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Solar power lighting up homes in Myanmar

Of the 630 million people who live in Southeast Asia, over 100 million do not have access to electricity. They live, as the phase goes, “off-the-grid,” a plight that is even more acute in Myanmar, where, according to some estimates, 70 percent of the population has no electricity. Providing them with energy access is not as simple as just extending the electrical grid from small towns to remote villages. For one, development costs are significantly higher in remote areas. One recent study estimates this cost at an astounding US$266 (K404,000) to US$2100 per household. Even for the region’s largest energy companies, the extremely high costs of electrifying remote rural areas are a major roadblock to development.

Another issue compounding the problem for utility companies is the substantial time needed to realise a return on this type of investment. Villagers who live off-grid are the poorest citizens of a country. Often lacking both steady incomes and financial literacy, they will prioritise their most immediate needs first. A mother deciding between buying rice for her family or paying for energy access, will almost certainly chose the former. For the region’s least-developed communities, the electrical grid is truly a luxury. These villagers have gone without electricity before, and they can go without it again. Now imagine you are an executive for an electricity company considering investing in electrifying remote rural communities: Would you want to invest in an entire village of customers who will have to choose between paying for your services or meeting their most basic needs?

That customers newly connected to the grid make bad payees should come as no surprise: It is basic human nature. If classic economics assumes that people are rational, the emerging field of behavioural finance proves that we are often not. Did you know that your average consumer is more likely to pay for a luxury personal item with a credit card than with cash? The phenomenon is due to the decoupling of the product with the payment. When a transaction is decoupled in this manner – we can acquire the good or service now and pay for it later – we are more willing to pay a higher price for the product.

If middle-class people fall victim to this type of “transaction decoupling” at retail shops, newly connected people do so with their home energy service. For the vast majority of them, this is the first experience with any kind of post-paid service. They will use grid power without a strong understanding of how much they are consuming. This situation will result in late payments and eventually in their service being cut off.

Because of the challenges that energy companies face extending the grid to rural areas, many energy companies in the region will not bother serving the areas. This stance is a tough one to accept, but it’s fair from a financial perspective: energy companies are a business, after all. What if there was a way to balance the needs of the business with the social good of extending energy access to people off-grid? This is exactly the promise of pay-as-you-go solar home systems, which are pioneering the use of payment enforcement technology.

Solar home systems are stand-alone photovoltaic systems that supply power for lighting and appliances to remote off-grid households. Payment enforcement technology in the energy sector consists of software integrated into solar electronic devices that provide power. The device is equipped with an internal metering system. This combination of hardware and software allows for the device itself to be made active for a period corresponding to their payment. If the customer fails to make a payment, the device will automatically shut off. The addition of this simple functionality to solar lighting products allows solar power distribution companies to offer extremely affordable subscription-based financing to off-grid consumers.

Now solar home system distribution companies can confidently extend energy access to people off-grid, most of whom have no formal credit history and have been denied access to basic utilities for their entire lives. The installation of these pay-as-you-go systems can provide additional benefits to these households. Since payments are digitised through telecommunications partners, solar companies can collect information on a user’s risk profile, payment behaviour, product usage, and maintenance, in turn offering qualified candidates higher value products, including loans.

When people are unbanked and living off-grid, it is easy to refuse to serve them out of business necessity. Rather than tell ourselves that we cannot serve these people, we ought to come up with solutions to change the status quo. Sometimes there is a simple solution, like adding payment enforcement technology to solar home systems. This small change has been revolutionary to the off-grid solar sector, allowing companies to profitably distribute and finance solar lighting products to some of the least developed areas on earth. These products are life-changing for millions of people living off-grid in Myanmar, across Southeast Asia, and indeed around the world, allowing them to finally gain energy access.

Source: Myanmar Times

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