Pay-as-you-go model brings affordable energy to rural areas

Pay-as-you-go (PAYG) energy is a prepayment system that allows the user to pay upfront for a set amount of power, avoiding complexity with billing afterwards. While available in countries in the developed world, such as the UK, its main value is electrification of rural regions.
 
The PAYG model avoids high upfront costs for small-scale off-grid PAYG solar-diesel or solar-storage hybrid systems for houses or small businesses in remote regions. PAYG energy developers are mostly SMEs, initially supported by impact investors. These include Angaza, BBOXX, FuturePump, M-Kopa, Mera Gao Power, Off-Grid Electric, SharedSolar, and Solshare. Larger companies have also started to form strategic partnerships in an effort to enter the sector, including Engie, which acquired Fenix International in 2017, Sumitomo, which invested in M-Kopa, and Mastercard’s PAYG solar pilot with M-Kopa in Africa.

A 2017 World Bank report estimated that 1.1 billion people live without access to electricity. PAYG systems can be installed in remote regions to give homes or small businesses access to renewable electricity systems without high initial purchasing costs.
 
With the means for lighting and/or mobile phone charging, PAYG enables study in the evening and access to mobile services such as community banking or group buying of crops. Access to clean, affordable and reliable energy is one of the United Nation’s Sustainable Development Goals and is critical for eradicating poverty, and improving the health, education, and livelihood of millions. As such, PAYG service providers can be a force for poverty reduction in villages while sustaining a profitable business.
 
Although small-scale solar PV costs continue to drop, it is still too high for large parts of rural, unelectrified regions in, for example, Africa or India. PAYG technology provides the following:
 
1. After a small down payment of USD 10 to USD 40, customers receive a system that has an integrated mobile connection. A basic system can comprise, for instance, an 8 W solar panel, lead-acid or lithium battery, two LED light points and a phone charger. More elaborate systems may include multiple solar panels and LED lights, a flat-screen TV or radio (for bars), fridge, or inverters, distribution board, wiring, and smart meters to set up small microgrids and peer-to-peer energy trading.
2. Once installed, the customer pays a periodic flat-rate charge, often equivalent to the cost of using fuel for lighting for a basic setup (~USD 0.50/day). Simple prepayment is the core of PAYG, drastically reducing financial risks from billing complexity or missed payments. A customer buys a token in a shop or, more commonly, makes a mobile payment via the PAYG’s partnership with local telecom companies and/or banks. By typing a received code on a keypad of the PAYG system, it unlocks power for a preset amount of time. If credit is depleted, the system will lock out power. Companies use mobile web platforms, apps, unique device identifiers, and two-way SMS to communicate with customers and manage system access and operations.

With several providers, after one to two years, the user can unlock the system once it has been paid in full for the remainder of its lifetime (five to 10 years) by buying a final code.
 
PAYG companies generally bear most or all the CAPEX cost of a system, often acting as retailer with investment funding. Considering the low achievable margins in PAYG, reliable yet low-cost components are key; some will purchase components such as solar panels and  inverters directly from the market and assemble in-house, while others will purchase full systems from other PAYG suppliers and re-sell. The key unique system for PAYG is the mobile connected controller to restrict power usage when customers are late to pay, which is often supplied by a contract manufacturer.
 
PAYG operators generally address a large customer base, each with a small power consumption, in rural or peri-urban regions, making rural “last mile” distribution a challenge. It requires local knowledge to sign up any new homes or villages for installation. Many will use informal local supply chains to deliver products at the lowest possible cost, and operators have to manage local politics and payment collections to successfully implement microgrids. However, effective service management can be an enabling force and a competitive advantage. Dozens of PAYG companies have established themselves in East and West Africa, and have raised in excess of USD 360 million in financing, providing energy services to more than 700,000 customers. By October 2017, cumulative sales by PAYG operators reached 1.5 million products, from 0.3 million in December 2014. Recognising a growth opportunity with more than 1 billion currently unelectrified customers, large companies have started forming strategic partnerships.

As market traction and confidence with the PAYG business models grows, companies are expanding their product portfolios to increase market reach. Many expand their portfolio of appliances combined with higher-out solar systems, adding, for example, satellite TVs, computers, hair clippers, or fridges to become relevant for small commercial business in larger communities. A number of companies, including Victron Energy, SharedSolar  and SOLshare, are evolving technology offerings and adding the likes of smart meters, DC inverters and energy trading systems to enable community-shared solar systems with microgrids. As these offerings mature and power output increases, PAYG will evolve into a large-scale distributed energy system, enabling small-scale industrial usage via microgrids, while secured energy trading systems using blockchain will start creating hyperlocal utilities.
 
As PAYG companies generally source components or full systems from other suppliers, UAE companies can partner with existing PAYG solar players to expand their product portfolios and, critically, tap into an entry point for new markets in countries such as India or Africa, with a potential customer base of more than 1 billion people. For the UAE, this provides an opportunity for diversification of technology investment and development in the near term. In the longer term, PAYG, micro-grids and similar distributed energy systems will likely become a major component of the energy system in these currently unelectrified markets. Participation in the early stages will thus create a foundation for UAE companies to develop distributed or centralised utility-scale projects as the energy markets in these countries mature and grow.
 
Indeed, the 2019 Energy Category winner of the UAE’s Zayed Sustainability Prize, PAYG developer BBOXX, will use its prize money to further expand its customer base in Africa and the Philippines. Other PAYG winners of the Zayed Sustainability Prize, Off-grid Electric and D.Light, are also looking to expand their product portfolios and market reach. By contributing to the development and growth of PAYG energy solutions, UAE energy companies can promote sustainability and drive an energy revolution in developing economies and expand their commercial footprint in major growth markets outside the UAE.

In the long term, PAYG developers are creating an untraditional residential power generation dynamic, where distributed solar is becoming the incumbent technology competing against a growing grid. Projecting PAYG’s growth since 2010, the installed base will exceed 6 million by 2020; in comparison, the largest sub-Saharan utility, Kenya Power, served 6 million in the fourth quarter of 2017. Kenya is rapidly becoming the PAYG leader; Azuri Technologies partnered with Unilever Kenya for distribution of its systems, tying into the Kenyan government’s goal to raise population electrification from its current 75% to 100% by 2022, with PAYG as a major contributor.

Given proper funding and the projected energy demand growth in countries such as Africa or India, PAYG providers are poised to become the future energy providers of unelectrified regions by fostering grid independence via residential solar power systems – and eventually community-level solar and microgrid solutions.

Top 3 PAYG Innovations to Watch

1. Extension of PAYG models to other utility services. Early examples include FuturePump, paid by pumped irrigation water volume, and HTX Solutions’ modular wastewater treatment system, paid per volume of treated water reused.
2. Blockchain energy trading integration with PAYG. Though basic PAYG systems are cheap, investors remain wary of potentially insecure payment systems in rural regions, hampering large-scale investment. Integration of blockchain for energy trading, as demonstrated in LO3 Energy’s Brooklyn Microgrid Project, can bolster security.
3. Adoption of novel sales and marketing models, in particular internet shopping, as this starts becoming available in rural regions, to drive faster adoption and growth.