Issue #16. Addressing Electricity Demands in the Democratic Republic of Congo
How one of the world's poorest countries struggles to provide electricity to its citizens, and what efforts have local startups made to address the issue
Hello dear reader,
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The problem
There’s a lot of talk about the Fourth Industrial Revolution. Unfortunately, some countries still don't enjoy the benefits of the Second Industrial Revolution, particularly access to electricity. Among the nations with the lowest electrification rates is the Democratic Republic of Congo, where only 20.8% of the population has access to electricity according to data. The situation is especially dire in rural areas, where only 1.1% of the population has access to electricity, compared to 41% in urban areas. Furthermore, there hasn't been any significant improvement in rural electrification from 2015 to 2021, according to reports.
In addition to the access issue, there are also reliability problems. In Kinshasa alone, there were 3,130 power disruptions leading to outages in just one month in 2018. In Kisangani in 2017, a failure at the local hydroelectric dam resulted in 1.6 million people being without electricity for months. To mitigate these issues, many firms purchase their own power generators, with 60% of companies doing so, compared to 43% in sub-Saharan Africa as a whole.
What's particularly discouraging for the DRC is that other African states in similar situations just a decade ago have electrified at a much faster pace. For example, in Rwanda, the percentage of the population with access to electricity increased by 2.5 times in just seven years.
Moreover, between 2019 and 2021, according to some sources, population growth outpaced growth in electricity access, which is not great. Generally speaking, one wouldn’t characterize the DRC’s electrification rate as rapid: from 2010 to 2021, on average, only 0.7% of the population gained access to electricity. These numbers are pedestrian compared to countries like Uganda (2.5%) or Tanzania (3%). Furthermore, DRC’s pace matches the world’s average. However, while 91% of the world’s population can make use of light bulbs, only 20.8% of the population in the DRC has access to them.
Additionally, it's not that the DRC lacks resources for electricity production. 96% of the country's electricity is produced from renewable resources, with hydroelectric power being chief among them. Given that the Congo River is the world’s third-largest river by discharge, one would expect it to have enormous hydropower potential, and indeed, that assumption would be correct.
The DRC has the capacity to produce 100,000 MW of power, yet only 2.5% of that potential has been realized. If fully realized, it would equate to 44% of the continent’s current installed energy capacity. However, there are only 16 dams in operation today. This pales in comparison to the more than 50,000 dams that have been installed on the Yangtze River in China since the 1950s. While excessive dam building can have negative environmental effects and may result in population resettlement, it's fairly obvious that the reason there aren’t more hydroelectric plants in the country is not due to environmental concerns.
Furthermore, the DRC has ample opportunity in the solar space, particularly in the southern cities of Kolwezi and Lubumbashi, where well under 40% of the population has electricity. These regions have irradiation levels comparable to Southern Spain and Arizona, making them among the best in the world.
The reasons
The DRC has been hampered by all sorts of political and economic issues.
Until 2014, a state-owned utility corporation, Société nationale d’électricité (SNEL), held a monopoly in the sector. It couldn’t generate enough revenue to expand the network, so in 2014, the government introduced legislation to liberalize the sector. SNEL’s status was changed to a ‘business corporation,’ the same status as other corporations in the country.
Mining companies were the first to jump in. Although some projects were realized, for the most part, the mining companies financed the grid expansion through loans to SNEL. By the decade’s end, SNEL accumulated $3 billion in debt and couldn’t continue with the investments. Also, as might have been expected, the mining companies focused on deploying the grid near their operations. So, if your city or town was alongside such an operation, you were in luck (although the environmental impact of copper mines is a whole other story). But if your hometown lacks the natural resources that might be of use to the mining company, you’d have to settle for chopping and burning some timber.
Foreign investors haven’t come to aid, which is understandable. The country to this day is torn by a three-decade-long internal conflict, and its investing climate is still among the worst in the world. The overall infrastructure is also lacking. Just to illustrate the point, the DRC has the same paved road length as Luxembourg, a country 1,000 times smaller than the DRC.
A 25% interest rate doesn’t help the matter either. Taking out a loan in a country with an unpredictable political environment is risky in and of itself; do that at 25%, and you just went all in. Investing in an electricity network requires high upfront investments, and the payback period is measured in decades. I wouldn’t call that a tremendous investing opportunity.
The consequences
It’s fairly obvious what happens when you don’t have electricity, but let’s point out a couple of things just to drive home the point:
The industrial capacity is extremely limited, and you are: A) Reserved to rely on imports for basic goods; B) Specialize in commodity exports, which are notoriously prone to price fluctuations. In the case of the DRC, copper and cobalt make up over 60% of the country’s exports. But the country is having to rely on imports to even feed the population: imports account for 90% of cereal utilization.
Indoor air pollution has become a deadly issue. People, unwilling to starve, resort to using solid fuels such as charcoal, wood, and various forms of waste for cooking. However, in doing so, they inadvertently reduce their projected lifespan by years, if not decades. For context, a wood-fired three-stone stove generates pollution levels equivalent to those produced by 400 cigarettes in just one hour. Indoor air pollution is responsible for 12.9% of deaths in the DRC.
The situation is dire. But there are companies that are vying for at least an incremental positive change.
The solutions
As we’ve established, the DRC has two abundant resources for electricity production. But at least in the short-term, the choice is fairly obvious: it’s solar. Here are three reasons why:
1. Upfront costs: Hydro requires massive upfront costs, which in the DRC’s current economic environment seems a tad bit risky. You probably can’t build a tiny dam to power one single home. You can do that with solar panels.
2. Speed: In many cases, environmental consequences are ignored by companies building dams, so that’s not an ‘issue’. What is an issue, however, is building a dam in tropical forests that cover 59% of the DRC’s territory. With no efficient way to transport the necessary equipment, it takes much more time to build a major infrastructure project.
3. Transmission lines: While Kinshasa, among others, is located on the Congo river, several other major population centers are outside the reach of the country’s largest water bodies. So even if you have enough dams, you still need to transport electricity. Meaning you need transmission lines, which is not ideal for two reasons. First, it’s hard to install electric poles when you do not have roads. Second, transmission losses are unavoidable
With the country's ongoing struggle to provide enough electricity, at least in the short-term, a much more feasible solution is solar. This is where local startups come in.
Let’s start with the youngest of the lot — Owanga. It positions itself as the first ‘battery as a service’ company in Central Africa. The company’s main products are 500W, 1500W, and 2500W portable batteries, which you can either own or rent, and that, apparently, would cost you $2 per day. When you run out of juice (which might happen in 4, 12, or 24 hours — the company is not clear on that), you find the nearest swap station and get yourself a new battery.
Owanga makes it clear — they compete directly with generators. And at least on the surface, it seems like a nice value proposition. Generators are loud as hell, and even a cheaper option is in a thousand-dollar range.
There are also two fairly large players in the space, at least when considering their funding activity.
First is Nuru. Nuru is focused on the eastern part of the country, where due to various factors, the situation with electricity is the most dire. The company deploys storage micro-grids and, according to the website Nuru:
…deployed Congo’s first solar-based mini-grid in 2017 and has a 1.3MW solar hybrid site in Goma, the largest off-grid mini-grid in sub-Saharan Africa.
The site in Goma powers 2,500 businesses and homes and for some users is three times cheaper than a generator. Aside from Goma, it has smaller projects in Beni, Tadu, and Faradje.
In 2023, the company announced plans to increase its capacity to 13.7 MW by adding three larger-scale facilities. Later in the year, it raised $40 million in equity financing.
But the company’s goals are far more ambitious. Nuru aims to provide electricity to 5 million people by this year’s end. Those ambitions, however, stack up against some real challenges. Due to limited finances, it struggles to hire enough quality workforce. Another potential roadblock is debt. After raising $40 million in equity financing, the company received another $28 million in debt at a 15% interest rate. However, if the company’s plans were to be realized, 7% more of the Congolese population would receive the benefits of the Second Industrial Revolution.
Finally, there’s Altech, which has a fascinating model. Through its network of 3,500 ambassadors, it distributes solar-powered products. They are paid for in small installments on a pay-as-you-go basis. To date, the company has sold 420,000 products and impacted (which is a vague term, but still) 1.5 million lives.
What are these products? Well, I’m glad you asked. They include:
OvCamp — a home solar system;
Omnivoltaic — a solar lamp with a 12 hour capacity;
Jikokoa — a clean cookstove.
Unlike Owanga and Nuru, Altech’s main competitor are kerosene lamps. And although the product is different, the advantages are the same. Solar lamps don’t use fuel, obviously, so fuel inhalation is not an issue. There are also cost advantages. Customers save $5-7 per month by choosing solar lamps.
Last year Altech raised $18 million to continue its expansion. It aims to add another 30 stores to its 140 existing store network, and distribute 180,000 products to additional 900,000 Congolese in rural areas.
Company’s revenues have expanded dramatically from $2 million in 2018, to $3 million in 2020, and to $20 million in 2022. The company is in talks to raise additional $75 million. To put that into perspective, with just $8.5 million in funding it was able to serve 1.5 million people. Meaning, if it scales in a linear fashion, it would reach 13.2 million people.
And Altech is profitable. Which puts it into stark contrast with startups from the developing world, primarily in the US, where for a venture-backed company to reach profitability is analogous to landing on the Moon.
Finally, I would like to underscore just how great of an example Altech is in showing how to address local challenges:
Agents help to combat two problems. First, delivery time and costs. By having distribution hubs and offices throughout the country, Altech is able to both reduce delivery costs for customers, and have the broadest reach. Second, payment collection. With the DRC being a cash-based society, there’s an obvious need for manpower to collect payments;
Providing clean technology eliminates the indoor pollution problem, which we’ve talked about;
Pay-as-you-go model with sometimes daily payments addresses the fact that an average Congolese makes just $449 per year;
The company also plans to build three local assembly lines, which again tackles the delivery problem.
The takeaway
For me there are two.
First, even in the most severe conditions it’s possible to create and sustain a business. And even make money.
Second, the more challenges the local environment brings, the less predictable the solutions are. At least, from the Western point of view.