Lighting up digital economies with clean energy
During our last family holiday, I called a summit of three generations to talk about climate change. Sitting around the dining room table (with lights on), we shared our fears, identified how we contribute to climate change, and made personal and group commitments to behavior change. Little did I know that our firm would soon be fortunate enough to land a project for the World Bank early in January to help foster enabling environments for off-grid solar. Surely a great coincidence, and a big opportunity to take action on a global scale.
As we have embarked on that work and begun to explore the off-grid sector, I’ve been reminded again of the privileges that abound in my life and that come with living in a prosperous digital economy. I’ve realized that for many families, purchasing off-grid energy solutions is not a “green” choice made to address climate change, but a decision necessitated to get energy access to power the tools in their lives.
One of our first stops on the new project was the 2020 GOGLA conference in Nairobi. Before our current times of social distancing, we strolled the exhibit hall filled with solar panels fueling not only solar lanterns and basic home systems but powering advanced home systems charging multiple lights, mobile phones, and systems bundled with televisions, radios, and even household appliances and water pumps.
While our work in digital financial services has put pay-as-you-go solar products (PAYG) on our radar for the past few years, I didn’t fully realize the foundational role digital technology can play in enabling energy access and addressing what is still a dominant barrier for poorer consumers — affordability. I started connecting dots to how that issue of affordability affects low-income households in other sectors, like mobile phone ownership for women or in purchasing agricultural inputs. Technology advances are bringing prices down, for both off-grid solar and mobile phones, but the cost of purchase continues to keep these products out of reach for many. That is why enabling the financing of these purchases through expansion of DFS is more important than ever. This holds true for PAYG offerings that are bridging the financing gap for energy access and can provide an entry to financing for other essential products, like smartphones.
Market research released at GOGLA’s conference on the state of the off-grid solar market shows PAYG to be a significant factor in increasing sales of larger solar home systems offering these higher service levels. The incorporation of DFS to enable consumer financing supports countries’ pathways to digital economies such as those captured by the Africa Digital Infrastructure Moonshot Initiative of the African Union, World Bank, and others.
It was amidst this progress on expanding off-grid solar financing that COVID-19 hit. Economic losses and shutdowns are causing financial insecurity among consumers — many of whom may have only just begun to access more formal financial services through PAYG. PAYG companies that finance relatively low-cost solar systems of $200 USD and use loan volumes to balance their portfolio need a lifeline to be able to continue to offer (and survive) payment flexibility. Without the ability to offer flexible payment terms, the lights will be shut off both for consumers and possibly for the PAYG sector, as PAYG companies do not have the liquidity to survive long periods without customer payments. Such an outcome would stall a sector that is making progress in closing the energy access deficit and deprive customers of essential energy services right when they need them most.
What can be done to help both the customer and sector?
Off-grid solar companies could be offered results-based financing either by funders and or governments as a buffer to help subsidize for services that will be offered without repayment.
Governments could seek the help of off-grid energy companies, who have the capability to harness data analytics, to provide critical information to understand how rural areas could be affected by COVID-19.
Off-grid solar companies could reschedule payment plans in order to lower the minimum payment for customers.
Crisis management now extends beyond the existential threat of climate change addressed at our family table summit — it is the new normal demanding attention on so many global issues. Governments and donors should strive to stabilize and capture the potential of the off-grid and PAYG sector as an essential service and look to build enabling environments for future growth once the darkness of COVID-19 begins to lift. As we remain distanced from each other, let’s bridge the gaps with digital technologies — not just for our teams and work, but for those seeking access to energy to fuel their lives.