In Uganda, the vast majority of people (97%) rely on traditional and relatively inefficient energy sources such as wood, kerosene, fuel, and charcoal to cook their meals and light their homes. Only 20% of the Ugandan population has access to grid electricity, which severely constrains opportunities for work, education, or operating a business.
Off-grid solar systems present a promising alternative to traditional fuels offering people access to basic energy. In addition to providing superior lighting services, these systems can also power a variety of appliances and enable access to remote rural areas. But what drives low- income customers to adopt such off-grid energy solutions? Can financing instruments such as pay-as-you-go (PAYG) plans play a supportive role in driving adoption, particularly for low-income people? And to what extent can the purchase and use of PAYG solar systems drive digital financial inclusion?
UNCDF and Schatz Energy Research Center (SERC) are pleased to launch their latest study “Energy access and off-grid solar use in Uganda”. The report analyzes off-grid solar adoption and the role of flexible payment mechanisms such as PayGo as a driver for energy access. This study conducted by the Schatz Center uses two rounds of interviews involving 554 households in 2 rural districts of Uganda.
- Direct Marketing is crucial for sales of solar systems: Over 85% of respondents stated that direct marketing such as sales calls, demonstration campaigns, in-person engagement, and radio advertising, affected their purchasing decisions.
- Customers experienced a strong reduction in the use of traditional fuel: 55% of the customers stopped using traditional fuels; this reduction was higher (82%) for large solar home systems.
- The Energy ladder concept is disrupted by the introduction of flexible financing. In fact, Pay-Go allowed low-income households to buy larger solar systems. The Uganda solar market is a green-field market: 95% of the solar users immediately bought larger solar home systems as their first solar product purchase, regardless of their income levels.
- Instead of investing in components to expand solar system capacity, there is a strong stacking of solar products: 90% of small solar lamp owners purchased at least one additional solar lamp, while 38% of the owners of larger solar home system bought an additional solar product.
- Customer loyalty or dealer stickiness is higher for larger solar systems: More than 73% of the customers who purchased larger systems continued to stick to the same dealers compared to only 24% for smaller lamps. Customers are generally satisfied with their products.
- PayGo did not generate long term economic saving, but it did improve the overall quality of life. Solar products induce savings derived from fuel substitution: Small lamps saved $2.8 per month, Mini-SHS saved $3.7 per month, Large-SHS saved $5.5 per month. However small and larger solar home system users did not recover their investment within the first two years of product purchase.
Recommendations for energy and financial service providers
- PAYG solar system providers need to build strong distribution systems. Being close to the customers is crucial, having a strong product delivery system in place can make or break sales.
- Offer customer loyalty programs to encourage upsell opportunities, expand after-sales and maintain services that encourage product adoption.
- There is a significant market opportunity to offer solar home systems through PAYG financing. ESPs need to make greater efforts to bring the cost of financing down for larger solar products and pass the benefit of reduced cost to end-users.
Recommendations for policymakers
Off-grid solar system sales in Uganda can play an increasing role in contributing to Uganda’s energy access targets. The current mobile money transaction tax may negatively impact mobile money use, which, in turn, could hinder PAYG solar product adoption and the achievement of Uganda’s energy targets. Further research on this question will be conducted by the UNCDF CleanStart and the Schatz Energy Research Center.