Why the Power Buildout Will Mirror Cell Phones in Developing Nations

During my years as a reporter covering the wireless industry, there’s one story I kept revisiting in various ways: while developed nations slowly replaced landline telephones with cell phones, developing countries completely skipped traditional telephone infrastructure and got their first communications via cellular. The reason is pretty simple — the cost of connecting every home with a landline is a lot higher than dropping a cellular base station every couple of miles.

Now during my greentech reporting, the same idea keeps coming up, but this time for the power grid and distributed solar in developing countries. Will developing countries that have not yet built out the power grid to much of their population completely skip the traditional power infrastructure and turn directly to distributed solar for power generation? Several analysts and executives recently have told me “yes,” and it’ll happen sooner than we think.

I first started thinking about the idea after writing a profile about the startup Duron, which has developed a $130 solar panel, LED, and cell phone and radio charging device and is selling “several thousand” of these devices per month, according to co-founder and President John Howard. Duron is backed by investors Idealab and the Quercus Trust and Idealab board member Jack Rivkin recently raised this idea in a blog post in which he quoted a friend as saying:

India must skip the classic infrastructure build expected of them. They have to find another way. Otherwise they will never bring all the country up to developed world standards and achieve true participation in the 21st century. They did it with cellular phones. Why not with other basic systems?

Howard, who before founding Duron did a lot of telecom research work at McKinsey, agrees with Rivkin’s post, and told me in an email that “there are many interesting parallels between landlines/cell phones and grid/distributed generation.”

Building out the power grid can be prohibitively expensive, which is why in many countries, like Haiti, less than three quarters of the population have grid access. Pike Research’s Clint Wheelock says just for the transmission portion alone it can cost at least $500,000 per mile. And that’s without the distribution portion and any kind of the grid intelligence (smart grid) that is getting all of the investment this year.

Bloomberg New Energy Finance solar analyst Nathaniel Bullard, who called the distributed solar/cellular metaphor “apt,” said that according to the firm’s data some developing countries in Africa with very low grid access will be getting 50 percent of their power needs from distributed solar in the next decade. In addition, Bullard says that the cost of solar doesn’t necessarily have to come down in price for the market for distributed home solar in developing countries to grow. These home solar systems are replacing kerosene lighting and disposable batteries, which can be expensive and take up a disproportionate amount of a residents’ expenses, pointed out Bullard.

One of the biggest barriers to the growth of this market is residents’ access to capital. A $130 solar charging kit might not seem expensive in the developed world, but Duron is working on partnering with micro finance companies. Similarly the micro-lenders behind the Grameen Bank have helped install over 2,500 solar energy stations in shops in Bangledesh by loaning shop owners the money.

Once home solar installations reach a tipping point, residents will more easily see how the upfront capital can save them money in the long run and also be a game changer for how they use electricity on a daily basis. Cheap cell phones have reached that tipping point and done the same thing for communications.

And like cell phones in the developing world — Nokia has made a killing off of selling phones to millions of customers who live on less than $1 a day — distributed home solar also has the potential to be a huge market. Investors like Idealab and Quercus Trust wouldn’t be investing in companies like Duron if they didn’t think so.

Image courtesy of kiwanja’s photostream Flickr Creative Commons.

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