Feeding into energy access: data-driven funding
Data on rural electricity use in unconnected parts of the world could support new ways of funding renewable technologies, providing access to those who need it most.
There has been much talk recently about how to finance access to energy in developing country contexts. Many on-paper financial commitments have been made, yet there seems to be a disconnect between these commitments and actual delivery of useful power.
This is particularly the case for rural areas, where electricity access is especially low and decentralised off-grid solutions are often the most appropriate.
It's all about data
Many energy service provider entrepreneurs have piggybacked on the powerful combination of widespread mobile phone ownership and the presence of breakthrough services, such as Kenya's MPesa mobile money platform, to build entire business models based on data and remote communications.
Companies such as Brighterlite are distributing solar home systems by allowing their users to pay for electricity usage in small instalments using phone-based payments, while SteamaCo in Kenya sell grid-like services from remote village-scale solar power stations or 'microgrids' using an MPesa based pay-as-you-go model.
How can funders such as donors and local governments work with these commercial models and leverage private investment to help facilitate widespread energy access?
Feed-in-tariffs, which provide a preferential payment – above market price – for each unit of renewable electricity generated for the grid, have been useful in incentivising renewable electricity deployment. However these benefits are restricted to (usually) large projects that feed directly into an often unreliable and limited grid network.
What if there was an off-grid version of feed-in-tariffs? A system where the provider could be subsidised for energy provision according to the payments made by their (typically rurally located) end-user? Recent advances in data-based service delivery could make this a reality.
In this model, the funder would agree to 'top-up' the pay-as-you-go (PAYG) electricity provider with an agreed amount for every documented dollar paid by a customer. The provider could then use this guaranteed income to leverage private investment and either build more microgrids or distribute more small home systems.
As the providers almost invariably use a third-party payment platform, the data on customer payments for electricity usage could be forwarded directly to the funding entity who would then top-up the provider on a transaction by transaction basis.
Benefits for all stakeholders
There would be a number of advantages to this system:
- Reduced risk: no payments are made without results (customer payments for actual electricity usage). For funders, this reduces the cost per unit of delivered energy services and avoids the cost of paying for power systems (or household connections) that are not actually being used. Likewise, administration and due diligence costs are reduced via a built-in selection mechanism: only providers that have established data management systems will be able to participate.
- Rapid: the scheme can be initiated very quickly. A simple agreement with potential providers is all that is needed to start the process rolling. This agreement will also reduce the risks for possible investors, because the funder guarantees funding per payment made. Hence, capital can be more readily accessed by the service providers.
- Increased, scalable impact: because the provider is able to lower prices for customers due to the subsidy, and hence reach towards poorer customers, this supports funders' objectives of increasing impact, but also expands the PAYG providers’ reach towards mass markets. And because it is based on ubiquitous mobile money services, the process could be scaled widely across the developing world.
- Potential for long term sustainability: the scheme is market-based, so a provider will be incentivised to move quickly and into areas where the services would be most valued by customers and uptake the most rapid. Competition and market forces will ensure that providers cannot extract large subsidies by asking customers to pay excessive fees. Donors could reduce subsidies over time or as take-up increased. This, along with the relentlessly decreasing costs of technology, will mean providers will continue to be able to provide these commercial services.
Such a scheme faces several challenges. Firstly, it could be difficult to precisely forecast the amount of funding needed, since there is limited available data on PAYG market development and uptake will be uncertain.
If the funder decides to mitigate this by providing a larger portion of funding per usage payment in the beginning of the funding period, this has the added benefit of improving the cashflow of the service provider, which can improve the scale and sustainability of the electrification initiative overall.
While this scheme would help to level the playing field between on- and off-grid electricity providers, it could exclude providers whose business models are not based on gathering customer data via mobile or web solutions, and it may discriminate against renewable technologies that do not lend themselves well to PAYG solutions.
However, the essence of this idea, that recent technological developments and data-enabled results-based financing can open up new routes to energy access, is powerful and should not be ignored.
Sam Duby (email@example.com) is chief technical officer and co-founder of SteamaCo, which provides the hardware and software tools to enable others to run commercially viable rural microgrids. They are specialists in energy efficiency and bringing industrial automation to emerging economies. Jørund Buen (firstname.lastname@example.org) is partner and co-founder of Differ, an investment and advisory firm specialising on small-scale renewable energy and energy efficiency sectors in developing countries. Differ is the majority owner of Brighterlite.