Four Lessons Pakistan’s Off-Grid Solar Market Can Teach the World
When it comes to the off-grid solar market, the South Asian countries you normally hear about are India and Bangladesh. One is home to the largest potential market in the world, the other is home to the world’s most successful and booming market to date.
But the elephant in the room, the potential off-grid solar leader you never hear about, is Pakistan. We’ve heard rumblings of off-grid solar companies eyeing this market for some time, so we sat down to talk with Jeremy Higgs of EcoEnergy to find out the latest on this pivotal country’s off-grid solar prospects.
Before we delve into the market, it’s important to understand the context in which these companies operate. That energy situation can be summed up in one word: crisis.
As Carl Pope pointed out, Pakistan really has two energy problems: 1) most of the rural population still has no access to the grid, and 2) the population that does have access to the grid is struggling with power cuts and supply shortages caused by climate disruption-induced drought. This ultimately affects the use of hydropower while the skyrocketing prices of oil further reduce affordability of the existing supply.
In fact, 36 percent of Pakistan’s electricity comes from oil, an outdated and incredibly costly form of electricity production. This means that throughout Pakistan, nearly 40 percent of the population -- an estimated 65 million people -- lack access to electricity, which is an enormous potential market for off-grid solar services.
The problem, of course, is that the Pakistani government’s response to their energy crisis has been painfully familiar, with a focus on large scale supply and grid extension.
And while grid supply and grid shortages need to be addressed, what makes no sense is for Pakistan to start building new coal-burning power plants to supply their energy. Any new plants that are built will be designed to be powered with imported coal, which Pakistan can't afford. In fact, the government of Pakistan just released a new tariff schedule for coal-burning electricity -- which is evidently the ‘most expensive coal tariff in the world.’ That’s why some experts predict that a coal bubble is brewing.
It’s in the midst of this energy crisis, and confused response by the Pakistani government, that EcoEnergy is seeking a different path. They’re trying a progressive new approach - putting solar power directly in the hands of the people. And the lessons they’ve learned have implications far beyond Pakistan’s borders.
Lesson #1: Giving away solar leads to market spoilage
EcoEnergy is one of only a handful of off-grid energy companies in a market dominated by large non-governmental organizations (NGOs) and foundations. They started operations in response to the Sindh Province floods of 2010. Like many other organizations, EcoEnergy initially began as an NGO, giving away solar lanterns for free. And like many before them, they received a lot of negative feedback about the quality of their product and concerns over long term sustainability. In response, EcoEnergy quickly pivoted into a hybrid social enterprise by aiming to use a market approach - which is a reflection of the general transition this market has seen over the past decade.
The products that EcoEnergy sells now are not the same low-quality products that were given away for free. Today, EcoEnergy sells high-quality portable solar powered lights -- like those from d.light -- and they are continuing to experiment with different business models to find the best organizational structure.
Lesson #2: Pay as you go finance is the future
After trying free distribution, EcoEnergy started selling products through retailers, but they quickly realized that their products were too expensive and that they would need to restructure payments to match customer cash flow and expenditure on lighting products. This naturally led to the extension of consumer financing, which unlocked affordability for their target market.
Customers now pay a monthly fee to EcoEnergy in order to pay off their lantern over time. This essentially acts a “manual” version of popular pay-as-you-go solutions in which similar solar devices with circuitry enable customers to make discrete payments. In addition to their “manual” approach, EcoEnergy is also starting to experiment with similar payment-enabled devices through support from the GSM Association MECS Fund.
Lesson #3: Word of mouth marketing is key
Then came the real game changer: instead of just focusing on retailers, EcoEnergy started using their own existing customers as brand ambassadors to spread the word about their product. As the graph below shows, this led to skyrocketing sales. The sharp drop after the peak is a result of several factors, including the fact that farming communities in Pakistan tend to have less disposable income at certain times of the year -- February, March, and April -- and the fact that EcoEnergy faced challenges with payment collection in one district. They have since recuperated by focusing on payment collection, not sales, in that particular district, which has lowered the overall sales rates.
Lesson #4: Market information is scarce
Despite these initial successes, challenges still exist. The customers EcoEnergy works with tend to have unpredictable, seasonal income and are not always able to reliably make payment deadlines. Field staff have to balance sales and payment collection, and they aren’t always able to effectively do so.
To continue addressing these challenges, EcoEnergy is gathering information about marketing, effective sales tactics, demographic information, and statistics on kerosene, torch, and solar use. Additionally, EcoEnergy is looking at a range of products, including Greenlight Planet lights with Angaza-designed technology and BBOX systems with their new “SMART” technology as well as working to partner with microfinance institutions for alternative means of financing.
In sum, EcoEnergy reflects a number of hard-learned lessons for this nascent market -- lessons that are no doubt being learned by companies and organizations the world over. But if EcoEnergy is able to build and grow a company in such a challenging setting, it says a lot about the robust future off-grid solar companies have in in store.
--Justin Guay, Associate Director, International Climate Program, and Vrinda Manglik, Associate Campaign Representative, International Clean Energy Access