The Informal Utility: The Shadow Grid
Where the formal network fails to supply, a second one takes over — diesel gensets, water tankers, borewells, batteries. This shadow utility is larger, dearer and dirtier than the system it replaces, invisible in the official statistics, and it is the single clearest measure of the formal system’s failure.
Where the king’s road failed, the people cut their own — / rougher, dearer, winding through the mire; / and every night ten thousand hidden fires / did the work the great hearth would not own.
The Grid You Cannot See
The previous note ended on the household that has a connection but no reliable supply, and buys its own power again. Multiply that household by hundreds of millions and you have the informal utility: a vast, decentralised, cash-based system of diesel generators, water tankers, private borewells and batteries that delivers the essential services the formal network was supposed to provide, and does not. It is one of the largest pieces of infrastructure in the developing world, and it appears in almost no infrastructure statistic.
This shadow system is not a curiosity or a stopgap. For a firm running on a generator sixteen hours a day, or a neighbourhood buying its water from a tanker, the informal utility is the utility — the formal one is the intermittent backup. And because it is assembled household by household and firm by firm, out of small, expensive, inefficient units, it costs its users far more per unit of power or water than a functioning network would, while polluting more and delivering less. The informal utility is the price a society pays, in cash and in air, for a formal system that cannot supply.
The size of the informal utility is the exact measure of the formal system’s failure — and the exact size of a market. Every genset and every tanker is realised, cash-in-hand willingness to pay for reliable service. The demand is not hypothetical; it is already being met, badly and expensively. Whoever can supply it properly, and undercut the shadow system on price, inherits a market that has been paying a premium for a worse product for decades.
Nigeria’s Generator Economy
Nigeria is the emblem because the numbers are extreme enough to be unarguable. Its grid has an installed capacity of around 13,600 MW but typically delivers under 5,000 MW to consumers, and it collapsed twelve times in the first half of 2024 alone. Into that vacuum has grown a fleet of small diesel and petrol generators estimated at roughly 14 gigawatts, with some official estimates far higher — more self-generation than the national grid actually supplies. A whole industry of distributors, financiers, mechanics and fuel sellers has grown up around it, with its own supply chains and its own political constituencies.
The result is a country where the informal power economy dwarfs the formal one, and where the formal system’s own minister can observe that if even a fraction of what citizens spend on self-generation were redirected into the grid, the reliability problem would be solved. It is not, because the shadow system, for all its expense, works today, and the formal one does not — and because too many interests now depend on the shadow system to want it gone.
The Poverty Penalty
The cruelty of the informal utility is that it inverts the normal economics of scale. A network spreads the cost of generation and delivery across millions of users; self-supply concentrates it on one. So the people pushed off the formal system and onto the shadow one pay the most per unit — four times the tariff for generator power, and far more for tankered water than a piped connection would charge. The poverty penalty is real and large: being poorly served by infrastructure is not free, it is expensive, and the expense falls hardest on those least able to bear it.
Read the wrong way, a huge generator economy looks like resilience — people coping. Read the right way, it is a precise, cash-denominated readout of exactly how much reliable power and water the formal system has failed to deliver, and exactly how much people will pay for it. The size of the informal utility is not a footnote to the infrastructure gap. It is its measurement.
Water Has the Same Shadow
Power is the loudest example; water is the quietest and just as large. Where municipal supply is intermittent or absent, the same informal system appears in a different uniform: private tanker fleets, unregulated borewells drawing down the aquifer, and sachet and bottled water sold by the litre. In many Indian and African cities the tanker is not an emergency measure but the daily water supply for millions, priced at a large multiple of what the piped network charges the households lucky enough to have it.
| Service | Formal system | Informal substitute | The penalty |
|---|---|---|---|
| Power | Grid — intermittent, ~5 GW delivered in Nigeria. | Diesel & petrol gensets (~14 GW+), batteries, solar. | ~4× the tariff; noise, fumes, carbon. |
| Water | Piped municipal supply — intermittent or absent. | Tankers, private borewells, sachet & bottled water. | Many times the piped price; aquifer depletion. |
The borewell version carries a second cost the generator does not: it draws on a shared, depleting resource. Every household that sinks its own bore to escape an unreliable pipe lowers the water table for everyone, converting a supply failure into a resource-extraction race. The informal utility solves the individual’s problem and deepens the collective one — a distinction that matters when pricing the durability of the whole arrangement.
The Positioning Read: Underprice the Shadow
The informal utility is the clearest demand signal in Global South infrastructure, because it is demand already being paid for. The opportunity is not to create a market but to win one that exists — by delivering reliable service below the shadow system’s price.
The leapfrog: solar, storage & PAYGo
Solar-plus-storage, pay-as-you-go home systems and mini-grids can now undercut diesel on lifetime cost while beating it on quality. Falling fuel-subsidy support and a weak naira have already tipped the economics against the generator.
Packaged water & decentralised treatment
The water shadow — tankers and sachets — is a market for decentralised treatment, metered standpipes and packaged supply that can formalise willingness-to-pay the pipe network has never captured.
The incumbents of the shadow
Genset distributors, fuel logistics and tanker operators are a live, cash-generative market today — and an entrenched interest that will resist formalisation. Both a position and an obstacle to price.
Formal-demand models that ignore it
Any grid or utility forecast that reads low formal consumption as low demand is mis-reading a market that has simply gone off-book. The demand is there; it is being spent in the shadow economy.
The strategic point is that the informal utility has already done the hardest part of market creation: it has proven, in cash, that people will pay a premium for reliable power and water. The formal system’s failure created the demand; the shadow system revealed its size and price. Whoever supplies that demand properly — cleaner, cheaper, more reliable than a generator or a tanker — is not building a market from nothing. They are taking one that has been overpaying for a worse product for a generation.
The informal utility is the direct consequence of Connection Is Not Supply (G12): a wire that runs cold is why the genset gets bought. Its formal, industrial-scale cousin is The Captive-Power Precedent (G4), and the water side connects to Access Before Compliance (G6). The root cause — the utility too broke to supply — is The Offtaker Problem (G11).
Where the formal network cannot supply, an informal one does — diesel gensets, tankers, borewells — and it is larger, dearer and dirtier than the system it replaces. In Nigeria the shadow power economy outspends the entire formal grid by roughly twenty to one, and self-generation costs about four times the tariff. That shadow is not resilience to admire; it is a precise, cash-denominated measure of the formal system’s failure and of a market already paying a premium for a worse product. The opportunity is to underprice it — cleaner, cheaper, more reliable — and take a demand that has been proven in cash for a generation.
Count the small fires lit in the dark / to do the work the great hearth would not do; / their number is the measure of the lack — / and what they cost, the tally no one drew.
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