According to the World Bank, over 1 billion people or about 15 percent of the world’s population currently live without access to electricity. Of these, 150 million live in Southeast Asia, predominantly in Myanmar, Indonesia, Cambodia, and Philippines. Myanmar, in particular, is one of the countries with the lowest per capita energy consumption rate as 70 percent of its population live with no access to the national supply grid.
The absolute majority of these households are rural and low-income, located outside of established road infrastructure, which limits the ability of the electrical grid to reach them. However, the potential market for providing energy to these clients is enormous, with these clients spending an estimated US$2 to 3 billion each year on very basic needs alone, such as legacy lighting sources (kerosene and candles), as well as mobile phone charging at third-party charging stations.
In recent years, we have witnessed the emergence of a new paradigm in rural electrification – distributed generation based on renewable sources, in particular solar. Solar panel prices have dropped by over 10 times in the last 20 years and are continuing to decline.
This trend has started to make solar generation prices competitive today in the off-grid segment with the legacy sources. Enterprising original equipment manufacturers (OEMs) have picked up on this, initiating production of integrated Solar Home Systems, better described as an “electrification-in-a-box” solution for an off-grid household. That is a major breakthrough, and it has completely changed the way the rural off-grid customer looks at his energy needs today.
Rural Myanmar, where over 80 percent of households remain off-grid, is a perfect example of a “deep off-grid” market in Southeast Asia. In just the last five years, an estimated 70 percent of the off-grid households installed either very low-cost (and correspondingly low quality) component Solar Home Systems, or at a minimum a battery with some LED lights in the house.
What is interesting is that this spontaneous development happened without any meaningful government and/or donor intervention. Having answered their basic need and gained an understanding of how solar and solar-powered battery could be a big solution to their power problems, these bottom-of-the-pyramid households are now looking for a way to upgrade their system so as to get more capacity, faster charging and lighting hours, and the ability to power bigger appliances such as televisions, as well as to get a higher quality, reliable system that will not break down with a long lifecycle.
At the same time, these bottom-of-the-pyramid households, who have been using candles or small batteries, are seeking affordability in order to switch to solar. There is a huge market opportunity for a player that can deliver quality solar chargers and DC (direct current) appliances at an affordable price point.
Using financial technology to advance energy inclusion
The off-grid population has also been disillusioned by the elusive promise of grid extension made by politicians each election cycle. The grid in Myanmar, not unlike other frontier markets, is extending at an excruciatingly slow pace. Even when the grid does arrive, it comes with its own set of problems – a significant upfront signing fee and unreliable power supply. This has further strengthened the case for Pay-As-You-Go solar in Myanmar, with a huge success case in East Africa that has transformed the energy market for its off-grid community over the last five years.
Fortunately, for the off-grid community in Myanmar and across the region with time, a new paradigm shift in rural electrification has taken place with the emergence of “Pay-As-You-Go” (PAYG) solar home systems originating from Africa powered by financial technology.
PAYG rent-to-own solar home systems leverage a growing trend in rural communities across Southeast Asia – the adoption of mobile devices. Using commonly available dumb-phones, consumers can make regular payments on their mobiles to top-up their systems for two to three years prior to the automatic transfer of ownership of the solar home systems after a default period.. With basic smartphones becoming more accessible at lower price points, digital payments and e-commerce will only support further growth in the renewable energy electrification market catered to the off-grid community in the region.
For corporates this presents a strong business case for PAYG – the technology to encourage mass market adoption already exists. High mobile ownership also lowers the operational costs of reaching remote communities and gives companies access into a previously untapped consumer group. By managing these transaction flows, organisations can collect valuable data points to gain insights into the needs of off-grid communities.
This new PAYG Solar industry has attracted over US$511 million of funding so far, providing electrification to millions of households.
PAYG not only provides a reliable and affordable source of power supply but also results in immediate cost savings for the off-grid community. For example, a PAYG lighting product would cost approximately 17 percent less than the candles and mobile charging stations and a basic PAYG solar system solution could cost 11 percent less than the cost of owning and maintaining lead acid batteries.
The beauty of the PAYG approach is that it is today one of the very few segments within the renewables industry that offers strong positive product-level profitability without the need for any government subsidies, offtake contract incentives, or donor support. And in the environment of frontier markets with the lack of political will to push through strong, consistent support for the funding of alternative energy sources, this is seen very positively by global investors.
A particularly encouraging development that demonstrates this private investor support, is the evolution of a securitization structure in the PAYG space. So far, about half a dozen transactions have been publicly announced in Africa, and the World Bank and IFC are actively driving forward the PAYG securitization agenda by stimulating the development of standardized PAYG industry metrics.
Economic self-sufficiency powered by financial technology
While economic self-sufficiency powered by financial technology makes the PAYG sector attractive for commercial investment, it is also one of the most socially impactful enterprise models in existence today. By prolonging working and study hours, reducing health hazards, reducing CO2 emissions and other environmental damage, the PAYG industry will have a strong and measurable impact on the well-being of its customers and the planet.
A recent USAID-funded study of SolarHome’s operations in Myanmar established that every dollar invested by the company in its solar home systems in the field brought a four-time return in terms of measurable social benefits.
Grid extension has been unable to solve the last mile off-grid problem, as it suffers from lack of funding, political will, and bureaucracy. However, the new approach of PAYG-driven distributed generation based on solar energy is much more affordable and easier to roll out then grid, and carries much lower sign-up fees, thus enabling reliable energy access for the lower income “bottom of pyramid” user segments.
Going forward, we strongly believe that this is how the Southeast Asian off-grid population will get electrified – privately, profitably, one household at a time.
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