The government of Kenya has been trying to expand the electricity grid for decades, with little success—80% of Kenyans are still living without access to the grid. An alternative solution, off-grid solar lighting products, such as solar lanterns and solar home systems, increasingly provide Kenyans with decentralized clean energy. Kenya’s private sector market for off-grid solar lighting products has been developing since the 1980s, yet the key to rapid market growth was the introduction of a pioneering pay-as-you-go business model in 2011 that made solar products affordable for poor rural customers. Today, with almost 30% of all off-grid households using some type of off-grid solar lighting products, Kenya is a market leader. Other factors that have encouraged market growth include the massive need for power in areas where grid electricity is not available, the high cost and unreliability of grid power where it is available, a value-added tax exemption on solar products, numerous education and awareness campaigns, and expensive kerosene. However, poor quality products present a major challenge. This challenge will have to be overcome for the market to reach its full potential and to ensure that these products represent an effective and lasting lighting solution.
Readers of this case will:
Gain a basic understanding of the importance of off-grid solar lighting products as a replacement for kerosene lamps.
Understand how the use of innovative pay-as-you-go business models and associated technologies has helped the Kenyan off-grid solar lighting products sector expand rapidly.
Gain an understanding of important factors that contributed to the expansion of the Kenyan off-grid solar lighting products sector and remaining challenges.
Understand government’s role in the success of Kenya’s private sector market for off-grid solar lighting products.
The Kenyan government has been taking steps to extend the electricity grid to rural, off-grid households, but progress has been dismal. Despite decades of grid expansion efforts, today 80% of the population in Kenya, or 36 million people, live without grid electricity . The situation is worse in rural areas, where only 7% of people are connected to the grid . People without access to grid electricity typically rely on kerosene lamps, a dangerous lighting source that can harm people’s health and the environment. The use of kerosene lamps for lighting can cause indoor air pollution, can cause poisoning if kerosene is ingested (a risk for children in particular), and can lead to severe burns and household fires . Kerosene lamps also emit black carbon and carbon dioxide, which contribute to global warming . In 2012, research emerged that kerosene lamps emit an estimated amount of 270,000 metric tons of black carbon per year, which is 20 times more than previously estimated .
However, in 2011, rural Kenyans’ dependence on kerosene lamps for lighting underwent a significant shift. A new pioneering business model helped to enhance the diffusion of an increasingly popular renewable energy technology—off-grid solar lighting products. Since 2011, the private sector market for off-grid solar lighting products has expanded rapidly. Between 2009 and 2017, the number of solar home systems in Kenya has more than doubled, from 320,000 to 700,000 [4–7]. The number of solar lanterns increased by more than 20 times the original number between 2011 and 2017, from 85,000 to 2,000,000 [4, 7, 8]. Today many Kenyans who were desperately waiting for grid electricity are no longer interested in it and are also less interested in kerosene lamps.
Off-grid solar lighting products include solar lanterns and solar home systems, which are typically used by individual families. Companies, such as Powerhive, have also started providing electricity for multiple households through larger solar installations, such as minigrids, and some companies, such as Mobisol, offer business kits for rural entrepreneurs. However, these larger installations and business applications are outside the scope of this research. Solar lanterns (Figures 1 and 2) and solar home systems (Figure 3) vary in their wattage, price, and design. A solar lantern is a smaller and simpler product. Its wattage typically ranges from 0.1 to 10 W, and the price starts at around US$5 for a quality branded product . Solar lanterns typically contain a light and a small solar panel that plugs into and charges the light. The simplest version of a solar lantern is a two-sided light, with a solar panel on one side and a light on the other side. By contrast, solar home systems are larger, more powerful, and cost more—their wattage ranges between 8 and 200 W, and they are priced somewhere between US$20 and US$600, respectively. They typically include a solar panel, charge controller, battery, and one or many lights. Solar home systems may also come with mobile phone charging capabilities, radios, and televisions .
Private companies started trying to promote markets for solar home systems in the 1980s, while individual entrepreneurs became interested in the emerging technology of solar lanterns in the 1990s, and started market testing them . However, market growth was slow for both types of products until 2011, when pay-as-you-go (PAYG) business models were introduced by off-grid solar companies. In addition to PAYG, a Lighting Africa consumer awareness program contributed to the growth of the solar lantern sector, as discussed further below.
In a typical PAYG business model, customers make small payments for their solar lighting product over a period of months or years and eventually own the product . Before PAYG, financing for customers was limited, and customers typically had to purchase both solar home systems and solar lanterns up-front with cash . This meant that only relatively wealthy people were able to afford these products .
So what helped PAYG business models take off? Two important technological developments, the introduction of mobile money and machine-to-machine connectivity technology, facilitated the success of these business models. Thanks in part to PAYG business models, Kenya is now considered to be a market leader in the off-grid solar lighting product space, with almost 30% of off-grid households in the country using some kind of off-grid solar lighting product .
This case study will describe how PAYG business models (and their enabling technologies) work and will explain how they facilitated the expansion of the off-grid solar lighting product market in Kenya. This case study also analyses other factors (in addition to the PAYG business model) that helped the Kenyan off-grid solar lighting sector to grow. Finally, this case study will describe and discuss several challenges that companies operating in this sector in Kenya have still not been able to overcome.
This case study is based on an extensive literature review and 13 semi-structured interviews that were conducted between February and March 2017 with four key stakeholder groups in Kenya—companies, government, financial institutions, and experts. The literature review, conducted first, highlighted the importance of collecting further data via interviews with key stakeholders in Kenya and provided a basis for developing interview protocols. Interview subjects were subsequently identified through a combination of purposive quota sampling and snowball sampling. Content analysis of themes from the literature and interview transcripts, along with additional secondary data collected during the interview period, grounds the following case study, which examines how innovative PAYG business models helped the off-grid solar lighting product sector take off in Kenya.
Overview of the Kenyan Off-Grid Solar Lighting Products Sector
Kenya was one of the first countries to adopt off-grid solar lighting products as an alternative to grid electricity. In addition to the role played by energy entrepreneurs, the intervention of international institutions and donor support was critical to the historical development of the solar home system and solar lantern markets [9, 12, 13]. More than four decades ago, in the 1970s, a market for off-grid solar technologies started to develop in the country when the Kenyan government began using solar energy to power remote broadcasting and signaling installations [5, 6, 9]. Then, in the 1980s, the government began collaborating with donors and international agencies to install off-grid solar home systems in rural areas. Some were installed on schools for lighting, and others were installed to support other purposes, such as refrigeration at medical clinics [5, 9]. Private sector solar home system businesses also began to appear in the early to mid 1980s. A notable factor driving the growth of the private sector market was the efforts of entrepreneurs Harold Burris and Mark Hankins, who worked to grow a market for solar home systems by installing partly donor funded systems on schools, training solar installers, and, with respect to Harold Burris, opening his own private company Solar Shamba and marketing solar home systems for households . In addition, another factor was the work of Charles Rioba, on behalf of company Total Solar, in setting up solar dealerships across the country and establishing demonstration projects . Throughout the 1980s and 1990s, private businesses grew and introduced different models of solar lanterns and solar home systems .
However, until 2011, markets were small and customer affordability remained a significant challenge. After their initial involvement, the government largely kept their hands off the sector and did not interfere by either supporting or regulating the sector. Since 2005, government’s only significant involvement in the sector apart from its involvement with the value-added tax (VAT) (discussed below) has been running a program to install solar home systems on institutions, such as schools in rural areas and putting a feed-in tariff in place for large solar projects . Government’s lack of involvement reflects its historic and current interest in promoting centralized on-grid provision of electricity and grid expansion, which rarely serves the interests of poor and marginalized people [12, 14].
Today, there are at least fifteen well-established companies in the Kenyan off-grid solar lighting products market, along with many small informal companies . While the well-established companies are currently in a growth mode, and thus are not yet registering profits, they have raised significant capital in the form of grants and equity capital from international investors over the past few years . Nikhil Nair, Director of Sales at leading Kenyan off-grid solar home system company M-Kopa, estimates that 700,000 solar home systems and 2–3 million solar lanterns have been sold in Kenya, so far.
Factors That Made Kenya’s Off-Grid Sector a Success
The majority of interviewees stated that the introduction of PAYG business models was the most important factor behind the success of the Kenyan off-grid solar lighting products sector, for both solar home systems and solar lanterns.
PAYG Business Models
Today, many major off-grid companies in Kenya, such as M-Kopa, Mobisol, SunnyMoney, and Greenlight Planet, along with smaller companies offer PAYG payment options to customers. Cedrick Todwell, former Marketing Manager of Mobisol Kenya, said that until 2011 customer affordability was the biggest challenge that off-grid companies faced in Kenya. He explained that this changed after PAYG plans were introduced. “Paying US$200 or US$300 up-front for a solar home system is very difficult for most rural customers. But if they are told they can pay 50 cents a day, most people are able to afford it.”
Companies with PAYG business models use both mobile payment and machine-to-machine connectivity technologies to deliver solar power to customers. In a PAYG model, the consumer makes an initial payment to unlock the system, and then makes periodic payments (typically daily) through mobile money banking . If the customer fails to make payments, the system is locked remotely and will no longer work . In some instances, part of the customer’s payment goes toward the cost of the system, and after a certain duration of time, the customer owns the system. In others, lighting is provided “as a service”—the customer never actually owns the solar product, and only pre-pays remotely through their cell phone for a certain number of hours of light [16, 17]. Most companies using PAYG models have attempted to create payment plans that mirror existing social practices around paying for energy services . For instance, companies sell solar lanterns and solar home systems through payment plans that closely match potential customers’ current daily kerosene expenditure .
Riding on the success of mobile money and the development of machine-to-machine connectivity technology, PAYG business models have helped the off-grid solar sector in Kenya to achieve strong growth. Between 2009 and 2017, the number of solar home systems in Kenya more than doubled (Figure 4).1 The number of solar lanterns increased by more than 20 times the original number between 2011 and 2017 (Figure 5).
Sometime in 2007, Kenya’s largest telecom company, Safaricom, launched mobile money and named it as M-Pesa. Karen Basiye, Senior Manager of Sustainability and Social Policy at Safaricom, gave details of how the system works. Basically, mobile money (now synonymous with “M-Pesa”) refers to mobile phone operated virtual banking networks that allow a customer with a mobile money account to make payments or transfer money using their cell phone. This allows “unbanked” people from both rural and urban areas to access a type of banking facility that may have been previously unavailable. “It doesn’t matter whether they have bank accounts or not, you just top-up money in your M-Pesa account, and use that credit to buy things or transfer money,” said Basiye.
While mobile money was the trigger, off-grid solar companies in Kenya were also innovative. They either developed their own machine-to-machine connectivity technology or bought it from technology providers. Using the machine-to-machine connectivity technology, companies install GSM chips (the same radio technology used in cell phones) in solar devices like solar home systems to remotely control the system, monitor its function, and process payments.
While introduction of PAYG business models is considered to be the most significant factor that has contributed to the success of the off-grid solar lighting products sector in Kenya, interviewees identified six other factors that have helped the market for solar home systems and solar lanterns. These factors are listed below:
Expensive grid power (raised by nine interviewees).
The VAT exemption (eight interviewees).
Education and awareness campaigns (seven interviewees).
Unreliable grid power (seven interviewees).
Expensive kerosene (six interviewees).
Need for power in areas where it is not available (five interviewees).
First of all, even if grid power is made available, many Kenyans are not able to afford it. This is because grid power is prohibitively expensive in Kenya. Both grid connection charges and monthly electricity bills are costly. According to Kenya Power, it costs ~34,980 KSH (~US$340) for new connections . Electricity is also expensive. Interviewees provided us with an estimated range of 15–20 KES per unit (about US$0.15–US$0.20), where one unit is 1 kWh. One interviewee who lives in Nairobi (and who wished to remain anonymous) said that his monthly bill is around US$45 and for that amount “you can own a system.” For example, Mobisol’s smallest solar home system, the “Buffalo 80 W,” costs 99 KSH/day or 2,970 KSH/month (US$29) . The Buffalo 80 W can run several lights, as well as the solar radio, portable lantern, and television that the system comes with.
Even if some people can afford to pay for grid connection and electricity, they think that grid power is unreliable, due to frequent blackouts . A government official (who wished to remain anonymous) said that even people who are connected to the grid purchase solar home systems, because they can rely on them during blackouts, and they also help reduce monthly electricity bills.
Beyond issues of affordability and reliability of grid electricity, the majority of Kenyans still do not have access to the electricity grid, and the government’s grid expansion plans move slowly. Thus, another major factor, interviewees stated, that drives growth of the sector is the need for power in areas where it is not available.
Another important factor is expensivekerosene. Off-grid households in Kenya rely on kerosene for lighting purposes, but kerosene is costly . The high price of kerosene makes solar products attractive to people, especially if the products are sold on a PAYG plan. As explained earlier, off-grid solar lighting product companies that sell products on PAYG plans often give customers a payment rate that is lower than the amount of money people would typically spend on kerosene each day or each month. Kerosene is not subsidized in Kenya, and on average an off-grid family spends around 50 KSH a day (~US$0.48) on it . To provide a contrasting example, the non-profit Smokeless Homes Initiative sells solar lanterns on a PAYG plan for 30 KSH (~US$0.29) per day . Radhika Thakkar, Vice President of Global Business Development at Greenlight Planet, said in short that unsubsidized kerosene “makes our proposal compelling.”
Education and awareness campaigns have also contributed to the market growth of solar products. A few interviewees said that universities, women’s groups, and international organizations, such as Lighting Africa, have run several campaigns to promote solar products in Kenya. These campaigns have made Kenyans aware of the existence of solar products and their benefits—both the health benefits of clean energy and the negative health impacts of kerosene. In particular, Lighting Africa ran a consumer awareness program for solar lanterns from 2011 to 2013 . While it is difficult to determine the contribution of Lighting Africa’s efforts to outcomes in the solar lantern sector, it is unlikely that the interventions were completely ineffectual, and many actors (dealers and customers) would not be aware of the products without the Lighting Africa intervention . Private companies, such as d.light (which focuses on solar lanterns) and M-Kopa (which focuses on solar home systems), have also spearheaded successful campaigns via radio and newspapers .
Finally, although the Kenyan government is not much involved in the off-grid solar lighting products sector, they have sometimes provided a VAT exemption on the import of off-grid solar products. Before 2013, there was a VAT and import duty exemption for off-grid solar products, and companies applied for this exemption on a per-shipment basis. After 2013, the government reintroduced VAT (but not import duties) for these products, then removed it again almost immediately. In 2016, government re-imposed the VAT again. While some interviewees cited the periods where the VAT was removed as a factor contributing to the success of the sector, other interviewees said that the government is inconsistent with this exemption policy, which can harm the sector. David Njugi, Project Co-ordinator of the Kenya Association of Manufacturers, explained that “The Kenyan government does have a VAT exemption for the solar sector but the policy is always changing. They bring it back and then they remove it. There is confusion about whether there is currently relief from import duties” .
An Unresolved Challenge
While the off-grid solar lighting products sector has done very well in Kenya, 10 interviewees mentioned that product quality remains a challenge for both solar home systems and solar lanterns. This has been both a historical and a present problem . Almost all off-grid solar lighting products are manufactured in China and imported into Kenya. This includes brand name and generic products. While Lighting Africa has developed quality standards for solar products, which are supposed to help customers recognize good quality products, not all companies use the standard for their products. In addition, customers do not always follow these standards when making purchasing decisions, opting instead for the cheapest products. This creates issues for the whole market. A government interviewee (who wished to remain anonymous) explained that “Say one person buys a solar lantern, and it breaks in 1–2 months. Then they would tell their family and friends, who would then not consider buying it.”
However, quality issues do not just exist with cheap products. Caroline Odera, founder of the non-profit Smokeless Homes Initiative, told us that her initiative faced issues with quality-certified lanterns. She said that her non-profit contracted a leading off-grid solar lantern company to supply them with lanterns, which they sold to customers in rural Kenya on a PAYG plan. She told us that the lanterns were not robust, and 50% of the lanterns they sold did not last until the end of their two-year warranty period. The panels and cables broke easily, and it was not simple to have them fixed. There were few local technicians trained to fix the products, and the manufacturer was located outside the country. This meant that although the company assumed responsibility for the broken products, they had to be sent to the manufacturer in batches and could take months to return. She stated that this made customers very unhappy and that “quality issues could really have a long-term impact on the solar sector—people might choose to wait for the grid and use kerosene.”
Tony Seba, an energy expert and professor at Stanford University, wrote in his book Clean Disruption of Energy and Transportation that “Most people think of market disruption in terms of ‘disruptive technologies.’ Many times, however, the source of disruption is not a new technology per se but an innovative business model made possible using a new technology” . The case discussed in this article illustrates the above point. Even though the technology for off-grid solar lighting products existed in Kenya for decades, implementing innovative PAYG business models allowed private Kenyan companies to expand market penetration of these products. Of course, there were other factors that contributed to market growth, which have been discussed earlier. Overall, off-grid solar lighting products have now disrupted the Kenyan market for kerosene and helped millions of people light their lives without compromising their health or the environment.
CASE STUDY QUESTIONS
Do you know of other examples where business models have helped technologies take off? Can you identify any other business models or business strategies that could work in the off-grid solar lighting products sector?
Could PAYG business models that use mobile money and machine-to-machine technology be used to provide other critical services for households in rural areas? Please illustrate with examples.
What strategies could government, private companies, and other stakeholders employ to address product quality challenges? Who among these stakeholders should play a larger role?
Should government have a hands-off approach to sectors like off-grid solar lighting products or should they be more involved? What role could government play to help promote the off-grid solar lighting products sector in Kenya?
Can you identify any potential applications for the use of off-grid solar lighting products for small businesses in rural areas? Please illustrate with examples.
SC-W leads on conceptualization, methodology, interviewing, data collection, formal analysis, project administration, original draft, review, and editing. SP supports on conceptualization, project administration, interviewing, data collection, formal analysis, original draft, review, and editing.
Thanks to all the interviewees who participated in this research. In particular, thanks to Karen Basiye, Purnima Kumar, and Leo Akwany for their participation, mentoring, and support during the Kenya field research. Finally, thanks to Dr Aleh Cherp of Central European University for his supervision and Dr Lyuba Zarsky and Dr Jason Scorse at the Middlebury Institute of International Studies at Monterey for their invaluable feedback throughout the research process. Finally, we are very grateful to our three anonymous peer reviewers whose comments helped us to improve our article.
This research was supported by the Central European University Intellectual Themes Initiative.
The authors have declared that no competing interests exist.
A limitation of this data is that data specifically from 2011, when PAYG business models were introduced, was not available. However, available data points show a strong growth trajectory.