The roughly one-in-six people who live beyond the reach of electric grids are a massive potential market for any company that can get them power. Right now, that business belongs to startup ventures, because multinational corporations and local utilities are either unable to reach them or uninterested, according to a new industry report.
Startups in both the U.S. and developing countries are pioneering the off-grid solar market, Lux Research senior analyst Steve Minnihan says. They’re selling cheap, Chinese-made solar arrays to rural customers in Africa and Asia whose options for light and power are limited to wood fires, kerosene, or diesel generators.
Often the most successful ones are not the flashy, venture-backed U.S. companies, but small home-grown businesses in local markets. “It’s a lot of door-to-door salesmanship,” Minnihan says.
While multinationals may talk about reaching customers at the “bottom of the pyramid,” bigger companies have hesitated to jump into the off-grid solar market because, well, it’s hard. “You’re walking up to a village. You’re walking up mud roads,” Minnihan says. “It’s not a sales model that multinationals feel comfortable with.” General Electric (GE) has moved to sell larger off-grid power generators, but the kind that bolt onto the roof of an individual dwelling and need to be sold to households one by one are still largely the domain of smaller companies.
Electric companies in developing countries don’t have the incentives to extend the grid to rural villages, Minnihan says. His report cites the example of Zambia, where the national electric company recovers only 39 percent of its costs through electricity sales. “Due to a combination of poor economics, regulatory red tape, and unsustainable subsidies,” the report says, “utilities throughout the developing world are incapable or unwilling to address the energy needs of the population.”
Energy entrepreneurs are already piggybacking off the telecom companies that brought cell phone connections to rural areas and sell minutes on a pay-as-you-go basis, the same model now used for selling off-grid power equipment. The practice “resonates with the customer, it matches their income stream,” Minnihan says. And if startups find profits bringing light and power to faraway corners of the world, he predicts, bigger companies will soon follow.