Ethanol for cooking can help reduce Africa’s energy poverty
Electrification is often seen as the key threshold in tackling poverty in Africa, but a start-up in Nairobi is challenging that assumption by distributing ethanol as fuel for cooking.
Dirty fuels dominate the cooking market in Africa’s 40 largest cities, says Greg Murray, CEO of Koko Networks, which operates in Kenya. Only the affluent can afford to use gas for cooking, with kerosene and charcoal used by those at the bottom of the urban pyramid. Such fuels are major contributors to respiratory diseases, carbon emissions and deforestation.
Africa’s middle class is not growing as fast as its urban populations. The mere concentration of poor people in cities does not turn them into affluent consumers. The cost of fuel for cooking alone, Murray says, can account for between 10% and 20% of African household incomes.
A report from Dalberg published in 2018 argued that eliminating value added tax (VAT) and import tariffs can make ethanol among the cheapest cooking fuel options in Kenya. Dalberg estimates that ethanol for urban cooking in Kenya has a potential market worth between $600m and $800m.
Koko, which was created in 2014, has partnered with Vivo Energy, which distributes Shell and Engen fuels in Africa. Multinationals like Shell are the “arteries” for liquid fuel distribution, Murray says. Koko employs about 500 staff, and draws its investors from mainly African family offices as well as venture capital funds.
Murray sees no prospect of cheaper electricity being able to undercut ethanol.
- An ethanol stove would still be much cheaper than an electric one, he says.
- A Koko ethanol cooking stove costs $65, compared with about $200 for an electric stove.
- Neither do national power networks have the capacity to supply enough electricity for mass cooking, Murray says.
Mom & Pop stores
Koko’s hardware and software technology allows ethanol to undercut dirty fuels by reducing distribution costs. The company launched a network of automated fuel dispensers in Nairobi in April. Seven hundred Koko-branded local convenience stores in Nairobi now offer what Murray calls “fuel ATMs”.
The “last mile” to the consumer is turned from an expensive pain point into an opportunity. The customer pays in advance before collecting their ethanol at the local store. Customers generally need to come in at least once a week to stay topped up, creating frequent and regular contact.
The company has also set up an advertising and media business around ethanol distribution. Koko radio plays in the stores where ethanol is distributed. Customers can save with Koko to pay for their purchases and Murray sees potential to expand into financial services such as insurance.
The Kenyan government, he says, has been very supportive, with a withdrawal of VAT on ethanol having been proposed to help the company. That measure should become law by the end of September. Murray aims to build a country-wide network in Kenya before entering other East African markets in 2020. The company doesn’t need any subsidies from governments to be able to operate, Murray says. He just wants them to “get out of the way.”
- The company plans fundraising around the end of this year, with the amount sought yet to be decided.
- Within ten years, Murray aims to have ethanol distribution networks operating across Africa.
- He hopes to eventually list the company on a public market.
Bottom Line: Africa’s urban poor can’t afford to wait for electricity to become cheaper. Governments should follow Kenya’s example in looking for ways to promote alternatives.