Everywhere you look, the off-grid clean energy market is booming.
Sub-Saharan Africa is seeing 300 percent compound annual growth in off-grid lighting; Bangladesh is putting up 30,000 to 40,000 solar home systems every month; and d.light, a for-profit seller of solar lights, recently reached its 1 millionth customer.
If these numbers haven’t raised the attention of institutional investors, perhaps this will: half the planet’s population may be best served with pay-as-you-go solar technology, not grid services.
That’s cleantech’s next big frontier, according to energy expert Ted Hesser. I caught up with him after a recent presentation at Stanford University (video below) to get a better understanding of why he’s bullish on pay-as-you-go solar’s ability to end energy poverty — and to make investors a whole lot of money.
Ted’s thesis is simple: poverty and profit tend not to mix — except when it comes to solar power for the poor.
The best way to understand this is to consider the case of a villager in Tanzania. Let’s say she lives in a community where there is no grid, but she has a mobile phone or other device and really wants to keep it charged. So she opts for a small home solar system to cover basic needs like mobile charging.
Due to a combination of newfound purchasing power, declining solar system costs, increasing kerosene costs, and advances in solar services business models, she can pay that system off in one to three years. Compare that to a person living in the Northeast U.S., where a homeowner could require a fifteen- to twenty-year payback, and you can see just how compelling the economics are for this market.
But here’s Ted’s most important point: solar is actually cheaper than the alternative (kerosene plus phone-charging) when financed.
That’s because close to 1 billion people have risen above the poverty line over the past twenty years, with an estimated 3 billion people now earning between $2 and $10 a day. That money is currently spent on costly and polluting energy sources like kerosene (or even worse, candles). Selling cheap basic services like solar electricity into this market through micropayment schemes is what makes pay-as-you-go solar not only economically viable, but perhaps the largest opportunity in energy services worldwide. After all, small is big.