As part of our recent Annual Member Conference in Paris, GOGLA organized a symposium offering the audience a snapshot of the latest research on off-grid energy markets and consumers. Divided into two in-depth sessions on business and consumer perspectives, the symposium was complemented by lively panel debates on trends and challenges of the off-grid energy access market.
Global Off-Grid Solar Market Report (H2 2016), GOGLA
Laura Sundblad (GOGLA) opened the symposium with an overview of the key results of the latest edition of the Global Off-Grid Solar Market Report. The report compiled by GOGLA and Lighting Global provides insights into sales and impact data of off-grid solar companies on a semi-annual basis. For the H2 2016 edition, 55 companies reported performance data.
In H2 2016, the key markets of the off-grid solar sector were faced with issues affecting companies and sales. These issues are diverse ranging from the devaluation of Nigeria’s currency and demonetization in India to drought and the introduction of import tariffs in the East African Community. Preparations for the next data collection round H1 2017 are underway.
Reaching scale in access to energy (Hystra)
French consultancy firm Hystra presented the findings of their latest report on energy access drawing lessons from practitioners in the sector, including many GOGLA members. The report, supported by seven sponsors including TOTAL and responsAbility, looks at different product categories, opportunities and challenges for energy access companies.
According to Hystra solar lanterns have made a significant impact, but this success is highly localized. Due to the lack of distribution networks and trust issues on the side of customers, solar lanterns are struggling to reach remote and rural areas. To address this, Hystra recommends exploring new distribution channels, including direct sales with tactical pricing, distribution via local partners or traditional retail chains. The report also proposes that off-grid solar companies should cooperate on an aftersales facility enhancing the service offer for customers while sharing the costs for such a facility.
Hystra stressed that PayGo as an off-grid solar business model could unlock energy access, but the focus of companies active in this space would need to shift from customer acquisition to customer retention. In one interview, a practitioner voiced criticism of the growth strategies of some PayGo companies proposing to adhere to commercial discipline before focusing on growth. Hystra’s recommendations for energy access practitioners include demanding a higher customer commitment, incentivizing sales agents for customer retention and investing in the expansion of customer service and care.
A challenge for off-grid solar companies identified by Hystra is the recruitment and management of field staff. However, the firm also sees opportunities in this regard, e.g. by assigning sales agents to dedicated territories to increase market penetration in given areas or by leveraging technology to increase efficiency. The full report is available on the GOGLA website.
SE4ALL: Finance for Energy Access: Assessment of Market Needs (E3 Analytics)
E3 Analytics introduced the audience to an early version of their assessment of what kind of finance the energy access markets need. The full assessment is scheduled to appear at a later stage. They pointed out that markets were heterogenous with multiple nationally specific factors coming into play. However, there were a few common trends across markets, including the challenge of unrealistic lender requirements e.g. in terms of collaterals or huge cash reserves. At the same time, capital costs and the definition of acceptable capital costs varied widely from country to country. The firm also stressed the need for all countries to simplify taxation rules for energy access products. E3 Analytics observed a “PayGo hype” in the sector that was, however, already slightly cooling off. They pointed out concerns about the relation between equity and debt financing in the sector. In addition, the firm warned companies against the risk of diversifying away from solar home systems towards loans for other consumer goods which would imply very different business models. E3 Analytics concluded that there was a need for more financial innovation in the sector e.g. in the form of combining grant and loan financing.
Impact Studies (Acumen)
Kat Harrison kicked off the second session of the symposium focusing on perspectives of off-grid energy consumers. The Acumen energy impact series features new research providing insights into the social impact of off-grid energy access including the economic and health impact of solar lighting, educational outcomes of access to solar lighting and evidence of the energy ladder.
According to Acumen, early research indicated that households save money with pico-solar products and are highly price sensitive. In addition, replacement cycles were unfolding as predicted in earlier stages of the market. Increasingly, pico-solar was adopted universally. Pico-solar products also led to meaningful reductions in exposure to household air pollution.
The Energy Lean Data project, supported by several GOGLA members, allows Acumen to learn more about the impact of pico-solar across a portfolio of companies in a customer-centric fashion. The project is aligned to GOGLA industry metrics.
Emerging findings from the Global MTF (Multi-Tier Framework) Survey (World Bank)
Dana Rysankova from the World Bank’s ESMAP team summarized some early results of the Multi-Tier Framework (MTF) Survey looking into the level of household energy access in 15 high energy access deficit countries. The survey measures access to household electricity across seven categories: peak capacity, reliability, availability, quality, affordability, legality and health/safety. Six different household energy access tiers exist: from tier 0 (no access) to tier 5 (> 23 hours of access).
Ms. Rysankova presented early findings of the survey in Rwanda and Kenya. In Rwanda, around 4 percent of households relied on off-grid solar as their main source of electricity. By including off-grid solar solutions, MTF found an electrification rate of 27 percent in Rwanda. Even though some households were connected to the grid, they fell into tier 0 due to a lack of reliability of the grid connection. On a national level, households with tier 4 and tier 5 access were concentrated in bigger cities, particularly in the capital area. Grid-connected households usually had tier 3 to 5 access. Remarkably, grid-connected households in rural areas had a very low monthly consumption (9.87 kWh) which could equally be satisfied by off-grid solutions.
There was a quick uptake of off-grid solar products in rural areas in Rwanda, but there would be a long way to go to reach 73 percent of all households without electricity, Ms. Rysankova stressed. Since around two thirds of respondents indicated they bought a solar home system under a fee/instalment-based scheme, PayGo or microfinance schemes were likely to make a difference in solar home system adoption. Not all solar product users were satisfied with the product with some consumers pointing to an unsatisfactory light quality.
In Kenya, 57 percent had no access/tier 0 access to electricity in accordance with the MTF. Solar products in Kenya were filling the access gap for all households – regardless of whether they were connected to the grid or not or located in urban or rural areas. 33 percent of all households in Kenya had at least one solar device. The use of mobile money was widespread in Kenya with 89 percent of households using mobile money. Households using solar as their main electricity source had a low level of satisfaction with the service. There was no clear indication why they were dissatisfied. With unelectrified households in Kenya still relying mainly on kerosene for lighting, there was a huge market to address, but reaching last-mile customers would be a challenge.
Off-Grid Energy Adoption Dynamics in Uganda: Initial Findings and Observations (Dr. Arne Jacobson, Schatz Energy Research Center, Humboldt State University)
Dr. Arne Jacobson of the Schatz Energy Research Center shared insights into the adoption patterns of off-grid solar products in Uganda. Building on a partnership with Uganda-based GOGLA members who offer solar products in different categories, the research intends to look at some of the relevant questions within the sector, e.g. to what extent owning an entry-level solar light increases the likelihood of an end-user investing in bigger solar products in the future. Early observations indicate that the majority of buyers of small solar lamps were more likely to have purchased another solar product previously while the majority of customers in all cases were first-time buyers. Direct marketing and proximity to retail outlets appeared to be among the strongest drivers for adoption. Flexible financing mechanisms seemed to enable relatively low-income customers to purchase small solar home systems as entry-level products. Mr. Jacobson and his team will publish a full report and industry brief as soon as all research results have been analysed.