PayGo is an off-grid-pay-as-you-go solar power model. PayGo is an off-grid-pay-as-you-go solar power model. REUTERS/Rafael Marchante

Africa is facing an electricity crisis – a pay-as-you-go model could solve the problem

Jul 13, 2019

The number of people in Africa without access to electricity remain staggering and unchanging with every report—around 640 million people don’t have access to a grid. And even when some of people do have access the electricity supply is unreliable and unstable.

It’s a problem across the continent. The most consistent and promising approach to tackling this huge obstacle to development has come with the off-grid pay-as-you-go solar power model, now called PayGo. The sector started out in East Africa built around combining the improving and increasingly cost-effective solar technology with the region’s mobile money advantage, thanks to the successful reach of Safaricom’s M-Pesa in Kenya.

Companies like Nairobi-based M-Kopa, who we spoke with recently at the Collision conference in Toronto, have signed up 750,000 homes in the region on the back of that payment platform which has been key for also enabling users to obtain credit and manage their payments. “The energy is kind of the easy part,” acknowledged chief executive Jesse Moore.

Also on the panel with Moore in Toronto was the musician Akon, who has famously been building a solar power business for a few years in several African countries. His latest initiative to to develop a crypto-currency to get round the difficulties with payments and boosting financial inclusion.

PayGo solar isn’t just reliant on classic mobile money solutions. In some countries it’s being used with local bank partnerships such as in Nigeria or with credit bureaus in India, for example.

The rise and challenges of PayGo are covered in the World Bank-backed Lighting Global report which analyzes the market attractiveness of the model around the developing world. Globally, the sales volume of PayGo products grew by 30% last year with revenues growing even faster at 50% driven by customers upgrading to solar home systems beyond basic products like solar lamps. According to the global off-grid solar market report, PayGo companies represented just 24% of the sales volume in the last six months of 2018, but accounted for 62% of revenues.

The two strongest markets for PayGo are Indonesia and Kenya, according to Lighting Global’s index, which looks at 71 factors across demand, supply and enabling environment. On that basis Sierra Leone, Mozambique and Angola were the weakest markets for PayGo.

When it comes to demand Kenya and Uganda score high particularly when it comes to users’ “willingness to pay”, while Kenya also does well on the supply side along with Indonesia, driven by the availability of finance to support the sector.

While the report covers 24 countries across sub Saharan Africa and Asia, it’s clear East Africa is the star of the show with more than 70% of the global PayGo market’s revenues.

In Lighting Global’s country focus on Nigeria, Africa’s largest economy, the demand for PayGo services is the highest of country’s covered because of the unreliability of the country’s existing grid and low electrification rates especially in rural areas. The PayGo market has seen rapid growth in recent years with over 1.7 million households now using off grid solar products. But Nigeria’s current market penetration is still low, at just 4% of the potential market.

Nigeria’s complex regulatory environment is identified as one hurdle to enabling better supply with opportunities such as supporting mobile money more widely. But on the plus side the country offers innovative business models, including partnerships with mobile operators for airtime credit enabled PAYGo products and retail banks to leverage agent networks have helped some solar operators overcome barriers to market.

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