Will Ending Energy Poverty Produce a Unicorn?

By William Brent

A huge untapped opportunity exists in the energy industry today: serving the 1.1 billion people worldwide who have zero access to electricity, about half of whom live in sub-Saharan Africa.

A growing number of startups, including investor magnets like Off Grid Electric, M-KOPA and Powerhive, are already addressing this opportunity and signing up hundreds of thousands of new customers to their rooftop solar and mini-grid services.

This has leaders in the energy access sector asking: Will decentralized renewable energy in emerging markets produce a private technology startup with a valuation of at least $1 billion -- aka a unicorn? Maybe.

More than 100 business, investment and government leaders gathered in San Francisco this month for EnergyAccessX, an official initiative event of the Clean Energy Ministerial, to discuss ways to accelerate solutions for universal clean, modern, affordable energy access by 2030 (No. 7 on the U.N. list of Sustainable Development Goals).

Emily Kirsch, CEO of solar business incubator Powerhouse, said entrepreneurs will lead the energy transition from fossil fuels to renewable energy. "Entrepreneurs will win this transition, and we'll need many more entrepreneurs," she said. "This is just the beginning. It's a drop in the bucket for what will be in 10 years."

But only a specific type of entrepreneur will scale, said Shashi Buluswar, co-founder of the Institute for Globally Transformative Technologies.

"I don't think the utility of the future -- if it will reach any scale -- is a social enterprise," he said, suggesting that institutions with "serious money," not just grants, need to enter the market and be ready to take substantial risk.

Pradeep Pursnani, deputy director of the Shell Foundation, said: "It's less about a unicorn to solve energy access, and more about integration of the components already out there," adding that "the No. 1 disruption needed is a whole bunch of small disruptions," including in consumer finance, hiring, fundraising, call centers, etc.

Nicole Poindexter, CEO of Energicity, added that the companies absorbing that capital will be many, not just one: "The unicorn will be a whole bunch of small utilities, which will be high growth for a while," Poindexter said. But she cautioned that the companies in the business of solving energy access tend to be slower growth, lower yield, which is a disconnect with the typical profile for venture capital investments.

The question of what type of capital the energy access sector needs most is something the Overseas Private Investment Corp., the U.S. government's development finance institution, knows a lot about, being a big supporter of private decentralized renewable energy companies in Africa and India.

"It's important that companies have the right capital behind them," said OPIC senior advisor Josh Bushinsky. "Unicorn describes a lot of venture money in the door, but that's not necessarily right for the companies that are going to solve the need." Bushinsky pointed to OPIC's new product that addresses inventory finance, a financing tool that isn't sexy but important because it unlocks otherwise tied up capital for quicker deployment.

One company that has been successful in tapping into various pools of money, including equity, debt and grants, is Off Grid Electric, which has raised about $50 million in equity and $50 million in debt. At EnergyAccessX, the company was called a "unicorn riding a black swan."

"Off Grid Electric navigated the entire stack of capital ... that came together in one magic opportunity. How do we do that again?" asked Tom Price, director of strategic initiatives and biomass for mini-grid company All Power Labs.

If that does happen, a unicorn may emerge. It's not far-fetched given that the decentralized renewable energy industry is estimated to be a $12 billion a year market.

Image courtesy of the author

William Brent is a director at Power for All, a global campaign to accelerate the deployment of decentralized renewable power (rooftop solar and mini-grids) as a key to ending energy poverty.