How the private sector is bridging the energy gap and digital divide for millions in the region via pioneering debt finance strategies
Simon Bransfield-Garth, CEO at Azuri Technologies, looks at financial challenges surrounding energy access in Africa and how pay-as-you-go solar solution companies are using debt financing strategies to help bridge the energy gap and digital divide across the region.
Providing energy is a financial and logistical issue that governments alone cannot address
The problem of energy access is acute in sub-Saharan Africa where 600 million people don’t have access to electricity. This problem is also growing, as population growth in sub-Saharan Africa continues to outstrip the collective efforts of Governments to bring electricity to rural households.
When we think of electricity, we think of a large power station and the grid to bring the power to households. But in rural Africa, with huge land masses and relatively low population densities, the cost of simply wiring up households is much higher than in cities. Couple this with modest household incomes from rural pursuits such as agriculture or small traders and the math simply does not add up. The cost of connecting the customer outweighs the future revenues from that customer. And that makes financing conventional grid extension very difficult.
Added to this is the customer dimension – a power socket is only useful if you have the money to pay for the electricity you use and the devices you want to power (like a TV and lights). So, the problem is not just financing the electrification but also at a consumer level, financing the capital of the items that will use that electricity.
Pay-as-you-go unlocking power and information to millions
Fortunately, there is a quiet revolution underway that will solve this problem. It started in 2011, with the introduction of pay-as-you-go (PayGo) solar-powered devices. Here, instead of requiring a grid connection, consumers are able to get their own micropower station in the form of a solar panel and battery storage, coupled with the devices, such as, lights, radio, TV, and in the future other appliances such as fridges.
The key to PayGo is the customer is not required to find upfront capital but instead can get a system that is paid for as it is used. And after a period of time, typically 1-3 years, the system is unlocked and the future power is free.
PayGo solar power has unlocked over 2 million households in Africa in the last 5 years. But that still leaves 118 million households without power. The ability to scale off-grid solar is largely a finance problem. A PayGo company is deploying an asset in the hands of the customer and expect to be paid back over a period of years. But PayGo companies are not banks, and so need to raise the finance needed to tackle the wider problem.
Receivables financing helping to bridge the digital divide and not just the energy gap
In order to grow, PayGo companies require access to capital to finance the initial cost of solar products in customers’ hands. Leading PayGo companies now have demonstrated sufficiently strong customer repayment histories to use this track record to create receivables financing investments.
Receivables financing is a loan which is secured on the expected revenues from the end customers. The finance is then used to purchase more solar units, which can themselves be financed. In effect it is indefinitely scalable – the more households you deploy power to the more households you can finance, removing the financial barrier to the rollout of solar home systems.
Although the idea of receivables financing has been around for many years, it is only recently that leading PayGo companies have been able to demonstrate the required track record to attract commercial investors. An example is Azuri Technologies, who announced an industry-leading $20M receivables financing facility in January 2018.
While it is still early days, receivables financing has the potential to revolutionise the off-grid power sector. It benefits from a virtuous circle: the more finance, the more track record, the more finance. And unlike finance for grid extension, receivables financing is enabling PayGo solutions that include not just the power but also the devices it enables, ensuring customers have full access to the services that power enables. For example, Azuri’s AzuriTV delivers a 24” TV with a satellite subscription offering over 50 channels of content, plus lights, radio, and a battery to store the energy in a single PayGo package.
It seems that this approach to service provision is the way forwards. A new generation of knowledge-savvy households is rising, where householders pay for the service they get rather than the items that make up that service. Just as many urban consumers are using Uber or its equivalent in place of owning a car, so PayGo is a way of accessing modern digital technology without up-front costs. At the same time, the complexity and risk of creating a solution moves away from the end customer to the service provider. This is driving unparalleled levels of customer service because if the service does not work, the customer does not pay and so service providers place an enormous focus on end customer satisfaction rather than simply providing a technical offering.
And this revolution in customer service, is driving the very revolution in payment track record that enables receivables financing.
While it’s still early days, the impact of the work done so far has been life-changing for the 2 million households who now have access to off-grid solar energy.