By Thomas Duveau, Head of Business Development, Mobisol
Pay-as-you-go (PAYG) companies have set out to serve the so-called Base of the Pyramid (BoP). While the name BoP suggests homogeneity and similar needs, several observations can be made when one starts analysing energy consumption patterns and aspirations of the households composing the BoP:
The BoP is anything but one set of comparable and similar households. It is rather segmented, shows stratifications, subgroups and can be described in a granular way; specific demand structures emerge:
1. Most BoP segmentations are structured along the lines of available income per day. The lower segment (USD income per day below 2 USD) is being addressed by pico-solar systems (up to 50Wp), which is essentially substitute kerosene lamps or torches. This is the first and important step into the world of energy access. Higher tier segments (2 to 5 USD a day) will accordingly enable energy access to larger systems and appliance sets, which will be covered by those companies offering large solar home systems (SHS) starting at around 100Wp.
2. Whatever the demand of the different BoP segments might be today, it is changing over time, partly because of increasing income, partly because the industry is able to provide new products and services at ever decreasing prices. Independent of their respective BoP segment, customers express one clear message: “Big is beautiful“. After the radio comes the need for a TV, a fan, an iron, a fridge, business appliances (e.g. solar lanterns and mobile phone charging, village cinemas, barber shops). This, in turn, requires large solar home systems to cater for those needs. System sizes increase with growing customer needs. A trend that can be observed in other consumer goods industries as well.
3. There is a common misperception that off-grid households are not only energy poor (which is often the case) but also income poor. The latter claim is plainly wrong. African households in rural areas may not have a fixed monthly income paid out on their accounts (as most western households do). However, income streams are often manifold (3 to 4 for the average Tanzanian family, ranging from agricultural income, to selling goods or services etc.) and are usually more than sufficient to cover the monthly instalment of a solar home system. In other words, rural households can afford “big“ and are entitled to it.
4. Most economic analyses of the BoP suggest a shrinking “Base of the Pyramid” and a growing segment, labelled “MoP“, Middle of the Pyramid. Statistics from the World Bank suggest that there is a stable and relatively affluent middle class emerging within the BoP in rural settings. This strongly growing segment is the main driver for our industry. Their demand for energy is high, their appetite for appliances growing and the ability and willingness to pay is present.
Which brings us back to the title of this blog: ”Big is beautiful”. Even if this sentence might sound counterintuitive for an industry that is perceived to be selling small decentralised solar stand-alone appliances, it is central to the perception of a rural household. A large solar home system is the one that powers all the household needs, so not only LED lights and radio, but also TV, stereo, iron, fan, fridge and small business appliances. Every household that has switched from kerosene lights to LED lights will applaud the company that has provided it with electricity. Over time, but probably soon after having discovered the advantages of energy access, the household is bound to want access to more appliances positively impacting the perceived quality of life.
The ability to cater for these increasing electricity needs is key to the development of the off-grid solar home system market. Off-grid electrification strategies should not be conceived only as a complement, but also as a substitute to grid extension plans. For technical and economic reasons, the grid is unlikely to come to the majority of those 80 percent of rural households that have no access to electricity, which in turn implies that we, as an industry, must develop systems that do the same as grid infrastructure: Power all the appliances a household needs, which is more than three lights. What sounds bold is becoming possible because of the growing ubiquity of direct current appliances (DC). The time of kWh-guzzling TVs, stereos, irons and fridges is coming to an end and very energy efficient devices can now be run perfectly on solar home systems.
When you hear solar home systems next time, think big. They equal real infrastructure, do everything a household needs and should be an integral part of every electrification strategy.