Pay-as-you-go (PAYG) business model of energy access has been a roaring success in Africa. The model provides household-scale solar energy with a payment scheme tailored to the budgets of bottom-of-the-pyramid customers. By allowing poor households to pay for solar products in small increments, PAYG solar offers households not currently served by a reliable grid with a cleaner, safer alternative to kerosene for lighting.
In the PAYG model, solar the companies lease solar home systems to customers. A basic system has a battery, solar panel, a charge controller, LED bulbs and a mobile charger. Customers commit to an upfront amount for the system which acts as security and then are able to pay for the energy they consume on daily, weekly or monthly basis with daily rates averaging between US$0.30 and US$2.00 depending on usage. Should a customer feel the need to increase their energy needs more solar panels are added to the system. Payment is done through mobile money platforms like MPESA or through scratch cards.
The model has expanded to small businesses like bars and salons allowing them to operate on extended hours, save on electricity costs and expand their businesses. The renewable energy companies also allow for flexible payment terms to entice customers and reduce the risk of defaults in payment.
In Kenya there are approximately six solar firms providing PAYG payment plans for SHSs customers namely M-KOPA, SunTransfer Kenya, Azuri technologies, Fenix International, Mobisol, Lumeter and BBOXX, based on real-time monitoring with the aid of machine-to-machine technologies and innovative PAYG payment plans. In Nigeria, there is Lighting Global Quality Verified solar lighting products, in Uganda Innovex and South Africa has Bboxx which rents out offgrid PV systems and TVs to rural villagers across Africa.
Partnering with telecoms to expand reach
In the last couple of years investors have been attracted to this new disruptive force. In November 2019, Greenlight Planet, the market leader in the rapidly expanding pay-as-you-go (PAYG) solar industry successfully partnered with major telecom operators in Africa aiming to have a far-reaching impact on more than 600 million unelectrified consumers across the African continent.
The company collaborated with more than fifteen telecom operators, banks and payment gateways to make Sun King products more affordable and accessible for rural individuals, increasing long-term value for a common consumer base. Full-fledged sales and distribution partnerships have been launched with three leading telecom operators, Vodacom (Tanzania), Orange (Burkina Faso) and Telma (Madagascar). This is to enable sales of solar-powered energy solutions through each operator’s subscriber base and mobile money channels. In addition, Greenlight Planet has integrated its innovative PAYG technology platform with leading mobile money providers across sub-Saharan Africa, enabling consumers to make continuous instalment payments in a secure and simple way.
Investments in PAYG Solar surge
In October 2020, Greenlight planet secured US$90 million in new funding to expand its Pay-As-You-Go (PAYG) solar consumer financing business and consolidate its debt portfolio. The debt and equity investments were provided by European development finance institutions CDC Group, FMO, and Norfund, along with impact investors ResponsAbility, SIMA Funds, Symbiotics, Global Partnerships, and private equity firm ARCH Emerging Markets Partners’ Africa Renewable Power Fund. Of the total US$90 million in committed funding, US$69 million has been disbursed to the company, with the balance to be drawn down as the company delivers additional solar-powered home energy systems, with end-consumer financing, to homes in Africa.
d.light Design Inc., a pioneering manufacturer and provider of solar power products, was founded in 2006 at Stanford and it distributes solar energy to households and small businesses in 70 countries, impacting the lives of nearly 100 million people. The product is targeted at off-grid customers in rural areas, with a price ranging from US$9.12 to US$18.25. The company also markets a series of solar LED lights which are designed as an affordable alternative to kerosene lanterns.
In February of 2021, it raised US$11.9 million to power its expansion in Kenya as it eyes a bigger share of the solar energy market. The Delhi based d.light raised the funds from Norfund, the Norwegian Investment Fund for Developing Countries, through its capital raising vehicle Brighter Life Kenya 1 Limited (BLK1). In November 2019, d.light it announced that Shell’s New Energies business had acquired a minority stake in the company, underscoring the sector’s increasing commercial viability. This transaction was subject to customary conditions precedent including regulatory approvals. The figure was determined by the World Bank’s PayGo PERFORM initiative, which oversees financial reporting and operational benchmarking of PayGo companies.
d.light and Solar Frontier Capital Limited (SFC), a wholly owned susidiay of African Frontier Capital (AFC) jointly announced the establishment of a KSh 6.9 billion (US$65 million) financing vehicle, Brighter Life Kenya 1 Limited (BLK1) in June 2020. The BLK1 is an off-balance sheet financing vehicle, newly incorporated in Jersey, which will be dedicated to acquiring pay-as-you-go (PAYGO) Solar Home System (SHS) accounts receivables from d.light’s Kenyan subsidiary, d.light Limited to provide the company with flexible, working capital to finance its continued growth. The two-year commitment is intended as the first in a series of vehicles designed to provide d.light with continuing access to sustainable and affordable local currency receivable financing. Part of BLK1 is being financed by a US$20 million senior debt commitment from U. S. International Development Finance Corporation (DFC). SFC acts as the subordinated lender and the master servicer under the transaction and more generally, as the sponsor of the structure.
Kampala-based startup Innovex which provides remote monitoring for PAYG solar companies, closed a seed funding round in January 2021 from the Gaia Impact Fund, a French fund dedicated to energy access entrepreneurs, to help it scale its technology across Africa. The company owns “Remot”, a cloud-based Internet of Things (IoT) solution that transforms the distribution of off-grid solar energy systems and equipment using digital tools by enabling solar companies, electricity producing companies (EPC) and distributors to remotely monitor and manage their energy systems. Remot also facilitates better after-sales support and PAYG actuation for larger size solar systems, reducing downtime of solar systems and improved accessibility of solar systems and solar equipment. Innovex will use the funding to scale Remot to 100 solar distributors across Africa, thus enabling solar energy access to three million people by 2023. “ Gaia has so far invested in 11 innovative companies across Africa and Southeast Asia and is actively pursuing its investment strategy with strong social and environmental impact.
M-Kopa extends solar to Africa’s underbanked
Founded in 2010 by banker and micro-finance expert Chad Larson, in 2010 founded the start-up in Nairobi, M-Kopa provides underbanked customers in Africa to essential products including solar lighting, televisions, fridges, smartphones & financial services. M-Kopa was launched commercially in 2012 and is headquartered in Nairobi and has operations in Kenya, Nigeria and Uganda. The initial goal was to sell 1,000 units a week within three years. That milestone was reached within 12 months and now the 1,200-strong sales team, who work on commission and incentives, are selling up to 4,000 units a week. It raised money in 2011, with incubation by Signal Point Partners. Backing investors have included Richard Branson, Generation Investment Management, Blue Haven Initiative and LGT Venture Philanthropy, an investment vehicle of the Princely Family of Liechtenstein.
By 2015, M-Kopa had powered 150,000 households in Kenya, Uganda, and Tanzania, with around 10,000 mobile payments made by users on its cloud platform, M-Kopanet, made on a daily basis. It had over US$40 million of revenue by 2015.That year it estimated that 80 percent of its customers lived on less than US$2 a day. In January 2018, the company had wired at least 500,000 homes, and sold about 90,000 solar rechargeable televisions. In 2018, it was reported that M-Kopa was going to acquire an additional 500,000 photovoltaic solar panels, under chairman Mugo Kibati, in an agreement with Solinc East Africa. In February 2018, M-Kopa received US$10 million in funding from FinDev Canada in a new funding round led by CDC and including existing shareholders LGT Venture Philanthropy and Generation Investment Management. In July 2021, M-Kopa announced its expansion to Nigeria.
New funding extends Bboxx reach in Africa
London-based off-grid solar company Bboxx has operations in Africa and Asia. It installs a solar panel that can power up to five lights, a television, a radio, a torch or a 12 V battery. The company has a presence in 12 countries, including Democratic Republic of the Congo, Kenya, Pakistan, Rwanda and Togo. In August 2020, the African Infrastructure Investment Managers (AIIM) announced plans to invest more money into the clean-energy utility platform to fund the company’s growth.
In November that year, Bboxx secured a US$4 million loan from the Facility for Energy Inclusion Off-Grid Energy Access Fund (FEI OGEF), a debt fund managed by Lion’s Head Global Partners (LHGP) to accelerate energy access in the Democratic Republic of Congo (DRC). Bboxx had announced a memorandum of understanding (MoU) with the DRC government earlier that year, with the aim of bringing clean energy to 10 million citizens, equivalent to 10% of the population. During that same time Bboxx partnered with the US Agency for International Development (USAID) to expand clean cooking access in the DRC. Over the next three years, the funding will enable Bboxx to provide 15,000 households and small businesses in Goma with clean and affordable cooking alternatives. Through their new partnership, USAID and Bboxx ultimately aim to reduce deforestation and greenhouse gas emissions by reducing the consumption of charcoal used for cooking.
In February of 2021, Global commodities trading company Trafigura purchased a minority stake in Bboxx. The size of the stake and the value of the deal have not been disclosed. Trafigura’s minority equity investment came as Bboxx embarks on the next phase of its growth and accelerates its clean cooking commitments –
In March French multinational electric utility company Electricité de France (EDF) bought a 23% stake in Bboxx Kenya. The investment will bring electricity to 2 million Kenyans living in rural areas by 2025. Kenya is Bboxx’s largest market in Africa where an 500,000 people are using the company’s solutions to access electricity. The new transaction builds on the existing partnership between EDF and Bboxx with the two companies already working together in Togo on rural household electrification. Bboxx and EDF have in the recent past extended this collaboration to the supply of solar-powered irrigation systems with the help of the Kenyan company SunCulture.
Bboxx has also received US$500,000 in financing from The United Nations Capital Development Fund (UNCDF) to deploy its clean cooking solution in several provinces of the Democratic Republic of Congo (DRC). The funding is intended for the development of Bboxx’s second core business in the DRC, namely the distribution of environmentally friendly cookers. The company wants to implement its partnership with UNCDF in the DRC provinces of Goma, Bukavu and Lubumbashi, where the rate of access to clean cooking is quite low.
Engie gets EIB funding to expand in Africa
ENGIE’s subsidiary, Fenix International, provides access to energy via PAYG solar home systems to more than 500 000 customers in Uganda, Zambia, Nigeria, Benin, Cote d’Ivoire and Mozambique. Additionally, with ENGIE PowerCorner, ENGIE supplies electricity to rural populations in villages across Tanzania and Zambia through smart mini-grids powered by solar energy and battery storage. All of these services are enabled by digital financial solutions such as mobile money and PAYG technologies.
In July 2020, ENGIE partnered with the European Investment Bank (EIB), one of the world’s largest financiers of renewable energy to provide reliable and cheap electricity to small holders and entrepreneurs in remote villages across Uganda for the first time under a new off-grid solar scheme. EIB has agreed to provide a US$12.5 million loan to support the deployment of 240,000 high-quality solar home systems in Uganda. The new European Investment Bank financing will also allow repayment of equipment purchased in US dollars in Ugandan shillings. Previously currency fluctuations hindered provision of affordable clean energy solutions to Ugandans without access to foreign currency.
PAYG a key driver of energy access across Africa
During the last decade, a greater share of the global population gained access to electricity than ever before, but the number of people without electricity in Sub-Saharan Africa actually increased, according to a World Bank report. The report further indicates unless efforts are scaled up significantly in countries with the largest deficits the world will still fall short of ensuring universal access to affordable, reliable, sustainable, and modern energy by 2030. In Africa, where energy penetration is the lowest in the world, PAYG solar shows the greatest potential to lifting millions from darkness to clean energy.
Widespread use of mobile payment technologies, rich solar resources and declining solar PV and battery costs, coupled with increased awareness of these technologies, have been key drivers in the implementation of this business model. Also, increasing numbers of companies offer PAYG systems, and high competition in this field pushes prices for consumers even lower. Furthermore, the millions of dollars being injected into the sector by investors, promise to sustain the sectors viability and expanding its reach to millions of Africa’s rural population which is yet to enjoy the benefits of electricity.