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 Vincent Kapur on January 22, 2015 at 2:22pm

Hello Victoria,

This topic is at the very forefront of what the entire space must come to terms with in the next 2-3 years if we want to see any businesses achieve real scale. The concept of the energy ladder is familiar to all, but the consequences are not being looked at fully within the discussion. I agree with Dr. Schützeichel, who is actually saying, in other terms, that the energy poor aren't satisfied to wait on the "first rung" very long. These individuals are consumers, and must be treated as such. If they are already using mobile phones, than "first rung" solutions don't impress them anymore. Businesses have two choices to achieve scale, and so far, they have almost universally picked the weaker strategy - which actually costs more to scale. That strategy is to scale a single level of "first rung" products across the widest geographical area and reach the the most customers possible. The alternative strategy would be to target a smaller area, so that customers within that market can progressively step through rung 1 through, say, rung 5 (defined as you will - given that not all steps involve lights). Is that really a terrible compromise? There is no benefit to bring the majority of the developing world to the first rung before we start supplying others with solutions for non-lighting related energy demands. Your first customers have a strong potential to be your best repeat customers for services beyond your initial offering, and others can tangible see the progress they make, attracting more over time. Delivery overhead is maximized over the course of multiple transactions per customer, who can opt in at the "rung" where they are most interested at any given time. All of the back end for building up a financing mechanism is amortized much easier with much less risk because new customer acquisition costs are less. And why should any social enterprise get their customers feet wet, only to leave them hanging when the business seeks new sales in another country? That customer is saving fuel costs now and wants to buy something else with their savings... All of this adds up to the fact that the best way to universal energy access is to build companies which are more resilient and spend less of their precious resources trying to do anything remotely universal at the first rung stage.

The answers all become apparent when we look at the real value of the ladder analogy. Any business that has invested in developing a market should diversify its offerings to grow with its customers. Those customers will be happier, spreading positive word of mouth more often, making any marketing OH more effective. Also, even Coca-cola sells Sprite in the same developing world markets, just to cover those customers who feel like choosing different option. This is addressing wants v. needs, because that customer who isn't gaga over Coke may be over the moon for Sprite. The same should apply for energy solutions as well. Small solar lamps are not expandable, and therefore do not feed into any consistent follow-on "Rung 2" offering, despite the customer now having a reliable credit score and savings in hand (Congratulations on the Angaza deal with GLP!). The industry needs to more proactively convert individuals, who are now being treated as impact metrics, into continually served consumers in the global energy marketplace. Isn't that a lofty goal?

Comment by Victoria Arch on January 22, 2015 at 8:51am

Hi Koen,

I agree, there is a *lot* of discussion about the energy ladder in the space, but very little (no?) objective data to date to support the premise. Angaza's platform is hoping to change that, since customers can maintain an identity within the system as they move from entry-level PAYG lamps to higher-wattage PAYG systems.

Thank you so much for your thoughtful comments!

Comment by Salvatore Chester on January 22, 2015 at 3:14am

Please allow me to add, based on my local experience, that indeed the long neglected poor "are victims from kerosene lantern pollution that need aid". If we/you only care to provide help. Why do they accept it if they do not need it? Again they know it better.   

Of course they are also more than "aspiring customers", if we/you are only capable enough to deliver quality and competitive products for their cash.     

So, to me, the real question becomes how good we/you are in competing for their money, instead.

The facts (the numbers) already tell it all. Only D.Light (for example) sold over 45 million solar lanterns in just few years.    So, I believe, it is time to deliver results, and the time for SANA studies after studies is over.

B/regards,

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

Comment by Evan Mills on January 22, 2015 at 1:30am

Well said, Koen!

Comment by Koen Peters on January 22, 2015 at 1:25am

Thanks Victoria for a very interesting blog, and Evan for adding the pics. The discussion you're summarizing here is important. I'd think that both Dr Schützeichel and Mr Sturm have a point - on the one hand we should not treat households at the bottom of the pyramid as victims from kerosene lantern pollution that need aid, but give them full credit for what they are: aspiring customers, just like the rest of the world. On the other hand, we should recognize that while they aspire grid-like electricity services, they generally can't afford the full costs. And as we have seen so far, the public sector can't afford to provide it either. So we should reach out to BoP customers by offering them services they can afford - for many of them, that will be entry level products such as solar lights, for some of them, higher capacity solar home systems.

I firmly believe that helping people access entry level products, will then also make it easier to move them to electrification at higher capacity rates. While donors may under-value the life-changing social benefits of a bit of electricity (because you can't measure it in GDP statistics), the customers do. What we here from GOGLA members that sell products to end-users: customers come back, but never for the same product. They always want the next product with more capacity or functionality. From light they go to phone-charging, from phone-charging to radio and/or fans. Next come televisions, then fridges.

To date, unfortunately we'll have to make do with mostly anecdotal evidence of this 'energy ladder'. Some people doubt that the rungs reach much further than basic electrification. There are no independent evaluation studies yet to counter that view. I hope that further research can be done on this over the next years, so that we get a better understanding of how real the ladder is, and how high the rungs can reach.

Comment by Yotam Ariel on January 22, 2015 at 1:20am

Thank you for this update. That's very interesting and good to know.

The list of PAYG solar is growing fast!!

(http://bennu-solar.com/pay-as-you-go-enabled-solar-solutions/)

Comment by Salvatore Chester on January 21, 2015 at 9:42am

Thanks Victoria, and Mr Sturm for his sound arguments.

I do not represent D.Light (which sold here about 500,000 lanterns in just a couple of years), but what I can tell directly from rural Ethiopia is the fact that even the poorest here are asking for quality basic lanterns to be available, with their cash ready. Do facts and objective reality matter?

FYI : -  http://luminanet.org/forum/topics/maigobo-sub-district-hawzen-in-ge...

Regards,

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

Comment by Victoria Arch on January 20, 2015 at 9:33pm

Those are absolutely wonderful Evan. Thanks for sharing!

Comment by Evan Mills on January 20, 2015 at 9:12pm

Thanks for the thoughtful post, and kudos to Russell for moderating the discussion.

Every time I hear the argument about people being "forced" to adopt solar lanterns I think of pictures like the ones below, and the scores of others here in LuminaNET.  I think the pictures speak for themselves.

Photos

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