4 Ways in Which the Solar Distribution Market Differs Between East Africa and Central America
This post has since been republished on Sun-Connect News.
To date, the majority of energy poverty alleviation and solar distribution efforts have been focused in Africa—primarily East Africa. 2.5 billion people around the world lack access to reliable electricity (WEO 2012). The majority of these people reside in the African continent, where the rural electrification rate is only 24% (WEO 2012). With high population density and an extremely high instance of off-grid households, it makes perfect sense that the off-grid solar market got it’s start in East Africa around 10 years ago. Non-profit SolarAid, which distributes through its social enterprise SunnyMoney, has sold almost 1.8 million solar lights in Africa since it’s founding in 2006 (SolarAid). Greenlight Planet and d.light, founded in 2007 and 2006, respectively, industry leaders in the product design space, have also maintained a strong distribution focus in East Africa.
Colibrí currently focuses on Nicaragua, where 60% of rural dwellers do not have access to electricity (WEO 2012). Now, this may seem like T-ball when compared to the major-league statistics of East Africa. Sheer market size is larger in Africa; the statistics may show that there is more need, but energy poverty statistics aren’t necessarily reflective of the full potential in each market. This post aims to educate on the differences between the Central American and East African markets with respect to solar distribution and to showcase some of the unique challenges each market presents.
#1: Kerosene is not the driving factor behind "Why Solar?" for Central America
Visit the homepage of any solar distribution focused enterprise in East Africa and the language centers around “eliminating the kerosene lamp”. Kerosene is extremely harmful to health and the environment and it barely provides visibility. According to SolarAid, kerosene is the most common resource used by those living in energy poverty in East Africa. In Central America, this is largely not the case. Central American households living in energy poverty primarily use candles and battery-operated flashlights. In a survey of 42 off-grid Nicaraguan households administered by Colibrí points of sale, none of the households used kerosene for lighting. During Colibrí promotional events and regular field visits with ProMujer and The Coen Foundation, rarely does Colibrí encounter a household that uses kerosene. The primary resources used by off-grid or under-electrified households in Central America are candles and flashlights.
Sure, candles and flashlights might be the lesser of the evils, but kerosene, candles, and flashlights alike barely provide visibility, are not the most environmentally friendly option, and are all regular costs for the household. Candles may cost 10 cents each, but they must be purchased repeatedly and in large quantities—candles, however, do have the same fire and burn risks as kerosene . Batteries for flashlights have to be replaced every 1-2 weeks. Whether a household is using kerosene, candles, or flashlights, the transition to solar is an extremely important step on the energy ladder.
#2: Higher Price Points Are More Accessible In Central America (generally)
Based on many conversations with some of Colibrí’s counterparts in East Africa, including our supplier, Greenlight Planet, there is a difference in products accessible between both markets. The “lowest level” solar product Colibrí sells is a dual solar light and cell phone charger. There is little to no demand for a single solar light without cell phone charging capabilities in the Central American market, whereas the SunKing Eco and the d.light S2 (both small solar light products) have been some of the best-selling products on the East African market. Perhaps this is due to higher average income levels among the Central American BoP—or simply a preference to invest money in larger, higher capacity solar technology.
#3: Energy Poverty is Not As Extreme in Central America
As pointed out by the statistics, Central America has a much higher electrification rate than East Africa does. Colibrí’s average client is connected to the electricity grid. However, electrification is not synonymous with quality electricity service. Service can go out several times per week, often for 6 hours at a time. Blackouts are longer and even more frequent in harder-to-reach areas. It is also extremely common for households in Nicaragua to connect illegally to the grid, making the service more unreliable for everyone in the area involved.
What does this mean? These households are absolutely potential clients. The “sell” is just different than it would be for someone living in energy poverty using kerosene, which is what the average client in East Africa looks like. Colibrí often starts sales pitches by asking clients how often they experience power outages and how much they’re paying for mediocre service. Colibrí’s target market is often spending between $4 and $7 per month for flawed electricity service—it makes sense that this market would instead want to rent to own a full service solar home system. Solar is desirable as an alternative because it’s cost-effective, more reliable, and often more flexible for the households’ needs. The potential for solar isn't the number of people living in energy poverty; it's the number of people who want solar or would benefit from solar (side note, the Earth always benefits from solar).
#4: Financing is Always a Challenge, but Mobile Money Opens Doors in East African Market
I am certainly envious of enterprises operating in East Africa who reap the benefits of (one of the) fantastic mobile money system, M-Pesa. There is currently no mobile money system widely used in any Central American country. The prevalence of mobile money in East Africa provides benefits for the distribution or sale of any good. The Central American BoP conducts almost entirely cash-based transactions. Distribution, customer interactions, and payment habits may differ widely between the two regions due to the prevalence of mobile-based transaction in East Africa. M-Kopa and Off Grid: Electric are two enterprises, for example, operating in East Africa that have fantastic business models with M-Pesa as a key operational feature. Customers send in their payments for their solar home system over the cellular network, meaning M-Kopa and Off Grid Electric staff do not have to go collecting cash payments from thousands of households around the region. The lack of a mobile money service in Central America means enterprises doing pay-as-you-go solar have to get creative with payments so they do not face high operational costs associated with payment collecting and monitoring.
Base of the pyramid electrification efforts in developing markets is often simplified down to a single statistic: the percent of people who "have electric light." The question we care about isn't do you have light, but would solar power be an improvement? It's compelling to point to the 2.5 billion people living in energy poverty, because it is such a large percent of the world population, but those people are spread between continents, languages, cultures and countries. They have different behaviors and desires. Both markets hold potential for different reasons. Characteristics of the Central American market show high potential for uptake among the non-electrified, under-electrified, and electrified BoP consumers. Solar technology holds an extremely strong appeal among Nicaraguans. If Colibrí only went about business based on the statistics of those living in energy poverty, we wouldn’t be doing justice to the true potential in the market. We would just be serving the “need” segment, rather than addressing the full demand on the market and simultaneously creating new demand. Under electrified and electrified BoP consumers alike elect solar because it makes financial sense and is often a more reliable, productive, and appealing choice.
/Morgan Babbs, Founder & CEO
I am not an expert; I am not a researcher. I am discussing/observing all of this from Nicaragua. I understand that there are slight regional differences, but these are Colibrí's findings from working in Central America and from speaking with industry leaders around the world. I would love to hear some insights on the Indian market!