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]

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

Energy for Development Case Study – Replication of Rural Decentralised Off-grid Electricity Generation through Technology and Business Innovation

Prof. AbuBakr Bahaj and Rucha Amin from Southampton University write on the University’s Energy for Development (E4D) project, providing renewable and reliable power to rural Kenyan communities.

Reliable and affordable sources of energy are fundamental not only for wellbeing, but also for economic growth and poverty reduction. Rural communities that do not have access to the national electricity network are also deprived of the associated benefits in health and quality of life provided by electrical services such as lighting and refrigeration. Fulfilling the energy needs of developing countries without compromising the environment is a challenge requiring imaginative policies and methods.

The approach adopted by E4D in Kitonyoni, Kenya focussed on a replicable, community based solar mini-grid electrification system aimed at invigorating village trading centres and promoting business innovation. The core of the project is based on a 13.5 kWp solar photovoltaic (PV) array with integrated rainwater harvesting system coupled to a mini-grid. The latter provides power to all trading centre buildings (shops, cafes, schools, health centres, churches etc.) and local businesses that in turn are able to provide charging facilities for electrical appliances, such as LED lanterns and mobile phones, to customers.

A major focus of this project has been to establish an economically sustainable system whereby the community contributes to the project and is responsible for the operation and maintenance of the plant. Income is generated for the cooperative which is also set up as an energy supply company (ESCO) through membership fees, local sales of electricity and share ownership. This income covers the running costs of the project, provides finances to the community as well as contributing to the recovery of the capital cost of the project.

The E4D project solar installation in Kitonyoni, Kenya. All images Sustainable Energy Research Group, University of Southampton

Since the installation in September 2012, there are clear indications that the trading centre in Kitonyoni is being transformed with land prices increasing, a number of new buildings constructed, new businesses opening and existing business owners reporting profit increases.  There has also been a marked improvement in healthcare provisions with a newly donated, fully electrified maternity clinic in operation. Furthermore, one replication project has already been carried out in Bambouti, Cameroon with a third installation in Oloika, Kenya planned for later this year.

For more information: http://www.energyfordevelopment.net/

– AbuBakr Bahaj and Rucha Amin, Southampton University

From Off-Grid Electrification to Thermal Energy Services

Xavier Lemaire from the UCL Energy Institute offers his thoughts on the current state of research in the field of the STEPs project.

There have been quite a few pieces of academic research conducted recently on business models for off-grid electrification. Of particular note is a previous DfID-EPSRC funded project entitled “Decentralized off-grid electricity generation in Developing countries: Business Models for off-grid electricity supply”, which has led to special issue of the Energy for Sustainable Development journal on off-grid electrification in developing countries. Another DfID-EPSRC funded project, “Rural off-grid electricity generation for communities in Africa”, is led by one of STEPs project partner institutions, the University of Southampton.

Numerous reports and market surveys have also been written, notably by the Alliance for Rural Electrification, the Energy Sector Management Assistance Programme ESMAP-World Bank, or Lighting Africa.

One of the unique features of the STEPs project is the focus on thermal energy services like heating or hot water, and not electricity services. The fact is, currently there is very little literature on thermal energy services in developing countries.

Research questions this project will try to answer include: can business models for off-grid electrification be extended to thermal energy services, or should business models be completely different? Can the same actors propose both kinds of services? But, linked to the issue of how to structure an offer of thermal energy services is the question of demand: is there a sufficient demand for thermal energy services in rural areas of developing countries to justify the establishment of specific rural thermal energy services companies, or should thermal energy services be sold by non-specialised rural energy services companies?

– Xavier Lemaire, UCL Energy Institute

Thermal Energy Challenges in Rural Lesotho and an Opportunity to Leap to Modern Energy

Dr. Binu Parthan of SEA offers his thoughts on the thermal energy situation in rural Lesotho:

Lesotho is a land-locked country of over 30,000 km² land area located in in southern Africa. The country with a population of over 2 million is one of the least developed countries with a low Human Development Index of 0.45 placing the country at 160 out of 185. Lesotho consists of highlands with altitudes ranging from 1400 m to 3400 m above sea level and is often called as the Roof of Africa. The country remains cooler than the surrounding region with average temperatures of 20⁰C in summer and -2⁰C in winter. Sesotho people live in traditional Rondavels and need energy for cooking and heating with 61% of the population however depends on solid fuels – firewood, shrubs, animal dung-cakes and crop residues for their thermal energy needs. In rural areas where 83% of households are located the dependence on solid fuels is significantly higher at 80%.  The modern sources available for cooking and space heating are LPG, Kerosene and Electricity the use of which is mainly confined to urban areas. The traditional and inefficient use of solid biomass fuels and the resultant indoor air pollution is also affecting the health of more than 1.6 million of the Sesotho with 200 annual deaths due to indoor-air pollution.

I had been working over the past year supporting UNDP and the Ministry of Energy Meteorology and Water Affaires (MEMWA) to scope and develop a new programme Lesotho Energy Alternatives Programme (LEAP) which will address electrical and thermal energy needs of the village in the country. The LEAP programme when implemented will establish Public-Private-Partnerships (PPP) managed by private operators in rural areas providing electrical and thermal energy to households. The village energy service providers will use a range of technologies -LPG cookstoves, efficient biomass cookstoves, LPG room heaters, efficient biomass heaters etc. through an energy service arrangement.  While the energy service arrangement for electricity is clearer, possible arrangements for thermal energy needs to be developed further. The LEAP upcoming programme in Lesotho provides a good opportunity for the STEPs project team to collaborate and support the piloting of models for thermal energy services delivery.

– Binu Parthan, SEA

A Sesotho woman, next to her Rondavel, her new LPG canister and old biomass stove. Image: Sustainable Energy Associates.