www.ifc.org/ThoughtLeadership Note 23 | November 2016 ENERGY STORAGE: BUSINESS SOLUTIONS FOR EMERGING MARKETS With the application of new storage capacity technologies, advances in the capabilities of energy networks promise to deliver not only efficiency and productivity gains but also business opportunities for remote areas in emerging countries. New technologies, including those in the fields of batteries and off-grid solutions, can potentially change the way electricity is delivered to rural and remote households, and can also supply businesses and infrastructure with energy. Communication and service delivery options can be boosted with access to information technology infrastructure. Such access is required to bridge the “digital divide” and realize the potential of digital services in low-income countries or frontier markets. Information and communications technology, or ICT, is it. This gap, often referred to as the digital divide, has been a critical in today’s global economy as education, work, and subject of intense focus in efforts to develop and support information are increasingly disseminated over digital emerging markets.1 platforms. Access to ICT contributes to economic growth and promotes new and innovative industries. Large technology companies have also launched efforts to bring internet connectivity to rural areas of emerging market Individuals and organizations with access to digital services nations. For example, Google’s Project Loon2 and Facebook’s enjoy a distinct economic advantage over populations that lack Project Aquila3 seek to provide internet access via weather balloons and solar-powered aircraft. Microsoft’s White Space Figure 1: Rural Access to Electricity in Africa (2013) project4 seeks to utilize unused frequency bands of the television spectrum for internet connectivity. According to a McKinsey Global Institute report, increasing internet access in Africa could transform sectors as diverse as agriculture, retail, and health care, and contribute as much as $300 billion per year to Africa’s GDP within 10 years.5 The 2016 World Development Report demonstrates that increased access to ICT in developing regions contributes to job creation, increased labor productivity, expansion of business and entrepreneurship, and additional consumer benefits.6 Cost Declines Enable New ICT Opportunities One reason the digital divide remains prevalent in emerging economies is the limited access that rural areas have to affordable and reliable electricity. Fortunately, recent cost declines in solar photovoltaics and energy storage technologies are making micro-grids in these remote areas an increasingly viable strategy that can bridge the digital divide without the use of capital-intensive transmission lines. The Maarifa Information Centre in Tanzania 7 and the EFACAP School in Lascahobas, Haiti, are examples of off- grid renewable and battery storage projects bringing ICT to rural areas (see boxes below).8 9 Source: Data from World Energy Outlook 2015, International Energy Agency; illustration by IFC Thought Leadership, 2016. This publication may be reused for noncommercial purposes if the source is cited as IFC, a member of the World Bank Group Solar energy prices have declined more than 63 percent since more cost effective than diesel generation. As solar and 200010 and the cost of lithium-ion energy storage has fallen storage costs continue to decline, so will the cost of providing by up to 70 percent over the last two years and is expected to power for ICT in remote areas. continue to drop.11 Energy storage cost declines are primarily due to the recent increase in lithium-ion battery production for The cost comparison with diesel generation is important electric vehicles and other uses. because most off-grid telecommunication towers are powered with diesel fuel. A 2012 study of telecom towers in East With these recent cost declines it is helpful to assess the cost Africa showed that 23.5 percent of them are located in areas effectiveness of powering ICT with renewable energy and without access to grid infrastructure.13 Some 95 percent of energy storage. This can be done using IFC’s Storage these off-grid towers are powered using diesel fuel. Assessment Model (iSAM).12 Additionally, 69 percent of grid-connected telecom towers include diesel generators for backup power. So there is Reducing battery installed costs to $300/kWh increases cost enormous potential for solar and battery storage to offset effectiveness by an additional 20 percent to 30 percent. Using diesel generation for both off-grid and grid-connected today’s storage and solar costs, iSAM model results show that telecom towers and other rural ICT infrastructure. providing off-grid power with renewable resources is already Figure 2. Lithium-Ion Battery Prices Have Declined Sharply and Are Expected To Continue Declining Source: Rocky Mountain Institute, The Economics of Load Defection – How Grid-Connected Solar-Plus-Battery Systems will Compete with Traditional Electric Service, Why it Matters, and Possible Paths Forward, April 2015. This publication may be reused for noncommercial purposes if the source is cited as IFC, a member of the World Bank Group Figure 3: Micro-Grid payback times and power costs with $500/kWh and $300/kWh Lithium-Ion Battery Figure 3 illustrates micro-grid electricity cost results from five selected countries. Key assumptions include a 30 kWh lithium-ion battery bank with a capital cost of $500/kWh and a 20kW photovoltaic installation at $3.00/W. As shown, payback periods range from five to seven years (compared to being powered with only diesel generation). LCOE is levelized cost of energy . With continued cost declines, solar and battery storage may Solar-Powered Internet Connectivity in Lascahobas, Haiti also open up new opportunities for ICT infrastructure deployment in remote locations where it has been cost- Established in 2011, solar-powered Internet connectivity prohibitive for diesel power or where transportation of diesel at the EFACAP School (Ecoles fondamentales fuel has been a challenge. d’application et centre d’application pédagogique) in Lascahobas, Haiti, demonstrates innovative methods for Using solar and storage to power information and powering Internet and communications technology communications technology has several additional infrastructure in remote areas. advantages. When reliance on diesel fuel is lowered or eliminated, the overall project risk is reduced for volatile fuel Using a 2.4 kW solar photovoltaic and battery system, a prices and fuel theft. Also, solar and battery storage units have long distance wireless link was established between the no moving parts, allowing for quiet operation and reduced school and a communications tower located in downtown maintenance compared with diesel generation. Lascahobas. This allows some 400 students, teachers and administrators to charge their devices and laptops and access the Internet through a campus-wide WiFi hotspot array. Ghana Ghana is an example of an emerging market nation in which The school is also considering other ways that Internet access to the internet is limited in rural areas but where solar access can be leveraged for the community, beyond and storage solutions can have a meaningful impact on the educational uses. deployment of internet and communications technology. Only 12 percent of Ghana’s residents have access to a personal computer. As of 2012, there were 3.5 million internet users, about 13 percent of the population. The Watly machine, now being tested in Ghana, is a current effort to use off-grid solar and storage.14 The 140 kWh solar and battery unit provides electricity and internet access within an 800-meter radius, in addition to water purification services that can deliver 5,000 liters of safe drinking water each day. Establishing wireless Internet connectivity at the EFACAP School This publication may be reused for noncommercial purposes if the source is cited as IFC, a member of the World Bank Group Songambele Maarifa Centre in Tanzania According to the 2012 GMSA Green Power for Mobile study, solar/battery/diesel hybrid solutions have great potential in The Songambele Maarifa Centre in Tanzania Tanzania, where solar power has good availability, reliability, demonstrates how renewable energy and battery power market acceptance, and supply chain readiness. Due to the can enable ICT access in remote areas. recent cost declines in solar and storage solutions, these technologies are already being deployed in large numbers Powered by 1 kW of photovoltaic solar electricity, 1 kW across the country. of wind generation, and a battery system, the facility provides village residents with computer Internet access For example, the Tanzania Government has announced the (via GSM network), educational videos and media, and One Million Solar Homes initiative16 which will deploy solar other communication services. and battery storage solutions to a million homes over three years. IFC is providing $7 million for the first phase of the The facility became fully operational in April 2015 and initiative, which is expected to reach 100,000 households and has enabled computer literacy among residents, increased small businesses in Tanzania.17 Currently, solar is being crop harvests due to information obtained at the center, installed at a rate of 10,000 homes and businesses per increased learning among youths, and even provided month.18 university education for some residents. The facility was made possible by support from Renewable World and Of course Tanzania too has challenges with this technology. coordination with the Arid Lands Information Network, There are barriers to adoption that include high initial capital and the Dodoma Environmental Network. costs, space requirements at ICT infrastructure sites, and scarcity of funding. There are also operational risks in terms of theft and breakage of solar panels as well as reliability issues due to weather variations.19 Business Opportunities The benefits of increased access to internet and communication technology in remote regions have long been understood, yet the cost of infrastructure needed to provide it has been prohibitive. Now, however, with recent declines in energy storage costs, powering off-grid ICT infrastructure using renewable resources is an increasingly attractive option. Providing that access is also an opportunity for established Source: Songabele Maarifa Centre companies to reach new populations and potential customers. Expanded access will also foster local innovation and may contribute to entrepreneurship and new business opportunities in local communities. Solar and battery installations in Ghana are not without challenges, however. An assessment conducted by the Ghana Telecom companies can also benefit from the increase in data Ministry of Energy found that installations are poorly demand and offset declines in voice revenue (due to increased maintained and often abandoned after three years. 15 There are communication via text and data). 20 also the difficulties of removing the accumulation of dust and Cheaper storage and solar technologies will also create bird droppings from solar panels, system failures due to opportunities for independent power producers to invest in mishandling of battery charge regulators, and a lack of access powering communications infrastructure. These include to fuses and other maintenance components. collaborations between telecom operators, local Tanzania Case Study communication centers, schools, small and medium-sized enterprises, and other parties that benefit from expanded ICT Tanzania’s internet penetration is even lower than Ghana’s. access and delivery. Only 4 percent of residents have access to a personal computer and 11 percent have internet access. One emerging business model for financing and powering rural communications infrastructure is the Energy Service Nearly 96 percent of Tanzania residents not covered by a Company, or ESCo. In this arrangement the ESCo owns, cellular network live in a rural or off-grid location, suggesting operates, and maintains the on-site power generation that the focus of ICT growth in the region will be in these equipment and sells power to the telecom company or other remote areas. ICT infrastructure company. This publication may be reused for noncommercial purposes if the source is cited as IFC, a member of the World Bank Group Figure 4: The Community Power from Mobile (CPM) model illustrates how clean energy and information technology enables new business opportunities (BTS = Base Transceiver Station). Source: GSMA Green Power for Mobile. The network or telecom company pays the ESCo just as they transceiver stations and establish mini-grids to serve homes, would pay an electric utility if grid access were available. This businesses, and “energy hubs” for charging mobile phones. model helps to reduce the costs and operational burdens of deploying power generation, which have typically been the The current lack of electricity access is a major barrier to responsibility of the network operator or tower company. mobile phone use for off-grid subscribers, where the cost of phone charging can be as high as 50 percent of a mobile user’s The ESCo business model has a long track record in monthly expenses.22 developed countries, primarily in the energy efficiency industry where ESCos finance energy efficient upgrades for Further synergies and business opportunities between ICT buildings and receive payment from the utility bill savings. 21 infrastructure, renewable power, and mobile subscribers come from innovative payment methods such as pre-paid For rural ICT infrastructure, the GSM Association estimates solar electricity services. Instead of relying on typical that the market potential for ESCos in East Africa alone is payment collection methods (with high transaction costs and $155 million annually (in 2015), with the internal rate of losses), electricity bills can now be paid by cellphone through return ranging from 22 percent to 31 percent. mobile money services such as M-Pesa in Kenya and Tanzania. Synergies also exist between the need to power internet and communications infrastructure and the need to provide power This approach also generates a large amount of data that helps to populations without access to the electric grid. to establish credit histories for a previously underserved segment of the population. This enables energy service As illustrated in Figure 4, the “community power from companies or other energy suppliers to identify new markets mobile” model is an opportunity for energy service and to differentiate customers based on varying levels of companies to build “solar + storage” and diesel hybrid power service, thus allowing them to tailor the service to a plants. These can provide power for telecom towers and base customer’s ability to pay. This publication may be reused for noncommercial purposes if the source is cited as IFC, a member of the World Bank Group Conclusion As ICT infrastructure expands—bringing telecommunication, With rapidly declining costs for both solar photovoltaic and internet connectivity, and power to remote regions—access to battery storage, new opportunities are emerging to power this infrastructure will foster education, entrepreneurship, and information and communications technology infrastructure in new business opportunities, and open new markets. remote areas. Author: Sean Ong, Renewable Energy Engineer As a result, powering telecom towers and other ICT (sean@onginnovations.net) infrastructure in this way can be more cost effective than diesel generation. Coupled with the increase in the supply of IFC Contact: Peter Mockel, Senior Industry Specialist, lithium-ion batteries, this cost effectiveness gap will continue Climate Strategy and Business Development, Climate to grow. And new business models are emerging that leverage Business Department (pmockel@ifc.org) synergies between the need to power ICT infrastructure, the need to power off-grid populations, and the proliferation of mobile phones in emerging countries. 1 World Bank, World Development Report 2016 – pp. 288-291. 13 GSMA Green Power for Mobile, 2012. “Powering Telecoms: 2 Project Loon by Google. 2015. East Africa Market Analysis.” 3 Yael Maguire. 2015. “Building Communications Networks in the 14 Kieron Monks. CNN 2016. “Watly: The computer that provides Stratosphere.” clean water, energy, internet access.” 4 Microsoft. 2016. “White Space Database.” 15 Wisdom Ahiataku-Togobo. Ghana Ministry of Energy. 2004. 5 McKinsey Global Institute 2013; “Lions Go Digital: The “Challenges of Solar PV for Remote Electrification in Ghana.” Internet’s Transformative Potential in Africa.” 16 USAID 2016. “Reaching For the Roofs: One Million Solar - 6 World Bank, World Development Report 2016 – pp. 104-118. Powered Homes in Tanzania by 2017.” 7 Songambele Maarifa Centre. 2015. 17 Edgar Meza. PV Magazine 2015. “Tanzania Announces One 8 2012. “Final ISOC Report: Connecting the Community of Million Solar Homes Initiative.” Lascahobas, Haiti to the Internet.” 18 Becky Beetz. PV Magazine 2015. “Off Grid Electric Secures $45 9 ICT4D Views from the Field. 2012. “Solar-Powered Internet Million for Solar, Storage Deployment in Tanzania.” Connectivity a Reality in Lascahobas, Haiti.” 19 GSMA Green Power for Mobile, “Powering Teleco ms: East 10 Lawrence Berkeley National Laboratory. 2016. “Tracking the Africa Market Analysis - Sizing the Potential for Green Telecoms Sun IX” in Kenya, Tanzania and Uganda”, GSMA 2012. 11 Steven Lacey, “Stem CTO: Lithium-Ion Battery Prices Fell 70% 20 James Manyika et al., “Lions go digital: The Internet’s in the Last 18 Months”, greentechmdia.com, June 28, 2016. Transformative Potential in Africa”, McKinsey Global Institute, https://www.greentechmedia.com/articles/read/stem-cto-weve- November 2013. 21 Lawrence Berkeley National Laboratory. 2016. “U.S. Energy seen-battery-prices-fall-70-in-the-last-18-months 12 The IFC Storage Assessment Model, developed in 2016, is Service Company (ESCO) Industry: Recent Market Trends.” 22 GSMA Community Power from Mobile-Charging Services. intended to assess a range of off-grid and grid-connected storage + solar scenarios. For additional model details and assumptions, 2011. please contact Peter Mockel (pmockel@ifc.org) or Sean Ong (sean.ong@outlook.com). This publication may be reused for noncommercial purposes if the source is cited as IFC, a member of the World Bank Group