Tahai Baik, Mortiz Steinle and Sebastien Marlier
Africa has leapfrogged the development of fixed phone lines. Only one percent of the continent’s population has a fixed telephone line[1], while half the people own a mobile phone[2]. Africans have also started to bypass traditional banks. While most of the world’s unbanked people live in Africa, twelve percent of the continent’s adults have a mobile account[3]. Can mobile technology help Africa repeat the feat for access to electricity?
The unplugged continent
Africa is a major laggard in terms of electrification; only one in three Africans have access to electricity, compared with nine in ten people elsewhere in the developing world[4]. Power utilities are struggling to extend cables to many homes because of geographical constraints (most off-grid people live in remote rural areas), insufficient funding for infrastructure investments, and poor governance.
Solar as a service
Mobile phone technology could make this process almost irrelevant by enabling the development of off-grid solar power. Mobile technology has transformed the market for off-grid solar power in two ways. First, mobile banking has created a quick and cheap way to pay for goods and services. Second, solar distributors can equip solar panels with a remote locking system operated by a SIM card. These two technologies have triggered a surge in off-grid solar power. Instead of having to buy a rooftop unit at a prohibitive upfront price, low-income customers now only pay a small upfront fee—typically $10-$40. Using their phones, they prepay for their electricity consumption on a weekly or monthly basis. If a payment is missed, the system is locked. Customers in effect lease their solar equipment from distributors, who operate like financial service providers (although in some models they end up owning the equipment after a few years).
The new solar value chain
The model is spreading fast, especially in regions such as East Africa, where mobile money is highly developed. Thanks to the likes of Off-Grid Electric in Tanzania or M-Kopa in Kenya, , just under 800,000 solar units have been installed across the continent, and sales more than doubled each year since 2012.[5] This servicisation of off-grid solar power has brought about changes all along the solar value chain:
- Manufacturers are increasingly tailoring their products to the needs of the very poor. In addition to a remote locking technology, solar house systems are also equipped with a number of lamps and one or two plugs for charging mobile phones.
- With customers mostly located in remote rural areas, solar firms are adopting innovative last-mile distribution Rather than selling in large shop in urban centres, they sell directly to customers or partner with small local retailers (e.g., Essmart).
- Since solar systems are effectively leased, companies must adopt an efficient yet cost-effective after-sales services model.
- The financing of solar products is disrupted at two levels. Rather than taking out a loan from a bank or a microfinance institution to purchase a new unit, consumers now “borrow” from the solar company themselves, who take on all the upfront capital expenditure. As the business model proves successful, private investors are starting to replace public aid and philanthropy as the main financiers of the off-grid solar industry[6].
Light at the end of the tunnel?
Despite unprecedented growth in the African solar market, “universal access to affordable, reliable and modern energy services” (a key target under the UN Sustainable Development Goals) remains a distant prospect—for now. One reason is the pervasive distrust of solar power among many low-income customers, in part because of the low-quality products that have been dumped onto them in the 1990s and early 2000s. One ongoing challenge for the solar as a service industry is therefore to ensure that defects and breakdowns are swiftly dealt with, even after warranties expire. The Internet of Things, another technological innovation that is already widely used to monitor larger scale solar systems, may help in this regard. Other obstacles are technological: current solar systems have limited energy storage capacity and their power output does not support heavier appliances such as refrigerators or fans.
Yet the biggest challenge is that mobile networks are far from covering the entire continent, meaning that many potential customers remain excluded from pay-as-you-go solar systems. Interestingly, part of the solution to this problem is solar itself. Phone masts are costly to operate in remote locations, because phone companies need expensive diesel generators to operate them. Yet some companies, including Canada’s Nuran Wireless, are developing cheaper mobile masts that are fuelled by solar power[7]. When they start covering the African landscapes, solar power and mobile technology will continue to grow hand in hand.
807 words
[1] http://data.worldbank.org/indicator/IT.MLT.MAIN.P2?locations=ZG
[2] According to the International Telecommunications Union, there are more than 1bn mobile phone subscriptions in Africa (for 1.2bn people), but this in part reflects multiple ownership in urban areas. http://www.economist.com/blogs/economist-explains/2016/12/economist-explains-13
[3] http://datatopics.worldbank.org/financialinclusion/region/sub-saharan-africa
[4] http://data.worldbank.org/indicator/EG.ELC.ACCS.ZS
[5] http://www.gsma.com/mobilefordevelopment/wp-content/uploads/2017/01/Lessons-from-the-use-of-mobile-in-utility-pay-as-you-go-models.pdf
[6] https://about.bnef.com/blog/can-pay-go-solar-financed/
[7] http://www.economist.com/news/middle-east-and-africa/21649516-innovation-increasingly-local-pioneering-continent
Thanks for sharing this! I knew Mobisol (http://www.plugintheworld.com/mobisol/), who provides access to solar energy in developing countries by offering a payment plan, but I hadn’t heard of solar as a service. I would be keen to learn more about the operational aspects. Does every customer have its own solar panels on his rooftop, or do they place 1 large solar panel for the entire community to enjoy?
Picking up on Loes’ point of sharing the solar panel. Couldn’t one option be to share the energy from the solar panel that is also powering the telephone mast, or are these placed in a way that you cannot access them easily enough to distribute the energy to the individual companies?
I also wonder how long it will take the solar companies to make their money back. The hardware, installation and after-service is a significant amount that they need to shell out before the money very slowly begins to trickle back into the system. Is this sustainable for the solar companies on a large scale?
It might be interesting to think about a combination of solar charging and fintech. By using blockchain-based technology, companies might even be able to install mobile chargers that are directly connected to the mobile phone contracts of the customers and transfer the charges automatically. I have seen a few projects in which payment was arranged through a physical vending machine and those machines were not really accepted in a market where mobile phones are widely used as a payment system.
How does their business model compare/contrast with essmart’s?
How does their business model compare/contrast with essmart’s? Of course this company appears more focused on developing and launching the final end product. They also partner with last-mile distributors (e.g. essmart) to help reach end users. However, how have they been able to adopt their business model to obtain constant feedback, to align interests, etc.? For instance regarding the warranties, what are the challenges with setting this in place? In Essmart’s case, it seemed like it was not an issue to put into place and once they did, they saw that customers trusted the product and brand more. I think that if we see the same trend here, that will increase development of additional mobile towers therefore increasing range, solving the last issue.
Significant innovation is taking place in the solar energy space in developing markets, and players have made efforts to address a number of the points raised. BBOXX, for example, offers a range of products from basic to aspirational, which support accessories such as televisions and refrigerators. (http://www.bboxx.co.uk/) Additionally, Shamba Technologies has developed modular solar solutions that allow customers to scale up their solar solutions as they can afford upgrades. (http://www.iosolar.com/) Households utilize these products on a per household basis as energy distribution from a centralized source is generally prohibitively expensive and energy inefficient, as households are often disparately located. Models such as that of Off-Grid Electric and M-Kopa do require significant working capital, as customers pay off solutions over a period of years. Investors are quite attracted to these models given the significant potential in volume growth and business innovation, though achieving profitability remains a challenge for these companies. Fintech in the form of mobile money is what makes these models feasible, though automating payments would be challenging, as base of the pyramid consumers are often cash constrained to the point that they may not be able to pay for the energy for a period of time. This particular constraint makes the monthly payment and temporary shutdown model attractive. These companies also offer after sales service, which is important to customers especially in light of the issues around solar quality control in the past decades, as was mentioned in the article. Companies are still trying to develop a model that allows them to manage after sales service in a cost efficient way, as it is currently quite expensive to repair and replace systems located in remote, rural settings. Companies like BBOXX have, however, developed remote monitoring systems, which allow them to remotely monitor the performance of, and thus preempt possible issues associated with, the systems. The solar market in emerging market is thus quite compelling, and it serves as a viable alternative to grid-based solutions that are unlikely to expand to reach base of the pyramid communities in highly cash constrained, corrupt developing market systems in the foreseeable future.
This is a very innovative idea of combining two industries to improve efficiencies, Lower class people financially live on a per day basis and most have irregular income inflows. Using sim cards benefits the provider through ease of tracking and also the poor through ease of paying done through a prepaid method.
Very interesting article, thanks for sharing this with us! Was wondering, if it would already help to use energy as a service paid by mobile phone as a first step. Scaling solar energy on a wide spread area seems like a huge challenge and reminds me a bit of Better Place who did not succeed to scale it even in such a small country such as Israel..