The off-grid energy market is of growing importance to investors and could help bridge the gap between population growth and energy demand, a new report argues.
‘Strategic investments in off-grid energy access’ by energy market intelligence firm Wood Mackenzie found that population growth would outstrip the 600 million people who are expected to gain access to electricity by 2030.
It also found that providing average electricity consumption of 3,104kWh a year universally would require energy generation to grow by 18%, and of the $52bn needed to finance electricity access just 1.3% is focused on off-grid solutions.
Despite this Wood Mackenzie notes that off-grid electricity access is ‘increasingly attractive’. It observes that that ‘top-down actors’, which include European oil and gas companies and utilities as well as leading tech and telecom companies, are investing in increasing numbers.
The market is especially attractive for utility companies, as they may look to experiment with ‘value-stacking’ by adding on other services like internet, water and financial products.
A total of $511.5m was invested by companies last year, a 22% year on year increase from $417.9m in 2017. The number of deals made declined by 15% in 2017 but the average deal size grew.
Africa received 79% of total disclosed investment has since 2010, with East Africa receiving the highest amount of this (58%). Asia Pacific (15%) and Latin America (6%) were the other recipients of investment.
Despite the encouraging signs within the sector Wood Mackenzie warns that there could be an ‘investment “cliff”’ looming in the short term, as investment is concentrated in the hands of a few companies who value market share and growth expectations over profitability.