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]

A Man and an Island Called Pediatorkope

Dr Binu Parthan from Sustainable Energy Associates writes on his recent visit to Pediatorkope in Ghana.

The man was old and frail but had a commanding presence and a strong voice despite needing a walking stick to move around. I suspect that he was in his late 80s or early 90s but looked a lot younger, was strategic and spoke intelligently. His name was Chief Nene Pediatorkope IV – the supreme chief of the island of Pediatorkope in Ghana whom I met last week.

Pediatorkope is an island in the Volta River inhabited by agricultural and riparian fishing communities. After the Akosombo dam was built in 1966, water levels downstream decreased significantly and with it the fish catch also dropped just like the water level. Many of the men left the village moving upstream to continue fishing or migrated to nearby cities to find other jobs. There is still limited amounts of agriculture and fishing in the Island but more at a subsistence level. The island now has a government supported school and a health centre but the houses do not have electricity or water supply. Once darkness sets in, the village life literally comes to an end. Some of the wealthier households have either a solar home system or a battery power pack, primarily for lighting, phone charging and for powering radios or televisions. Those with the battery power pack recharge their batteries periodically at the village solar kiosk operated by an NGO – Empower Playgrounds. Income from agriculture and fishing has also dwindled over time due lack of irrigation and absence of a cold storage.

The situation in Pediatorkope where absence of energy constrains social and economic development is very similar to the situation in remote communities I have seen. Availability of modern energy allows such villages to irrigate fields which are not cultivated, have cold rooms and freezers to store poultry, milk and fish and also find other productive uses for energy. This also allows children to read and study in the evenings and have shops and markets open into late evening. The Chief was very sure that the Pediatorkope island community will grow from strength to strength once there was energy supply.

The village also had some feedback on the way rural energy programmes should be implemented. Rather than government institutions installing solar home systems or street lights which fail in a matter of time, their preference was for the energy to be delivered as a service to them for which they will pay. What the villagers were willing to pay was the avoided cost of what they were already paying for dry cell batteries for torches. They also did not want the community themselves to manage the energy systems as they thought the social compulsions would result in inadequate revenue generation and eventual failure. They wanted the systems to be managed by professional enterprises and that people in Pediatorkope were available to be employed by such companies.

For me it was interesting to hear people preferring paid energy service over hardware donations, like I have heard in the Sunderbans villages in India few years ago. It was also interesting to hear that they also wanted an external enterprise to manage the service arrangements like I have found out in Mokhotlong in Lesotho last year. I can see an increasing desire in remote rural village communities to received energy services than products and pay for these. This will be one of the issues that the STEPs project will seek to understand better and provide new approaches and solutions.

Once back in Accra, I spoke to my friend Wisdom who is the Director at the Ministry of Energy about the island and its electricity needs. Wisdom thought that it should be possible to get grid electricity to the village through overhead cables or a mini-grid system to meet the household and productive needs in the village.  Either way, I do hope that Pediatorkope will be electrified soon as part of the government’s rural electrification efforts. Next time someone visits Pediatorkope, I hope they will be able to see a more prosperous island, where men stay on in the village, children doing better academically and agriculture and commerce prospering.

– Binu Parthan, SEA

Chief Nene Pediatorkope IV on Pediatorkope Island – Image: Sustainable Energy Associates

Nuon-RAPS (NuRa) Utility Field Visit – 30th October 2014

The STEPs team, following the meeting component of the network meeting, used the 30^th October as an opportunity to visit premises belonging to the Nuon-RAPS (NuRa) utility. NuRa is one of three concessionaires currently operating in KwaZulu-Natal province, providing both solar home systems and LPG to customers. The solar home systems are provided on a fee-for-service basis, with customers visiting an energy store on a monthly basis to top up their system credit, via an electronic key. LPG is provided to customers on a direct purchase basis. NuRa had 19,005 SHS customers as of September 2013, with a net customer growth of ~1,000 per year. LPG is supplied to the company on a 30-day credit by Totalgaz, and the company also offers direct sales of ethanol gel, having also previously experimented with improved cookstove provision.

The NuRa main energy store at Mkuze – 30^th October 2014 – Image: Xavier Lemaire

The STEPs project team visited two energy stores in the course of the day; the main energy store (and the centre of operations) at Mkuze, and a smaller energy store in Jozini. In Mkuze the team viewed the main operations of the organisation, from the process of credit top-up and LPG sale, to the equipment for the SHS, to the maintenance and repair division. In addition to this, the team observed the training procedure for new technicians on-site in Mkuze.

Topping-up credit for the SHS is done via an electronic token (magnetic key) which the customer brings to the energy store to add credit to. Maintenance teams also have a version of this token which collects operational data from the system at point of maintenance, for assessment by the company. Installations take place via car and motorcycle, and the company maintains its own fleet of vehicles. Technician training is also done on-site, with several demonstration rigs at the Mkuze store for this purpose.

The company also operates LPG bottle top-up facilities at each energy store, where customers bring empty bottles to be refilled, or purchase a new system in the case of the Shesha stoves.

Technician training at the Mkuze energy store – 30^th October 2014 – Image: Xavier Lemaire

Testing components at the Mkuze energy store – 30^th October 2014 – Image: Xavier Lemaire

Motorcycle fleet maintenance at the on-site workshop – Mkuze energy store – 30^th October 2014 – Image: Xavier Lemaire

In Jozini, the team visited one of the rural energy stores servicing more dispersed communities further North in KwaZulu-Natal. There they observed operations at the energy store, and also took the opportunity to have conversations with customers of the store, asking about the scale of their energy use and energy costs, as well as desires for future service (refrigeration, television). Of particular interest was the point that customers still used traditional woodfuels in addition to their LPG service, the primary driver behind this being the free availability of woodfuel to low-income consumers.

The STEPs team at the Jozini energy store – NuRA field visit 30th October 2014 – Image: Daniel Kerr

The Jozini energy store – 30^th October 2014 – Image: Xavier Lemaire

The Shesha gas cooker, offered by NuRa to customers, an integrated 5kg LPG bottle and single hob. NuRA field visit by STEPs 30^th October 2014 – Image: Daniel Kerr

The NuRa utility offers a number of useful lessons for the STEPs project. First and foremost, that it is possible to run a successful utility targeting bottom-of-pyramid consumers on a fee-for-service basis, integrating electricity and thermal energy services. The integration of product sale, installation, maintenance and service into one site and under one company (the energy store and NuRa itself) provides resilience for the business and enables the free exchange of information, as well as increasing customer satisfaction through regular maintenance from a trusted source. Finally, the on-site training of technicians through energy stores gives the utility a strength in capacity, and prevents the need for outsourcing to other technicians, reducing costs.

– Daniel Kerr, UCL Energy Institute