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On the path to profitable solar Paygo distribution?

Solar “Pay-As-You-Go” (PAYG or Paygo) as a payment collection method has proven value and impact over its first few years of existence. However, the main challenge ahead remains: how can we operate the clear switch from an impactful payment method to a profitable model?

Paygo solar energy has demonstrated to be a powerful cash collection technology that could rapidly deploy, providing low-income rural households with a safe and affordable debt financing alternative for clean energy access. We could rightfully argue many at the Bottom of the Pyramid (BoP) are yet to be reached by this phenomenon, as most of its impact is concentrated on “low hanging fruits”* and therefore the true market potential remains untapped. Although, from a cash-collection perspective, such “low hanging fruits” are gaining a greater coverage every day, with an estimated average annual growth rate of the Solar Home System (SHS) Paygo segment of 140% over the period 2013 to 2016**. At the crossroads of emerging technologies such as IoT, Mobile Money and Cloud-based services, the Paygo payment collection method is therefore playing a key role in driving financial inclusion.

Despite the general enthusiasm generated by the significant growth of solar Paygo, it seems too few last-mile players are claiming to have reached profitability yet. The reasons are numerous and complex, as they are also driven by local contexts such as demographic density or mobile money penetration for instance, although we can mention a few regularly discussed/debated inthe industry***:

  • Limitations in attracting adequate investment capital: often displayed as one of the the primary bottleneck for most distributors as it is a strong limiting factor to reach the scale required for operations break-even;
  • Trouble with building strong net customer traction: generating the greatest customer traction out of each unit of resources involved (sales agent network, marketing expenses) while keeping its customer churn rate at the lowest can often become an alienating issue;
  • Difficulties related to HR training and retention: Insuring capacity building and retention among a network of sales and after-sales agents can be challenging and strongly impactful on profitability, as is arbitrage between payroll and commission-based staff.

Among the Paygo solar industry, its segment of upstream players dedicated in providing the Paygo tools of today and imagining the Paygo tools of tomorrow, have an incredible opportunity to generate more value at the last-mile by being more inclusive of such operational challenges. But how can we acknowledge them better and therefore contribute to shorten the path to profitable Paygo distribution?

Rethink the scope of the value provided

The value gain can take form in many pragmatic ways: through greater interoperability, and flexibility in the design of both IT and hardware components, to embrace scaling-up requirements of Paygo solar distribution in the leanest way possible. Or by adopting a stronger “market pull” philosophy of IT, and move from customer traction centric design (i.e. client onboarding and payment collection focus) to add customer retention and resource productivity considerations (credit-scoring, lean maintenance process enabler, expense tracking mechanism, etc.). Rethinking the scope of value provided requires strong involvement of last-mile users in the design process ,adopting a more “bottom-up” innovation approach for technology to better align with last-mile distributors’ management processes rather trying to drive them. For instance, looking from a field perspective, an Android mobile application used to secure quality processes and data entry can truly meet last-mile expectations only if it allows offline accessibility for field agents (given the remote constraints of use). Very often, even such tool shows limitations, given many distributors can’t afford to equip their entire agent network with such smartphones. This is where having access to an SMS based backbone (to create support tickets and other Paygo distribution related processes) is helpful for areas with low mobile connectivity.

Contribute to spread downstream liquidity requirements

While building larger operations, solar distributors invest according to a portfolio size and a diversity of offers they are expecting to distribute over time. Being able to manage, progressively, the inherent working capital requirements and other overhead expenses, in the leanest way possible, are often the keys to last and grow while raising debt and equity. Doing so, being supported by interoperable and malleable tools that can upgrade in capacity as they grow, represents a strong value. For example, some hardware manufacturers, such as Amped Innovation or Biolite, are now offering scalable hardware solutions capable of re-adjusting in size as needed ,to lower the distributors’ sourcing expenses while building a full range of products (from a capacity perspective). Relying on an IT solution that allows a margin of flexibility/customisation in its offering (to fit last-mile model specificities) and demonstrates integration capability with an ecosystem of establish applications outside of the solar Paygo immediate environment (like Xero for accounting or Unleashed for inventory management are good illustrations) becomes a baseline requirement from many at the last-mile to be able to align features according to stages of growth.

A Penny Saved is a Penny Earned

Looking at the size of the challenge (over 1 billion people lacking energy access), it will take a legion of entrepreneurs to drive the change and these are unlikely to be able raise as much funding as the few well known references in this industry (M-Kopa, Mobisol, Zola - Ex OGE, etc). The profitability and replicability of the solution depends on our collective ability to lower the Paygo model’s capital intensity to make it reflect the given affordability of the 90% of entrepreneurs who will tackle the task. As it is, such distributors have great “fundraising opportunities”, not only from pitching investors and debt providers, but also from focusing on cost-killing and productivity improvements and regain resources from their own operations. As upstream players of this industry, we can facilitate such frugal development by encouraging the adoption of standards such as the GOGLA-Lighting Global Key Performance (KPI) Framework which facilitates solar distributors’ ability to benchmark themselves on larger and more sustainable notions than the customer traction alone, to eventually optimise costs and gain in attractivity amongst investor prospects. By enabling distribution with more data collection points on last-mile operations (on after-sales for instance) we can empower distributors to increase productivity of maintenance tasks which ultimately would be translated into savings for the very next month. As an illustration, in the case of Solaris Tanzanian, automatizing the tracking of it safter-sales on-site visits by topic allowed the company to better identify improvement opportunities and change its practices in order to decrease such on-site visit intensity by a third in a few weeks post change implementation (Cf. Field study of “Cost of collecting cash”). Similarly, its leasing offers benefited from a few adaptations to improve the “average length of lease” metric of the GOGLA-Lighting Global KPI Framework, to eventually better align with the trends of debt facilities available on the market.

Of course, no magic formula exists yet to secure profitability of solar Paygo distribution operations, in a reasonable amount of time, and at a replicable scale by most. The suggestions above are indeed not exhaustive (many other impactful aspects such as client income seasonality impacts on churn management and predictability , Cost of Customer Acquisition repercussions on overall loan/lease cost, etc. could benefit from a few pages of discussions on their own) although I believe such suggestions can be interpreted as interesting steps on the path to profitability, advocating for our industry to feel more comfortable discussing this challenge and to turn the topics of “profitability” and “resource productivity” into stronger metric references than the total number of installations we commonly share.

 

Thibaut Lesueur, Co-Founder and Chief Marketing Officer at Solaris Offgrid

 


 

* On this matter I encourage you to read the interesting point of view on solar Paygo being mostly dedicated to “lowhanging fruits” still, defended by Harald Schützeichel earlier this month.

** According to the 2018 Off-Grid Solar Market Trends Report.

*** The Hystra study of May 2017 entitled ‘Reaching Scale in Access to Energy’ is a good piece of literature on thismatter. The case of Solar-Home-Systems distribution through Paygo was discussed over the pages 39-53 .