In the global effort to make off-grid energy, and solar in particular, affordable to the 1.2 billion people currently without energy, there have been a number of encouraging breakthroughs in the past decade. For example, the production cost of solar has fallen rapidly — down 80 percent since 2010 — and is likely to fall even further. Across many parts of Africa, a pay-as-you-go revolution — often built around the spread of mobile-banking — has transformed the purchase of solar energy. Unlike in the past, where consumers had to pay high upfront costs, today they are able to make incremental payments via smaller mobile money instalments.
When it comes to increasing solar’s affordability and bringing off-grid energy within reach of the poor, these trends are undoubtedly encouraging. However, the growth we’ve seen in the sector is still a drop in the ocean when compared to the 600 million Africans who continue to live beyond the grid.
Why, then, if solar has become so affordable, have key innovations such as solar home systems not scaled beyond the 600,000 or so systems sold across Africa to date?
Motivated by this very question, the CDC Group, the UK’s Development Finance Institution committed to catalysing greater inward investment in developing countries, asked Acumen to investigate just how affordable solar is to those who need it most. We undertook a review of current literature on everything that’s known about the ability of consumers in Africa to purchase off-grid energy, with a particular focus on solar.
Here’s what we learned:
Solar products, beyond lanterns, are currently out of reach of the extreme poor. Limited available data makes it difficult to draw firm conclusions. However, research on solar lantern customers across East Africa by SolarAid suggests that more than 80 percent of customers live in extreme poverty (below $1.90 per person per day). By contrast, data collected from customers across five solar home system and mini-grid companies across East Africa by Acumen using our Lean Data(SM) approach shows that a third of customers live below the relative poverty line of $3.10 per day. We believe that even this lower level of penetration of home solar systems into the base of the economic pyramid is impressive. But it also shows we still have a way to go before more powerful systems are made universally available to the very poorest.
Financing helps drive sales, but those accessing solar through credit don’t always understand what they’ve signed up for. Financing for solar offers huge promise in terms of making energy access more affordable. However, it is not without its challenges. A significant number of customers say that they find contracts and credit approval processes confusing, and feel uncertain about just what it is they’ve committed themselves to. Equipping sales agents to adequately explain these processes may be a way to cross the financial literacy divide and ensure customers do not overstretch their finances.
Access is about more than just affordability. Whilst affordability is undoubtedly a key factor in unlocking greater energy uptake for the poorest, as important are three further drivers of adoption: Awareness, Advantage, and Access. Lack of awareness and a lack of trust in the quality of solar products remain a major challenge when it comes to large-scale adoption of off-grid solar products and services. This is especially true where markets have been flooded with low-quality knock-offs. And while the sector might be growing, solar companies are currently concentrated in a few countries, mainly in East Africa, meaning consumers across the rest of the continent struggle to access products even where there is a willingness to buy.
We still have a lot to learn. While a picture of why and how poor customers gain access to off-grid energy is emerging, our review shows that it still remains relatively sketchy. There is more to discover about how to encourage greater affordability of solar products. Questions on our mind include: whether low-income customers are taking on too much financing to access solar products and therefore putting themselves at financial risk and, if so, how does that impact their ability to access and purchase off-grid power? What is the relative importance of affordability when compared to Awareness, Advantage and Access? And, do women purchase and value energy differently from men?
These findings have reinforced, rather than revolutionized, our understanding of the opportunities and constraints poor customers face when purchasing off-grid energy. That said, they remind us that when it comes to reaching poor, off-grid consumers, sweeping generalizations should be avoided and understanding nuance is key. While the majority of attention has been paid to falling costs of producing solar energy, this alone will not ensure the universal spread of off-grid energy. Many other factors are at play. For example significant consumer education is still required to explain the benefits of solar, particularly beyond East Africa, consumers may need greater protection especially where they take out loans, and, in order to reach the very poorest, prices for more powerful systems still need to fall further. The trends are all headed in the right direction, but much can still be done to turn 600 thousand consumers into 600 million.
To learn more about this work, please access the full report here.
Kat Harrison is Associate Director of Impact at Acumen.