Potential for PV to snap significant share of $40 billion distributed energy industry in frontier markets – BNEF

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On the back of research into distributed energy in frontier, or emerging, markets, Bloomberg New Energy Finance (BNEF) has found that outwith the OECD and China, the distributed energy market is worth $40 billion, of which solar comprises just 3%. Diesel generators remain the technology of choice, with 2015 seeing around 29 GW of capacity added. However, there is “considerable potential” for solar to make inroads here.

New technologies and business models have the capacity to deliver both energy to the two billion people without access to a stable electricity grid, and economic opportunities, says BNEF. New business and pricing models are key to leading these fronts.

Telecoms

Telecom towers present one of the biggest opportunities for solar in the distributed market. In particular, hybrid energy systems with solar, storage and a diesel generator are said to be the cheapest way to run the towers, of which there are said to be one million worldwide with unreliable grid access. An estimated $3.8 billion is currently spent on diesel, but according to BNEF’s cost projections to 2025, solar hybrid systems could be markedly cheaper.

With just 3% of the current market, there is big potential for the renewable energy to grow. Positive developments in this area include Orange’s partnership with Engie on repowering towers in Senegal, the Ivory Coast and Cameroon; and Mitsui’s $9 million investment in India’s OMC.

Missed opportunity

According to BNEF, powering agriculture is a “missed opportunity”. For instance, while India, which consumes around a fifth of electricity and even more electricity subsidies, has seen a dramatic 270% increase in the deployment of solar-powered water pumps between 2014 and 2016, there is still much untapped growth potential. Even more so, Africa presents a strong prospective market in this area.

“More broadly, agricultural processing powered by distributed energy could capture more value locally. It could also be easier to finance because it powers machines that produce revenue to the farmer and can service debt. Commodity companies that either buy produce from farmers or sell them fertilizer may be well positioned to run such projects,“ write the report’s authors.

Unexpected

“Unexpected” partnerships are also helping to drive electrification in rural areas, reports BNEF, with solar companies forging partnerships with everyone from the telecom, internet or satellite industries, to insurance and beverage businesses. The benefits between these unlikely pairings – pay-as-you go solar trials, WiFi-enabled kiosks, for example – include a “combination of energy, mobile connectivity, payment information and distribution channels. This is very different from the traditional utility business model.”

Another trend powering distributed growth outside of the OCED and China is micro-grids. According to BNEF, while the number of projects being commissioned remains small yet steady, the pipeline is said to be “growing rapidly,” particularly in Africa and Southeast Asia, with “at least 35 projects with a total capacity of 200 MW … announced since last January (excluding already commissioned projects).”

It advises though, that since the richest 20% of micro-grid consumers buy the most power, while ability to pay for power fluctuates, pricing models must be designed with flexibility in mind.

Pay-as-you go solar is said to be enjoying strong growth, with uptake roughly doubling each year. Latest figures show that as of October 2017, 1.5 million homes had such a home system in place.

“The sector reached a major milestone with the first acquisition of an integrated pay-as-you-go company by a major utility when Engie bought Fenix International on October 19. The industry has grown faster than most of its companies, however, as a small number of new entrants such as d.Light and Ignite Power grew rapidly. Maintaining the pace seen in the past will require the leaders to grow more aggressively,“ write the report’s authors.

Cheap smartphones that require daily charging are another area that is expected to boost distributed energy. Trade body GSMA, which represents the interests of mobile network operators worldwide, expects 300 million new smartphone users in Africa and one billion in South and Southeast Asia. BNEF says this will lead to a demand in solar chargers.

The importance of China

Interestingly, BNEF finds that countries in Asia, Africa and Latin America now collectively buy more PV equipment from China than OECD countries. India is leading this charge. “The vast majority of PV panels will be installed in utility-scale solar farms,” writes BNEF. “The small-scale and rooftop PV market outside the OECD and China was about 0.7- 1GW in 2015 and 2016.”

Despite this, the trade case in India has seen significant declines in sales, with monthly exports in July, for instance just $279 million, compared to over $700 million in March.

Africa, however, is yet to see growth in this area, with BNEF reporting that “not a single country in Sub-Saharan Africa was among the top-10 buyers of PV panels in 1H 2017.“

Generally, in Africa, off-grid, small-scale projects are more feasible – such projects comprised five of the 11 largest solar deals on the continent between this January and October – compared to utility-scale projects, which often face such issues with permitting, PPAs and land acquisition. They can also be rolled out more quickly.