PAYG proves popular
One of the reasons why investors are paying so much attention to off-grid power is the pay-as-you-go (PAYG) business model. It captured 91% of all investments by volume between 2010 – 2018, according to Wood Mackenzie . Power services are monthly recurring revenue businesses that, next to telecom, is one of the major monthly expenditures for all consumers and businesses. And recurring revenue, along with the stickiness of the customer, is a proven and attractive business model (think Netflix NFLX +0%, Amazon Prime).
Examples include ZOLA Electric, a private company headquartered in the Netherlands. It employs a PAYG lease-to-own model, which in theory enables consumers to buy the off-grid power system over time. At the end of 2018 it had closed $271.6 million in debt, equity and grant financing from the likes ofTesla TSLA +0%, Total , EDF , SunFunder and GE Ventures. Its systems are installed in sub-Saharan African countries, including Tanzania, Rwanda and Ghana.
For consumers, PAYG is an easy way to finance the capital expenditure of buying a solar power system and reduce their energy bills. It’s also attractive to investors because the company has a steady source of revenue with interest. However, PAYG solar companies do take on the added risk of holding debt on the balance sheet.
In the public markets, Sunrun ’s (NASDAQ: RUN) asset finance model is also proving popular, which could be applied to off-grid energy. Sunrun is the biggest installer of rooftop solar systems in the U.S., and expects to install 15% more solar power by year-end 2018. According to Sunrun, a customer can save around 30% on their energy bills through its solar systems. Its consistent cashflow has made it a darling for investments in off-grid solar, with analysts forecasting that it will earn 85 cents per share in 2019.
We are at an inflection point for off-grid power. The early markets are maturing and new models and markets are emerging.
For one, there is growing demand for off-grid power in emerging markets, home to many of the 3 billion people worldwide don’t have access to reliable electricity.
As these emerging economies develop, there is a need for clean, reliable and affordable power for homes, schools, businesses, and local infrastructure. The Wood Mackenzie report shows that the majority of investment in off-grid power has flowed into East Africa, followed by West Africa, Asia Pacific, and Latin America.
In addition, new digital technologies have also taken off more quickly in emerging markets. Mobile payments are being used by farmers in Kenya to collect subsidies. The Internet is also an easy way to connect remote communities to medical and educational specialists.