An Entry-Level Pay-As-You-Go Lamp is the First Rung of the Energy Ladder

What is the role of the solar lantern in energy access? In July of last year, I attended an Engineering for Change Webinar called “Off Grid Technology Perspectives, The Case of the Solar Lantern” that explored this question. The webinar included thoughtful, context-setting presentations from Guarav Manchanda of One Degree Solar, Ned Tozun of d.light Design, and Dr. Harald Schützeichel of Sun-Connect eG. The presentations were followed by a discussion that included an interesting exchange between Dr. Schützeichel and the webinar moderator Russell Sturm, who is Head of the Energy Access Advisory at the International Finance Corporation. In publications and presentations (including this webinar), Dr. Schützeichel has openly challenged a perceived focus by the international aid, finance and social enterprise communities on solar lanterns as the primary means to combat energy poverty in emerging markets. He argues that there is a discrepancy between what the energy poor in emerging markets want, which is essentially energy access on parity with grid connection, and what he believes the Western world thinks they need, which is a replacement for kerosene wick lamps. As a result, his argument proceeds, there is a Western-driven overemphasis on the distribution of small solar lamps that force off-grid energy consumers to remain, essentially, under-electrified.

The core tenet of this argument is not new. As the UK non-profit Solar Aid puts it, a debate over the benefits of solar lamps versus full solar home systems (SHSs) has recently “been rumbling”, with some practitioners suggesting that there is an inherent trade-off between the two that make it an either/or situation. During the webinar discussion, Mr. Sturm presented a lucid argument that the challenge of full electrification is less one of Western perception than one of financial practicality. Outright purchases of SHSs are only possible for a higher-income band of the off-grid population. This necessarily leaves out a considerable percentage of the 1.2B people beyond the grid. Financing can facilitate access, and certainly has in the stunningly successful Bangladesh SHS market. But replicating the Bangladeshi success requires a similarly massive pool of low-interest capital that is not readily available outside of targeted government programs. Mr. Sturm argued that to truly and rapidly scale energy access to billions of people, an incremental process is needed whereby people are able to affordably grab the first “rung” of the energy ladder in order to then move to the second rung.

This webinar and discussion was brought to my mind by Greenlight Planet and Angaza’s recent announcement of the Sun King Eco Easy Buy solar lantern. The Eco Easy Buy is the first commercially available Pay-As-You-Go (PAYG) entry level solar lamp, designed to be within financial reach of every kerosene-dependent household in emerging markets. It is purchased incrementally over approximately 2 months, at a weekly price below a household’s average kerosene expenditure. This radically affordable solar product represents the true first rung of the modern energy ladder. Energy consumers that purchase the lamp gain an informal “credit” score on Angaza’s software system that de-risks the financing of their purchase of a higher-wattage solar device, thus moving them to the next rung. Decreased financing risk increases the likelihood of private capital deployment into the market (to join innovative leaders like SunFunder), easing working capital constraints throughout the value chain and facilitating scale.

With the release of the Sun King Eco Easy Buy we have a chance to realize the energy ladder that Mr. Sturm discussed, with the end goal of achieving full universal energy access.  Debates aside, I believe this is what all practitioners understand that energy consumers around the world both want, and deserve.

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Comment by Mitra Ardron on February 20, 2015 at 6:27pm
I'd add my voice that debating lantern vs SHS vs larger systems is counter productive. While we (Lumeter) work on SHS and minigrids I congratulate GLP/Angaza getting a PAYG lantern into the market. Personally I think the right first step is a small PAYG SHS, so that the individual payments can still be less than the cost of other energy serices, and so that it can be done without the subsidies needed for larger systems, but I don't think dismissing other approaches helps move the agenda forward.

That agenda for me is bringing energy to as many as possible, so the only real question I want to ask is "How does it scale". We think the way to scale is for us to empower many SHS manufacturers to include PAYG in their product, but there are many other equally valid answers to that question.
Comment by Yotam Ariel on February 5, 2015 at 1:47am

I see WakaWaka has a PAYG lantern as well: http://bennu-solar.com/wakawaka-payg/

And OOLUX, and Divi Power though not sure they are mass produced. 

The PAYG space is fascinating :-)

Comment by Yotam Ariel on February 1, 2015 at 5:16pm

Ah, interesting! Thank you so much, Victoria.

Comment by Victoria Arch on January 31, 2015 at 7:16pm

Hi Yotam, Thanks for asking! The Eco Easy Buy uses our "cable-based" data-transfer technology. We’ve optimized this technology for low-cost, entry level portable solar products by utilizing an embedded PAYG sub-circuit that costs only ~$0.15. The bridge to our payment database (the Energy Hub) is externalized by running an Angaza application on a low-end Android carried by an agent. The agent attaches the light to their Android phone via a cable for bidirectional data transmission. We employ audio, GSM and keypad data-transfer technologies for other products; our goal is to determine the best technology for the particular solar device based on specifications, price-point and target distribution geographies.

Comment by Yotam Ariel on January 30, 2015 at 9:39pm

Hi Victoria,

Thanks again for the post.

Could you please explain which method is used to lock/unlock the solar lantern?

It's not GSM - SIM card.. and not keypad.. right?

Is it that sound recognition way which Angaza was making..?

Thank you.

Comment by Arjan Visser on January 30, 2015 at 4:53am

Interesting to read this discussion.

I would like to add three points here – things that probably need to be further explored as there is no or not much information about this available (let me know if I’m wrong). 

#1 Educate people on what to do with their profits/savings derived from using an energy system and give them the tools to save in order to buy the (larger) energy products that can help them develop further – otherwise it doesn’t make much sense to offer a small energy system and expect people to just climb up the ‘energy ladder’ themselves. 

#2 Similarly to what Vincent said, offer a broad range of products rather than a ‘one-size-fits-all’ product. 

Our experience is that in the villages we work there is no single type of customer or customer preference. Some people want a solar lantern and some want a solar home system. It is really important to focus on finding out what customers really want (‘customer is king’) and offer the products and facilities to use them (e.g. buying vs. renting). We do not know whether the high growth rates in solar lantern sales are due to the lack of alternatives or not if we have not offered a broad product range in the first place. 

#3 Find out which customer segments need to be served first in order to accelerate access to electricity. 

Although views on how to increase access to electricity differ, I think one common goal of people/organizations working on these issues is increasing economic development through increasing access to electricity. We know that one of the main drivers of economic development is profitability (of businesses) and savings (of households). We can use profits/savings from using an energy system (i.e. additional income generated by using an energy system minus additional expenses) as a proxy for potential power generated in a country (the more one saves, the bigger the system he can buy, the more power is generated). 

So the total profits or savings from using an energy system is an important driver for accelerating access to electricity. 

Total profits/savings from using an energy system in a country = #users of an energy system x profits or savings per user of an energy system 

This leads to two questions: Which customers should one target first and which energy products should one offer to this customer? The choice for targeting the bottom versus the top of ‘the pyramid’ depends on which option generates most power in a country driving economic development. Offering low-entry systems to the bottom of the pyramid might lead to more customers than high-entry systems to the top of the pyramid, but the savings per user of an energy system are lower. At this point in time I think we have insufficient information on various scenarios to say which scenario mostly drives accelerated access to electricity in a country (might differ per country as well). 

  • Targeting low-income households: as I indicated before this will only accelerate access to electricity if we help people really use the savings for a larger system. The main benefit of having a solar lantern instead of a kerosene lamp is (apart from environmental and light benefits) reduction of energy costs and potential to increase income. If that additional income is not saved properly for buying a larger system, then the goal of offering lanterns to increase access to electricity has not been reached. In other words, creating an appetite for a larger system is not sufficient if it is not backed by a proper financial plan on how to get that larger system. (of course, one can also think of other ways to save by prioritizing expenditure on energy. Are there savings, other than energy savings, that could be made in their household budget to be used for a (larger) energy system potentially leveraging their income?)
  • Targeting high-income households/enterprises: this will only accelerate access to electricity if there is a multiplying effect (i.e. a household/business having electricity will lead to more people having electricity). One way of reaching that goal is to stimulate people to use their energy system to start a business or expand their business leading to more employment and more people having the possibility to access electricity.

Just some food for thought :) 

Thanks, Arjan

Comment by Ognen Stojanovski on January 28, 2015 at 2:41pm

Really interesting discussion and one we've previously touched on in this forum in response to an article that Dr. Schützeichel had written. I also previously posted my views about the confusing (albeit intuitively appealing) notion of the energy ladder.

As has correctly been pointed out, there is little data to either justify or oppose this approach to building a market. In the absence of such data, however, the burden of proof would seem to be on the energy ladder proponents since this approach to scaling appears to go against the historical trend of private-sector market development. For example, Vincent makes a powerful case for one alternative strategy that has, for whatever reason, not been widely implemented, even though it would be more in keeping with historical trends.

I have no doubts that the solar lantern is far better than the kerosene lamps in many ways (as Evan's photos show) and, indeed, millions of people have made that choice (and many more are eager to do so, as Salvatore suggests). But those photos or statistics do not address the question of how to effectively achieve full energy access. Instead, they come from a marketplace where the "energy ladder" path is the choice that has been pre-selected, and the dominant choices available are fuel-based lighting on the one hand and a solar lantern on the other. What if more of the "rungs of the ladder" had been available to the families in Evan's pictures or the millions others that bought solar lanterns? I remain open to the energy ladder argument being the correct approach (and exception to the rule of market development), but its proponents need to be explicit and convincing about why that is the case. Victoria and Koen's posts start to get us there, but we need more.

There are also three related issues which I think deserve attention and actually supersede the debate over the energy ladder concept:

1) Building up institutional capacity: I'm increasingly convinced that the technology is good enough for what it's supposed to do and that affordability is not as serious an issue as Mr. Sturm or others on this forum might think. Assuming distributed solar is, indeed, a product that people actually want and are willing to pay lots of money for (and these assumptions seem to be playing out in real life) then we just need to be patient and the costs/affordability issues will be worked out. But this requires strong institutions. Victoria points out the Bangladesh model as one option for wider SHS deployment but then dismisses it as a viable option for Africa because replicating it "requires a similarly massive pool of low-interest capital that is not readily available outside of targeted government programs." But doesn't that argue in favor of focusing our efforts of developing institutional capacity? Rather than saying the Bangladesh model doesn't work for Africa, shouldn't we instead make it work in Africa by building up and supporting the local institutions? And even if the Bangladesh model doesn't apply, local institutions still matter a great deal. Any and every successful market is dependent on strong and credible local institutions and we simply can't achieve meaningful, durable scale without them. It doesn't matter whether we are selling solar lanterns, SHSs, or the centralized grid. It is very surprising that this is absent from the energy access market development debate.

2) Over-emphasis on scale: Many of the companies in the off-grid lighting space are extremely innovative. I admire them for what they have tried to do and how much they've achieved in a rather limited amount of time. However, I find it odd that the industry seems to be obsessed with rapid scale-up, especially amongst its least profitable customers. This is probably due to the influence of folks like Mr. Sturm, whose organization is probably right in demanding mass impact and quick scale-up in return for grant funding. But we need to be conscious of the implications of this deal between the entrepreneurs, on the one hand, and their impact-oriented supporters like the IFC, USAID, DFID, and others. By accepting grant money and impact-oriented investment, the innovators have been forced to think about scale (and rapid scaling, at that) from the get-go. That risks distracting them from their primary mission as innovators which is to create an awesome product or service that people really want. A truly great product can be scaled, just like it can be financed, and becoming preoccupied with scale is not helpful. There is a great article by Paul Graham (who knows a thing or two about entrepreneurship and scaling) on this topic that should be required reading for the off-grid lighting industry.

3) Adoption vs. long-term use: Energy ladder or not, we must remain mindful of what it means to have an impact. The limited data that is available is on number of products sold. What we really need to track (and provide an incentive to track) is number of products retained and the extent of their use. What good is a solar lantern or a SHS if it is not used over the long-run (or not used to help you climb up the rungs of the energy ladder)? Is a company better off building a more expensive but more durable product? With limited resources, should you invest in after-sales customer support for existing customers or training sales agents to expand services? The (over?)emphasis on affordability and scale might be leading us down a path where we are sacrificing long-term utility and impacts, at least in the short term. It does not have to be an either/or proposition but in real life it is inevitable that one will be prioritized over the other. I want to be clear that I do not know what the "right" answer to these questions is, but I would love to undertake some research on the topic - let me know if you want to fund it ;-) .

Thanks for reading,

Ognen

Comment by Yotam Ariel on January 23, 2015 at 3:46pm

:-)

Comment by Salvatore Chester on January 23, 2015 at 3:22am

Thanks Yotam. Correction noted.

Essentially the argument is for us to deliver more products than talks (strategies after strategies), in my view.  The need and actual demand both for basic lanterns and SHS are there.

I also find it frivolous to talk about this rung/ladder or the other when the supply and delivery of products is still modest compared to the need/demand of nearly 2 billion customers. Today, the off-grid lighting market is evidently huge and wide open for competition for anyone with different business models. Regardless where they come from, no presumptuous exclusions or one size fits all solutions are to be taken seriously.  

Over here, because of the serious kerosene problem (no matter the current foolish trend of disregarding it) people are used to spend good money for whatever is readily available, good or bad (fake and sub-standard products too).

Of course anyone can pick his own strategy and business model, but what is important is what we finally deliver to benefit both customers and our bottom line. 

Best regards,

https://www.facebook.com/groups/TEA.ethiopia/

Comment by Yotam Ariel on January 22, 2015 at 5:02pm

Hi Salvatore, just a quick note -- d.light sold maybe about 9 million products.. which is still very nice :-)

('45 million' is 'lives empowered' -- calculated as a family of 5 people can enjoy the benefits of a solar lantern, as I understand)

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