Article by Lyndsay Handler, first published in Renewable Energy Focus.
Energy remains at the core of development in Africa. Globally, there are about 1.2 billion people living without access to the grid. In Africa, population growth still far outpaces grid expansion, so the number of people living off-grid is still on the rise. At present, two in three people in sub-Saharan Africa lack access to electricity.
The impact is significant: the World Bank estimates that this chronic shortage of power reduces Africa’s economic growth by about two percentage points every year. A lack of clean, safe and affordable light in off-grid homes negatively affects health, education and local business.
With this backdrop, the continent is ripe for energy innovation. The annual cost of living off-grid is around $27 billion globally, money which is spent on kerosene, candles, battery torches and other stopgap technologies for lighting and mobile-phone charging. Increasingly, initiatives to provide off-grid solar power are providing home solar solutions, which provide a better service at a more affordable cost.
Home solar systems are democratising renewable energy technology at ultra-affordable prices to power millions of homes. It’s estimated that about one-in-three off-grid households will use home solar kits by 2020. The pace of growth means that off-grid solar promises to leapfrog grid-based power lines in the same way that mobile phones bypassed fixed-line telephone networks.
For any enterprise looking to bring solar innovation to individual consumers in Africa, unique challenges remain. Since 2009, Fenix International has been working to provide ultra-affordable home solar systems to consumers in Uganda. Despite the hunger for solar energy, there are a number of complexities involved in meeting the needs of this market.
Technology costs versus customer budgets
Unsurprisingly, a major characteristic of the off-grid market is its relative poverty. Ongoing improvements in photovoltaic technology enable companies like ours to offer small, expandable home solar kits such as our ReadyPay solution for as little as US$160. But this investment remains completely out of reach for most of the off-grid population. In Uganda, for instance, the majority live on about US$2 per day; many are self-employed, with irregular income.
Yet solar power can offer a better, cleaner and more reliable power source for the same price as customers’ current energy costs. The challenge is to create a business model that can align daily costs to customers’ existing energy budgets. One solution is to offer the technology on a lease-to-own model, so that customers cover the cost of a solar unit in more affordable daily installments [in Fenix’s case, around US$0.20 per day, paid over an 18 to 30-month period]. In addition to this, expandable kits – which users can upgrade to add extra appliances such as additional lights, larger batteries or more solar panels – allow households the flexibility to match their home solar system to their budget.
This business model ensures the ongoing attraction of off-grid solar even as the traditional grid slowly expands. Pay-to-own solar systems can compete by providing an on-grid experience – which provides enough power for a TV, for example – which the customer owns out-right. When offered in affordable instalments, lease-to-own home solar wins a key purchasing decision by enabling customers to work towards ownership of their energy source.
Accessibility of off grid customers
But reaching the off-grid population even with such an affordable pay-to-own business model comes with its own challenges. Infrastructure which is often taken for granted when doing business – such as the financial service systems which offer credit and banking services to customers – is very limited for off grid markets.
As an off-grid solar company, the ability to offer credit to bottom of the pyramid customers is absolutely vital. Without it, access to solar technology would not be possible. Further, offering credit opens up significant opportunities to support customers’ power demands over their life time. Once those living off-grid have built up a credit score, the power system can be expanded as households are ready to move up the energy ladder. From this starting point, a whole suite of life-changing products and services can be provided on the basis of this credit score. From efficient cooking stoves and smart phones to school fee loans or healthcare insurance, the provision of home solar power is key to unlocking the potential of products which don’t currently reach many last mile customers or can be provided on credit due to the perceived risk.
For those companies looking to promote off-grid home solar, one of the key pieces to the puzzle is encouraging more debt and equity investors into the market. Particularly in the developing world, this is critical for what is still a fledgling industry. There is existing investor interest, but a stronger pipeline of debt and equity would catalyse outstanding growth in the market.
Lack of infrastructure
Famously, the one infrastructure which has achieved phenomenally successful penetration in sub-Saharan Africa is the mobile network.
After airtime, data and Mobile Money, energy is the next ‘big thing’ for many mobile network operators. There is tremendous potential for partnerships between solar companies and mobile network operators: trusted brand, visibility and nationwide accessibility on the telecommunications side combine with the affordability and expandability of pay-to-own solar.
The daily impetus to access energy gives rural customers a reason to make mobile payments not just once, but regularly over a sustained period, a benefit for telecommunications companies who provide the service.
Since 2009, we’ve seen the importance of combining these strengths. Fenix has a relationship with African telecom MTN, for example. Customers use their Mobile Money payments to make daily instalments and in return Fenix benefits from their mobile payment infrastructure, distribution and marketing networks.
Poor perception of solar power
Historically, poor quality products have spoiled the market. The negative perception makes it hard for those with good intentions to enter. It’s critical that products are high quality and suited to the particular demands of customers.
At Fenix for example, we’ve worked hard to develop an iterative feedback loop. Findings from the market are continually passed back to engineers in the US to make the best possible solution for the customer.
In these markets it is very important to deliver a consistent after-sales service to help customers transition to the new technology. Customer experience is an often-neglected part of the process of creating widespread uptake of renewable energy solutions, but it could not be more essential – particularly given the spoiling that has already happened in multiple African markets. Building a home solar market is not just about sales of the hardware; it must also involve attentive follow-up to ensure a positive experience throughout product life time. At Fenix, a network of technicians provide customer care, and a toll-free call centre with customer care provided round the clock are as central to successful adoption of home solar as the technology itself.
Government policy support
Renewable energy companies across much of Africa already benefit from support policies, such as tax-exemptions in Uganda. This support does much to boost growth and ensure affordability for customers. Governments in local markets must be encouraged to continue these policies, as a way to ensure millions of people living off-grid can access clean, renewable energy.
Despite the number of people working to bring renewable energy to Africa, there remain about 600 million people on the continent who lack access to power. The difficulties of developing a business model to bring affordable energy to these markets are real, but not insurmountable – and the market deserves businesses which are up for the challenge.