Pay-as-you-go Solar: A Revolutionin Off-grid ElectrificationIn partnership with the Clean Energy Solutions CenterHugo Lucas Porta05.10.2018

Supporters of this Expert Training Series2

Overview of the expertFactor is an international group, specialized in providing global,innovative and sustainable solutions in areas such as climatechange, energy, sustainability, trading and innovation.Our key value is our people. We have offices in six countries,where our interdisciplinary team works for public and privatestakeholders, international organizations and non-profitentities.Our own history and experiences are based on constantinnovation. This helps us target our services, by combiningacademic knowledge, technology and practical experience.Hugo Lucas PortaHead of EnergyDept, Factor20 years in RESector- Worked forgovernments andprivate sector onenergy transitionstrategies3

Training Course MaterialThis Training is partof Module 7, andfocuses on the Payas-you-go SolarRevolution1.2.Policies forDistributedPVPolicies forLargeScale PVExpert Contentand AnalysisEight Modules3.4.The Futureof SolarPolicyTechnicalIntegrationof f-gridSolarUp-to-dateMarket Insights8.SolarHeating &Cooling4

Overview of the Training1. Introduction: Learning Objective2. Understanding PAYGO3. Main body of presentation4. Concluding Remarks5. Further Reading6. Knowledge Check: Multiple-Choice Questions5

1. Introduction: Learning Objective6

Learning ObjectiveThis module provides:1. An introduction to the functioning of Pay-As-You-Go(PAYG) business models2. A discussion of the funding needs of PAYGO businessmodels3. A analysis of the PAYGO business model specificationlandscape4. An evaluation of the PAYGO market7

2. Understanding Off-grid Solar Markets8

Understanding Off-grid Solar MarketsPay-as-you-go (PAYGO) is a digital financing technology thatallows end-users to digitally pay for solar energy in instalmentsor prepaid.PAYGO is emerging as asolution that addresses bothend-customer affordabilityand provides sufficientmargins to fuel operationalmodels that can scale.Source: azuri-technologies.com9

3. Main Body of Presentation10

Main Body of Presentation1 Introduction to the PAYGO Business Model2 Funding Needs and Profitability3 The PAYGO Specification Landscape4 The PAYGO Markettrends and innovation11

PAYG Business Model – The ProblemThe Problem:Customer base in remote areas lacks financialinfrastructure and resources.High up-front costs of solar home systems excludesthose in need.The Solution:PAYGO refers to a business model thatallows users to pay for their product viaembedded consumer financing.12

PAYG Business Model – How does it work?Mobile Money: Consumers topup mobile credit, buy prepaidusage, receive code to unlockdevice.Service Provision Control:When prepaid usage is used,consumer receives message totop up, otherwise devices locks.Data: Huge amount of datagenerated, facilitates operationsand investment decisions.Source: FIBR Project13

PAYG Business Model – DataKPI Framework for PAYGO Companies1. Quantify risk factors2. Practical to compute3. Starting point for the identification of investment opportunities14

PAYG Business Model – DataData and Privacy Concerns can arise: There is evidence that customers can findthe contracts involved in PAYG confusing. 27% of customers felt that the agent didnot explain the contract to themadequately, and 13% said that parts of thepayment plan were unclear. The amount of information allows forsensitive insights.Source: Acumen, 201715

Main Body of Presentation1 Introduction to the PAYGO Business Model2 Funding Needs and Profitability3 The PAYGO Specification Landscape4 The PAYGO Markettrends and innovation16

PAYG Business Model – Life Time ValueSource: GOGA, 201817

PAYG Business Model – PAYGO Magnet: TheLion‘s Share of CapitalAverage score from poll of funders; scoreout of 5 (1 Difficult, 5 Easiest to fundraisefor a company operating under a specificbusiness model); n 11 (2017)2012 to 2017: PAYGObusinesses raised USD773 million.This is equal to 85% ofall funds raised.Source: GOGA, 201818

PAYG Business Model – PAYGO FinancingSource: GOGA, 201819

PAYG Business Model – PAYGO FinancingSource: GIZ, 201720

PAYG Business Model – PAYGO FinancingPAYGOCOMPANYSource: GIZ, 201721

Main Body of Presentation1 Introduction to the PAYGO Business Model2 Funding Needs and Profitability3 The PAYGO Specification Landscape4 The PAYGO Markettrends and innovation22

PAYG Business Model – SpecificationLandscapeSource: GOGA, 201823

PAYG Business Model – SpecificationLandscapeVerticallyintegrated,energy serviceprovider Quasi utilities As a result of the lack of suitablepartners in nascent marketsBanker Company focuses on consumerfacing functions of the value chainValue chainspecialist Horizontally integrated companiesspecializing in one upstreamaspects of the value chainSource: GOGA, 201824

PAYG Business Model – OwnershipSource: solarplaza.com25

PAYG Business Model – Mobile MoneySource: global-climatescope.org26

PAYG Business Model – Mobile MoneyCGAP research (2015) suggests that 30-50% of PAYGsolar customers outside of Kenya are new to mobilemoney and opened a mobile wallet in order to purchase adigitally-financed SHS.PAYG solar providers are pushing mobile money servicesinto frontier areas.PAYG solar companies are providing off-grid,predominantly unbanked consumers with their firstaccess to formal financial services.Source: CGAP, 201527

PAYG Business Model – The Value ChainSource: CGAP, 201828

PAYG Business Model – Cost-related Barriersto EntryInvestments in technology: USD 1-10 million forsoftware developmentHigh customer acquisition costs: large,commissioned sales teams neededHigh transaction costs: follow-ups/repossessionsHigh after-sales costs: post-sales servicingHigh corporate costs: expert teams responsible formultiple value chain nodesSource: GOGLA, 201829

PAYG Business Model – The UnbundlingUnbundling of vertically integrated companies cancreate more product options and greater flexibility.The unbundling can lower start up costs for the secondgeneration of PAYGO operators.Requirement for the expansion of the market beyondlow-hanging fruits.Example: Mobisol’s Paygee30

PAYG Business Model – The SpecialistSource: paygee.com31

Main Body of Presentation1 Introduction to the PAYGO Business Model2 Funding Needs and Profitability3 The PAYGO Specification Landscape4 The PAYGO Markettrends and innovation32

The PAYGO Market – Current PresenceSource: GOGLA, 201833

The PAYGO Market – Market SizeSource: BNEF, 201734

The PAYGO Market – PAYGO DisappointmentWhy has the PAYG sector grown more slowly thananticipated? Building distribution networks in emerging marketstakes longer than anticipated Consumer habits have surprised many Overhead costs are substantial Lack of CapitalSource: Shell Foundation, 201835

4. Concluding Remarks36

Concluding Remarks1. PAYGO makes SHS affordable and allows businesses toscale quickly2. PAYGO business models require massive funding andtake long to gain profitability3. Unbundling can be an important pathway4. The PAYG market will sustain, conditional on willingnessof investors to support the industry37

Thank you for your time!38

5. Further Reading39

Acumen, 2017, An Evidence Review: How affordable is off-grid energy access in 07/Evidence-Review-On-Affordability.pdfBNEF, 2017, Distributed Energy in Emerging ging-Markets-White-Paper1.pdfCGAP, 2015, Four Ways Energy Access Can Propel Financial y-access-can-propel-financial-inclusionCGAP, 2018, Strange Beasts Making Sense of PAYGo Solar Business blications/Forum-Strange-Beasts-Jan-2018.pdfFIBR Project, How Flexible Financing, Solar Panels and Data Could Be Key to FinancialInclusion. usion-9221a5274106GIZ, 2017, Financing the Off-grid Sector: Turning Portfolio into Finance40

GOGLA, 2018, Off-Grid Solar Market Trend Report 2018. Dateien/New/2018 Off Grid Solar Market Trends, 2017, The Symbiotic Relationship Between PAYG Solar AndMobile Money Ecosystems. GSMA/Hystra, 2017, Reaching Scale in Energy 98057514242/Energy Report %28ADB excluded license%29.pdfShell Foundation, 2018, Bridging the Gap to Commercial Success for Energy AccessBusinesses. ellFoundation Persistent, 2017, Asian off-grid solar: Using innovation to accelerate ccelerate-electrification/41

6. Knowledge Checkpoint:Multiple Choice Questions42

When prepaid usage is used, consumer receives message to top up, otherwise devices locks. . Quasi utilities As a result of the lack of suitable partners in nascent markets Vertically-integrated, . frontier areas. PAYG solar companies are