THE BLOG
10/07/2014 02:57 pm ET Updated Dec 06, 2017

Four Reasons Pay-As-You-Go Solar And Digital Financing Are Unlocking Energy Access For All

Co-authored with Vrinda Manglik, Sierra Club Associate Campaign Representative, International Clean Energy Access

We already know that pay-as-you-go (PAYG) solar companies are making high-quality, modern clean energy products readily available for those living beyond the grid -- a factor that is poised to expand energy access to the 1.2 billion people currently without access to power.

When combined with digital finance -- which includes branchless banking and mobile money -- PAYG technologies can not only expand more rapidly, they can potentially -- for the first time ever -- begin to build a credit history for people living beyond the grid. That makes clean energy all the more transformative because the ability to build credit enables low-income populations to access the financial system and affords them the opportunity to buy productive assets and ultimately improve their economic situation.

Now, thanks to The Consultative Group to Assist the Poor (CGAP) comprehensive new report, it's easy for those interested in the transformative potential of the PAYG market -- including investors and those looking to work in energy access -- to understand the nuts and bolts of this nascent market.

CGAP's report -- which counts at least 25 companies using pay-as-you-go technology -- lays out some of the factors that have converged to make this such an opportune time for the sector.

Reason 1: Solar Got Really Cheap. There has been a significant drop in the price of solar panels, batteries, and LEDs. The CGAP report points out that solar panels currently cost half of what they did in 2008 and are still getting cheaper.
Source: Dalberg analysis

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Source: Dalberg analysis

Reason 2: The Market Is Exploding With Growth. There has been dramatic market growth for small-scale solar products. For example, the compound annual growth rate from the sale of four million portable solar lighting products in Africa from 2009 to 2012 was 300 percent.

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Reason 3: Quality And After-Sales Service Is Improving. Changes in technology mean better quality solar products, including a 20 percent lengthening of battery life in the past four years alone. There is also a greater ability to monitor and manage solar devices remotely through machine-to-machine chips and GSM/GPRS modules.

Reason 4: Mobile Phone And Mobile Money Penetration Unlock Solar. The proliferation of mobile phones has enhanced communication between customers and companies, and mobile-enabled money transfer platforms have made payment collection more efficient and easier for solar companies.

These converging factors mean that the road ahead for PAYG is an exciting one. It's important to note, however, that the sector is not homogenous, and this is where CGAP's report is most useful. It lays out various options and models that are succeeding in the PAYG sector, including:

  • PAYG solar product categories, with examples of companies;
  • different models for digitizing payments with mobile money and energy credits, with on-network or off-network payment hardware;
  • options for pricing based on time or usage; and
  • financing terms.

PAYG solar can also promote access to other sources of formal financing, which is exactly why CGAP is interested in these issues. CGAP, housed at the World Bank, has an overall objective of advancing financial inclusion for all, including low-income customers, and is engaging with these issues through its Digital Finance Plus initiative. This initiative aims to help providers leverage branchless banking and digital payments to make basic, essential services and utilities more accessible and affordable to people at the base of the pyramid. This includes not only improving energy access but also access to healthcare, education, and water.

Innovative pay-as-you-go technologies are creating new ways to finance assets for low-income consumers, reducing the risks of financial exclusion based simply on income or wealth. That's without even mentioning the benefits affordable lighting can provide for health and education.

It is an exciting and dynamic time for the PAYG market, for those attempting to keep up, CGAP's new report is a must-read.