EEP Solar PV in-depth study Knowledge Exchange Forum, Lusaka Fred Eklund, Grant Manager
Solar PV Business Models in East Africa Solar PV projects have the largest share of the EEP project portfolio. They represent 33% of all projects and 40% of donor investment. Bulk of Solar PV projects (over 50) are implemented in East Africa 13 projects involved in study from 4 countries: Kenya, Rwanda, Tanzania and Uganda The objectives of the study are to Identify the key success factors Identify barriers for implementation Make recommendations on how barriers can be mitigated or overcome Compare different business models
Solar PV Business Models in East Africa Most of the EEP solar PV projects apply one of five key business/delivery models: 1) Retail/ over the counter 2) Pay-As-You-Go (PAYG) 3) Consumer financing (via a partner/financial institution) 4) Mini-micro grid 5) Fee-for-service To understand the business models market segmentation was done on the basis of the product or service delivered. The multi-tier framework was adopted Tier 0,5: task light ONLY Tier 1: task lightning AND phone charging Tier 1,5: general lightning AND phone charging Tier 2: general lightning AND phone charging AND television Tier 2,5: tier 2 AND any medium power appliances Tier 3: medium power productive use/income generation appliances
1 Retail/over the counter Oldest approach to selling solar PV In recent times a large number of dedicated retailers that just market solar PV products have emerged Common model for task lightning and phone charging After an optimum volume and spread of sales, and positive customer experience, word of mouth usually takes over Key challenges: Counterfeit/ poor quality products (creates market spoilage) Intense below the line marketing by local staff required when products are being introduced. Difficult to find experienced and qualified sales personnel in rural areas (high costs for recruitment, training, deployment and high staff turnover) Difficult to have supply chain primarily consisting of purely commissioned based sales agent as product price typically range from 6-10 $.
2 Pay-As-You-Go (PAYG) Effectively a consumer financing model for solar PV systems that most often takes advantage of mobile money transfer systems and remote monitoring and control of solar systems Ownership of system transferred once the customers finalizes their payments Most common for Tier 1.5-2 (general lightning, phone charging, radio and TV). Recently introduced even for just task lightning (Tier 0,5) Repayment typically ranges from 6 months to 3 years. The PAYG reduces the entry barrier by reducing the amount of deposit required. Key challenges: Truly off-grid markets are often difficult to access The model creates a significant cash flow burden for businesses. Responsive customer service system is required Businesses mobilizing foreign currency investment have to account for forex exchange risks
3 Consumer financing (via a partner financial institution) Partnership between solar PV supplier and financial institution: the PV supplier provides products and associated services while the Financial Institution (FI) provides the consumer financing and collects repayments Most common for tier 2-2.5 (general lightning, phone charging, radio, TV and medium power appliances). Potentially most effective when repayment fees exceeds 0,5$ day range and when repayment duration is over 18 months. Low marketing cost since FI already have a network and processes. Model being re-explored, previously with only a little success. Key challenges: Responsive customer service system is required PV supplier needs to be able to deploy sufficient sales and installation personnel to serve all FI partner branches
4 Mini/micro-grid Expected to have a key role in expanding energy access to rural and peri-urban areas. In recent years a lot of investments to make it a commercially viable venture Can provide the spectrum of electricity services and usually at a lower cost to the end users than the other business models Private solar mini/micro-grids typically serve 20 400 customers. Technically most effective when a large number of customers can be connected within a short radius (typically less than 1 km) Key challenges: High capital costs required (3-7 years pay back period) but technology advancement makes it possible to have low operational costs Being a commercially interesting venture, a business needs tens of thousands of customers (about 30 500 sites)
5 Fee-for-service Customers paying a monthly fee for electricity services, using standalone systems Ownership of system not transferred at any stage Simplest from: a lantern rental model but can reach up to tier 3 with medium-power productive use/income generation appliances Not suitable for Tier 1.5-2 when compared with PAYG models as customers more inclined to owning the system. Key challenges: Ownership of the system is not transferred to the customer and the business/project is entirely responsible for maintenance/replacement of the system Requires large clusters of customers in a given area of operation Difficult to run sustainably on a fully commercial basis
Summary The study determined that different models are suited for different market segments The retail model best suited for task lightning products (Tier 0,5) The PAYG and consumer financing models suited for Tier 1.5-2. General lightning and phone charging, with or without a TV The fee-for-service model suited for Tier 0,5 (when customers cant afford to purchase a task light) and also well suited for Tier 2,5 and 3. Fee-for-service models however difficult to run sustainably without financial support Micro-grids can deliver a spectrum of electricity services at a lower cost than other business models but needs to be implemented in locations with high population density Cross cutting issues All solar PV deliver models require rural personnel to undertake marketing and provide technical support. Unique employment creation opportunity for rural youth; the training and experience is invaluable for their future endeavors. Lack of clarity/accuracy from government regarding rural electrification plans leaves potential customers and solar PV providers in limbo: Complementarity between government electrification initiatives and plans and private sector solutions should be sought
Financial Support The study identified the following areas at which financial support could be targeted Identification, training, recruitment and support of rural based staff/agents PAYG needs soft funding when entering new markets / countries to establish an initial portfolio of customers as the customers payment patterns and characteristics are unknown. PAYG businesses are in need of funding for database systems and innovations in delivery models In some countries large regions remain unserved due to difficult to reach these markets or due to markets considered difficult. The implications are that certain regions remain unserved and incentives are sometimes required for businesses implementing models to develop, support and grow distribution networks in these areas For mini-grids to be commercially interesting it needs tens of thousands of customers. Without access to finance it will be challenging for private mini/microgrid developers to scale to these levels
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Thank you! More Information: KPMG ECO PO Box 11265, Hatfield, 0028, South Africa E-mail: eep.eco@kpmg.fi Mobile: +27 (71) 7426081 Fred Eklund fred.eklund@kpmg.fi