The off grid market continues to expand and attract innovative new business and financial models aimed at delivering energy access for the poor. One of the most recent, Eight19 Ltd., made a splash with an article in The Economist explaining their pay-as-you-go “energy escalator” business model (seen in the graphic above).
We sat down with Eight19 (which takes its catchy name from the time it takes sunlight to reach the earth – 8 minutes and 19 seconds) CEO Simon Bransfield-Garth who offered up a fascinating vision of the future of energy dubbed the “Un-Grid”. Take a minute to read his take below.
So how does eight19 work?
We provide off-grid communities (mostly in Africa) a “pay-as-you-go solar model” personal solar system called IndiGo. Local people buy scratch cards for around $1 a week which are validated over SMS using their mobile phone and add credit to the IndiGo unit. By combining solar and mobile phone technology, the IndiGo solar electricity system is inexpensive to buy and allows users to light their homes and charge mobile phones as a service.
We have similarities to other pay as you go offerings (like Simpa Networks). The main difference is we start at a smaller scale (light for 2 rooms and provide a USB for phone charging). This lowers the price point to roughly $1/ week providing an 18 month payback. We offer (like others) a progressive purchase option that enables households to own the system. But we also offer the option to upgrade to a more powerful system. This “energy escalator” business model supports a bottom up approach to electrification and allows users to pay less than half their normal spend on kerosene.
You use both scratch cards and mobile money. Which is better?
Mobile payments are the way to go because you don’t have to physically distribute scratch cards. But there are two reasons you wouldn’t use them. One, mobile payments are nascent around the developing world (except in Kenya) so many countries don’t yet support them. Two, if you are trying to take small sums of money from customers the mobile carrier may currently charge too much for small transactions. For instance a $1 transaction on M-Pesa can cost 20-30 cents. We are in ongoing discussions with carriers because we believe this should be more like 5%.
Why aren’t you in India?
In the Indian market the government is said to spend approximately 7% of GDP subsidizing fuel. This translates into large kerosene subsidies that that have the unintended consequence of making it more difficult for clean alternatives to compete. In Africa, on the other hand, kerosene can be nearly four times more expensive so the replacement with solar power makes more sense.
Why off-grid solar?
We are fundamentally a solar company that develops low cost solar cells (printed plastic). We were looking at appropriate solar markets and decided the off grid market was a new and interesting one that we could have an impact on. When you do the calculations the payback for solar in those markets is extremely good. Many developing countries don’t have ways to tap a lot of natural energy resources. One of the things that most of these countries do have is abundant sunshine. So it makes sense to put solar in places where there is lots of sun and the cost of alternatives is high.
What do you see as the future of this sector?
This sector is going to grow. Mobile phone technology is something that can be leveraged to do all sorts of useful things. Collecting cash is certainly one of them. I don’t think it’s a case of one company having one technology and that takes over the market. There are lots of complicated problems that need to be addressed including distribution, working capital, regulation, taxes and so on. So it’s not a simple market but we think there’s huge scope.
As the market develops we will end up with what I like to call “the Un-Grid” – widespread electrical usage but no grid connections. When you move to the idea of the “Un-Grid” and distributed power – you still have a problem with cost. But that’s a problem with rural electrification – it’s expensive and governments don’t have the money.
With the Un-Grid the customer ends up progressively buying infrastructure so you eliminate that problem by using the premium they spend on dirty fuels and inadvertently investing that in building personal infrastructure. The Un-Grid can therefore be largely self-funding and doesn’t require huge centralized interventions to make it happen.
Interesting stuff falls out of that. Imagine when you make a cup of coffee in the morning. You switch on the electricity to boil your water and it has to travel incredibly long distances through complicated and expensive infrastructure to reach you, with often significant losses along the way. Think of the logic of that.
When you have a distributed grid you no longer have the requirement for long distance transmission and therefore no need to switch electricity to high voltage and back down again. Our vision is to have houses with a low voltage dc grid within them and people increasingly use low voltage dc appliances. In off grid environments people will start this way and eliminate the losses that occur in the transmission grid (in India huge amounts of electricity are lost this way). Ultimately this may be incorporated back into the West as people realize our model of distributed power is more sustainable.
One final question: What does success at the Rio+20 conference look like for social entrepreneurs like you?
The traditional view of development is top-down. Governments make decisions that finally wind down to an end consumer. Our view is this should be bottom up. We are providing something that simultaneously provides better light and reduces expenditure from day one. The more we can make this develop with the dynamics and timelines of consumer electronics versus government timeframes the better.
In terms of what we as entrepreneurs need the most pressing need is short term loan finance to accelerate deployment. These can be commercially driven loans – we are very happy with that. But at the moment banks are not willing to lend in that way. Some sort of public support for loan guarantees or other mechanisms to accelerate deployment of grassroots electrification with a payback of 2 years vs. 20 years would be very helpful.