Authors: Richa Goyal (SERC), Arne Jacobson (SERC), Byoung Hwa Hwang (UNCDF)
“On July 27th, 2016, at 19:37 hours, there was a total blackout affecting electricity supply to the entire country following a technical failure at the Kiira, Nalubale and Bujagali hydropower dams.”
Statements such as the one above, issued by Uganda’s largest electricity distributor Umeme, reflect a reality in many developing countries.
Off-grid clean energy systems, such as solar light or home energy systems, present a promising alternative, offering cleaner and more efficient access to energy. But what drives low-income customers to adopt such off-grid solutions? Can financing instruments such as Pay-As-You-Go (PayGo) plans play a supportive role? In Uganda, one out of five people lacks access to electricity, limiting their opportunities to education or operating a business and creating significant safety risks. Similar levels of energy poverty exist in numerous other markets, where grid electricity remains an expensive, unreliable and unsafe resource for many – especially the rural poor.
Collapsed electricity pole in farmland along the Kampala-Tirinyi highway may generate high-tension electric shocks on the ground. Image by Richa Goyal, fieldwork in March-April, 2016, Uganda.
The Energy Ladder Research – an initiative launched by UNCDF’s CleanStart Programme in partnership with SolarAid/Acumen aims to address these and several other questions. Researchers at the Schatz Energy Research Center (SERC) are conducting the research through a mix of quantitative and qualitative research methods, including 600 phone interviews and 114 face-to-face interviews with users of solar energy products in two regions of rural Uganda. This year-long study explores customer adoption and financing behavior of off-grid energy solutions.
In particular, the study investigates the ‘energy ladder hypothesis,’ that is whether customers “graduate” linearly from small solar energy products (e.g., solar lamps) to higher levels of energy service, such as solar home energy systems, that can also serve as USB ports, battery and mobile phone chargers, radios – or whether there are there other, non-linear, patterns of adoption. The study also examines the role of traditional vs. digital financing tools – namely microfinance loans and PayGo schemes – in influencing customers’ purchasing and “graduation” behavior. Ultimately, the research intends to uncover new insights into the demand-side of off-grid power solutions, which, in turn, shall inform financial and energy providers to better tailor their products and services to the wants and needs of the energy poor.
Findings of the baseline survey indicate that the Uganda energy market provides a compelling opportunity for solar-based off-grid energy solutions. This opportunity is linked to factors such as the poor quality and erratic nature of grid-based electricity and the high cost of fuel-based lighting from kerosene and candles faced by customers. As indicated by 40 percent of the respondents of the face-to-face interviews, there is also a perception that grid electricity is unsafe. Survey respondents also showed a keen understanding of the high cost of fuel-based lighting, and 85 percent of phone survey respondents claimed to have achieved substantial savings from reduced use of conventional lighting fuels after investing in at least one solar product.
These factors have helped create a significant, and largely unmet, demand for reliable electricity services for which there is a high willingness to pay. This is a gap that companies selling off-grid solar products can seek to fill.
Given the market opportunity, how exactly can solar energy providers engage with and appeal to new customers? What information or experiences are influential and translate into actual sales? Our Energy Ladder Research will address these and many more questions over the coming weeks through a series of blog posts.
This blog was originally posted here.
Read our second blog: How does marketing unlock solar energy growth?
Red our third blog: Spotlight: Does PAYGO unlock energy access and financial inclusion?
The energy ladder research concept was first conceived by SolarAid in early 2015, and further elaborated through a UNCDF-hosted roundtable discussion joined by the Global Off-Grid Lighting Association, GSMA Mobile for Development Utilities, SE4ALL’s Strategic Advisor, and the World Resources Institute.
Kat Harrison, Acumen Fund’s Associate Director of Impact and Lean Data and Michael Nique, GSMA M4D Utilities’ Director of Research and Insights have been active thought partners in steering this research forward.
This blog is a part of the July 2017 series on energy access in partnership with Hystra.
Read the full series for more lessons from practitioners, trends in business models, market penetration and understanding and measuring impact in the energy sector.