By Aurelien Chu and Samuel Miles
It is sundown in Warri East, a community of several hundred thousand people in southern Nigeria, and the lights have gone out again, just as the continent’s largest election results are being announced. The coughing of generators picks up as community residents prepare to be cut off from the national grid. Despite the joy and relief brought by a peaceful transition of political power, the frustration at the failure of another kind of power is palpable. Not only is fuel expensive for those lucky enough to be able to afford it, but the voltage irregularities of aging generators and the unstable grid damage the fans, phones, TVs, and fridges of unevenly-modernizing rural Nigeria. Approximately 620 million people across the African continent, and 1.3 billion worldwide, suffer similar or worse scenarios, lacking even the most rudimentary access to electricity.
Meanwhile, on the other side of the world, Tesla’s launch of home and commercial-scale battery products for U.S. energy storage markets has generated ardent buzz from media and investors alike. Philanthropist Bill Gates has recently committed to doubling his investments in breakthrough energy technologies to $2 billion in the next five years, noting the importance of storage technologies in complementing the rise of renewables worldwide. This comes at a time when the world is recognizing energy as a priority in emerging markets’ socio-economic development – particularly on the African continent.
In light of these parallel trends of renewed vigor in energy innovation, it’s well worth asking where these new storage developments will ultimately have the greatest impact, and, more importantly, what it will take to operationalize such breakthroughs in the places they’re needed most.
Massive Untapped Demand
Emerging markets have enormous demand for energy storage solutions, stemming from fast-growing populations, increasing consumption from middle and upper classes and sustained failures in public delivery. In Sub-Saharan Africa and South Asia — the two regions where rapid population growth contrasts most sharply with slow grid expansion — millions have already lost faith in public energy investments. The results are clear: in Africa, depending on the region, between 19 and 50 percent of total installed energy capacity is produced by households and businesses, representing a $1.2 trillion fuel generator market in Africa and the Middle East. Dalberg research shows that demand for products like solar-powered lamps and chargers has been growing by 90 percent annually in Sub-Saharan Africa and 45 percent in India.
Of course, a thriving small battery and inverter market currently exists in emerging economies. Unlike in the U.S., however, storage solutions have yet to attract much attention at the utility level, despite the opportunity to leapfrog the current model of electricity distribution and consumption. By creating energy storage points closer to consumption and discharging during blackouts, last-mile distributors won’t be totally dependent on grid infrastructures for supply. This is a much-needed shift, given that grids in sub-Saharan Africa are two-to-three times less efficient than the world average. Incentives to encourage last-mile distributors to experiment with such solutions would help battery makers tap into a market of customers with pre-aggregated demand suffering from supply shortages and generally dissatisfied customers — the poorest segment of which spend $5.1 billion a year on energy in Nigeria, $26.6 billion across Africa, and $350.9 billion across Asia.
Clearly No Cakewalk
While research and development investment is critical to pushing the envelope on different technologies’ capabilities, it is just as important to crack the business model that works for emerging market customers. A household in Warri East, for example, would have enough power via a single Powerwall – Tesla’s signature solar-powered home battery – to both cook and watch TV during a power cut. However, Powerwalls are far out of economic reach for most residents in Warri East, since the product retails in the U.S. at a price roughly equal to what the average worker in Nigeria takes home in a year (based on GDP per capita). Thus, storage companies aiming to capture the market will require innovative consumer research to be able to market the value of storage (likely to businesses and urban high-income earners), paying particular attention to fuel generator usage trends and integrating ‘smart’ functionalities adapted to local conditions. Winning product options will need to test a range of sizes and prices to fit various intersections of community/household power loads, intensity of use due to grid failures, and quality/cost of alternative sources in these markets.
The utility market is interesting for its own reasons. These last-mile distributors — regional or local entities charged with bringing power from the national grid to households — usually derive much of their revenue from customer payments, implying latent interest for cost-effective solutions to improve customer satisfaction. They are particularly relevant today in the context of power sector reforms sweeping across much of the developing world, the unbundling of transmission and distribution (T&D) assets and strong complementarities with renewable energy investment growth in both BRIC and non-BRIC emerging markets. To get these players really interested, the power storage value proposition will require a supportive regulatory environment, external financing, and some prominent success stories. And, as in any market, strong local relationships will help seal the deal.
The two segments of last-mile distributors and end-users, evolving on the back of growing economies, unparalleled urbanization rates, and surging energy demand, represent a critical opportunity for governments, international financing institutions, and the private sector to substantially improve living conditions across the planet.
Emerging Markets Are Ready Now
It is clear that the Global South needs energy-efficient technologies. While each market reflects unique cultural and economic landscapes, the underlying fundamentals favoring change (particularly climate-friendly, low-cost, decentralized solutions) are present nearly everywhere — from Kenya, where cheap Chinese solar panels already power shopping centers and street markets, to Northern India, where hundreds of mini-grid operators are testing their business models in rural villages and large business conglomerates. Precisely because of the size of unmet demand, decentralized energy generation and complementary storage technologies are going to find that, in the medium-term, these emerging markets will eventually evolve into a multi-trillion capital investment sector and thus an equally massive investment opportunity.
Tesla’s investment in improved energy storage solutions is just the beginning of a major shift in battery supply. Even if the first Tesla batteries are not meant for developing markets, it is only a matter of time before the next generation of products adapted to global demand stream into the Lagoses and Mombasas of the developing world – whether from the Silicon Valley, Guangzhou, or Bangalore. After all, even though Apple’s sleek smartphones captured the world’s attention, it was Samsung’s low-cost models that claimed its markets. Or perhaps the heroes will be home-grown? For a hardy entrepreneur, the need and opportunity for impact is already ripe, with millions of electrons to save and billions of dollars, nairas, and rupees to be made.
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Aurelien Chu is a consultant in the Dakar office of Dalberg Global Development Advisors with experience on projects with a variety of clients including industry associations, financial institutions, governments, and development agencies. He previously worked with the Lawrence Berkeley National Laboratory to identify energy solutions for international development.
Samuel Miles has worked with Dalberg’s Dakar office as a consultant on projects with governments, foundations, research institutions, and the private sector primarily in the areas of energy investment and the environment. He holds a Master’s in International Energy from Sciences Po Paris.
[Photo courtesy of Wikimedia Commons]