There is a growing need for improved energy access across the Global South. Billions of people, mostly in Africa and Asia, lack access to electricity and/or rely on dirty fuels and biomass for cooking and heating their homes. The electrification trend shows progress in Asia; in Africa, however, 90 million rural households will still be “off the grid” by 2030. Lack of access to affordable energy and dependence on rudimentary technologies has serious consequences for the environment and human health, both in the short and long-term. Formulating, implementing and enforcing new approaches to energy access is an ongoing challenge in underdeveloped and emerging markets. The space is ripe for innovation and commercial opportunity.

The problem

Four billion people—more than half of the world’s population—spend US$500 billion a year on energy, making energy the second largest market after food at the base of the global economic pyramid. Half of that $500 billion is spent on fuel for cooking. 1.2 billion people worldwide are completely cut off from the electricity grid, while many people living in electrified areas confront unreliable, unaffordable, or unobtainable grid power. In turn, for lighting and heating, the energy poor rely largely on dirty, expensive and inefficient sources of power like kerosene, diesel generators, even second-hand car batteries. Off-grid energy users also spend an estimated $3 billion each year on mobile phone charging. Why so much? Because there are 600 million off-grid cellphone users worldwide.

Energy poverty is often perceived as a rural problem, but rapid urbanization worldwide often compounds energy access issues for the world’s poor. Emerging markets struggle to develop urban infrastructure at the same rate as population growth. In turn, the high demand for fuels in urban areas affects fuel costs and scarcity, which sometimes leads to community conflict.

Energy poverty at its current scale has numerous negative impacts. Environmentally, the need for off-grid cooking fuels contributes to deforestation from firewood collection and charcoal production, and to significant carbon dioxide and other greenhouse gas emissions when those fuels are burned. Health-wise, because many people cook over open-fires—often indoors—exposure to smoke and fumes leads to chronic and acute health conditions, including respiratory disease and low birth-weight in children. Indoor air pollution is also responsible for an estimated 3.5 million premature deaths each year.

There are economic impacts as well. Access to quality lighting in the home or workplace, for instance, is linked to increased economic opportunity. That applies across generations, as well: children’s ability to study at home by lamp light or spend less time collecting firewood increases their learning potential and long-term opportunities.

Product landscape and revenue models

To solve the problem of energy poverty, numerous renewable off-grid energy solutions have been and are being developed. Small scale renewable energy technologies typically cater to three major needs: cooking, lighting and electricity. For cooking, the most common technology is clean or “improved” cookstoves, and to a lesser extent, biogas stoves. For lighting and electricity, solar systems are the dominant product offering, either in the form of individual solar lanterns for lighting or small rooftop solar systems for household or community power use. Alternative renewable technologies like small-scale wind turbines and micro-hydropower products are still in a nascent stage of development.

The uptake of clean cookstoves and solar lighting products has been supported by global partnerships and standardization initiatives, like the U.N.-backed Global Alliance for Clean Cookstoves and World Bank-backed Lighting Global initiative. Standardization for other forms of small-scale renewable power remains underdeveloped and challenging. In the biogas sector, most guidance is directed at a national rather than international level; countries in the early stages of biogas adoption typically look to more advanced biogas markets for guidance. For instance, most biogas burner designs can be traced back to an original burner used in the Cambodia National Biogas program. Most biogas standardization efforts focus on locally built brick dome biodigesters over other product varieties.

For new technology development, research still predominantly takes place in highly advanced economies; India and China are increasingly active in renewable energy research, however. Falling production costs and increasing product diversity in the solar lantern and clean cookstove sub-sectors is redirecting companies’ and organizations’ competitive differentiation strategies away from new product development and into distribution.

Additionally, new sales models are emerging. Fee-for-service and credit-based repayment models, whereby products like solar lanterns or cookstoves are sold over a short payback period, are becoming increasingly common to cater to customers with different financial needs and constraints. These models promise customers savings in the form of lower household fuel expenses or at-home cell phone charging (instead of paying for service at a charging kiosk.) For community-scale energy solutions, customers are being offered the option to pay for usage rather than having to buy the equipment outright. Usage is typically calculated by smart meters while payment is made via mobile money.

Providers are also recognizing that appliance leasing (for televisions, refrigerators, etc.) is a growing business stream, particularly in urban markets. Experts point to increased smartphone adoption as a source for this trend: increased exposure to global digital media is leading to greater lifestyle aspirations among unserved and underserved energy populations. In short, people want to experience the conveniences and pleasures that they see others experiencing. The smartphones themselves are serving this interest, and will partly replace televisions, radios, cameras and wifi-routers. Increased manufacturing efficiency for consumer electronics, particularly those suited for low-voltage, off-grid energy sources, is making other “aspirational” products more affordable and accessible. Between smartphones and other energy-intensive devices and appliances, the off-grid renewables sector will have to accommodate customers’ increased charging needs.

Bundling solar lighting, electricity and biomass products into a single energy offering would make energy solutions more accessible and affordable.

Expected trends

Payment models for off-grid solar products

In the immediate term, several topics are ripe for expanded research and development in the off-grid renewables space. First, there is an evident gap in research related to biogas and micro-hydro products; opportunity exists to conduct and publish research on emerging technologies. Second, while there is a robust clean cookstove sector, additional efforts to understand local cooking customs could yield new devices and better device adoption. It would also drive understanding of the impacts of indoor air pollution on human health, and potentially lead to even cleaner burning cooking solutions.

More broadly, growing political and institutional support for clean and renewable energy access is leading to an increase in policymaking designed to stimulate renewable energy markets. There are still plenty of policies in place that inhibit renewables growth, however. These include: the absence of feed-in tariffs; the presence of import-taxes on manufactured or energy products; subsidization of non-renewable energy sources; and the presence of national utility monopolies that perceive decentralized energy generation and distribution as a threat. Private companies and multinational corporations continue to lead most emerging markets governments in renewables research and development as a result. Examples of industry leaders include: Philips and Panasonic, which are developing consumer energy products; Total, which is growing its fuel distribution network; and Schneider, which supplies business-to-business energy solutions.

Where government is playing significant role, however, is in funding the so-called “pioneer gap” between research and development and product commercialization, particularly for startup product developers. These developers often struggle to obtain investment funding in the early stages of design and launch. NGOs operating in the renewables sector are also increasingly behaving like small businesses, particularly those backed by impact investors. Investors are applying pressure to NGOs they support to achieve financial sustainability alongside their programmatic impact.

Finally, the international community is dialing up its support for renewable energy in a big way. The U.N. has included global access to clean, reliable and affordable energy one of the 17 Sustainable Development Goals. Meeting this goal will require trillions of investment dollars between now and 2030—the goals’ deadline. Advanced economies are expected to play a part, even though most of the energy poor live in emerging economies. Indeed, the United States pledged $7 billion to the Power Africa initiative, to which off-grid energy expansion is a major component. Private capital is also upping its commitments: large philanthropic organizations like the Bill & Melinda Gates Foundation are increasing funding for R&D on energy-related issues like clean cooking, which are not funding priorities in advanced economies.

This research was conducted by TNO on behalf of Engineering for Change. The complete visual highlights and full report are available here.