Elijah Parisa and Ifeoma Malo
According to the 2019 State of the Off-Grid Appliance Market Report by Efficiency for Access Coalition, an estimated 475 million households are without grid electricity, with approximately, 149 million households in Sub- Saharan Africa and 275 million in South Asia.
This dilemma has led rural, peri-urban and urban to opt for polluting technologies such as diesel generators, kerosene lamps, candles, and other sources that have cost more than $27 billion since 2014.
This has also had a direct or indirect effect on the environment due to increased black carbon emissions, with a higher impact on women who assume a higher risk due to the limitations to education, increased poverty, and loss of opportunities to generate income and food wastage.
With renewable energy technologies gaining more popularity especially with the decreasing cost of technology, sources like solar energy have helped to bridge this gap tremendously by providing decentralised energy access to millions.
According to the July-December 2019 Global Off-Grid Solar Market Report by GOGLA, solar energy is presently providing energy to over 100 million people worldwide, with sales of more than 4.4 million off-grid solar lighting products and 460,000 appliances.
The great gap in global energy access has created a very big opportunity for decentralised renewable energy systems ranging from solar lanterns, solar lights, mini/micro grids, solar home systems (SHSs), and solar pumps.
These systems have the potential to serve as the primary means of providing modern energy services to the un-electrified/un-deserved households and communities around the world.
High energy efficient, affordable and appropriately designed appliances such as fans, TVs, and refrigerators can be powered by these systems to improve the quality of life and increase the income-generating potential of the people at the base of the economic pyramid (BoP) through the productive use of appliances.
Currently, more than 20 million homes have been electrified through SHSs, 5 million homes through mini-grids using renewables, and 0.8 million homes through mini wind turbines.
Globally, un-electrified communities spent over $500 million on fans, televisions, and refrigerators in 2017, and it’s estimated to reach $4.7 billion by the end of 2020 even though limited access to electricity largely restricts their usage.
According to findings by Efficiency for Access (E4A) Coalition, the top 5 households/Small and Medium Enterprise (SME) appliances used globally include, LED bulbs, TVs, mobile phone charging banks, mobile/smartphones, and home refrigeration.
Fans come in at 6th place in terms of consumer demand but are much more highly ranked in places like South Asia with hot and humid climate conditions. Solar water pumps and agricultural refrigeration are not among the top 5 for consumer demand but their impact potentials have a high-ranking level due to the potential for productive economic usage.
The total number of off-grid appliances like TVs, refrigerators, and fans distributed worldwide is estimated to be between 1.4 and 5 million, bringing the annual growth in sales to about 50 to 80 per cent.
The global cumulative market opportunity across televisions, refrigerators, and fans was $12.6 billion at the end of 2018 and it’s expected to grow to $25.3 billion by 2030.
Therefore, there is still a huge market potential for off-grid manufacturers to produce appliances not only for daily use but also for income-generating purposes.
Despite the fast-growing market opportunities for off-grid appliances in the world, there are also some challenges faced in this sector that can’t be overemphasised and they include:
●Access to finance: On the manufacturer’s side, capital investment for R&D is always needed to enable them to develop appliances that match the market requirement as well as a certain amount of working capital to help sustain production, marketing, and branding.
For distributors, capital is necessary for marketing, building maintenance, carrying out consumer awareness, and after-sales support capacity. When funds are not available to handle these different areas, doing business becomes frustrating.
●Cost in supply chain logistics: In bringing products closer for the consumers, distributors most times incur high costs for warehousing, shipping, and management of inventories. This is even more difficult for bigger products like refrigerators because of their size, value, and mechanical complexity. In the end, this raises the retail price of products.
● Consumer affordability: Affordability for the end-user is the major barrier preventing a larger growth of the off-grid appliance market; this results from the fact that a huge number of them live in rural areas and are unable to afford products with high prices. Generic products with lower prices and quality also create a blockage for the off-grid market because of low durability, leading to a loss of trust from the buyers.
● Uncertainty in customer preference: Product design and innovation are affected by the lack of sufficient data and information on consumer needs. This creates a gap in manufacturing products that meet the needs and technical demands of end-users. Also, insufficient information about the energy efficiency and durability of products, most times lead users to make purchasing decisions based only on the product price.
●DC vs AC technological infrastructure: Appliances that make use of direct current (DC) sources like Photovoltaics (PV) and battery storage are more efficient than their alternating current (AC) counterparts because they help avoid energy conversion losses from DC power to AC and back to DC. Research has proven that almost all residential electricity end uses can be DC-compatible but the current challenge is the level of market maturity for DC appliances and consumer awareness .
The Role of Access to Financing for Consumers and SMEs
As mentioned in the barriers, a very large percentage of those who benefit from off-grid appliances are low-income earners living in rural communities, as well as SMEs. For them to be able to afford these products, a sort of financial support system needs to be in place to ease them of their financial burden of having to pay the total amount of a product at once.
Currently, in the off-grid PV sector, there are 3 different financing models used to get across appliances and PV-SHSs to end-users. They are; Cash Sales, Credit Sales, and Fee for Service model.
For the Cash Sales model, the consumer pays direct cash to the distributor and gets the product immediately or waits for it to be delivered. The after sales-services are carried out by the end-user.
For Credit Sales model; this consists of 3 sub-models. The one-hand model (dealer credit), where the end-user can make up to 50 per cent down payment and pay the remaining on installments (6-12 months) with an interest rate ranging from 20-25 per cent.
Secondly, the two-hand model (end-user credit) where the consumer pays a certain amount and the remaining payment is taken care of by a bank or Micro Finance Institution (MFI) under a loan agreement with the consumer.
Thirdly, the lease/hire purchase model which allows the end-user (lessee) to temporarily own the product by paying a regular fee to the company or financial institution (lessor) for a limited period of 2-3 years.
For the Fee for Service model, a PV-SHS company invests in the hardware components by installing, maintaining, repairing, and replacing any faulty part of the system. The end-user only pays a connection fee and a regular monthly charge for the energy services offered .
These financing models have gone a long way to support low-income earners and SMEs that don’t have the full financial capacity for one-time payments. The Pay-As-You-Go (PAYGo) financial solution is so far yielding good results by stimulating and increasing access to the verse market.
This method is making it easier and affordable for end-users to make payments via mobile money or energy credit model like scratch cards.
Despite the progress that has been made in making finance accessible for consumers so far, there is still a need for more sustainable financing models, geographical expansion, and consumer awareness to encourage and make known to people the benefits of investing in off-grid appliances.
*Elijah Kunsinmi Parisa is an associate on content development with Clean Technology Hub
*Ifeoma Malo is the CEO for Clean Technology Hub.