1.3 billion people live without access to electricity. Of this, eighty percent reside in rural areas and are considered as individuals at the bottom of the pyramid (BoP). Day in and day out they rely on energy sources like kerosene, which is both expensive and harmful to use. They have been waiting for the electricity grid to arrive—and they’ll continue to wait for decades.
In the last five years, falling costs of solar technology have made solar economically viable without subsidies for off-grid communities. This market opportunity is driving entrepreneurs to quickly establish themselves in the space. As they continue to improve their product offering, distribution and after-sales networks for solar products, market demand too is growing. It’s becoming clearer every year that solar technology has the potential to leapfrog the electricity grid in many developing countries where electrification rates are still low.
How can businesses keep up with this potential solar growth? Hint: it’s all about the customer.
Solar Is Not Only About Lamps
The story of solar lights lighting up homes is popular because it’s powerful, easy to tell, and its impact simple to grasp. The price point for solar lights is also affordable for low-income communities and has one of the quickest payback periods for any investment. In a nutshell, it’s easy to only focus on solar lights when talking about solar for the energy poor.
But we have to recognize that solar lamps are just the starting point, and several years have gone by since the first wave of social enterprises selling solar lamps took off. In that time, affordable solar technology for off-grid communities has advanced far beyond just powering single LED lights at a minimum to providing homes with enough energy to switch on multiple lights, power a radio while also charging more than one phone, all at the same time. This is what a solar home system (SHS) does. While more expensive than a solar lamp, it becomes affordable with appropriate financing options in place. To illustrate, SHS sold by Uganda-based Fenix International costs $16 upfront for the unit, and then 40 cents a day to use. Those numbers are close to or maybe even under what the one billion plus living without electricity are already paying for kerosene, so switching to solar has truly become affordable for all.
Innovation in Solar Continues To Be Driven by What the Customers Want
The key takeaway from the evolution of solar technologies designed for off-grid communities is that major improvements in quality have heavily relied (and will continue to rely on) customer feedback. For example, in the early days when off-grid solar took the spotlight—which was just several years ago—many solar products were designed to look more like a traditional desk lamp with very basic interface, sometimes with nothing more than one power button to switch on the light. Soon enough, the design was improved to accommodate how customers actually use the light; some examples are a portable mode for external use, a charging-effectiveness indicator to know when the battery is fully charged and multiple light settings to fit various uses.
Another major added feature to solar lamps that was driven by customer feedback is the mobile phone charging capability. There are about 600 million mobile phone users globally that have no good way to charge their phones because they live in unelectrified areas. Many of them must pay transportation and charging costs to power their phones in unconventional ways, like with a car battery. It’s not surprising then that a solar lamp that can charge mobile phones would be in high demand. In fact, here are 5 reasons why the CEO of SunFunder thinks the off-grid solar revolution will be driven by cellphones, and they are still relevant.
Solar customers today have larger aspirations. Having experienced solar-powered lights and phone charging, they are now demanding solar power for larger appliances like television and refrigerators. A number of companies are undertaking the challenge of upgrading their products and pricing plans to meet these aspirations. SolarNow in Uganda is one such company. SolarNow’s modular approach allows customers to add DC LED television as an accessory to their solar home system packages, which start at 50W with a maximum capacity of 500W. This year, SolarNow expects to add a DC refrigerator to their product catalog. Coupled with a payment plan, SolarNow’s customers can now afford a modern, aspirational energy lifestyle (and even watch the World Cup this year!), which leads me to the last point.
End-User Financing Is the game-Changer for Off-Grid Solar
One of the main barriers for low-income communities to adopt solar technology is the upfront cost required. We’ve seen, however, how companies like Fenix International and SolarNow can remove this barrier by offering end-user financing plans, and there are many ways to do so.
Some solar companies partner with Savings and Credit Cooperatives (SACCOs) to sell products through their member networks and existing lending infrastructure. Other companies are innovating around end-user finance to integrate mobile money payments and remote control of systems; thus if a customer hasn’t paid via their cellphones, the system can be switched off remotely. These include Mera Gao Power, M-Kopa, Angaza Design and Off:Grid Electric.
With all these end-user financing systems in place, it is the companies that must bear the upfront cost burden, thereby increasing the need for working capital finance. Banks, however, are not reliable sources of finance due to the risk profile associated with off-grid solar businesses and the novelty of the space. Even if banks do offer loans to these businesses, they charge exorbitantly high interest rates. In fact, lack of access to finance is the number one barrier cited by off-grid solar companies in Lighting Global’s 2013 reportOverview of Off-Grid Lighting Market in Africa.
This lack of access to finance for off-grid solar businesses is why the company I work for, SunFunder, exists. We are a solar finance business connecting investors with high-impact solar projects benefiting low-income communities that live without electricity in Africa, Asia, and Latin America. We provide much needed short-term working capital and inventory loans to off-grid solar companies, including Fenix International, SolarNow and Angaza Design. We can offer those businesses the customized debt financing solution they need by sourcing capital from two types of investors. The first type is the casual lender who makes loans as little as $10 on SunFunder.com and gets their $10 (or more) repaid in one year. The other type is the accredited or institutional investor that invests in larger sums with more complex terms, but earns back their principal with an interest return.
The market for solar is not only driven by a tremendous unelectrified population; existing solar customers are also aspiring for more products to achieve a modern energy lifestyle. It is up to the companies in the market to deliver to their customers, and up to the global community to ensure that the companies have the financial opportunity to. Together through SunFunder anyone can participate in unlocking solar finance to propel an off-grid solar revolution.
Photos by Sameer Halai/SunFunder