4 Lessons Pakistan’s Off-Grid Solar Market Can Teach the World
Justin Guay and Vrinda Manglik on Pakistan’s rising market for off-grid solar
Justin Guay and Vrinda Manglik
June 20, 2014
When it comes to the off-grid solar market, the South Asian countries you normally hear about are India and Bangladesh. One is home to the largest potential market in the world, the other is home to the world's
most successful and booming market to date.
But the elephant in the room, the potential off-grid solar leader you never hear about, is Pakistan. We've heard rumblings of off-grid solar companies eyeing this market for some time, so we sat down to talk with Jeremy Higgs of
EcoEnergyFinance to find out the latest on this pivotal country's off-grid solar prospects.
Before we delve into the market, it's important to understand the context in which these companies operate. That energy situation can be summed up in one word:
crisis.
As Carl Pope pointed out, Pakistan really has
two energy problems: 1) most of the rural population still has no access to the grid, and 2) the population that does have access to the grid is struggling with power cuts and supply shortages caused by climate disruption-induced drought. This ultimately affects the use of hydropower while the skyrocketing prices of oil further reduce the affordability of the existing supply.
In fact, 36 percent of Pakistan's electricity comes from oil, an outdated and incredibly costly form of electricity production. This means that throughout Pakistan,
nearly 40 percent of the population -- an estimated 65 million people -- lack access to any energy, which means that there's an enormous potential market for off-grid solar services.
The problem, of course, is that the Pakistani government's response to the country's energy crisis has been painfully familiar, with a focus on large-scale supply and grid extension.
And while grid supply and grid shortages need to be addressed, what makes no sense is for Pakistan to start building new coal-burning power plants to supply their energy. Any new plants that are built will be designed to be powered with imported coal, which Pakistan can't afford. In fact, the government of Pakistan just released a new tariff schedule for coal-burning electricity -- which is evidently the "
most expensive coal tariff in the world." That's why some experts predict that a
coal bubble is brewing.
It's in the midst of this energy crisis, and in the face of the confused response from the Pakistani government, that EcoEnergyFinance is seeking a different path. The firm is trying a progressive new approach: putting solar power directly in the hands of the people. And the lessons they've learned have implications far beyond Pakistan's borders.
Lesson #1: Giving away solar leads to market spoilage
EcoEnergyFinance is one of only a handful of off-grid energy companies in a market dominated by large non-governmental organizations (NGOs) and foundations. The company started operations in response to the
Sindh Province floods of 2010. Like many other organizations, EcoEnergyFinance initially began as an NGO, giving away solar lanterns for free. And like many before, the company received a lot of negative feedback about the quality of its products and heard concerns about long-term sustainability. In response, EcoEnergyFinance quickly pivoted into a hybrid social enterprise by aiming to use a market approach -- which is a reflection of the general transition this market has seen over the past decade.
The products that EcoEnergyFinance sells now are not the same low-quality products that were given away for free. Today, EcoEnergyFinance sells high-quality portable solar powered lights -- like those
from d.light -- and they are continuing to experiment with different business models to find the best organizational structure.
Lesson #2: Pay-as-you-go finance is the future
After trying free distribution, EcoEnergyFinance started selling products through retailers, but they quickly realized that their products were too expensive and that they would need to restructure payments to match customer cash flow and expenditure on lighting products. This naturally led to the extension of consumer financing, which unlocked affordability for their target market.
Customers now pay a monthly fee to EcoEnergyFinance in order to pay off their lantern over time. This essentially functions as a "manual" version of popular pay-as-you-go solutions in which similar solar devices with circuitry enable customers to make discrete payments. In addition to its "manual" approach, EcoEnergyFinance is also starting to experiment with similar payment-enabled devices through support from the
GSM Association MECS Fund.
Lesson #3: Word-of-mouth marketing is key
Then came the real game-changer: instead of just focusing on retailers, EcoEnergyFinance started using its own existing customers as brand ambassadors to spread the word about its product. As the graph below shows, this led to skyrocketing sales. The sharp drop after the peak is a result of several factors, including the fact that residents of farming communities in Pakistan tend to have less disposable income at certain times of the year -- February, March, and April -- and the fact that EcoEnergyFinance faced challenges with payment collection in one district. The company has since recuperated by focusing on payment collection, not sales, in that particular district, which has lowered the overall sales rates.
Lesson #4: Market information is scarce
Despite these initial successes, challenges still exist. The customers EcoEnergyFinance works with tend to have unpredictable, seasonal income and are not always able to reliably make payment deadlines. Field staff have to balance sales and payment collection, and they aren't always able to effectively do so.
To continue addressing these challenges, EcoEnergyFinance is gathering information about marketing, effective sales tactics, demographic information, and statistics on kerosene, torch, and solar use. Additionally, the company is looking at a range of products, including
Greenlight Planet lights with
Angaza-designed technology and
BBOX systems with their new “SMART” technology, as well as working to partner with microfinance institutions for alternative means of financing.
In sum, EcoEnergyFinance reflects a number of hard-learned lessons for this nascent market -- lessons that are no doubt being learned by companies and organizations the world over. But if EcoEnergyFinance is able to build and grow a company in such a challenging setting, it says a lot about the robust future that off-grid solar companies have in in store.
4 Lessons Pakistan’s Off-Grid Solar Market Can Teach the World : Greentech Media
