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Solar Light Solutions – Reaching the Last Mile (GreenTech Series, Part 2)


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by Peter Bladin, chief program and impact officer, and Danny Stokley, GreenTech Fund officer

In Part 1 of this series, we discussed the reasons that Global Partnerships (GP) decided to focus on supporting solar lights in place of other green technology solutions available to families living in poverty. In Part 2, we outline the solar product categories available in the market today, and distribution models that exist to provide them to off-grid families. 

It is important to note that we are focusing exclusively on residential-sized, off-grid systems, which by definition exclude larger, village-level applications of solar technology. While we have seen a few promising examples of community solar projects, most are funded through grants or subsidies. We look for products and solutions that make financial sense at the family level, as we believe this is the fastest way to reach scale.

Below, we highlight some of the existing solar light products along with potential distribution models.

Portable Solar Lights

Small portable solar lightsIn the early 2000’s, the first solar lighting companies focused on Base of the Pyramid (BOP) customers began to emerge, producing small solar products designed for affordability and durability. These pioneers paved the way for a new industry that continues to grow and develop. By proving that solar could be made affordable for off-grid families in the developing world, they showed that these high social impact products can be distributed through a sustainable business model. Small solar lights ($10-$16; pictured left), and slightly larger solar light/cell phone chargers ($40-$90) are portable, and meant to replace one kerosene lamp with a relatively rapid payback even for the poorest families.

With prices that many BOP families can afford to pay in cash, and requiring little or no maintenance, these solar lights can be distributed through small stores or individuals already selling other consumer goods. Living Goods utilizes this strategy in Uganda, promoting solar products through a reseller model, which gave rise to a distribution channel that now consists of over 1,000 entrepreneurs.

One of GP’s microfinance partners in Haiti, Fonkoze, has organized a similar network through their village banks. By connecting leaders of borrowing groups, known as center chiefs, with a local solar importer, they provide their clients with an income generation opportunity that has brought over 30,000 solar lights to off-grid Haitians. The key to these models is that local families, whether store owners or microentrepreneurs, are involved in the distribution channel. This provides livelihood opportunities for residents, and builds upon their knowledge of the local market. GP continues to support this initiative in Haiti, and has begun replicating the model in other countries in the region. 

Solar Home Systems That Improve Lives

Small solar home system.In recent years, larger products designed for off-grid families have begun to emerge, both from new manufacturers and as new product lines from the early industry leaders. These Small Solar Home Systems (SSHS; pictured left) are designed to be “plug and play,” and come with 2-4 LED lights, a power box with 1-2 USB outlets, and enough capacity to charge cell phones and other small appliances such as a radio. SSHS prices range from $150-$300.

There are also custom-built Large Solar Home Systems (LSHS), which range from $400 up to over $1,000, depending on functionality and size. This solution is by far the most difficult to transport, install, and maintain, but has the greatest capacity. Most installations come with a large lead-acid battery (picture a car battery, though the technology is slightly different), 2-6 light bulbs, and a couple of standard electrical outlets. If built with an inverter, this system has the capacity to power several appliances such as a radio, fan, or television.

With these larger variations, client ability to pay becomes a major barrier. Very few families living off the grid in a developing country have the cash on hand to purchase products costing hundreds of dollars, making some type of financing essential. One method is through a microfinance loan, which can be paid off over 6 months to 2 years with financial savings realized by eliminating money spent on kerosene, battery powered flashlights, diesel generators and phone charging. GP supports initiatives of this type through partners in Nicaragua and Honduras. 

Innovation in Financing for Solar Technologies

Another way to solve the up-front cost challenge is through a Pay-As-You-Go (PAYG) mechanism.  In this model, a solar company installs the system for a small fee, and customers pay in advance for activation time, similar to the way many are accustomed to using pre-paid cell phones. This model is much closer to a utility model, where new generation solar companies are essentially selling a service, often through mobile payments. This is most often offered through a “rent-to-own” model, and after 1-2 years of payments, the shut-off mechanism deactivates, and families then have access to unlimited free energy for the life of the product.

M-Kopa was one of the first to utilize Kenya’s mobile payment network to coordinate PAYG solar, and Simpa Networks has created their own SMS based payment platform to achieve the same result in rural India.  In the Americas, early adopters are looking at offering the same functionality through a service model, with the customer making PAYG payments over the lifetime of the product in exchange for unlimited maintenance.

As the industry matures, we believe that the PAYG model will be a major segment of the market.  While the nature of the business is very capital intensive, turning one-off sales into a user base creates a consistent revenue stream that the company can borrow against to fund future growth. In addition, customer payments in this model are directly tied to maintenance. This requires much more interaction with the end user, and a greater focus on timely, diligent customer service.  Finally, this model provides a path for customers to climb the “energy escalator,” allowing families to progress to greater amounts of productive energy (ex. larger panel) with a relatively low transition cost. 

Conclusion

Our thesis is that people will be best served by having choices – both through varying product capacity and flexible payment options. Solar, like most consumer goods, is not a “one size fits all” type of product. Off-grid customers have varying needs and ability to pay, and anything we can do as impact investors to build value chains that accommodate those needs will help accelerate this sector. Most off-grid families, understandably, are eager to buy larger and more powerful solar products, but many do not have the ability to pay the full up-front cost today. We hope to see innovation continue around long-term financing that makes larger systems affordable, while keeping in mind that even the smallest solar products replace the use of kerosene, resulting in a tremendous social impact.

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Blog Tags: Green Technology   last mile   off-grid   solar home system   solar lights   solar technology   

MaynorJosue
Maynor Josue (pictured right), solar coordinator at MiCredito, one of GP's partners in Nicaragua, shows a Sun King Pro solar light to families in the community of Madera Negra, Teustepe. Photo © Global Partnerships

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