By Chijioke Mama, Africa Energy Analyst, Solarplaza
The growing use of mobile money solutions for electricity tariff payment is redefining the solar off-grid market in regions such as Africa. Here, mobile money services have seen a tremendous growth over the last decade.
As the adoption of solar off-grid power solutions grow within energy markets across the world, operators are increasingly finding mobile money solutions a viable enabler of consumer tariff payments. Companies promoting home-based solar solutions and appliances have found an equally tremendous capacity to scale up using the now popular Pay-As-You-Go (PAYGO) model.
“Efficient tariff collection systems that would normally pose a hurdle for the fast-paced adoption of home-based solar solutions have now been enabled by telecom companies using the PAYGO model.”
In this model, off-grid power subscribers only get access to electricity supplied by the home- based or centralized solar systems when payment is made, which happens through phone-based mobile money solutions that use customer’s credit or dedicated vouchers via USSD (Unstructured Supplementary Service Data) codes. In all use cases, the power supply is blocked automatically when the fees are not provided.
Efficient tariff collection systems that would normally pose a hurdle for the fast-paced adoption of home-based solar solutions (especially in rural and poorly banked communities) have now been enabled by telecom companies using the PAYGO model. They take advantage of the upward penetration of mobile phones in these markets and its ability to reach remote areas where alternative financial institutions and offline payment solutions can barely function.
“By 2020, mobile penetration will have risen to 80-93%. In contrast, universal access to electricity in Africa is estimated to take until 2080 to be accomplished.”
By mid-2013 there were 502 million active SIM connections in the African region (equivalent to a penetration rate of 61%). This figure has grown by 23% per annum over the last five years, according to GSMA, which represents the interests of mobile operators worldwide. By 2020, mobile penetration will have risen from 80 to 93%. In contrast, universal access to electricity in Africa is estimated to take until 2080 to be accomplished.
Nairobi, Kenya-based M-KOPA Solar is an off-grid company founded in 2012 which uses the now popular PAYGO model to provide solar appliances to Base of the Pyramid (BoP) populations. Between their inception in 2012 and 2016, they have connected over 300,000 homes in East Africa and have made about $40 million in revenue within that same period. M-KOPA now has a presence in three African countries (Kenya, Tanzania and Uganda) as well as a franchisee in Ghana. Its story and that of other operators utilizing PAYGO model has led to many emerging questions about the role that traditional tariff collectors, such as banks, can still play in the market.
Could mobile money be the future of tariff collection for off-grid solar?
Areef Kassam, head of Mobile for Development (M4D) Utilities at GSMA says “Financial institutions have been involved in tariff collection for off-grid companies in varying degrees in different markets and with varying success. However, mobile operators have a dramatic advantage in providing this service considering there are 37 global markets that have ten times the number of registered mobile money agents compared to bank branches and other 19 markets that have more mobile money accounts than bank accounts.” According to GSMA, “Sub-Saharan Africa continues to account for the majority of live mobile money services (52%),” with West Africa seeing dramatic growth over 2015, with “year-on-year growth at 60.1%, twice the growth rate of any other region,” GSMA says.
Do these advantages make telecom companies indispensable to the growth of off-grid solar solutions? Could they become an alternative to banks and other financial institutions?
“The strategic usefulness of telecom solutions in this sector will be optimized if they team up with banks and other counterpart financial institutions rather than compete.”
Koen Peters, director of Global Off-Grid Lighting Association (GOGLA), explains that “Telecom companies and the mobile money solution which they offer are not absolutely critical to the growth of off-grid companies but they clearly have the capacity to be a game changer.” According to Mr. Peters, “The strategic usefulness of telecom solutions in this sector will be optimized if they team up with banks and other counterpart financial institutions rather than compete, since each payment solution brings unique capabilities that are not readily available in the other. Therefore, off-grid companies, banks and telecoms could benefit more from collaboration rather than rivalry in the long term.”
For example, PAYGO is essentially a rent-to-own model, which means that the solar appliances remain in the books of an off-grid company for many years in the form of loans. Financial institutions are in a better position to structure, bear and manage these forms of credit thereby enabling energy providers to focus on their core mandate of distributed energy provision. This becomes even more critical when considering that off-grid companies are mostly funded using hard currency (USD or Euro) while loans and customer payments are denominated in local currency, an arrangement that predisposes off-grid firms to the risks of local currency devaluation if not properly structured through local banks.
Mr. Peters adds “Despite the growing number of deals between telecoms and off-grid companies, the telecom companies may not have shown the level of interest and participation expected within off-grid markets, especially in relevant conferences and other events.”
It is however anticipated that telecom companies will become more aggressive in its outlook towards off-grid solar payment markets, since the proven ease of deployment and adoption for both sellers and buyers of solar solutions respectively is expected to continue to drive further collaboration.
“Increasingly mobile operators see pay-as-you-go solar offerings as a key avenue to growing mobile money and customer loyalty.”
According to Mr. Kassam of GSMA “Increasingly mobile operators see pay-as-you-go solar offerings as a key avenue to growing mobile money and customer loyalty, as customers become more active mobile money users through regular payments. This implies that other uses of mobile money could be intermittent, but regular payments (daily/weekly/monthly) required for power access in off-grid appliances could dramatically increase the rate of mobile money use.
Find out more about off-grid solar, minigrids and financing solutions at Unlocking Solar Capital Africa, on November 1-2 in Nairobi. Secure your seat today.