Nairobi, Kenya | BIRD AGENCY | A bulb, a charging port, a solar panel and a small fee paid via mobile phone are making all the difference as millions of African households dump kerosene and other dirty fuels to light their homes. Off-grid solar finance companies known with pay-as-you-go (or, PAYGo) solutions are even striking a chord with urban consumers looking to cut energy costs and upgrade their home appliances.
The PAYGo business model enables low-income customers to finance not only home solar systems but also other related appliances, without collateral. Appliances offered by solar PAYgo providers include solar-powered TVs, radios, refrigerators, cookers, smartphones, tablets and ICT products, with loans and hospital bill financing recently also added to some PAYGo services as part of product diversification. Mobile money helps solar firms collect payments from customers in far-flung areas, making it easier for service providers to tap the bottom end of the population pyramid.
A World Bank Off-Grid Solar (OGS) Market Trends Report 2022 released early in October notes that specialised payment collection companies, such as Glichery Limited in Kenya, facilitate the collection of these payments, allowing PAYGo firms to outsource this service and keep their businesses lean. In countries that suffer constant power fluctuations and outages like Nigeria, OGS has become a panacea for many micro, small and medium enterprises.
“Real-time energy use tracking in Nigeria reveals that, at their current rate of energy consumption, over 50 per cent of MSMEs could be serviced by an off-grid solar system of 300Wp or below,” reads the World Bank report in part. Wp or watt-peak refers to “the maximum electrical power that can be supplied by a photovoltaic panel under standard temperature and sunlight conditions.”
Globally, there were 261 quality-verified solar lanterns and solar home systems (SHS) from 67 brands listed by VeraSol in 2021, up from 201 products from 51 brands in 2019. Many of these target users in Africa. With just eight years left to achieve the global 2030 goal of universal access to electricity, African governments are increasingly embracing OGS as a viable electricity access solution for rural populations. A McKinsey report, Solar, stresses that systems can serve homes that are too remote, that are too poor, or whose energy consumption is too low to make a grid connection economical.
With that in mind, governments are incentivising PAYGo firms, even as more countries plan on-grid investments. “Since 2020, Senegal, Mali, Benin and Liberia joined other countries in sub-Saharan Africa, and more around the globe, in providing VAT or duty exemptions for solar energy kits and components, while several countries have expanded border tax exemptions to productive use technologies” states the World Bank. “Mali, Senegal and Sudan included solar water pumps (SWPs) in their exemptions and Liberia exempted SWPs amongst a full range of other solar equipment and DC appliances. Similarly, Togo’s CIZO program provides border tax exemptions for SWPs from Off-Grid SolarTechnical Assistance & Capacity Building Rwanda eligible providers.”
This level of support is a vote of confidence, according to the multilateral lender, illustrating that governments recognise the role that OGS technologies can play to bolster energy access and at the same time, boost climate-smart agriculture. International Renewable Energy Agency (IRENA) figures show that off-grid renewable energy provides electricity access to more than 60 million people in Africa.
Of these, more than half use small solar lights and a quarter uses solar home systems with the capacity to power lights, mobile phones and radios. After pandemic shocks, PAYGo firms’ balance sheets are stabilising as demand rebounds. World Bank figures show that East Africa, where Kenya is a market leader, is on a slow path to recovery after strong growth through 2019 saw a significant dip in 2020.
“In West Africa, sales grew despite the COVID-19 pandemic. Strong growth in Nigeria is the driver behind this trend,” it said. “Similarly, although more nascent, key markets in Central Africa, such as Cameroon, have remained on a growth trajectory throughout the COVID-19 pandemic.” The World Bank forecasts that solar mini-grids will provide high-quality uninterrupted electricity to nearly half a billion people in unpowered or underserved communities globally, by 2030.
But to realise the full potential of solar mini-grids, the multinational lender said, governments and industry must work together to systemically identify mini-grid opportunities, continue to drive costs down, and overcome barriers to financing.
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