Providing access to electricity to the 600 million Sub-Saharan Africans who live off-grid has become the focus of multiple development organizations, governments, and private companies. Governments and large development organizations like the World Bank have invested heavily in extending the central grid to the areas that are currently off-grid. There has also been increased interest from private companies in the electricity access market who have come up with incredible innovations and leveraged existing technology to provide electricity for the millions. However, looking beyond the connection, we need to ask what happens once access to electricity is provided? The key to answering this question lies in the data collected by these energy access solutions.
Several solar home systems (SHSs) providers and mini-grid operators, especially in Eastern Africa, provide lease-to-own financing for SHSs and pre-pay meters for mini-grids. Solar home system providers like M-Kopa in Kenya, Off Grid Electric in Tanzania, Fenix International in Uganda and PEG in Ghana provide their customers with lease-to-own financing that utilizes mobile money. The customers make fixed daily/weekly/monthly payments for the systems through their mobile phones for the duration of the contract. The length of the contract varies from 1 to 3 years. Some mini-grid companies like PowerGen with mini-grids in Kenya and Tanzania and Rafiki Power in Tanzania install smart meters that allow the operator to control, measure and monitor usage and also allow the customers to prepay for electricity using mobile money. Some central grid operators have also rolled out pre-pay meters for their rural customers.
Through the lease-to-own model, these SHS companies are collecting data on the credit behavior of their rural low-income customers. Given that majority of the Sub-Saharan rural population is unbanked, this is valuable information. The companies or third parties can analyze this data to provide insights into how the rural population repays loans. This information can then be used to structure and provide add-on services and products. For example, Fenix International utilizes the payments information to build a credit score for each of their customers. Their customers are then able to obtain further financing to upgrade their solar systems or purchase additional appliances like TVs or clean cookstoves.
The mini-grid or governments’ rural electricity projects with pre-pay meters collect data on the frequency and amount of electricity purchased by rural households and businesses. This payment data from the mini-grid/central grid smart meters could provide insights on the ability and willingness of the rural off-grid population to pay for electricity since the customers can pay for as much or as little electricity as they can afford or need. Analysing this data has the potential to answer the biggest questions on the economics of extending the grid vis a vis decentralized solutions in Africa. However, for the insights garnered to be generalizable and useful, there would need to be sharing of the data by both the utility companies extending the grid and the, often private, mini-grid operators.
For mini-grid companies, the rich information gathered from the customers could also be leveraged to provide additional products and services. The additional products and services can be the financing of larger appliances like refrigerators or provision of internet services. This is made possible for grids, mini or otherwise, and not SHSs for several reasons:
- Mini-grids allow for the use of more energy-intensive appliances and equipment than solar home systems. Enabling the customers to acquire the appliances or machines would have a two-fold effect. It would increase the energy consumption for a mini-grid and subsequently revenue for the mini-grid operator. Additionally, depending on the appliance purchased, it could lead to increased income or social status for the customer. Also, with the increased power capacity, the rural customers could then be able to power computers through which the mini-grid operators could provide internet access. Ubuntu Power, according to their website, is attempting this model in East Africa. Diversifying the services offered would diversify risk for the mini-grid operator and provide the social and economic returns that come with access to information for the village.
- Unlike SHS companies, mini-grid operators have to provide operation and maintenance services for their customers for the lifetime of the mini-grid not just 1 to 3 years. This means that the mini-grid operator could potentially form a close relationship with the customers. This relationship could then pave the way for the mini-grid operator to supply the appliances or machines the households or commercial enterprises need.
- Some of the smart meters allow for remote control of the electricity supply to the customer. This provides a means for the mini-grid operator to disconnect a customer’s electricity in case of non-payment of their agreed-upon appliance/asset repayment. This, however, can serve as a double edged sword if the customer is on an energy only tariff and the mini-grid operator would then lose money on the appliance(s) and energy consumption from the customer.
A lot of the SHSs and mini-grid companies in sub-Saharan Africa are vertically integrated because they procure, supply, install and maintain the systems (for SHSs only for the length of the warranty). For the SHSs companies, adding on other credit services on top of financing the solar systems is not a huge leap.
In comparison, mini-grid companies or rural electricity access government authorities are not credit providers. Mini-grids are still considered especially risky investments. Consequently, providing asset financing to their customers may increase the perceived risk and make it tougher for mini-grids to raise project finance. The solution to this could be for the mini-grid company to partner with companies whose core business is the provision of asset financing. The companies could be microfinance institutions (MFIs) that already operate in the villages where the mini-grids are installed. Some MFIs like Musoni are already working with energy access companies so they understand the market. Another interesting approach would be to provide the rural customers with layaway/lay-by option where the customer pays a deposit to reserve the appliance then makes small payments over time and only receives the asset once they have completed the payments. A start-up in Kenya called FlexPay has combined this layaway model with mobile payments allowing the customer to make the periodic payments through their mobile phone.
In conclusion, the innovations and technology already available in the energy access market and beyond provide a means for the electricity suppliers to provide services beyond amps.
- IRENA. Innovation Outlook: Renewable Mini-grids. 2016. Abu Dhabi.
- Kelly Carlin, Josh Agenbroad, et al. Energy Within Reach: Growing the minigrid market in sub-Saharan Africa. (Rocky Mountain Institute). 2017.