Africa’s last-mile electricity problem cannot be solved by markets alone

Africa's final stretch of electricity access remains an uphill battle that market forces alone cannot resolve. The first households to be connected are relatively easy to reach, as they are close to existing infrastructure, consume enough power to justify investments, and have steady incomes. However, the remaining population faces unique challenges.

They may reside hundreds of kilometers from major transmission lines, move frequently due to pastoralism or refugee status, or earn irregular incomes unsuitable for conventional financing. Extending power lines to these customers often costs more than the electricity they're likely to consume over several years.

Benjamin Gitonga, a director at climate finance platform Nithio, emphasizes the need for governments and development financiers to accept a market mechanism that is typically avoided: providing funding to customers even before they become economically viable. "Concessional funding for these projects is crucial for their success," Gitonga stated during an episode of Voices & Visions.

The issue becomes cyclical. People require electricity to generate income, yet energy companies need customers with income to justify supplying electricity. This loop is particularly difficult to break for Kenya. Despite years of spending on national grid extensions and rural electrification programs, Gitonga points out that certain populations make conventional infrastructure particularly difficult to implement.

For instance, pastoralist families may move settlements, rendering grid connections ineffective. Solar panels, batteries, and portable systems could be more suitable in such scenarios, but merely replacing the grid with decentralized energy does not solve the financing problem.

While Kenya has successfully employed pay-as-you-go (PAYGO) models utilizing mobile money infrastructure, these arrangements only work when customers can reliably pay. As companies extend their reach into poorer and more remote communities, the question of whether customers can consistently pay becomes increasingly critical. Gitonga uses the term "bankability," referring to the "willingness and ability to pay."

A household might be asked to pay a daily fee of KES 10 ($0.077), but the financing model still assumes the household will reliably find that KES 10 for months or years.

The challenge becomes even more pronounced for the poorest households without electricity, phones, formal credit, or substantial disposable income. Commercial solutions are almost impossible to apply, as they lack income to borrow for a solar kit. Without electricity, their ability to generate additional income may also be constrained. Gitonga explains that effectively, such individuals need funding, an energy product, or a form of financing before the market can begin working.

This situation necessitates a reversal of the usual approach to infrastructure investments. Typically, investors look for demand to build supply. However, in Africa's last-mile electricity market, supply may need to precede meaningful demand. A light bulb or a few phone chargers may not seem like substantial demand to conventional investors, who are reluctant to invest heavily in generation and distribution while waiting indefinitely for consumption to increase.

Nonetheless, the absence of initial infrastructure prevents the emergence of shops, workshops, refrigeration businesses, and other electricity-dependent enterprises. The true measure of electrification should go beyond simply counting connections, focusing instead on the potential economic activities that electricity enables.