The world’s poorest are spending US$250 billion each year on noxious fuels. But what if there was a way to give people access to solar electricity? Hugh Whalan, CEO of PEG Africa, is using microfinance to solve the energy poverty problem.
Meet Linda. She is a seamstress and lives near Zogbedji in the Eastern Region of Ghana. She lives there with her husband, who is a cattle herder, and five kids. Between them, they earn US$4-$5 per day, and live in a mud brick home. Their kids are the first generation to go to school past third grade.
Once the sun goes down, around 6pm each day, Linda's life is plunged into darkness, except for the polluting, dull light from kerosene and candles. She uses battery-powered lights, but has to replace the batteries weekly, which is expensive. There is no electricity. She has to walk 5km to the nearest town to pay to charge her phone, which she does 2-3 times a week. She spends over 10 percent of her income on lighting and charging her phone, and her kids often cannot study at night because of kerosene and candle rationing. Last year, her neighbour's house burned down when a kerosene lamp tipped over.
To make a bad situation worse, fuels like kerosene are also terrible for Linda and her family's health, as they create noxious fumes that contribute to more deaths through upper respiratory infections in Sub-Saharan Africa each year than malaria. These fumes also contribute significantly to climate change.
There are 1.3 billion people worldwide in a similar position to Linda, who are using inconvenient, unhealthy, expensive and polluting fuels. These people are spending US$250 billion per year on fuels that are slowly killing them.
I first heard of this problem while working in carbon markets 10 years ago. I didn't see these 1.3 billion people as hopeless or too poor, I saw an opportunity and 1.3 billion potential customers. PEG Africa is focused on financing solar power; the technology and business models already exist, so together we can solve the problem of energy poverty, once and for all.
In the same way that Linda can skip the how-to's of a landline phone and move straight to a mobile phone, she and her energy-poor neighbours can skip the use of traditional fossil fuels and move straight to renewables.
These people have been largely ignored by product and service providers who perceive them as too poor or too remote to sell anything to. New technology and business models have transformed these barriers into big market opportunities.
This is not a pipe dream. It is already taking place – PEG Africa is part of a broader revolution happening in parts of Africa and the developing world.
PEG Africa sells solar home systems with lighting, a mobile phone charger, torch, television, fan and radio on credit to underserved households in West Africa. Typically, our customers are unbanked, have no credit history, no assets, are illiterate and live hundreds of kilometres from the nearest town.
We do this using an innovative approach called 'pay-as-you-go financing' which allows the customer to take the system home with them for a small deposit, and use it while they pay it off over time. Each payment unlocks a credit, which gives access to the system for a period of time (if customers stop paying, the system shuts off) and also pays down the customer's loan. In this way, we can mimic the spending behaviour of our customers, but instead of perpetual spending on poor quality polluting fuels like kerosene, customers like Linda can gain ownership of useful and productive assets that would normally be financially out of reach without the financing we offer.
In Linda's case, she now owns the system outright. She saves over US$150 in energy each year, and her kids now study at night under light that is 50 times brighter than kerosene. She charges her phone in the comfort of her own home, and she even makes a little money on the side charging her neighbours phones. She now has more money for food, education and can invest more in her business.
In another important innovation, 100 percent of payments Linda made to us are from mobile money – like a bank account on her phone. She can instantly send the payment from anywhere in the country, which is very convenient as she doesn't have to walk into town to pay. It is also convenient for PEG Africa, meaning we don't have to physically go out and collect money that would make the whole business prohibitively expensive.
On top of all this, now that Linda has finished paying, we have developed a credit score for her, and have more confidence in her ability to pay, so can start increasing her access to finance for other products that will help her live a better, healthier life and save or make money.
In the last four years, PEG Africa has raised US$50 million from investors, we have 1000 staff (400 full-time and 600 salespeople) and operate in three countries. We have over 300,000 daily users of our products and aim to reach millions in West Africa. We recently expanded into larger solar systems for edge of grid customers, and solar water irrigation for smallholder farmers, and will grow into our fourth market by the end of this year. We have grown by 100 percent each year for the past four years and expect to maintain that growth in 2019.
We feel we are just getting started.