SEATTLE — According to the World Energy Outlook, over 600 million people in sub-Saharan Africa do not have access to electricity. In rural areas, electrification rates are especially low, and most efforts to expand solar power in Africa are ineffective and unrealistic.
However, a new business model has emerged to offer solar technology in Africa, and after less than a decade of start-up efforts, the future for rural Africans already looks much brighter.
The strategy is to use solar technology in Africa and a mobile money service to electrify off-grid parts of the region. It was pioneered by the Nairobi-based company M-Kopa, whose primary product is a solar-powered unit that provides light, radio and power for charging mobile phones.
Consumers pay a deposit of $35 to M-KOPA and are given a solar system to install at their homes. “Using a mobile payment system on their cell – which can be anything from a top of the range smartphone to an older, less sophisticated model – they then top it up every day to the tune of around 45 cents in order to get energy,” says an article on CNBC.
The model is perfectly suited for impoverished, rural parts of Africa. Expanding power grids to such areas would require hundreds of billions of dollars in investment, and such expansions often price out poor consumers. By using solar technology in Africa, M-Kopa can provide power to remote areas at a relatively low cost.
Furthermore, solar technology power is a preferable alternative to kerosene, which is what most east Africans rely on to power their homes. Burning kerosene creates smoke that damages people’s health and homes. Solar power, on the other hand, is not only cleaner and renewable, but it is just as affordable.
M-Kopa’s pay-as-you-go system ensures affordability. Poor consumers space out their payments and thereby avoid the financial strain and risk of purchasing a $180 unit all at once. After 12 months of regular payments, they gain full ownership of the unit and access to free solar energy.
The model requires a bit of a gamble on the part of M-Kopa, as they loan assets to people without bank accounts or credit histories. But it turns out that most customers keep up their end of the deal: according to African Business Magazine, 92 percent meet their daily payments, and 40,000 systems have been completely paid for. To protect itself from theft, the company can track units using GPS coordinates and shut them off remotely if their owners have not made their payments.
Access to clean and renewable energy is crucial for the global poor. It makes homes safer and healthier and allows small businesses to stay open longer. M-Kopa’s rapid growth shows its business model makes sense for the region. Bloomberg Business reports that in September, M-Kopa announced it had sold a total of 250,000 systems and “aims to break the million-unit mark by the end of 2017.”
According to Bloomberg, after taking in $15 million of revenue in 2014, M-Kopa hit $30 million in 2015. It plans to double again in 2016 and eventually become a billion dollar business.
Because of its rapid growth, big names in finance have invested in M-Kopa, including Virgin’s Richard Branson and AOL co-founder Steve Case. The company also received a grant from the African Enterprise Challenge Fund (AECF). The AECF, which is managed by KPMG’s International Development Advisory Services Africa, has funded almost a dozen other companies like M-Kopa in the past five years.