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This article originally appeared in the above issue of our print magazine. The digital version of the magazine can be read online or downloaded free of charge.
9 December 2016

Solar PV business models

By Wim Jonker Klunne, programme director for the Energy & Environment Partnership Programme (EEP), and Charles Muchunku, an independent renewable energy consultant, Kenya

Since 2010, EEP, a challenge fund active in southern and east Africa, has assisted over 200 renewable energy and energy efficiency projects in the region with grant funding during early stages of development and implementation. Through the implementation of these projects, a wealth of knowledge has been captured. This article focusses on the lessons gained from projects in the solar PV sector in east Africa. The fifty solar PV projects, on which the analysis is based, typically use one of the following business models:

  1. Retail/Over the Counter – Where solar products were typically sold as an additional product within a larger business; however, recently a large number of dedicated solar retailers have emerged. Their survival and success is dependent on effective marketing, supply and distribution models.
  2. Pay-As-You-Go (PAYG) Consumer Financing – This is effectively a consumer financing model that takes advantage of mobile money systems and combines this with remote monitoring and control of solar systems to remotely disconnect a system in the event of default. Ownership of the system is transferred once the customer finalises their repayments. The model offers flexible customer repayment options and enables the business to easily and effectively manage a large portfolio of dispersed borrowers. With repayments typically ranging from 6 months to 3 years, proper cash flow management is essential.
  3. Consumer Financing (via Partner Financial Institution) – In partnership with a financial institution the PV supplier provides products and associated services while the financial institution provides the consumer financing and collects repayments.
  4. Mini/micro-grid – The main advantage of mini-grids over stand-alone solar systems is their ability for connected customers to increase their power and energy consumption without having to invest in additional capacity. They are technically most effective when a large number of customers can be connected within a short radius.
  5. Fee-for-Service – An approach based on customers paying a monthly fee for electricity services, similar to a utility model, but using stand-alone systems. Ownership of the system is not transferred to the customer with the business responsible for maintenance. This model is well suited to providing electricity to dispersed communities, where large distances between customers make mini/micro-grids unviable. However, a significant upfront cost has to be borne by the business and the payback period is relatively long.

The analysis determined that different models are suited to different market segments as demonstrated by the comparison of delivery models and product/service pricing in the table and figure:

  • The retail model is best suited to task lighting products (tier 0.5);
  • The PAYG and consumer financing models are suited to general lighting and phone charging systems (with or without TV) (tier 1.5 and tier 2); and
  • The fee for service model is suited to tier 0.5 and tier 1 (especially where income levels are very low and customers cannot afford outright purchase of a task light). It is also well suited to tier 2.5 and tier 3 (when PAYG becomes too expensive for large solar PV systems).

It was also found that mini/microgrids can provide the spectrum of electricity services at a lower cost than other business models. However, they can only be implemented in locations with high population density.

Although it has potential, the feeforservice model is very difficult to run sustainably on a fully commercial basis. Some level of financial support will be required to deliver a certain volume of systems, at which point sufficient revenues can be collected from existing customers for sustainable finance operations and expansion.

It is also important to note that where there is competition between PAYG and fee-for-service solutions, customers prefer the PAYG option as that will result eventually in ownership of the system. The full study on which this article is based is available from EEP at http://eepafrica.org. ESI

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