Companies providing off-grid energy access raised over $2.1 billion in corporate financing between 2010 and the end of 2019, including nearly $470 million last year, according to new research from Wood Mackenzie.
An estimated 420 million people globally now use standalone off-grid solar, while another 47 million people rely on mini-grids for access to electricity, according to the World Bank and IFC.
However, while investments in energy access have rapidly accelerated since 2016, total volumes still fall short of the estimated financing needed to reach universal electricity access around the world by 2030.
As the 2020s progress and off-grid energy access investments continue to rise, commercial and industrial demand and integrated electrification planning will emerge as two key trends to watch in the off-grid space.
The C&I energy access opportunity
Commercial and industrial off-grid energy access will see significant growth in the 2020s.
Distributed renewables — mainly solar PV, increasingly combined with battery storage — now have highly convincing economics against costly and polluting distributed diesel for commercial and industrial demand applications.
Wood Mackenzie data shows a total pipeline of more than 500 megawatts of commercial and industrial solar under development in sub-Saharan Africa.
Globally, nearly 3.5 gigawatts of renewable energy capacity is operational or under development for powering mining applications, nearly half of which will power mines already off the grid or those looking to improve on unreliable grid power.
While many of these market segments have yet to really boom, they have already begun to shape the demand landscape for state utilities in emerging markets and redefine the utility business model for the rest of the global energy transition.
Integrated electrification planning is key
Perhaps counterintuitively, the on-grid sector must be healthy in order for off-grid to flourish.
Though solar lanterns and solar home systems are an effective solution for rural households, small-scale distributed solutions cannot power industrialization and economic growth. Utility-scale generation and grid infrastructure are also needed.
A fully distributed power generation approach and a fully centralized market sit at either end of the spectrum for integrated electrification planning. Countries that overspend and under-communicate on grid extension could shut out private decentralized utilities and ward off private capital.
Alternatively, a country without an improving state utility environment is unlikely to see macro-level offtaker income and demand for power grow over time, creating a thin and limited market for decentralized electricity.
As such, the most game-changing growth factor for the off-grid renewables sector in the 2020s will be centralized and integrated electrification planning. Togo, Senegal and Nepal are some of the countries taking the lead in this area.
A smart integrated planning process cost-effectively segments the total addressable market for affordable and reliable energy services.
Integrated electrification plans can help minimize connection costs, stranded asset risk and unnecessary competition between on-grid and off-grid players while maximizing the customer footprint with appropriate solutions for each offtaker.
Technology can play a key role in integrated electrification planning. Wood Mackenzie finds that innovative tools being are developed now to assist with the process, including artificial intelligence and machine learning to estimate least-cost electrification scenarios, map existing grid infrastructure and estimate electricity demand and willingness to pay.
Maximizing impact and energy access
Over 2 billion people worldwide still lack access to reliable electricity, and Wood Mackenzie forecasts that in Africa alone, off-grid electricity demand could be as large as 10,000 gigawatt-hours/million people by 2040.
To satisfy demand for electricity in countries where the population is growing faster than the grid, distributed renewables and mini-grid players will need to disrupt traditional utility business models at scale.
Off-grid solar and mini-grids offer a potentially faster pathway to access than traditional grid build-out alone. While the last decade saw the birth of a trillion-dollar market opportunity for off-grid energy access, the 2020s will reveal the true pace of change.
A free research insight from Wood Mackenzie outlines what the next decade will bring for off-grid renewables and energy access. Download it here.
Benjamin Attia is a senior analyst at Wood Mackenzie focused on downstream solar PV in Africa and the Middle East as well as off-grid energy access.