More and more private sector actors are moving into the PUE space. Their business models, progressively refined over recent years, are already showing compelling results in their ability to solve many of the challenges around PUE promotion and up-scaling. This is particularly so when it comes to end-users‘ ability to pay and the restricted capacity of lenders to extend their services into rural Africa. Following a review of today‘s stakeholder landscape, two private sector delivery models for PUE are particularly interesting for our approach to scaling up PUE promotion: the hardware supplier model and the service provider.
Hardware Supplier Model
Fourteen of the interviewees in this study reported that the supply of hardware to end-users is either a primary function or a secondary stream of their business. This PUE business model has emerged to fill the market gap that occurs in rural areas, when villages attain access to electricity, but not to the tools, appliances, machines and electronics urban electricity customers can obtain from hardware shops, electronics suppliers or larger supermarket and department store chains. As such, some mini-grid companies or distributed energy service companies (DESCOs) are now supplying hardware in their villages of operation, to stimulate demand for their power and encourage economic activity that creates impact from electrification.
Hardware suppliers are also providing a smart and simple solution to many of the challenges around financing, promoting and disseminating PUE resources. The hardware supplier model builds on lessons from the SHS market, where generally the company seeks to build market share by providing reasonably priced, reliable equipment to end-users in a somewhat captive market. Customers have had little access to these kind of products, given they are often working in previously unelectrified communities. As such, building the customer base, collecting behavioural data, forecasting demand and attracting investment are key. While the ability to reach end-users at scale is a huge advantage, there is a significant risk in this model for companies in terms of the volume of transactions required for viable operations which necessitates large investments and most likely a significant proportion of debt (both borrowed and lent). The difference between the PUE hardware supplier model and the more familiar SHS business models, is that PUE equipment is highly likely to generate a profit for the end-user, which means better repayment rates and a stronger local economy than SHS, the bulk of which are used for lighting and phone-charging.
Use of the hardware supplier model improves in situations where the distributor has a vast local presence (sales and/or service points) in the targeted client area. It can be applied to bespoke, larger scale PUE where specialised equipment is required. In light of the common scenario of African farming communities seeking reliable and affordable processing EnerGrow in Uganda, for example, is acting as a commercial hardware supplier to newly electrified village communities, partnering with mini-grid operators and the national utility, to ensure that businesses are able to buy tools, appliances, refrigerators and other machinery. equipment, interviewees reported logistical challenges with local availability of different types of PUE equipment. As such, many of the hardware suppliers are trying to establish partnerships with larger equipment manufacturers/suppliers (possibly including supplier credit agreements) to mitigate these challenges.
Service Provider Model
The service provider model is being adopted in many emerging economies with a prominent agriculture base. This goes hand-in-hand with a trend of farmers and end-users preferring to rent equipment than buy it themselves. Such service-based models can be implemented by various actors, including equipment suppliers, traders, entrepreneurs, NGOs, associations and cooperatives. Likewise, mini-grid companies or DESCOs are well placed to offer services under the energy-as-a-service model.
Cooling as a service (often abbreviated to CaaS) is a model that has gained traction in several agricultural settings, with operators presenting a solid case to banks and investors. One such operator in Nigeria, ColdHubs, owns and operates walk-in solar-powered fridges and rents the space to traders who can extend the shelf life of their products by several days, easily covering the cost of the cooling service. This works well near markets, but can also be adapted for operation near production sites. Numerous examples of other services have been identified, such as de-husking, milling, grinding and dairy processing. These may be connected to a dedicated power source such as the ColdHubs, or operate alongside main/mini-grids.
In the case of mini-grid companies offering PUE (processing) services, the company invests in building end-to-end value chains. This feeds into a rural industrialisation concept which adds value to the local economy by processing local commodities close to farmer production sites. Doing this improves the quality and value of the local product and enables the farmer/supplier to tap in to urban or international demand for it. An example of this concept is provided by mini-grid developer JUMEME in Tanzania. JUMEME buys fish from the local community and then freezes it, enabling the fish to be transported and sold to a city market with strong demand.
A mini-grid company or DESCO has the advantage of being able to offer PUE services to their customers under existing relationships. Several mini-grid companies are offering PUE equipment and services through existing energy agreements with households, businesses and/or institutions. Some even integrate PUE fees into the kWh electricity tariffs. This can be offered for a definite term (with PUE equipment ownership being transferred to the end-user after a set time) or an indefinite term (with the mini-grid company providing PUE services as needed by the customer).
The DESCO model is especially useful in situations where distributed energy suppliers, like mini-grid companies, establish energy infrastructure in remote regions where there are either no or limited equipment suppliers and/or MFI branches. The mini-grid company may be the first to establish an (energy) service agreement with a client, paving the way for other services to be offered. One of the downsides of this model is that the DESCO might need to engage directly in maintenance/after-sales services when it comes to supplying hardware. To accommodate this, partnerships with third parties (suppliers, agents) may need to be considered. But in many cases a PUE service provider model may be less complicated, as the DESCO can operate the PUE equipment under its own terms, with its own staff.
Excerpt of: Productive Use of Energy 2.0: New Scaling Opportunities and Innovations in the Sector (GET.transform) 2022