DATABASE

Case study

“pay-as-you-go” energy services for off-grid customers

ongoing



Country
Kenya
Ghana
Uganda
Tanzania
South Africa
Zambia

Year
2008


Issue

Solutions

Link
www.fenixintl.com


Abstract

A number of companies in Africa offer off-grid pre-paid electricity services. The costumers pay the service with a ‘pay as you go’ tariff . The off-grid pre-paid system is the first large scale commercial solution to supply rural areas. This is possible following photovoltaic, GPS technology, communication service and mobile banking cost reduction


Project Description

In most developing countries there are two groups of people that will unlikely be reached by the electricity grid service. 1) Urban and peri-urban families not able to support upfront electricity connection cost; 2) families living in rural area with very low population density. Both groups are also characterized by a low electricity demand, that will hardly make the grid connection investment be paid back. In many African countries new companies are now providing electricity services to those potential consumers through off-grid photovoltaic (PV) systems with pay-as-you-go tariffs. The companies are not selling the generating apparatus, nor the kWh, but the electricity services. The customer can choose among different solutions corresponding to different service access. For instance it is possible to choose how many lights for how many hours per day, the possibility to charge the mobile phone, to have a TV, a radio, a fridge. The solutions offered normally range from 10-200W of PV installed. The company owns the system and maintains it. Monthly payments are usually made through mobile phones and the service is regulated through pre-paid meters. Thanks to the reduction of PV and GPS costs, access of mobile communication and mobile bank services, the pay-as-you-go option is apt to supply electricity in any corner of the country at a lower entry level cost than a grid connection. Customers may choose their level of service and hence opt for a monthly cost they can afford.


BENEFICIARIES

Small scale domestic and commercial customers otherwise not accessing electricity service


Results

A considerable number of customers are joining the pay-as-you-go services. M-KOPA in Kenya, starting its activity in 2011, has reached over 50.000 households and 750 commercial activities with some 1000 new connections per week. The company employs some 200 staff and calculates an economic saving of 38M$ as compared to kerosene cost and 65kt of saved CO2 emission over 4 years. Off-grid electric M-Power in Tanzania is reaching now some 10.000 customers. Mobisol has some 3000 customers in Ghana, Kenya, Tanzania and Rwanda. Fenix in Uganda, Angaza in Zambia, Kenya and Tanzania, Econetrenewable in South Africa. The basic service option, whose monthly cost equals the average kerosene cost of a family, allows the customer to access a better quality light service with no smoke emission and to charge mobile phone and listen to radio. The service is also used in rural public institution and schools as it offers 24h access at a cheaper cost compared to diesel generation.


Business Model

The model consists in the company anticipating PV cost to have it paid back with interest. The business includes the establishment of a commercial and technical network. Most companies have international partners. Fenix is sponsored by electro-mechanical companies and funds for innovative ideas. M-Kopa and M-power are financed by banks, foundations and equity funds. Telecommunication companies are also partners to extend their mobile banking services and increase mobile access in remote areas.


Lessons Learnt

Pay-as-you-go experience shows that customers are willing and capable to spend money if the electricity offer is tailored on their service demand and economic capability which is not met by traditional electricity companies. It proves there is a market for distributed small systems as long as a commercial and technical network makes the service accessible, affordable and reliable. The service is made possible by the supply of sophisticated technologies available on international markets to low-income electricity demand. The experience contradicts the ‘appropriate technology’ approach that suggests to privilege solutions and technologies that are locally available and are locally developed.


Key Feature

The pay-as-you-go business is self-growing with monthly payments of customers fuelling new capital to scale up the activity. The model is replicable in any country with limited electricity access and advanced telecommunication services, so far, all companies are based in African with partners, investors and sponsors around the world. The pay-as-you-go started in 2009-2010. It is now possible to count at least 6 companies offering similar services . The difference among them it is the share between the start-up cost and the monthly payments and the ownership of the system once fully paid-back. It is early to assess the success and the long term sustainability. Logistic cost of maintaining such a distributed pattern of generating assets is still unknown. Future demand will depend on costumers’ satisfaction and potential alternative supplying options. The activity is not regulated by Electricity Authority and no quality standards, concession rights, or tariff level are set by regulation


Other significant information

Comparing the pay-as-you-go option with the cost of an equivalent PV system installed by a private individual gives some additional market information about demand and supply. The smallest offer of Fenix in Uganda consists in a 10W PV system powering 3 lights for 4 hours and charging 2 phones per day. The start-up cost is at 11,5€ and the customer is asked to pay 8,5€ monthly for 18 months. After that period the customer is released by payment and owns the system. The total cost in the period is 165€. This can be compared with a cost of an equivalent system paid upfront of some 100€. From the point of view of the customer the extra cost pays the reliability of the technology (at least for 18 months), installation, access to a trusted commercial network and the possibility to pay by monthly installments. From the seller point of view it covers the capital costs, the risk of insolvency of some customers, the cost of the technical and the commercial network to be established.


Main Donor

M-KOPA, M-POWER, Mobisol, Fenix
(Private sector)

Implementing Actor

M-KOPA, M-POWER, Mobisol, Fenix (Private sector)