In the past, there was a perception that renewables were expensive, and therefore something of a luxury beyond the reach of developing nations. Those days are long gone: emerging markets in Asia, South America, and Africa have seized the initiative and are now overtaking more developed nations to dominate the sector, transforming themselves into veritable green energy powerhouses. In the first quarter of 2017, China’s solar output increased by 80%, a reflection of the rush to install solar panels in recent years supported by government incentives. Africa has also seen an explosion of decentralized, low-cost solutions devised by innovative start-ups, while in Latin America, countries like Mexico are now exporting wind-generated electricity to more developed nations like the U.S.
What accounts for this huge success? What factors have pushed these countries to overtake more developed nations in the renewable energy market?
I would argue that the main factors behind this shift are twofold: the role of government incentives and decentralization.
When it comes to renewables, many developing nations have ambitious goals, with governments offering a variety of incentives to boost overseas investment in the clean energy sector. For example, in 2015 India raised its solar investment target to $100 billion alongside plans to create solar bonds as well as assisting foreign firms to raise rupee bonds to meet costs.
However, as far as solar goes, it is China that now completely dominates the global market. The country has long been the world’s largest manufacturer of solar panels thanks to low-cost government loans, which have caused production to increase at a dramatic rate. China is buying a substantial amount of these panels and using them to create vast solar farms. Meeting the country’s rapidly growing electricity needs in this way avoids aggravating environmental problems such as air pollution. In addition, the Chinese authorities actively sought out foreign companies with solar know-how and wooed them with powerful financial incentives – rather than paying taxes, firms received tax credits instead. Contrast this level of government enthusiasm for green energy with the current situation in the US. At present, uncertainty surrounding President Trump’s tax reforms is said to be having a negative impact on the domestic solar market with increased costs for investors reported compared to before the election.
Brazil, a long-time global leader in biofuels production, owes its position at the top of the renewable energy market in South America in no small part to government incentives: low-interest loans and regulations requiring the electric power industry to invest in green R&D. Mexico also has mechanisms in place to incentivize green power such as a tax on certain fossil fuels according to their carbon content and tax rules favorable to renewable energy assets.
The energy sector has long been ruled by monolithic centralized power companies. However, this model which dominated the twentieth century is being challenged in the twenty-first. This time, it’s the developing world spearheading this change.
In Africa, pioneering start-ups are providing low-cost, small-scale energy solutions to those who would otherwise be left without access to electricity. M-KOPA offers a solar-powered home system to lower-income and rural customers across East Africa, illuminating more than 300,000 homes in the region. The baseline box kit consists of a solar panel, multi-device charger, lights, radio and a pay-as-you-go SIM card; after an initial deposit of $35, the package can be paid for over the course of a year, with mobile payments as small as $0.50. Similarly, d-light, a start-up founded by two Stanford Business School alums, also provides low-cost power solutions to poorer communities across the continent. Products include a $5 solar light, conceived by co-founder Sam Goldman as a safer alternative to the ubiquitous kerosene lamp.
Like M-KOPA and d-light, Off Grid Electric provides affordable clean energy to off-grid homes in Africa through a business model that permits customers to pre-pay small amounts via their mobile phones. Their latest joint venture with EDF Energy hopes to supply power to nearly 2 million people in Ivory Coast by 2020.
Although solar power is a no-brainer for a continent which gets as much sunlight as Africa, it’s not the only renewable game in town. African Clean Energy is a clean tech start-up providing special biomass stoves which not only burn fuel more efficiently – using 70% less than a conventional stove – but also generate solar electricity and emit only minimal amounts of smoke so can be used indoors. In Kenya, Maasi pastoralists generate biogas with some surprising waste materials: animal blood and carcasses from a slaughterhouse. The fuel powers refrigeration facilities and processing equipment at the site with any remaining gas being pumped to local hotels.
Governments have undoubtedly played a crucial role in the recent transcendence of emerging markets in the renewables sector. That said, savvy private investors formulating new methods of raising capital will always be key. For example, pioneering social enterprise SunFunder, which delivers financing to sellers of solar-powered lighting in developing nations, used crowdfunding to build its initial fund of $437,500.