By Mary Beliveau, Fall 2016 Fellow
The global economy is transitioning to the use of clean, renewable, sustainable energy sources, which are forecasted by the US Energy Information Administration to be the fastest-growing power sources for the next quarter-century. For this transition to occur, renewable projects need to attract investors to fund capital-intensive projects without the use of government subsidies. One area of the world that is beginning this shift towards renewables is Sub-Saharan Africa, where the majority of people are not connected to a traditional energy grid. Companies operating in areas without grid infrastructure are developing innovative technology to supply the huge demand for energy. These companies have combined local production with novel technology to attract investors and scale operations. Their approach differs vastly from the status-quo wholesale distribution system used in developed countries today. Implementing methods adopted in Sub-Saharan African may be the key to scaling renewable energy projects in the United States.
The original incentive for renewable energy implementation was the need to reduce carbon emissions to mitigate the impact of global climate change. However, micro grids have recently become popular in Sub-Saharan Africa, where this incentive is secondary to the need to provide electricity to individuals not connected to the grid. Micro grids are an excellent alternative to grid development because of comparatively low upfront costs. Costs remain low because micro grids are able to eliminate the need for costly distribution: communities, or even individual houses, can fulfill the function of a traditional utility by producing and supplying their own energy. African systems can benefit from decentralized implementation, which increases energy access without the upfront capital investment needed to build a grid distribution system.
This form of local, decentralized generation has the potential to be viable in the US as well. Altering regulation to allow individuals and communities to rely on local production for energy needs would decrease the cost of energy significantly by eliminating the need for distribution altogether.
Although local generation is clearly an economically and environmentally viable alternative to wholesale distribution, renewables continue to have minimal market penetration, only accounting for 13% of US electricity generation in 2015. How can we increase the scale of renewable energy projects? One potential solution can be found in technology being piloted by companies operating in Sub-Saharan Africa.
Innovative businesses such as Powerhive, a solar distribution company that builds solar-powered microgrids in the developing world, use integrated software to gather energy usage and grid function data. Their two-pronged revenue approach focuses on collecting data to understand consumption patterns and using this data to attract future investments and promote micro grid-friendly policy in emerging markets. Being able to view consumer data and accurately project future ROI quells the skepticism of investors and governments and attracts new money to the space. Powerhive used data gathered through its technology platform to demonstrate “microgrid reliability, acceptance by local governing bodies, financial solvency, and safety.” As a result of this proof of concept, Powerhive’s fully-owned subsidiary was granted concessions to operate as the first privately held utility company in Kenya. This data could enable Powerhive to securitize and sell micro grid projects to investors in the future, which would transform a bundle of renewable projects, each delivering power to 200 people, into a financially lucrative operation.
The use of energy data analytics to attract renewable project investors is a relatively novel concept for the entire planet. However, the technology necessary to track and store consumption data is being adopted much more rapidly by energy companies in the developing world. This is mainly due to the lack of pre-existing infrastructure, which allows companies to introduce data collection technology when building systems rather than retrofitting existing ones. Integrating data analytics into solar projects being built in the US could ensure that these projects are more attractive to investors and therefore more scalable.
We have the power to reshape and rebuild our current electricity system. Rather than reinvent the wheel, the US can begin by incorporating successful approaches used around the world. Countries in Sub-Saharan Africa have developed micro-grids that have increased access to energy by producing close to the source and attracted investors by using technology to understand their customers and prove their reliability and effectiveness. When looking towards the future, we can turn to African developments in localized, market-driven energy consumption for fresh ideas to revamp our antiquated energy system and welcome the next generation of renewable energy.
Mary Beliveau is a Fellow with the Clean Energy Leadership Institute and a Research Assistant with ICF International.