A Case for Solar-Powered Irrigation in Africa
Can solar change the farming landscape in Africa?
Poverty has long been a word associated with Africa and its inhabitants. While the aforementioned association has often been overstated and inaccurately applied, in some ways the veracity of the association cannot be denied. Of the approximately 915 million people living in Sub-Saharan Africa, less than 300 million have access to electricity via the national grid[1]. As such, to suggest that Africa is in “energy poverty” would not be a misnomer but the stark reality of the African condition. As a result of the lack of available power on the continent, debates around how to bridge the power deficit have been prevalent. Many have decried the unrelenting calls for Africa to turn to sources of alternative energy to bridge the power deficit. Alternatively, there are many, cognizant of the degradation of our environment that fossil fuels/traditional power generation have caused, that promote the use of alternative power generation. Changes in weather patterns, droughts, and current and future pressure on food and water supply clearly reflect the investment case for sources of alternative energy. As Kofi Annan, former UN Representative, succinctly put it, “No region has done less to contribute to the climate crisis, but no region will pay a higher price for failure to tackle it”[2]. While I tend to err on the side of economic development for Africa (traditional power generation as a necessary evil) before considerations of climate change, entrepreneurs far better than myself set out on a mission to achieve economic development sustainably.
The co-founders of SunCulture, Samir Ibrahim and Charles Nichols, initially set out to impact the development of Africa in a sustainable way. Upon visiting Kenya and seeing small-hold farmers use generators to power irrigation systems to generate harvest in an inefficient, costly, and environmentally unfriendly manner, the two co-founders knew a business opportunity had presented itself. The two formed SunCulture in Nairobi, Kenya and began designing, manufacturing, and distributing solar-powered irrigation systems and services that make it easier and less expensive for farmers in Africa to grow quality produce. The company’s AgroSolar Irrigation Kit™ replaces expensive fuel pumps with a more efficient solar powered solution. The solution uses solar power to pump water into a raised storage tank, with the water then sent through irrigation lines to crops. SunCulture’s system not only increases a farmer’s yields by up to 300% but also alleviates water usage by up to 80%. As a result of SunCulture’s novel technology and continued business expansion, current SunCulture farmers will save 370 million gallons of freshwater, generate ~84,000 kilowatt hours of renewable energy, and grow ~20 million pounds of produce in the next year[3][4].
In my view SunCulture and its applicability to the African context seemed idealistic and unlikely to succeed at the time of launch in 2013 (due to a poorly informed negative view about price competitiveness in the local environment). However, the company has benefitted massively from many of the secular trends in the alternative power generation industry. Having been forced to innovate due to global concerns around climate change, the solar industry has seen the cost of power production decline precipitously. Solar Energy Industries Association has estimated that solar instillation prices have dropped ~70% over the last 10 years[5]. Today SunCulture’s product cost just $400 per acre compared to over $1,000 for traditional drip irrigation (typically powered by petrol generators due to lack of connectivity to the national grid). In addition to market competitiveness, SunCulture’s use of alternative, clean energy makes it an attractive destination for capital. In 2011 the African Development Bank committed approximately $10 billion to climate-change/ low carbon development projects in Africa[6]. Such commitments to sustainable development have been made through various institutions in Africa and abroad and SunCulture has been able to access this capital to scale and grow its business. In addition to capital, it’s not inconceivable that tax credits will play a future role in SunCulture’s growth.
Due to the natural competitive advantage SunCulture has had relative to incumbent competitors from the idea generation stage, the company is well placed for success going forward. However key considerations remain. How will the company deal with competitors who try and mimic their product? How will the company continue to scale? Getting small-hold farmers access to financing in Kenya in order to purchase SunCulture’s products is of paramount importance. Given the low banking penetration of the agriculture industry, traditional banking partners are unlikely. Working in partnership with development institutions, multilateral agencies, and government institutions to provide small-hold farmers with financing should help the company continue on its current growth trajectory, thereby enabling the company to continue to scale, fend off competition, and provide massive economic benefit to Kenya in a very sustainable way (780 words).
Text References
[1] IEA Africa Energy Outlook 2016.
[2] http://www.bbc.com/news/world-africa-33012036
[3] Sunculture.com
[4] Interview with Co-founder Samir Ibrahim on 10/31/2016.
[5] http://www.seia.org/research-resource/solar-industry-data
[6] www.afdb.org/fileadmin/uploads/afdb/Documents/Climate_Change/Cfinance2013.pdf
I think solar provides a great opportunity to overcome often lower-quality electricity grids in Africa with localized generation, and it seems like SunCulture is well positioned to capitalize on the positive secular trends you mentioned. I agree with you that the main question is scale, but I am concerned that the difficulty of distributing and installing comparatively sophisticated infrastructure on a continent with limited transport infrastructure could be a very difficult obstacle to overcome. How SunCulture positions their product, as a sustainability play which could come off as frivolous to subsistence farmers or as an tool to enhance agricultural efficiency with a clear value proposition, will also be critical.
Totally agree with you here Sam. Positioning is important for SunCulture and it is something that is very relevant from a strategy perspective for them. They tend to go to the market with a “efficiency” value prop but as they begin to scale in line with their ambitions I think the market will continue to put increased scrutiny on the communicated value prop.
How to give African farmers access to the last innovations and technology that they need in order to scale their businesses? This is a key question that needs to be answer to unlock Africa’s true potential. African farmers are competing in a global markets with very limited ressources. Additionally, some key markets such as EU and the US have high tariffs in place to protect their local farmers. Therefore, organizations like SunCulture are truly changing the world by trying to tackle these hard challenges in a very difficult environment where financings are very limited. That being said, I would like to know more about the economics behind the $400 par acre product cost. This seems quite high for some of the African markets where farmers have with low access to financing institutions. Could SunCulture prove the economic value of its product through pilot projects to local banks? This would enable SunCulture to create partnerships with local banks to finance the farmers’ projects (and increase its revenue).
Very valid and astute question that I think is key to SunCulture’s success going forward. They know they have a massive market and a strong, differentiated product that adds very material value to their customers. However as you have pointed out financing is the issue. Many local banks would rather stay with less risk averse projects with sectors of significant size and scale in their local economies, and tend to not back small-hold farmers with insignificant access to capital or collateral. While many governments and developmental institutions provide financing for agriculture projects in Africa. Can SunCulture access this capital and other forms of capital in order to support its growth? That in my view will be what fundamentally defines the company.
This is a very interesting concept and thanks for sharing it. I certainly believe that solar is the best form of energy from all the alternatives we have at the moment – from its wide-spread availability, to its efficacy and its effect on the environment. Economics of Solar power solutions have been turning favorable over time with installed solar costs dropping by over 70% in the last 7 years (https://cleantechnica.com/2015/09/30/average-utility-scale-solar-price-in-u-s-falls-to-5%C2%A2kwh/). With this, SunCulture seems to be well positioned by creating such innovative products that not only save water in the process, but also improve the overall productivity of agriculture. Most agricultural countries are naturally blessed with sunlight and AgroSolar Irrigation Kit™ can prove to be a very effective solution to the increasing food crisis.
Thanks for the link and the read Aayesha. I definitely agree with your point about the efficacy of solar and the multifaceted benefits that SunCulture
This is a great example of how renewable energy can be a win-win for the environment and for the economy. Advanced economies are generally tied to the “old” world of infrastructure reliant on the consumption of fossil fuels. This makes it difficult for companies to transition away from traditional assets that rely on fossil fuels as the economic cost of abandoning these assets is fairly large. For example, it has been politically difficult for states that rely on fossil fuels (think coal in West Virginia) to embrace renewable energy as so much of these state’s revenue is tied to fossil fuels. In developing regions like sub-saharan Africa as mentioned above, skipping over carbon reliant infrastructure can create unique opportunities that will allow these countries to develop economically while minimizing their carbon footprint. Investments like the one mentioned above should be highlighted and encouraged.
Bridging infrastructure gaps in Africa comes with a number of opportunities. A presentable example is the wide adoption of mobile phones in the absence of land line infrastructure. Africa as continent, but particularly sub-saharan africa has a massive opportunity with alternative energy particularly given the abundance of alternative energy resources (solar, wind, etc.) and I think SunCulture is well-positioned to capitalize on opportunities out there.
Thanks for sharing – It is always insipiring to read about entrpreneurs who forge sustainable innovation with impact. I agreewith WRE that solar is providing countless unique ways for Sub-saharan Africa to leapfrog the West, as several countries are doing with M-Pesa, Fawry and Interswitch’s mobile payment platforms. Given the impact that growth in the agriculture sector has on employment for the bottom of the pyramid, I am keen to see the CDC, IFC, OPIC and other DFIs step in to meet the SunCulture’s funding gap, subject to the company’s ability to establish scalable operations.