Pay-as-you-go solar in Africa

 By Chris Dalby

Africa has steadily become a hotbed of innovative technological development for the energy industry. Limited access to capital and lacking infrastructure have forced engineers to think outside the box for how to best connect a growing number of communities across the continent…

Arguably the Most Valuable Technology of recent years has been pay-as-you-go solar. Tapping into the mobile payment craze in numerous countries, this technology sells families a small PV kit, which is then topped up via mobile devices. Even by the standards of other initiatives such as micro-financing, pay-as-you-go solar can go further. Rural communities, either too small or too poor to gain much interest from humanitarian effort, are getting their first chance at power. To say that it has transformed the lives of many African communities, rural and not so rural, is an understatement. Listing just the major breakthroughs in the last 24 months would fill this article’s word count. However, a couple are particularly worthy of note to track the technology’s evolution.

According to the International Energy Agency, around 625 million African people live without power. Private and public investors alike see pay-as-you-go solar as a way to rapidly drop that number down. Over 70 million of those without power are in Kenya and Tanzania, yet 10 percent of all Tanzanian homes could access energy through pay-as-you-go solar technology in 2017. In 2015, PEG, a solar company, announced a round of investment worth $3.2 million to expand pay-as-you-go solar in swathes of Ghana. Less than a year later, it had reached 10,000 customers and 29 service centers. Progress was so rapid that a further $4.3 million was raised to continue expansion.

A rural community in Africa

The newly lower costs of solar technology, long the sector’s main stumbling block, have now reached a point where African countries can afford large-scale imports. In 2016, Nigeria imported $23 million worth of PV modules from China, although this did not include turnkey solar energy solutions. Expansion has been positive but scaling up has been a challenge. PEG’s example of raising 7.5 million within 12 months is proof of market need but does not smack of rapid adoption. However, there have been some larger-scale efforts, such as d.light obtaining $22.5 million in venture capital to build projects across sub-Saharan Africa. While the costs of pay-as-you-go solar units are cheap, the lack of a well-established business model has seemed to put investors off. To be taken seriously and gain true staying power, the industry may need to begin accessing nine-figure investments.

The World Resources Institute (WRI) produced a report in December that sought to explore how the industry could find such financing. One of its conclusions is that broader efforts are needed, instead of relying on private sector efforts alone. For example, investor rounds are good, but banks need to tap into the opportunity as well. “The solution to the challenge of financing the scale-up of Pay-As-You-Go (PAYG) energy access lies not so much in the development of new initiatives but in the use and redirection of existing approaches for PAYG, particularly the use of credit guarantees, lines of credit, technical assistance and investment in a ‘fund of funds.'”

According to the International Energy Agency, around 625 million African people live without power

The WRI suggests that local banks should provide short-term trade finance to help projects blossom in specific regions. Alongside this, the organization recommends that national governments should pass regulations to allow their domestic sectors to grow as sources of jobs and investment. These measures would be particularly welcome as they would allow smaller players to emerge, taking over the providing of imports, logistics, distribution and installation for their specific towns or regions. As transfers of technology become more frequent, this would also be the first step toward manufacturing solar energy technology.

These initiatives would also begin to segment a market into different categories. Larger corporations would continue running multi-country operations and benefit from economies of scale. Smaller, local providers will face an easier time getting up and running once backed by targeted banking and government programs. And governments themselves, whether municipal, regional or national, could enter the industry as players, not just regulators.

Looking to the long-term, Bloomberg predicts that pay-as-you-go solar cannot truly meet its potential without seeking “debt capital to finance an accelerated roll-out of their services.” “Additionally, companies face the challenge of raising debt for an unproven industry and serving customers without a formal credit history,” it concludes. But an industry can only be proven by its successes and failures. While this technology brings power and hope to the furthest reaches of the continent, it may not survive on the back of piecemeal funding. Some players may fail, whether out of a lack of capacity, or technological breakdown, or indeed because they cannot figure out how to turn a profit. Mergers and acquisitions may also ensue, especially in countries with more experience, such as Ghana, Nigeria or South Africa.

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Naturally, the countries and communities affected are also in unfamiliar territory and must also be careful. The electrification of rural parts of Africa must be carried out sustainably yet the best way to do so may not be evident. Pay-as-you-go solar avoids the need for difficult-to-maintain substations and for expensive grid expansions. As explained by Erica Mackey, co-founder and COO of a solar energy startup in Arusha, in northern Tanzania,“the average Tanzanian will consume as much power in eight years as an American right now consumes in one month. So grid lines don’t really make sense for the majority of Tanzanians and East Africans from an investment perspective.”

Even once the financing is figured out, other challenges loom for project developers. How do they maintain a fleet of small-scale solar operations? Is it worth sending out a technician for a trip across dozens of kilometers to repair a single failing device? Should this be a service covered by users’ monthly subscription or should all users be trained to handle basic repairs? This is a breakthrough moment for pay-as-you-go solar. Many questions have yet to be answered. However, the outlook is bright. Successful investments are triggering others, allowing pay-as-you-go solar to move beyond simply providing power, and contribute more to broader development. The technology will allow rural communities to enter the digital economy, allow homes to own more technology, and contribute to further innovation.

about the author
Chris Dalby
Journalist. Editor. China, Mexico, Latin America, Asia, place branding, Olympics, oil and gas, mining, renewable energy, international politics.