Forget about power lines, Pay-As-You-Go is transforming Africa’s energy landscape

Small solar panel on the floor in an African village, Madagascar
(c) KRISS75

Alvaro Lara and Sidney Wakaba, students on the MSc Climate Change, Management & Finance programme, put the spotlight on electricity access for communities in rural Africa, and consider how off-grid solar systems are revolutionising Africa’s energy sector.

For most people in Europe and North America, a life without electricity is difficult to imagine.  A day without charging our iPhones, grabbing something to eat from the fridge, or even turning the lights on in the evening… Yet in 2017, a World Bank report estimated that, globally, 1.1 billion people live without electricity.

Electricity access is a lifeline

Access to clean, affordable and reliable energy is only one of the United Nation’s Sustainable Development Goals (SDG), but it is intrinsically linked to other SDGs. Living without electricity can consign families to poverty. Unable to light their homes or cook their food, women and children have to spend hours collecting firewood instead of doing school work or other activities; people are forced to cook over firewood or kerosene fuel, which leads to indoor air pollution; and communities lack access to basic healthcare because there are no facilities to keep medicine refrigerated. Electricity access changes all of that. It is a lifeline – critical for eradicating poverty, and improving the health, education, and livelihood of hundreds of millions of people.

In rural Africa, electricity is a rare commodity. Close to 60% of Africa’s population lives in rural areas, and 85% of these do not have access to electricity – that’s roughly 600 million people. The challenges of providing these people with access to electricity are manifold. For one, as they are distant from urban centers, the power grid, and most public services, rural areas would need new transmission and distribution lines to transmit power – expensive infrastructure that African utility firms can rarely afford to invest in.

However, despite these challenges, Africa’s energy landscape is experiencing a profound transformation. Small, distributed, off-grid energy systems are challenging the traditional approach of using long power lines to deliver electricity to rural Africa. And these off-grid systems are proving to be extremely effective – thanks to a number of disruptive business models, technologies and strategic partnerships.

Affordable, simple business models are attractive to off-grid rural customers in Africa

The costs of solar power infrastructure have decreased significantly over recent times, but the systems are still too expensive for many people in rural Africa. This is where the pay-as-you-go (PAYG) financing model comes in. Rural customers make a small, upfront down-payment, followed by a daily charge for 12 months. After this, when the system costs have been paid off in full, electricity is effectively free.

Kenyan-based M-KOPA offers an all-in-one system consisting of an 8-watt solar system, a lithium battery, four low-energy light bulbs, a radio, and a phone-charger. The system is installed for $35, with a subsequent daily charge of 50¢. Notably, Kerosene lamps, the most common alternative for lighting, also cost about 50¢ per day. But the real savings from solar power come after 12 months, when the full cost of the system has been paid off. For the next five to ten years (the life of the system), the customer will benefit from free power. It’s no surprise that M-KOPA has now sold over 600,000 systems!

The PAYG financing model has led to a huge uptake of off-grid, solar home systems in sub-Saharan Africa, thanks to its affordability and simplicity. The PAYG model was first used in 2012 by providers in Kenya. It quickly expanded across East Africa, and later into West and Southern Africa. By 2017, more than 1.5 million solar systems had been installed.

Graphic showing number of PAYG companies by country and region in Africa

Strategic partnerships enable businesses to reach remote communities

When covering vast, rural areas, reaching the last mile is a huge challenge. But PAYG companies have overcome this by developing key relationships with telecom operators, existing solar power distributors, and utility giants. These partnerships have given PAYG solar providers access to mature sales networks, distribution channels, and marketing, enabling them to reach the most remote of customers across rural Africa.

For example, in 2013, Mobisol, a German-based PAYG provider operating in Tanzania, partnered with Vodacom, Tanzania’s largest cellular network operator. Four years later, the company partnered with MTN, Rwanda’s leading telecom provider, SunTransfer, a solar distributor in Ethiopia and Baobab+, a solar distributor in Senegal, dramatically extending its reach across Africa. In 2017, the company celebrated the milestone of providing clean, sustainable energy solutions to half a million people.

Partnerships like these have helped fuel the rapid adoption of off-grid solar home systems in rural Africa. From 2014 to 2017, sales of solar systems increased by an average of 170% per year. At this rate, off-grid solar systems will reach 6.3 million rural African households by 2020.

Graphic showing how PAYG solar providers have developed partnerships with key players in the Telecom / ICT sector, the solar supply chain and with energy giants

History points in the right direction

Africa has a proven tendency to ‘leap-frog’ and quickly adapt to new technologies and trends. Two decades ago, Africa’s telecom industry leap-frogged landline infrastructure and jumped straight into the future with mobile phones. And the same could happen in the energy sector.

A world in which more homes are supplied electricity by off-grid, solar systems than by power lines is not that far-fetched. Today, sub-Saharan Africa’s largest electric utility, Kenya Power, supplies electricity to approximately 6 million customers. At the current rate of expansion, off-grid solar systems could reach the same number of homes in a matter of years – avoiding expensive power infrastructure and enabling rural people to generate their own electricity, independent of the power grid.

Africa’s energy landscape is experiencing a profound transformation – a future with access to clean, sustainable electricity for all may not be so far away after all.

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