Guest Articles

Wednesday
May 22
2019

Jesse Moore

A Decade in, Why the Pay-As-You-Go Solar Sector is Maturing and Brightening

Editor’s note: This post is part of the NextBillion Series “New Frontiers in Renewable Energy” that explores the dynamic changes reshaping the sector. Learn more about NextBillion’s other 2019 series here.

 

The “pay-as-you-go” (PAYG) solar sector has achieved incredible results in less than a decade. When it turns 10 next year, we calculate that it will have impacted over 10 million people and generated a billion dollars of cumulative revenue (see below). If that combination of impact and commercial achievement isn’t enough to get excited about, just wait to see what the next decade will hold.

This month marks nine years since we first conceived of M-KOPA and helped kick-start the wider PAYG solar market. The concept for our company’s business model was first sketched out by my co-founder, Nick Hughes, and me on a whiteboard in London in May 2010. Pilot sales in Kenya started two months later.

As is the case with many innovations, the idea did not occur to us alone. In the course of the next few years, several dozen startups around the globe connected similar dots. Each recognized that an emerging technology confluence of digital payments, Internet of Things connectivity and solar power would make it possible to sell high-quality solar systems and appliances to off-grid households on a PAYG basis.

The model would target many millions of low-income, off-grid customers, who could not afford to purchase solar systems outright. Instead they would pay only a small upfront deposit, with the balance paid over time through affordable daily or weekly installments. By offsetting the need for customers to buy kerosene, batteries and other expensive energy substitutes, the model would lead to high levels of customer repayment.

In less than a decade since PAYG was conceived, the industry has gone from startup to serious scale. We estimate that the PAYG industry will reach over 10 million customers and will surpass a billion dollars in cumulative revenue by the time it turns 10 next year.

While there’s no detailed publicly available data on off-grid PAYG market share, M-KOPA itself will have reached 4 million people and $300 million in cumulative income by May 2020.  To the best of our knowledge, our company accounts for about 30% of all sales in the PAYG sector, and so a simple extrapolation suggests that collectively we’ll have reached 10 million people and $1 billion in revenue by this time next year.

Reaching $1 billion USD of revenue in a decade is particularly impressive given that income arrives exclusively in the form of mobile micropayments – a dollar or two at a time – paid by low-income customers in developing countries.

M-KOPA has installed PAYG solar systems in over 750,000 African homes to date, and as a result, we now receive over 30 million micropayments per year, or about one payment per second. The fact that our customers have other choices for how to spend their money – and can elect to switch to another power source at any time – drives us to provide great customer service and value.

We have always stated that our intention is to build a profitable, scalable and impactful company that will endure the ups and downs of economic cycles. This has required some tough choices, including a company restructuring in late 2017. But at the end of 2018, we crossed a major commercial milestone by becoming EBITDA positive at a group level, and also became profitable in Kenya (our largest market). While we have much more to accomplish, achieving these milestones shows that it is possible to positively impact millions of lives while running a sound business.

More than $500 million of commercial investment, plus catalytic early stage grant funding, has fueled the PAYG off-grid sector. This capital, and countless hours of effort by hard-working teams, have taken the industry to the point where several leading companies are now turning profitable.

While PAYG energy is not a simple business to deliver, it is certainly possible to do well. Companies like M-KOPA – that have worked hard on the fundamentals of technology, supply chain, sales, credit and customer support – are demonstrating what is possible.

Over the past few months, news has spread about a few PAYG companies coming under financial duress. The fact that some of the pioneering firms have hit hard times should not come as a huge surprise, nor be interpreted as an indictment of the business model.

We should expect a first wave of industry consolidation in the months ahead. This will not spell the end of the sector: Rather it marks the start of the second decade for the industry, when larger, stronger and more profitable companies will emerge. It is the norm for any new industry to experience shake-outs. The fact that there hasn’t been more of this, sooner, is perhaps an indication of the size of the market opportunity.

The off-grid energy sector is still powering up. There are about half a billion people who still don’t have access to power and need reliable, affordable solutions. But the PAYG business model is not only about selling solar systems. Upgrading customers to additional products and services through ongoing financing is a huge opportunity for additional growth – which is only just beginning.

There are remarkable strides being made in battery technology, rapid mobile payments growth in emerging markets and advances in data science. PAYG is poised to benefit from all of these trends and scale to the next level.

 

Jesse Moore is CEO and Co-Founder of M-KOPA

 

Top image: An M-KOPA sales field agent installs a TV satellite dish on a roof in Machakos. Image courtesy of M-KOPA.

 


 

 

Categories
Energy, Entrepreneurship, Technology
Tags
energy access, mobile payments, Off Grid Energy, renewable energy, solar