Pay-As-You-Go (PAYG) Models for Cooking Fuels – Innovation for the Poorest Consumers

Daniel Kerr from UCL writes on innovative pay-as-you-go models in use for cooking energy service provision.

In the last 2-3 years, a handful of thermal energy services companies in the developing world, specifically in Sub-Saharan African countries, have begun to take advantage of pay-as-you-go (PAYG) consumer financing models in their energy businesses. These models have significant advantages in comparison to direct purchase, hire-purchase or micro-credit models when dealing with the poorest consumers in societies, for example those living in informal settlements in urban or rural areas. Some companies are taking advantage of these models for selling clean cooking products, such as stoves themselves, whereas others are using this payment structure for cooking fuels.

One company in Kenya taking advantage of these innovations is KOKO Networks. This organisation seeks to offer an integrated neighbourhood-level clean cooking solution with smart technology, via their KOKO points, cloud-connected commerce hubs where consumers and vendors can come to refill the products on sale or make purchases. Currently the company is offering the SmartCook product at these sales points, which is a two-burner clean cookstove with an integrated fuel canister. The fuel used is marketed as Mafuta smart, which is an ethanol fuel derived from molasses manufacture.

What is particularly innovative about this system is that the sales hubs for the company have in the automated purchasing stations for the fuel for the cookstove system. These dispensers refill the provided fuel canister (known as a kibuya smart canister) with the cookstove system, and customers can refill their canister from as little as KHS30 (US$0.29) at a time, offering significant flexibility for the consumer, without the “poor people’s premium” (higher per-unit prices charged for small amounts of consumable products) seen in other commodities. The company operates on a concession business model, with interested parties either setting up their own fuel supply arrangements for the fuel to service their settlement, or purchasing equipment and fuels from KOKO themselves.

KOKO Networks KOKOPoint in store in Nairobi. Customers can purchase a stove or replacement fuel from the kiosk. Image: http://www.globalhearthworks.org/koko/

Other companies in Kenya are taking advantage of PAYG models to enable greater access to their products and services as well. In Nairobi, PayGo Energy is a distribution service for LPG fuels that is using pay-as-you-go services to bring LPG fuel access to a greater number of consumers. The service begins with the installation of an LPG stove, cylinder and smart fuel meter in the home. This smart meter is at the core of the service the company offers, as it automatically communicates to the company when the fuel level is running low, whereupon the company arranges delivery of a replacement, full cylinder to the household. In addition, the system support mobile payments and ordering of fuel replacements, allowing customers to purchase as little as a day’s worth of LPG (around US$0.50) at a time. This logistics system has been adapted to informal settlements, allowing uninterrupted supply to households in informal settlements via motorcycle.

PayGo Energy stove and fuel canister in a house in Kenya. Image: https://blog.catalyst-fund.org/delivering-modern-energy-in-kenya-building-on-mobile-money-eb0eba1960da

Other organisations are beginning to see the benefits of integrating mobile payment technology with a pay-as-you-go fuel payments model for energy services. KopaGas in Tanzania are another company using smart LPG metering to minimize the challenges posed by last-mile distribution which are typical in providing thermal energy services to communities. This smart gas meter system allows the company to deliver cylinder filling services or replacement full cylinders to communities efficiently, minimising distribution costs. In addition, the company offers a pay-as-you-go service for LPG fuel, as well as offering pay-over-time services for both fuels and cooking equipment. KopaGas has been partnering with EnviroFit, an established LPG equipment and fuel distributor in East and West Africa, in order to scale their service reach.

Through these cases, the market opportunity for offering clean cooking fuels and technologies as an energy service, using innovative fuel and equipment payment models to enable access for the widest range of consumers, can be clearly demonstrated. KOKO Services and KopaGas/PayGo Energy may be using different technology options, but the commonalities in approach exist: offering consumers the ability to purchase small amounts of fuel at a time, via a convenient payment method (either via mobile, at a central filling station, or both), and in the case of the LPG companies, offering consumers the option of household delivery. Through this combination of factors, these companies are breaking the traditional barriers to household thermal energy service delivery, allowing consumers who previously would not have had the financial capacity to afford modern cooking fuels the ability to access these technologies.

– Daniel Kerr, UCL Energy Institute

References

Global Alliance of Clean Cookstoves (2017) “Pay-as-you-go” technology to boost access to cooking fuel. Available at: http://cleancookstoves.org/about/news/05-30-2017–pay-as-you-go-technology-to-boost-access-to-cooking-fuel.html

KOKO Networks Home: http://kokonetworks.com/

PayGo Energy Home: https://www.paygoenergy.org/

KopaGas Home: https://www.kopagas.com/

The Challenges and Opportunities of Centralised and Decentralised Biodigesters

The STEPs research project explores the relative benefits and dis-benefits of larger centralised biogas systems at a village scale versus smaller family-scale systems. It also investigates the economic and financing factors (centralisation brings economies of scale but can only really be implemented by organisations/governments, family-scale systems may be out of reach of user capital without financing arrangements), environmental factors, and social and behavioural considerations (do users want to collectively cook, issues with economics of pipe gas supply meaning necessity of group facilities etc) inherent in biodigester development.

Biogas digesters can be a valuable solution to providing thermal energy services to rural and urban households in the developing world. The technology is particularly applicable in rural areas, where access to feed stock for the digesting chamber in the form of agricultural wastes and other organic wastes is greater. In general, digesters fall into two broad categories: household-scale biodigesters, and larger, centralised biodigesters.

Dome-type biodigester in Arusha, Tanzania [1]

Household-scale biodigesters are often seen as the most viable option for rural communities and households. These are generally small, with digesting chambers of volumes in the 4 to 13 cubic metres range. These installations will support the cooking needs of a rural household, as well as providing biogas for heating or lighting if required. Tailoring the size of the biogas system to the availability of feedstock for the household is critical for successful functioning of the system: studies have suggested 4-6 heads of cattle is a sustainable target if using agricultural wastes for feedstock, for an average-sized family of five. Individual biodigesters can produce sufficient gas for a single person on as little as 1 kg/day of feedstock.[2]

However, one of the primary limiting factors in the adoption of household biodigesters is financing and end-user capital constraints. Household-scale systems are still relatively expensive for the majority of rural developing-world users, and experience has shown that without the provision of credit facilities in biodigester programs, or government subsidies, adoption rates remain low.

Centralised biodigester systems offer a different set of benefits and challenges. Economies of scale are the major advantage: one centralised system can serve a medium-scale settlement or several small settlements, with a reduced burden for upfront capital costs and maintenance compared to the same service with household-scale systems, in the range of US$100 – 500 per household. The Chinese National Biogas Program [which will be the subject of a later blog in this series], has been the major implementer of centralised systems, however experience also exists in other South-East Asian countries. Examples of this can be found in the centralised digesters built near Beijing to service rural villages. For an upfront cost of ~US$1 million, 1900 households are serviced through each centralised digester, with biogas available at a 20% discount compared to market LPG prices, and the additional benefit of organic effluent being made available for sale to the local farms feeding the digester.[2] The major constraint, however, to wider dissemination of centralised systems is the significantly higher up-front capital costs. This puts the systems out of reach for private users in the majority of cases, government-scale implementation is more common.

Socio-political conditions are another factor that has proved a constraint in biogas implementation projects in developing countries. Centralised biogas digesters can have difficulty with biogas supply to end-users, particularly given the poor economics of installing piped gas supply in small rural communities. Communal cooking facilities have been a solution to this problem in theory, however experience from India suggests that collective cooking is not desired by the rural population, and this has impacted upon the success of centralised digester installations. As with dissemination programs for clean cookstoves, biogas installations need to take into account the end-users needs and desires in design and installation for product use and performance.

The other posts in this series will cover the question of why biogas hasn’t succeeded in Sub-Saharan Africa as it has in South-East Asia, the maintenance question for biogas services, and lessons from the Chinese National Biogas Program.

– Xavier Lemaire & Daniel Kerr, UCL Energy Institute

[1] Laramee & Davis (2013) Economic and environmental impacts of domestic bio-digesters: Evidence from Arusha, Tanzania. http://dx.doi.org/10.1016/j.esd.2013.02.001

[2] Hojnacki et al, MIT (2011) Biodigester Global Case Studies. Available at: https://colab.mit.edu/sites/default/files/D_Lab_Waste_Biodigester_Case_Studies_Report.pdf