The Light at the End of the Tunnel: Trends Driving Access to Power in Emerging Markets
Global access to power and clean water in emerging markets has long seemed unreachable. Last month, during the GSMA Mobile 360 Africa conference in Cape Town, a panel of experts discussed some emerging trends and transformative business models that could soon make water and energy more accessible for millions.
Today, 1.3 billion people around the world lack access to power. The great majority of them—about 600 million people—live in Africa. There, off grid consumers primarily burn kerosene to light up their homes, living under constant fire hazard and exposure to toxic fumes. Even with its safety and health drawbacks, kerosene for lighting is a $30 billion industry annually fueled mostly by consumers in emerging markets, who spend up to $8 per kWh of kerosene lighting— staggeringly high in comparison to the 10-20 cents per kWh of electric power we pay in the United States. Its wide use and high cost makes kerosene lighting one of the largest expenses of off grid households in emerging markets, representing a significant portion of a family’s monthly income.
Some of these consumers live within reach of a grid connection or availability of home energy systems, but the upfront costs are high: Grid hookups can cost about $400 in Kenya, for example, and home energy systems can run anywhere between $50 and $200, a big turn off for low income consumers in those areas.
But it won’t be like this for much longer. Driven by new technologies, innovative businesses in emerging markets are finding new ways to distribute, monitor, and service rural and remote off grid consumers by leveraging some key trends.
1. Smartphones and Mobile Money
Today there are over 250 mobile money deployments globally, with over 100 million accounts. At the turn of the millennium, in 2000, there were none.
Mobile money offers the potential to collect a massive amount of small payments at scale. Companies like Off.Grid:Electric (OGE) leverage this potential to transform the upfront cost of purchasing a solar system outright into a manageable monthly payment. OGE is one of an emerging class of pay-as-you-go solar (PAYG) providers in Africa, providing low-income consumers better light and solar-powered charging for less than they pay for kerosene. Before mobile money, collecting these small subscriptions was too expensive to make the economics of the business work, and was subject to fraud and theft.
Companies like Grundfos Lifelink (Kenya), and CityTaps (Niger) are trying to bring a similar model to water – offering clean drinking water using smart meters paid for through mobile money accounts. Soon, we’ll see PAYG applied across a range of areas, spanning capital goods, sanitation, health, and education.
All this is possible with just feature phones. By 2020, when an estimated 50 percent of developing world consumers will carry smartphones, applications for providing basic services will get way more sophisticated and efficient. Things like adding photos and geolocation to customer profiles and step-by-step fixes through an app will be some of the features that will leverage smartphone capabilities.
2. Machine-to-Machine Communications
An integral part of the Internet of Things, Machine-to-Machine communications (M2M) allow devices to communicate with each other remotely. Globally, M2M connections have exploded, reaching nearly 250 million today. In Africa, while nascent with only 7 million connections, they are projected to quadruple in the next four years.
M2M allows energy and water providers to remotely control their asset. Companies like M-Kopa have included a GSM chip to remotely shut off their PAYG solar systems with non-payment. Combined with remote monitoring, this dramatically reduces the cost of servicing the device.
An experiment by SWEETLab in Rwanda using remote sensors on rural water pumps demonstrated a massive increase in running time and a decrease in median time between repairs.
3. Big Data
Digital data is exploding everywhere. In 2010, Eric Schmidt shared that every two days we globally produce the equivalent of all the data ever created since 2003. And data captured is growing 50 percent year over year.
This massive amount of information empowers providers to make more informed decisions. This is why ON invested in companies like Lenddo & Cignifi that use big data to determine creditworthiness for underserved consumers in emerging markets. Lenddo uses consumers’ opt-in social media activity among a variety of other factors to derive creditworthiness. Cignifi analyzes anonymized mobile phone usage patterns to the same effect.
Credit scoring is scratching the surface of what can be achieved by making sense of big data, which will also be used to provide insights on product usage, customer selection, etc. Leveraging these technologies will empower providers to better understand, extend credit to, and serve their customers.
4. Falling Hardware Costs
This will enable solar system manufacturers, such as our investee d.light, to build cheaper and better systems at similar price levels. Today, off grid home solar systems can affordably power lights, cell phones, and basic appliances such as fans, radios, and TVs. As the pace of innovation grows, I would not be surprised to see affordable systems powering fridges, laundry or sowing machines in a few years.
By CGAP’s count, there are already more than 100 businesses using mobile money for energy, water, and sanitation. GSMA Mobile for Development Utilities has provided innovation grants to over 30 pioneering organizations testing these models.
Successfully scaling these businesses will reinforce a virtuous cycle: More services using mobile money drives customer usage and adoption, further increasing the value of the mobile money platform. Similarly, more connected devices drive cheaper communication networks.
New and transformative business models will continue to leverage these trends to reinvent existing products and services, making the goal of global access to basic services such as power and clean water a reachable one.