National Electrification Programme
Ethiopia’s electrification program presents the government action
plan for achieving universal electricity access nation wide by 2025.
Demystifying Ethiopia
Ethiopia: one of the fastest growing economies in the world, has one of the biggest market potential for off-grid solar products.
previous arrow
next arrow
Slider

Tesla-backed startup made cheap power a debt burden for the world’s poorest

10 Apr 2022

As a solar panel was raised onto the roof of their ­mud-brick home in a Tanzanian village in sight of Mount Kilimanjaro, Akida Saidi and his wife felt giddy at the prospect of entering a new era. In a place where most residents make do with pit latrines instead of ­toilets and till their fields of maize and pigeon peas with hoes, suddenly having electricity would catapult them into the 21st century. With the flick of a switch they’d light their kitchen without fear of kerosene fires and charge their phones without trekking to town.

The couple’s unexpected journey to solar power began one day in 2015, when a fleet of motorbikes buzzed into the village of Gedamar, carrying salesmen from Zola Electric, which counts Tesla as one of its biggest backers. The agents offered Saidi and other residents a way to improve their life while saving money. For a small down payment, followed by a monthly fee less than the cost of fuel, they could have three lightbulbs, a phone-charging port, and a solar panel. In two years the kit would be theirs to keep, the salesmen promised, with free electricity coursing through their home in perpetuity.

“When we got the solar power equipment, we thought our lives would change and we would live a modern life, just like those in the big cities,” says Saidi’s wife, Mwasiti Waziri, who recalls that her neighbours were so dazzled by the lights that many of them signed up, too.

Pay-as-you-go solar

Since solar pay-as-you-go, or paygo, was introduced almost a decade ago, it has been hailed as the answer to the elusive challenge of bringing electricity to hundreds of millions of people currently off the grid in Africa, Asia, and Latin America. It began in the spirit of the microcredit model that Nobel Peace Prize-winning economist Muhammad Yunus popularised in the 1980s. But instead of offering small loans to poor people in the developing world, paygo solar would leverage their utility bills to give them a path to ownership and, ultimately, energy independence.

The new solar solution became a darling of ­development banks and socially minded investors after US President Barack Obama unveiled his Power Africa initiative on a tour of the continent in 2013. He called on the public and private sectors to work together to electrify 20 million homes and small businesses. The concept was seductive from every angle: Governments embraced the idea because it shifted infrastructure costs to consumers, and charitable organisations loved it because it promised to empower the poor. At a moment when the world was waking up to the threat of climate change, everyone was eager to embrace ­paygo’s potential.

Soon a new generation of companies such as D.light, Mobisol, and Zola were promising to provide off-grid homes with affordable, renewable energy while also turning a profit. Humanitarian agencies and the United Nations got in on the action, along with Silicon Valley heavyweights including EBay founder Pierre Omidyar and Tesla’s Elon Musk. The clean-energy researchers at BloombergNEF tracked about $300 million invested in mostly Western-owned solar paygo startups in 2020, up from $19 million in 2013. More than 8 million paygo solar kits were sold from January 2018 through December 2021, according to Gogla, an off-grid solar industry trade group, and today about 25 million to 30 million people have access to energy via paygo solar lighting systems.

But in places such as Gedamar, the reality has fallen far short of its promise, according to interviews with more than two dozen former employees of solar paygo companies who asked for anonymity because they weren’t authorised to speak. Their comments were corroborated by customers, consumer advocates, and internal documents seen by Bloomberg Green.

The industry’s rapid growth has left it confronting challenges similar to those faced by microfinance, trying to balance the dual bottom lines of profit and social impact. Idealistic entrepreneurs are seeing their aspirations collide with the unsparing economics of trying to make money by offering credit to some of the world’s poorest communities. Because solar paygo is a low-­margin, high-default business, and investors and commercial lenders often demand quick returns, com­panies end up on a funding treadmill. The former employees say the solar startups are pressured to grow at rates that can be achieved only through high prices, unreliable products, misleading sales pitches, and little or no due diligence. The consequence is “a social impact credit trap,” says Daniel Waldron, a solar specialist who analysed the industry for the Consultative Group to Assist the Poor, an organisation of international development agencies, and now works at impact investment company Acumen.

It’s the paradox of the renewable energy market’s ­economic revolution. Solar is now the cheapest form of new energy in much of the world, but its costs can still be prohibitive for those who need it most, leading to a cycle of exploitation. Although paygo can make a difference to middle-class homeowners and small businesses that don’t want to depend on Africa’s unreliable power grid, it hasn’t succeeded in bringing electricity to the poor on a massive scale.

The financially inexperienced are still being misled about the costs of complex solar financing contracts, according to the people interviewed by Bloomberg Green. In some places half the loans ended up unpaid, and those who continued paying struggled. During the pandemic, one study found, 43% of paygo customers had to cut back on food consumption to keep their ­service. Now some of Zola and D.light’s competitors are pursuing an even more vulnerable customer base: ­refugees in camps in Rwanda, Uganda, and elsewhere.

To see the original post please click [Here]

Latest news

Upcoming events

Scroll Up