Summary:
- Building on The Economist’s analysis of Africa’s electricity challenge, the article argues that the issue is not demand in general, but the absence of the kind of large, reliable demand needed to justify sustained investment in power systems.
- Drawing on early-20th-century America, it shows that mass electrification followed a market-creating innovation, affordable aluminum, that generated continuous, industrial-scale electricity demand before widespread household access.
- The central lesson for Africa is that electrification must be pulled by new markets that make sustained electricity use inevitable, not pushed solely through connections, subsidies, or income growth.
Today’s blog was contributed by Oyihoma Saleh from the Global Prosperity group.
In a recent article, The Economist lays out Africa’s electrification paradox clearly: If power is priced to attract investment in generation, most households cannot afford it. If prices are kept low, utilities hemorrhage cash and neither private investors nor state firms will build the necessary infrastructure.
Why electricity remains expensive, scarce, and underused
Today, 600 million people in Sub-Saharan Africa (around 53% of the region’s population) still live without access to electricity, and even where solar is available, the cost of consuming it remains steep for many households. For instance, Nigerians spend on average 23% of GDP per capita to purchase just 1,000 kWh of solar power, compared with only 0.2% for consumers in the U.S. When electricity is this costly to use, demand remains thin and unreliable, making large-scale investment in generation difficult to justify. In 2024, Sub‑Saharan Africa attracted only 2.3% of global renewable energy investment, versus roughly 17% for Europe, 15% for North America, and 44% for China alone.
To close this gap, the World Bank and the African Development Bank have partnered on an initiative to connect 300 million people to electricity by 2030. But as The Economist notes, success depends not only on expanding supply, but on overcoming challenges in demand generation. Yet the article leaves a central question unanswered: who will reliably use electricity at scale to justify sustained investment?
The article closes with a familiar conclusion:
“A better way might be for policy to focus on firms, which generate jobs and growth. As incomes rise, so will electricity use. Worldwide, the secret to widening access to power has not been reforms so much as simply getting richer.”
This view is intuitive, but historically incomplete. Like households, many firms use electricity intermittently and at low volumes. Historically, such demand on its own, and even alongside rising incomes, proved insufficient to anchor large-scale investment in power generation. The problem, in other words, was not demand in general, but the kind of demand electricity systems were being asked to serve.
The dilemma Africa faces today is not new. In early 1900s America, fewer than 10% of households had access to electricity, and household demand alone was not yet sufficient to justify large‑scale power systems. Electricity was scarce, local, and expensive. What changed was not a sudden rise in household incomes, perfectly priced tariffs or the implementation of a universal electrification plan but the emergence of a market-creating innovation—affordable aluminum.
The market-creating innovation that powered the grid
In the mid-19th century, aluminum was a scientific novelty. Because it was extremely difficult to separate from its ores, it was produced only in tiny quantities, priced more valuable than silver and had no mass market or meaningful economic role. Napoleon III famously reserved aluminum cutlery for his most honored guests, while others were served with gold, underscoring its status.
The turning point came in 1886 with the Hall-Héroult electrolytic process, which used large amounts of electricity to smelt aluminum from alumina, dramatically reducing production costs. In 1907, the Aluminum Company of America (Alcoa) set out to commercialize this process at scale, binding aluminum to the development of early electricity systems. Aluminum smelters could use as much electricity as a small city and required a constant, uninterrupted flow of power, twenty-four hours a day, as any outages could damage equipment and halt production.
Crucially, the Hall-Héroult process lowered costs but did not guarantee continuous smelter operation. Recognizing this, Alcoa focused not only on production, but on creating new markets large enough to keep its smelters, and the power systems behind them, running at scale, beginning with cookware.
At the turn of the twentieth century, American kitchens were dominated by heavy cast iron and expensive copper cookware, while aluminum, which was lighter and a better conductor, was unfamiliar and mistrusted. To create demand, Alcoa helped build an entirely new value network around aluminum.
It invested in downstream fabrication, standardized cookware with manufacturers, hired college students to demonstrate aluminum products, and worked with merchants to offer installment financing. This reduced skepticism and upfront costs, and enabled new supply chains to form from smelters to factories to department stores. Aluminum cookware quickly scaled nationally to millions of homes, becoming one of the first mass consumer markets to absorb aluminum at volume, stabilizing smelter operations and creating steady, round-the-clock electricity demand at a time when only about half of American households were electrified.
Following this success, Alcoa expanded aluminum into other markets. By the late 1920s, it was widely used in construction materials and transportation components, and by the 1930s it had become integral to electrical systems, where its conductivity and low weight made it well suited for wiring and power transmission. These markets reinforced one another, broadening aluminum’s use and increasing demand for large-scale smelting, which in turn gave utilities predictable loads to build the grid around.
By 1943, the aluminum industry was the largest single electricity user in the United States, in some regions consuming a third or more of total output. This concentration of stable demand, supported by growing downstream markets for aluminum, justified investment in larger power plants and expanded transmission networks, allowing utilities to operate at higher utilization and spread fixed costs over much larger power sales. As average costs fell and reliability improved, electricity became cheaper and more affordable for all users, helping household access rise from 50% in 1924 to 90% by 1949.
Not just more demand, but the right kind of demand
The lesson from America’s electrification is not that households became richer and electricity followed, but that new markets reshaped the grid itself. Market-creating innovations generated the industrial demand that turned electricity from a fragile, underused service into one with predictable demand and falling unit costs. The same pattern later appeared in South Korea and Brazil, where affordable steel and affordable agro-processing, respectively, created large, reliable electricity demand, allowing power systems to scale and household access to follow.
This is where today’s debate about Africa’s power sector falls short. By focusing on incomes, tariffs, household connections, or firms, it assumes the kind of large-scale demand needed to justify investment already exists. History suggests the opposite. Mass electrification was unlocked by market-creating innovations that generated this demand first and reshaped the economics of the power system itself.
The real challenge for African countries is not to connect more households or serve more firms in the hope that demand follows, but to create new markets that make sustained electricity use inevitable and mass electrification economically viable.
