Solar Panel Leasing Still Strong In Parts Of Africa, Not So Much In U.S.

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Written by Dana Sanchez

Nairobi-based solar energy finance company M-Kopa has sold 5,000 solar-powered digital TV sets since launching the product in February and says it’s struggling — to keep up with demand, that is — CNN reported.

The TVs are an add-on to M-Kopa’s $200 basic package, which includes a solar panel, two LED bulbs, an LED flashlight, rechargeable radio and mobile phone charger. The basic kit comes with a two-year warranty and a battery designed to last at least four years.

Together, the TV and solar panel cost $500. Before interest. Once that is paid, the kit is no longer on loan but fully owned, and all power is free for as long as the sun shines.

M-Kopa’s pay-as-you-go business model means customers — many living on $2 a day or less — are not paying the $200 or $500 up front. Instead, they use their mobile phones to pay at least 50 cents a day plus a hefty interest by U.S. and European standards for one to two years, depending on their payment plan.

“If you boil it down, what we are is a finance company” said Jesse Moore, founder of M-KOPA Solar, in a Bloomberg interview in December.

The cash price of M-Kopa products is about 20 percent less than the pay-as-you-go price. But in the markets where the company’s working—so far, Kenya, Tanzania, and Uganda—the rates are competitive. Traditional microfinance companies typically charge about 20 percent interest on their loans, and in October the Kenyan government issued treasury bills that offered investors a 23 percent annual return.

Less than a third Kenyans — population 45 million — own their own TVs and about 5 million homes don’t have electricity, Moore said.

Culturally Kenyans are engaged in business and politics. It’s news rather than entertainment that attracts the most TV viewers, and people are willing to walk miles after work just to watch TV in the nearest town, Moore told CNN.

Kopa means borrow in Swahili, and the company is credited with pioneering the idea of pay-as-you-go solar energy in Africa.

M-Kopa has transformed Kenya by providing power to remote areas that would otherwise have to wait for state-run rural electricity, VenturesAfrica reported. About 300,000 homes and businesses in Kenya, Uganda and Tanzania use M-Kopa’s products. The goal is to have 1 million customers by the end of 2017, Moore said.

“The product most people living off the grid want to get is a TV,” Moore said.

When M-Kopa salespeople sell, they talk about the benefits of replacing kerosene — which burns eyes, irritates throats, and turns the ceiling black — with clean energy. Kerosene is also more expensive than solar, according to M-Kopa’s sales pitch, Bloomberg reported. An average off-grid household in Kenya spends about 75 cents a day or $272 a year on energy —$164 on kerosene, $36 on charging the mobile phone, and $72 on batteries, according to a survey. A customer saves about $750 over the first four years by switching to M-Kopa’s basic solar kit, the company said.

If customers default on their loans, their SIM card switches them off. Once they become customers, M-Kopa works to sell them more products — fuel-efficient stoves, bicycle, rain barrels, Samsung smartphones and now TVs.

Counterintuitively, the company has found that its poorest customers—those who rely on the system as their only source of electricity—make the best credit risks. “Our loan officer is that SIM card in the device that can shut it off remotely,” says Chad Larson, M-Kopa’s finance director and its third co-founder. “We know that it’s important for them to keep their lights on at night, so they can be counted on to keep paying.” The repayment rate is 93 percent for the solar system and 98 percent for secondary products.

M-Kopa launched in Nairobi in 2012, and revenue rose from about $15 million in 2014 to about $30 million in 2015. The company expects to double that 2016, Bloomberg reported. In September, M-Kopa said it had sold 250,000 systems and hopes for 1 million by the end of 2017. “We’re really taking a bet on anyone who is willing to give us their phone number, their ID number, and a down payment,” Moore told Bloomberg

M-Kopa hopes to start selling small fridges. And then data.

The company’s challenges will be to manage its rapid growth and deal with the competition of hackers trying to copy their devices, Bloomberg reported.

In November, M-Kopa completed a $19 million investment round, including $10 million from Generation Investment Management, a fund co-founded by former U.S. Vice President Al Gore that also invested in SolarCity, the biggest U.S. rooftop solar installer, and digital thermostat maker Nest Labs. Other investors in the round included Virgin’s Richard Branson and AOL co-founder Steve Case.

SolarCity’s share prices has since fallen on tough times, according to MITtechReview. The U.S. solar market is booming—2016 is predicted to be the largest year ever for both rooftop solar and utility-scale installations. But shifting economic forces could spell trouble for some of the largest U.S. companies in the industry. The share price of SolarCity, which reported a first-quarter net loss of $25 million, is down 53 percent in 2016:

To date, growth in U.S, residential rooftop solar has been driven largely by leasing models, in which installers own the panels and homeowners make monthly payments that can span up to 20 years. But price declines, the extension of the federal investment tax credit for solar, and an increase in the number of lenders willing to finance solar purchases are combining to make owning panels a much cheaper option for consumers.

That hasn’t happened yet in Africa.

“We think they have the potential of being a multibillion-dollar African success story,” said Colin le Duc, GIM’s head of research, in a Bloomberg interview.