevalence of solar home systems (SHS) in the area. The leading factors affecting the transition from traditional to modern fuels for lighting were found to be the income levels, level of education and proximity to existing SHS. These results were corroborated with other studies in order to zero in on the larger factors at play in the African countries. Furthering Africa’s research into the penetration of Pico PV lighting systems in rural Africa, a similar array of challenges were unearthed, including Access to Finance, Distribution Challenges, Consumer Education, Market Spoilage due to substandard products, Government Policies and After Sale Support. Consolidating the factors listed in these reports, we found that the challenges affecting the growth of the solar energy industry in Africa can be grouped into the following four categories:
1. Enabling environment
2. Access to finance/affordability
4. Access to technical support services
1. Enabling environment
An enabling environment refers to the prevalent conditions in a country or region that support the growth of the industry in question. The enabling environment is mostly a function of the national government and regulatory bodies. National policies are an effective way to gauge the viability of a business model from one country to another. In Europe and the US, several solar energy projects came to realization due to subsidies and tax breaks as well as other supportive policies in the early stages of development. In 2012, nine of the 10 leading countries in solar power installations saw a drop in small-scale investments in the industry because their governments cut back on subsidies.
Kenya’s Energy Regulatory Commission (ERC) develops new energy generation centres based on the Least Cost Power Development Plan (LCPDP). The latest version of the LCPDP, released in March 2011, covers the 20-year period from 2011 to 203115. Methodologically, the report utilizes a least-cost planning approach aimed at delivering the required level of electricity supply at any given point in time at the lowest overall economic cost. Looking closely at the LCPDP for Kenya, it is clear that there is no provision for the generation of electricity from solar energy resources at any point in the projected 20-year period. The decision to omit solar energy sources from the electricity supply projections was based on previous assumptions that rendered solar too expensive in this setting. The LCPDP consequently stresses the “great potential for the use of solar energy throughout the year because of [the country’s] strategic location near the equator” in its current state, the plan limits the solar energy applications to SHS, solar water heating and other off-grid uses in rural areas far from the grid.
This exclusion clearly sends the message: “We are not interested in Solar Energy!” to the industry. However, this stance is changing because of support for solar energy from the European Union (Africa EU Energy Partnership) and the Powering Africa from the American Government.
2. Access to finance/affordability
Access to finance has been defined as the most significant challenge to the penetration of solar energy technology in Africa. The effects of limited financing options are felt on all levels of the distribution value chain from the manufacturer through to the importers, distributors, dealers and finally the end user11. The lack of detailed information about the solar industry in African countries is a major impediment to foreign direct investment. Limited awareness of market trends and rates of return along with the fears of political instability raises the risk elements for investors. These factors lead to the development of a ‘High Perceived Risk’ level that results in overall investor uncertainty. However, in 2012, investments into the solar industry in developing countries went up by 19%, resulting in the introduction of $112 billion into the market. This was the highest ever investment in solar energy in Africa.
The limitations of Access to Finance can also be attributed to the Cost of Capital which has emerged as a major impediment to the growth of the solar energy in developing countries. Cost of capital is the cost of the funding used to finance a business and is dependent on the mode of financing as well as the policies at the firm or lending organization. It is usually determined by the ratio of the cost of equity to cost of debt capital used to finance the venture. It has been found that in Africa, high interest rates combined with the cost of technology and foreign expertise have greatly affected the cost of capital for solar energy projects. Nevertheless, in 2012, the share of foreign investment in the African solar industry rose significantly by up to 19% with Kenya being one of the major beneficiaries. At the same time, investment in the US and Europe dropped a notch due to policy uncertainty and cuts in subsidies on renewable energy. These emerging trends could significantly affect the cost of capital in the region and further lower the LCOE of solar energy.
Furthermore, with strategic negotiations and financing models, larger solar projects can achieve a lower cost of capital in Kenya as well as the rest of Africa.
Consumer education has been highlighted as one of the top three challenges facing the penetration of PV systems in rural areas in Kenya and the rest of Africa11. There is a great need to raise the awareness levels of the target market of the energy generation options available and their benefits, as well as the hazards involved with using the more dangerous dirty fuels to light their homes. The shortage of entrepreneurial skills and entrepreneurial capacity in the energy sector8 has limited the marketing of solar products and other METs to the end user.
Finally, the aspect of awareness that is most challenging to overcome is caused by Market Spoilage. Market Spoilage occurs due to the presence of substandard products in the market. In a study carried out by the Lumina Project on LED torches in East Africa, it was found that 90% of the users experienced quality-related problems during the six-month study period19. Poor-quality products, although cheap, increase the difficulty of market penetration because the end users no longer trust the technology. In 2009, Lighting Africa began testing the quality of solar products available in the African market. The study revealed that 13 out of the 14 Pico PV products in circulation did not pass their quality tests. A second round of tests was carried out in 2012 when the number of products in the market had risen to 120. The results were similar in that only 46 of the products passed the quality tests11. Consumer education is an expensive hurdle that has to be overcome for any solar energy product to develop a client base, especially in rural Africa.
4. Access to technical support services
Availability of technical assistance in the proximity of the end users is a key factor in countering the effects of market spoilage. The presence of technicians well versed in trouble-shooting, repair and maintenance of the MET systems in the locality increases the trust of the consumers20. Due to the novelty of most of the solar energy products, it is important to develop local maintenance capacity in the area where the products are being marketed. Nevertheless, the scattered nature of BOP consumers coupled with their low buying power makes the notion of setting up service centres in the distribution regions unsustainable.
In order to develop solutions to counter the ‘African Energy Challenge’, innovative approaches towards increasing the penetration of alternative sources of energy should be implemented on all levels of the value chain. Green credit lines, tax exemptions and the introduction of concepts such as Feed-In Tariffs and net metering (both contemplated in the upcoming Energy Bill 2015), training of technicians throughout the geography of Kenya and school campaigns can help mainstream PV penetration and make Africa the next big destination for the growing PV industries of China, America and Europe.