It is not a given that private sector investment will automatically translate into low-carbon, green growth in Africa, nor that it will support other important goals such as poverty reduction, argue Phillip Trotter and Aoife Brophy of the Smith School of Enterprise and the Environment at the University of Oxford.
For that to happen, those creating policy need to set guidelines, incentives and constraints that encourage business models which support sustainable development, they say.
Over the last five years, the researchers have done a deep dive into the off-grid energy sector in six sub-Saharan countries with considerable energy gaps – Ghana, Nigeria, Uganda, Sierra Leone, Tanzania and Zambia – studying some of the most innovative enterprises. They have distilled their research to highlight three key factors that policymakers can use to channel Africa’s growing energy sector in the right direction.
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1. Support added value, not easy access
Their research shows that simply increasing access to energy does not automatically drive sustainable development: “It’s not about the kilowatts you provide, it’s about how you enable them to be used,” say the authors.
What stood out for Trotter and Brophy was that the most impactful companies didn’t just sell units of energy; they invested in assets to actively provide energy services, enabling communities to develop and thrive.
For example, many fishing communities lack access to refrigeration, limiting their ability to store and sell products and to expand to far-flung markets. In Kalangala, Uganda, an energy company goes beyond merely supplying power to sell ice that has been frozen using electricity generated from a solar mini-grid in facilities that had been redundant for 10 years. This opens up greater market possibilities, empowering the fishers in new ways.
Trotter and Brophy found no examples of such business models in countries where policies have been either close to prohibitive (Ghana) or highly non-conducive (Zambia and Tanzania) to such innovation. In contrast, in Uganda and Sierra Leone, they found a considerable number of companies simultaneously implementing such models, despite a comparably weaker macroeconomic environment.
So, when setting policy and providing funding, the authors say it would be wise to find ways to measure added value and to remove any barriers that would hamper energy companies operating in this integrated way.
2. Use the carrot and the stick
“For innovations to make it to the marketplace, startups require financial support at the outset,” say Trotter and Brophy. “However, over the longer term, we’ve discovered that the right constraints can be just as important in driving enterprises to support the wider goals of sustainable development.”
They found that off-grid companies that were heavily subsidised tended to have a shorter-term focus and gave less thought to the broader social impact of their business but those that had to navigate additional constraints, such as a consumer price cap, were pushed to create long-term and sustainable value in innovative ways.
“So, policy makers need to create a balanced economic strategy, with short and long-term tracks, and elements of both support and constraint,” they argue. “This will ensure off-grid companies are financially supported through the early periods of experimentation; but eventually are operating in a self-sufficient, scalable way that serves society as a whole.”
3. Think like a startup
The authors found that the most innovative companies were creating their own virtuous circle by constantly finding ways to create and capture value at every level.
“As a result, they built their value propositions with community needs in mind, local businesses thrived, and the surrounding community felt the benefit through greater access to affordable and clean energy,” they write.
Ways in which policymakers could stimulate such an approach could involve bringing people together from different disciplines and departments, measuring important factors with broader and alternative metrics, and shifting the focus from fixing macro systems to creating thriving local ecosystems, they say.
New ways of thinking
The right combination of support and constraints can enable and encourage the private sector to go beyond providing basic energy access and serve multiple sector-specific and society-wide objectives simultaneously, say the authors in their main study.
“There is a tremendous opportunity in supporting the nascent sustainable energy sector to add value across the whole of society. Engaging with this opportunity requires new ways of thinking and creative policy mixes,” conclude the authors.
“It is possible to channel the power and potential of Africa’s energy boom towards progress on the Sustainable Development Goals for the continent.”
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