Approximately 600 million people in Africa currently have no access to electricity. A majority of those who have power experience power outages and must supplement their electricity with alternative sources such as diesel generators and solar installations. This makes consumption of electricity an expensive commodity on the continent. It’s no surprise that during the World Bank and IMF Spring Meetings, World Bank president, Ajay Banga, announced an ambitious plan to bring affordable electricity to an additional 300 million people across Africa by 2030. The plan is in partnership with the African Development Bank. The plan is estimated to cost $30 billion, $20 billion of which the World Bank will provide.
For the plan to succeed, I recommend leaders at the World Bank consider how electricity was adopted across the United States.
Although the process of producing and transmitting electricity was discovered in 1831, it was too expensive for individual families to afford. At the time, most Americans were poor and had little use for electricity in their homes as they had no electrical appliances to power. By the late 1910s, as the cost of building the electric grid and connecting homes reduced, so did the cost of electricity. Once in place, the grid reduced the cost of lighting by orders of magnitude. Whereas candles or lamps or gas pipes that burned fuels for light were extremely costly for anything more than a few minutes of use, electric power brought a huge amount of new consumption of lighting and created markets for new appliances and new activities.
Labor-saving appliances were quickly introduced that used electricity. Electric vacuum cleaners, irons, stoves and washing machines all reduced the amount of time families used to perform daily chores. Homes became cleaner, safer, and more efficient. Additional products created new demand and hence new markets: bread toasters, waffle machines, hair dryers, electric kettles, radios, and phonographs allowed people to do things which were either extremely difficult to do or were never done before at home. It allowed non-specialists to do complex or delicate work that was formerly done by professionals. In other words, they not only improved efficiency or productivity, they created new demand.
Electric refrigerators also had a profound impact on day-to-day life. Food could be purchased fresh and stored for longer periods of time. It made food safer to eat but also allowed families to enjoy foods which could only be found seasonally in shops, if at all, depending on where they lived. Stores and markets could offer a wider variety of foods which, in turn, led to the concept of supermarkets.
This however, was not instantaneous. From electricity’s discovery in 1831, the first “grid” based network was only established in 1882 and by 1908 just 10% of US households were connected. It took until 1924 for 50% and 1949 for 90% of the US households to have electricity. The 10% to 90% diffusion was therefore about 40 years— a period including the great depression and World War II.
Retrospectively, and with an eye toward bringing this innovation to all of humanity, the focus has been on the role of planning and government investment in the sector. The story of electrification is considered a triumph of government planning and investment, and the intensity of planning is correlated with the rapidity of adoption by households.
However, the planning and execution of widespread adoption strategies are late-stage questions. The US Rural Electrification Act was enacted in 1936, only 4 years before saturation was reached. The act provided federal loans for the installation of electrical distribution systems to serve isolated rural areas of the United States. The funding was channeled through cooperative electric power companies, hundreds of which still exist today. These member-owned cooperatives purchased power on a wholesale basis and distributed it using their own network of transmission and distribution lines. The Rural Electrification Act was one of many New Deal proposals by President Franklin D. Roosevelt to remedy high unemployment during the Great Depression.
It was a successful program but when looking at emerging technologies and at competition with nonconsumption we have to look with a market-creation lens. We have to understand what was the early-phase of electrification and what drove demand creation.
The critical period is thus between 1889 and 1916. That period was prior to household electrification but well in the electrification of industry.
To understand why industry was interested in electricity, we have to understand the different Jobs to be Done. Whereas households initially desired lighting and radio as early applications, industry needed to power machines used in manufacturing. These machines or tools had been around since the early industrial revolution, starting in the 1820s. Originally powered by animals, many had transitioned to steam. But steam plants were neither universal nor cheap enough for all of industry.
In the late 19th century specially designed power buildings leased space to small shops. These buildings supplied power to the tenants from a steam engine through line shafts. It was an inflexible option for many industries, requiring co-location and long logistic chains. For this reason, when electric power became available it wasn’t just a cost reduction but an increase in flexibility and accessibility that sold investors.
Electric motors were several times more efficient than small steam engines because central station generation was more efficient than small steam engines. Also, line shafts and belts had high friction losses. Electric motors were more efficient than human or animal power.
Electrification of industry was rapid within various industries studied. Among the earliest was printing, with electric printing presses use well under way in 1893; apparel with the use of electric sewing machines and looms by 1897, quickly followed by leather, chemicals, instruments, rubber, petroleum products, stone, clay, glass, primary metals, furniture, textiles, beverages, food, paper and lumber.
Now one could debate whether the household adoption curve could have happened if not for the “market making” demand creation of industrial processes. We have to understand that the development of generators, wiring harnesses, circuit breakers, electric motors and a myriad of other technologies made grid-scale development possible. Power plants that served cities were scaled-up versions of power plants that served factories. They were, in other words, de-risked by the industrial demand.
Later countries that adopted electric grids followed the patterns from the US and UK and they were applied to both industry and residential areas thus obscuring the origin of the market.
As the World Bank and the African Development Bank look forward to powering Africa, we have to appreciate the leverage effect of market creation in an early stage that leads to universal adoption. By focusing on an Africa electrification strategy that prioritizes industry, development institutions can succeed at creating prosperity and providing power to the hundreds of millions of people without it.
This blog borrows from our paper titled: Accelerating the adoption of solar energy in Nigeria: a market creation strategy.
