SDG 7: Ensure access to affordable, reliable, sustainable and modern energy for all
Director, Shell Foundation
There are many levels of energy access. Indeed, the UN has identified five ‘tiers’ of energy access, running from task lighting and mobile phone charging (Tier 1), to the addition of fans, radios and TVs (Tier 2), to very high power for agro-processing appliances and machinery (Tier 5).
My view is that the seventh UN Sustainable Development Goal (SDG 7), to achieve universal access to affordable modern energy by 2030, is eminently achievable for Tier 1. Tier 2 is also achievable, with the right conditions. Yet building a global market to achieve higher levels of energy access (Tiers 3 to 5 and beyond) for low-income consumers is a greater and more complex challenge, especially in rural areas.
250 million households worldwide still lack Tier 1 energy, without which there is little prospect of people escaping poverty. The good news is that advances in engineering and business innovation mean that enterprises can now offer Tier 1 energy on a viable basis, including entry-level solar lights for as little as $5. At least 40 million solar lighting products have now been sold across Africa and Asia. Bloomberg New Energy Finance forecasts that, with modest investment and the right government support1, close to 100 million low-income households could access off-grid solar before 2020.
The transformative impact of these pioneers in providing access to Tier 1 energy is too often played down. Stay in any of the thousands of villages where the day finishes at sundown, and you will appreciate what it means to have three more hours in the evening with proper light to read, study, cook and see the faces of your family.
Tier 2 for 75 million households
Inspired by the emergence of Tier 2 energy pioneers offering solar home systems, the African Development Bank announced a new goal in summer 2016 to ensure 75 million offgrid households in Africa have access to Tier 2 energy by 2025. By our estimates, this will cost at least $15 billion, or $1.6 billion investment per year. The business models for Tiers 1 and 2 energy provision have been substantially proven and the market de-risked. What is needed now is growth finance to achieve scale.
$1.6 billion per year is not expensive. Investment in grid infrastructure is set to be $66 billion each year and Africans already spend $14 billion per year on unreliable and expensive energy. Nevertheless, we will not achieve SDG 7 unless we figure out how to mobilise this $15 billion.
New and exciting models, such as mini-grids and solar-diesel hybrid rental farms, are also emerging to provide access to Tier 5 energy and above, where 24/7 power supports agro-processing, community services and SMEs (small- and medium-sized enterprises). This is where deeper economic growth starts. These rural infrastructure businesses will require greater capital but will deliver superior service.
So, the solutions exist and will continue to improve. As an independent charity, Shell Foundation has spent the last decade supporting energy enterprises to find new ways to serve low-income consumers and we know there are no shortcuts. Like any other business, off-grid energy pioneers need the resources to do the ’heavy lifting’ of building teams, systems, sales force and supply chains. They also need the right market conditions to accelerate growth.
The money is there, but for the most part, not in a form that is accessible to young enterprises. We now dedicate a significant proportion of our resources to testing new financial instruments designed to leverage investment by blending capital and offsetting risk.
Nascent energy enterprises are calling for clear tax regimes, supportive regulation, mobile payment infrastructure and standards to protect consumers. They need consumers who aware of the benefits of modern energy and they need the freedom to move skilled staff between countries to share know how.
Under these conditions we could achieve SDG 7 well before 2030. That is what consumers are asking for and what governments want.
The role of foundations
Foundations must play their part. We have access to risk tolerant capital to kickstart innovation, validate new technologies and build investor confidence. We can help demonstrate the potential of off-grid energy provision to governments. Once we do, resources will follow. If decentralised energy could service, say, a third of consumers in a country, why would it not warrant at least 10% of a country’s annual energy expenditure?
Shell Foundation will spend over half of its annual operating budget on energy access over the next five years, as we seek to support innovative engineering projects and build a strong enabling environment for ’energy access’ markets to thrive. Our charity has a rare resource, and we must now optimise this by aligning closely with governments, investors, NGOs (non-governmental organisations) and corporates to take this once in a lifetime opportunity. When we look back in 2030, I hope we can all say we used our time and effort well.