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Which business models and actors are needed to develop this gigantic market?

A major difficulty resides in how to make the most of this potential and find economic models that are adapted to poorer populations and are profitable over the long term: a « Base of the Pyramid » approach which is nevertheless complicated to put into practice.

Total and EDF, in partnership with ADEME, could be considered pioneers in this area, as they set up a specific model for a rural electrification company in the 2000s: the SSD (Société de Services Décentralisés or Decentralised Service Company), is a local legal entity with local employees, financed by the private sector and development agencies and has 10 to 20 year concessions to electrify geographically isolated zones.


Division of concessions for rural electrification in Senegal [i]

An interim review of these initiatives, drawn up in Dakar at the end of 2009, does however show indifferent results [ii]. The DCSs managed to break even, sustained themselves and contributed to a net improvement in the quality of life of local populations, but they had a limited economic impact beyond employing personnel and producing economic performances below forecasts.

Despite the concept appearing valid, the business model for this type of company needs to be consolidated via greater flexibility in electricity sales price fixing (indexed according to cost) as well as in technological choices, but also in expanding the client base and the services on offer.

Energy companies, however, are not the only ones interested in electrification of rural areas. Telecoms operators who are now well established on the African continent, where the mobile telephone market is exploding with an annual growth of nearly 20% [iii], are proving extremely active in their challenge to distribute mobile phones beyond electrified zones. These players – less constrained by regulatory frameworks – have the enormous advantage of being able to obtain returns on their investments through their mobile phone products, allowing them to offer an electricity supply service at a marginal cost.

The Green Power for Mobile initiative launched in 2008 by the GSM Association aims to develop mobile phone networks in rural areas by setting up infrastructures that are powered – wholly or partially – by renewable energy (mainly solar). There is a dual objective: reduce operators’ diesel bills and facilitate mobile telephone recharging and therefore use.

Orange, present in 16 African countries, has, for example, deployed 1300 solar relay antennas in rural zones and these offer inhabitants the possibility of benefitting from available electricity not only to recharge their telephones, but also to obtain electrical current to use for basic services (lighting in a school or kindergarten, refrigeration for medicine…).

Therefore, electrification in rural Africa, which today is still considered by electricity companies to be part of a development aid strategy or by telephone operators an infrastructural layer necessary for developing mobile phone networks, could it actually become a market in itself tomorrow?  Which actors will find the business models necessary to make this development profitable? The added benefit: a market of 585 million people, quite an Eldorado on the horizon!

Author:
Aurélien Boiteau, Senior Manager

  • References

    [i] Agence Sénégalaise d’Electrification Rurale (ASER) – Senegalese Rural Electrification Agency
    [ii] EDF, Total, ADEME – « Atelier d’échanges sur l’électrification rurale » (Workshop on rural electrification), 2009
    [iii] Wireless Intelligence (Q2 2012 figures)

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