The pay-as-you-go (PAYG) solar sector has exploded in recent years with numerous companies offering solar home systems to customers. These systems provide basic lighting, mobile phone charging, and radio; the most advanced systems also provide TV. Rather than paying the full cost of the system up-front, customers pay regular installments using mobile money. If a customer does not pay on time, the system is remotely deactivated until more payment is received.
PAYG solar companies face two major challenges. First, the companies have not yet been able to expand outside of areas of high mobile money penetration. It is simply not feasible to collect cash payments of $10–12 per month from individual households. As a result, PAYG companies compete fiercely in the M-Pesa ecosystem of East Africa, and have only recently ventured into the relatively affluent parts of West Africa where mobile money penetration is high, such as peri-urban areas in Senegal and Nigeria.
Second, at any given time, a typical PAYG solar operator will have 30–50% of their devices disabled. Customers make small, sporadic payments and are willing to accept regular periods of deactivation. For example, a customer may only activate their solar system on weekends, or when the local power grid is out. Although the flexibility of PAYG payments has contributed to the rapid spread of solar home systems, such sporadic payments pose financial challenges to the PAYG solar companies.
These two challenges have created a situation in which many countries, such as Liberia, do not have access to PAYG solar, despite the potential benefits to consumers. In Liberia, for example, only 3% of the population — and only 0.5% of the rural population — has access to grid electricity. The rest of the population relies on small scale generators — or no electricity at all.
So is there a solution? Here at LIB Solar, we believe that a community solar nano-grid, financed through a group lending model, makes it economically feasible to collect cash payments and achieve dramatically higher on-time payment rates than individual home systems. These systems are also modular, allowing us to offer increasingly energy-intensive appliances, such as TVs, coolers, water pumps, and business equipment, without replacing the core infrastructure.
Our solar nano-grids provide lighting, mobile phone charging, radios, and other services to entire communities — rather than individual households — in exchange for a monthly cash payment. These payments are deposited in secure cash boxes located within our systems, so communities can make payments of any amount, whenever it is convenient for them. Community-appointed officials are responsible for keeping track of these payments and encouraging their neighbors to contribute their share. If the payment does not reach the agreed amount, the system is shut off for the entire community. But if the community consistently pays on time, they earn various incentives, including financing for additional appliances. After a certain number of payments, the community owns the system.
This business model is deeply rooted in Liberia’s culture, and is based on findings from behavioral economic experiments that Nicholai conducted in Liberia during his PhD research. Liberian communities are capable of tremendous collective action: if they identify a shared goal, communities can inspire their members to contribute money and effort. But these communities have limited resources. They require low-cost, robust technology that can survive Liberia’s difficult climate, with financing to make it affordable. As these communities grow, so will our business. We are excited to invest in rural Liberia.
