Energy Access in Uganda – The Effect of PAYG Models on Adoption

UNCDF’s Clean Start Programme, in conjunction with SolarAid/Acumen and the Schatz Energy Research Centre (SERC), are currently conducting a research project in Uganda based on identifying whether innovative financing models, such as pay-as-you-go (PAYG), can enable higher levels of access to renewable energy technologies, as well as the “solar ladder hypothesis”. This hypothesis states that users who gain access to solar energy technologies will then continue to adopt higher levels of technology to further improve their energy access over time, continuing to use solar technology whilst doing so. Some sources reject the solar ladder hypothesis, and suggest that low-income households can “leapfrog” to higher levels of solar energy access directly if appropriate financing mechanisms are made available, and this project aims to investigate whether the hypothesis holds true in the face of innovative end-user financing for solar energy technologies.

This project exists under the purview of the UNCDF’s co-investment initiatives in innovative and novel financing mechanisms and business models for off-grid energy access. In Uganda, the organisation is particularly promoting energy service company models offering asset financing for users, using a digitally-enabled pay-as-you-go model through proven mobile money technologies. The technologies used in this project are well-proven, such as small portable solar lanterns, and small- and large-scale solar home systems. The substitution of solar energy for unsustainable fuels is demonstrated well by the research so far: 55% of respondents to the 600 phone interviews and 114 face-to-face interviews conducted by the project to date say they have completely substituted fuels such as kerosene and dry-cell batteries, as well as services such as paid mobile phone charging, with solar energy use.

Of particular interest to the research conducted under the STEPs project, however, is the demonstration that PAYG models offer significant benefits over traditional financing and purchasing models, such as cash-purchase or deferred-purchase. The PAYG model investigated under the Ugandan research has led to households with lower incomes being able to afford proportionally-larger systems: household incomes for purchasers of small-scale solar home systems under the PAYG model were comparable to those who were outright purchasing portable solar lanterns, with the model enabling a higher level of access.

Entrepreneur and solar home system purchasers in Uganda. Image: Goyal, Jacobsen & Gravesteijn (2017)

However, whilst the PAYG model enables users to access higher levels of service immediately, it does not have any effect on the payback period for the larger systems. Net-present-value analysis conducted under the project suggested that whilst solar lantern outright purchasers paid back their initial costs quickly, small- and large-scale solar home system users experienced a net cash outflow for the warranty period of their systems, in the region of $130-$740 per year depending on system size. This suggests that economic concerns are possibly lower on the priority list of users than previously thought in other projects, and that levels of service may be more important to users than initially suspected. The project conclusion on this point is that adopters of small- and large-scale solar home systems make the purchases to achieve quality-of-life improvements, rather than as an economic investment.

In addition, the research so far has suggested that the introduction of mobile money systems as a method for both payments for systems and savings for users has been equally adopted throughout household income scales. This suggests that potential co-benefits of a PAYG model when targeting poorer consumers, such as improving financial inclusion and money-saving access through the mobile payments scheme, may not be realised in actuality, given the equal adoption across household income levels. However, an encouraging sign is that mobile savings are being used by a very large proportion of the respondents to the research: 83%. In addition, new systems such as the MoKash savings option launched by mobile money pioneers MTN in Uganda recently may further increase this proportion.

– Daniel Kerr, UCL

References

Goyal, Jacobsen & Gravesteijn (2017) Spotlight: Does PAYGO unlock energy access and financial inclusion? Available at: https://spark.adobe.com/page/iGBgXjIQIGG9F/ [Accessed 11^th March 2018]

UNCDF (2018) UNCDF CleanStart. Available at: http://www.uncdf.org/en/cleanstart [Accessed 11th March 2018]

Solar Cooking and Energy Service Companies: An Unexplored Market Opportunity?

Solar cooking, as a technology and group of products, has existed for many decades, with examples being used in the 1970s. The technology in its simplest form has remained relatively unchanged since then, with the basic premise being either a flat or parabolic reflecting surface, placed in the sun, reflecting sunlight onto a cooking chamber. This can be either below the flat-plate reflector, or at the focal point of the parabolic collector. These types of devices are easy to manufacture and can be extremely cost-effective, with little more than a reflecting surface (for example, foil-backed card) and a cooking vessel needed for a minimum setup. These features give this technology particular applicability for targeting bottom-of-pyramid consumers with sustainability interventions: typical prices for simple designs (such as the flat-plate reflector shown below) range from US$3-5.

Solar box cooker made from carboard boxes and aluminium foil. Image: https://nakazora.files.wordpress.com/2011/06/solar-cooker1.jpg

Parabolic solar cooker in use at an informal settlement in Barcelona. Image: Brinerustle / Wikimedia Commons / CC BY-SA 3.0

 

A number of companies currently distribute simple kits for creating solar cookers from scratch, usually in the form of a reflective card template for the reflecting surface. However, these pre-packed kits are often more expensive than locally-sourcing materials for manufacture, ranging up to US$30-40, without offering meaningful benefits to the consumer aside from convenience. There are also a number of companies in developing countries that distribute full solar cookers to consumers using a direct-purchase business model, such as SunFire in South Africa and L’Obel Solar Power in India. Prices for these designs, commonly higher-quality parabolic mirror cookers, range up to US$200.

As such, it appears there is an opportunity for low-cost solar cooking business to develop markets for cheap, reliable solar cookers for bottom-of-pyramid consumers. In addition, through using alternative payment models for business, higher-cost designs can become more accessible to a greater number of consumers. Offering micro-credit products for deferred purchasing of solar cookers, or engaging with consumers on a fee-for-service basis with consumers paying a monthly fee for their product, would allow mid-range technologies to become accessible to consumers with lower incomes.

Other opportunities exist in the solar cooking market space for complimentary technologies, in particular heat-retention bags such as the Wonderbag from South Africa. This is designed to fit around the cooking vessel to retain heat and slow-cook the contents, after it has already been heated, reducing the overall energy requirement for cooking. Whilst this technology is perhaps most applicable to wood or charcoal-fired stoves, it can also help improve convenience when using solar cooking products. For example, rather than leaving a cooking vessel in the solar cooker for up to six hours, it can be left there for 1.5-2 hours, then transferred to the Wonderbag for further cooking.

For more information on the Wonderbag and use-case studies, please refer to https://samsetproject.wordpress.com/2017/04/10/energy-poverty-in-peri-urban-communities-in-polokwane-south-africa-part-1-identifying-the-issues/

— Daniel Kerr, UCL Energy Institute

References

Teach A Man To Fish (2009) Solar Cooker Business Guide. Available at: http://www.teachamantofish.org.uk/resources/incomegeneration/Solar-Cooker-Business-Guide.pdf

Gautam (2011) Microfinance Intervention for Financing Solar Cooking Technologies – Financing With Savings. Available at: http://www.microfinancegateway.org/sites/default/files/mfg-en-paper-microfinance-intervention-for-financing-solar-cooking-technologies-financing-with-savings-mar-2011.pdf

Solar Cookers International: CooKit. https://shop.solarcookers.org/?pn=CooKit&cn=Solar+Cookers&p=621&c=27

L’Obel Solar Power Systems: Solar Thermal Products: http://www.lobelpower.com/solar_thermal_product.htm

SunFire Solutions: http://www.sunfire.co.za/wp/

Wonderbag World: http://www.wonderbagworld.com/

Maintenance of biodigesters and issues surrounding maintenance/service arrangements

Even in the presence of mandated service agreements maintenance for biodigesters can still be an issue. For example, time constraints on private contractors [1] from central government to install and maintain digesters, lead to a slipping in maintenance standards. In a village in Assam interviewed in the paper, no follow up visits from the contractors were had for four years, and a 20% digester failure rate was recorded. Communications issues were a key contributor to this: the fact that a provision of a half of the installation subsidy for maintenance of plants over 5 years old was not communicated to households or the contractors.

A broken biodigester in Assam, India, having not been repaired for 6 months. Source: Raha, Mahanta & Clarke (2014) The implementation of decentralised biogas plants in Assam, NE India: The impact and effectiveness of the National Biogas and Manure Management Programme. http://dx.doi.org/ 10.1016/j.enpol.2013.12.048

One of the more overlooked aspects of biogas digester services and operation is the maintenance requirements of digesters. Older digester designs (for example dome-type biodigesters constructed from brick or earth) require a regular maintenance schedule (monthly to quarterly is common) [2] in order to maintain best performance, including maintaining the chemical balance of the digesting chamber and its structural integrity, repairing cracks in the chamber if necessary. More modern household and collective-scale designs are based off a plastic digesting chamber, usually fibreglass-reinforced plastic (FRP), and as such require less intensive maintenance (annual maintenance visits are sufficient), but still have a maintenance burden to address for peak performance (for example, maintaining the chemical balance of the digester through appropriate feedstock insertion).

However, even in the presence of mandated service agreements for biodigesters, for example delivered through a fee-for-service energy service company (ESCO), maintenance can be overlooked. A useful case study illustrating this can be obtained from India’s National Biogas and Manure Management Program (NBMMP) [1]. The NBMMP relied on local governments in India contracting the private construction sector to construct biogas digesters for rural communities. Time constraints on these contractors on installation, stemming from the prevailing climatic conditions limiting the working period of the year due to monsoons, meant that maintenance standards, for which the contractors under the tender from local government were also responsible, and the overall quality of installation of digesters, slipped drastically. Some contractors reported having to fill an annual allocation of 6,000 digester installations in just three months, at a rate of over 60 digesters per day, often for small companies of just 5-10 technicians. Hence, some digesters were not being maintained for four years or more, and there was a 20% overall digester failure rate. Communication between the public bodies and private contractors was also an issue: the NBMMP made provision of half the subsidy granted to households for purchasing digesters as a maintenance grant over a five-year period, which was barely taken advantage of due to a lack of awareness on the part of households and contractors.

This case study makes clear the necessity of accounting for maintenance arrangements in the design of any biodigester business plan or program. Ensuring the maintenance schedule is followed will extend the life of the biodigester and improve its performance, resulting in greater satisfaction with the system from the point-of-view of end-users. This fact makes biodigesters particularly suited to a fee-for-service business model: regular maintenance can easily be combined with regular payment collection visits, reducing the cost burden on the company/organisation and improving service.

The final post in this series will focus on the recent evolution of the Chinese National Biogas Program, and the lessons to be learned for cross-application in other regions globally.

– Xavier Lemaire and Daniel Kerr, UCL Energy Institute

[1] Raha, Mahanta & Clarke (2014): http://dx.doi.org/10.1016/j.enpol.2013.12.048

[2] Surendra et al (2014): http://dx.doi.org/10.1016/j.rser.2013.12.015