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SolarHome gets funding to help poor, off-grid homes afford solar energy

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Close to 27 million households are without electricity in Southeast Asia. Every year those families literally burn US$3 billion of their hard-earned income on kerosene, disposable batteries, and other dangerous and suboptimal energy solutions, says Greg Krasnov, chairman of SolarHome.

There are solar systems available for off-grid consumers but these usually cost US$100 up front. The rural population, consisting of farmers, fishermen, and village shop owners, don’t have that type of money in savings, he adds.

So his Singapore-based company thought of a clever way to allow these people to purchase clean and reliable electricity – which is through small increments, similar to how they top up their phones. The company just closed a US$625,000 pre-series A round, bringing its total funding to date to over US$1.1 million.

Here’s how it works: consumers shell out a small down payment to have the solar system installed on their houses, complete with panels, batteries, and electronics. To use it, they will need to buy daily, weekly, or monthly credit – averaging US$3 to US$15 per month – either through scratch cards or mobile money. The ownership of the system will be automatically “unlocked” and transferred to them after two years.

SolarHome’s pay-as-you-go (PAYG) model lowers the barriers to adoption for rural families who earn US$85 a month and have no access to bank loans, Krasnov says.

He adds that unlike other solar systems in the market which are of low quality, difficult to assemble, and expensive to maintain, SolarHome offers a two-year warranty. “It creates a unique value proposition.”

Creating social returns

SolarHome is one of the startups spun off by venture builder Forum Capital, where Krasnov also sits as managing director. Forum, which had injected US$500,000 seed funding into the company, is focused on inclusive fintech and consumer finance in Southeast Asia.

Krasnov says they stumbled upon the idea for SolarHome when Forum was exploring ways to enter the renewable energy market in 2015. As part of their research, they came across information about a leading solar PAYG company in Africa called M-Kopa. “Upon closer examination we fell in love with the model,” he recalls. “PAYG is a microfinance-enabled product so it is very close to our core competencies in financial inclusion and we knew we could bring fantastic management and a group of senior advisors into this.”

They were also encouraged by the massive social returns such a company could bring. By going solar, poor families in rural areas not only avoid health injuries caused by kerosene, they can also extend their working hours and earn more, allow their kids to study longer, and contribute to efforts to reduce carbon emissions in the environment. “SolarHome did a study, with the support of USAID, which showed that every dollar invested by our business in the systems out in the field brings back a social return of approximately 400 percent. Now that’s real impact,” Krasnov stresses.

Scaling up

The team has completed a pilot in Myanmar and will use the fresh funds to scale up in Southeast Asia amid rising competition from other PAYG solar companies. Dlight and Angaza are some of those targeting developing markets globally.

SolarHome aims to increase its installations to over 10,000 units next year from approximately 2,000 units by end-2017. “We expect the company to generate US$2 million to US$3 million run-rate revenue and become EBITDA positive by the end of 2018,” notes Krasnov.

Its pre-series A round was led by Uberis Capital, with participation from Beenext Venture Capital and other unnamed regional investors.

Uberis Capital managing partner Nicolas de Boisgrollier is nothing but bullish about the startup’s prospects.

“The PAYG model has emerged as a clear leader in off-grid electrification in Africa, India, and Latin America, having reached millions of homes and attracted over US$500 million of investment over the last few years,” he says. “We see the same tailwinds in Southeast Asia – massive off-grid population, rise of alternative credit scoring and mobile money, and a growing acknowledgement by governments that distributed generation is the answer.”

“Unlike many other renewables businesses, PAYG is very scalable and operates profitably without subsidies, which makes this business model very attractive,” he further states.

When it comes to the off-grid segment – prior to the emergence of PAYG – the most widespread model has been the renewables-powered mini grid. This model, however, has a number of potential issues, according to Krasnov. First, you need to sign up a significant proportion of the village population prior to installing anything, just to have enough visibility of revenue to get initial financing. That means a hurdle to project launch and high customer acquisition cost, as well as difficulties in scaling – after all, it is much easier to convince one customer than the whole village.

Mini grids also tend to require expensive sophisticated equipment to be put in the field, which entails high servicing cost. “Basically, without the significant development finance and other donor subsidies, the mini grid model is not really economically viable today. PAYG has proven in Africa to be a massively superior business model, with hundreds of thousands of homes already successfully covered in much shorter time,” Krasnov explains.

This post SolarHome gets funding to help poor, off-grid homes afford solar energy appeared first on Tech in Asia.

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About Jonas Nyabor

Jonas Nyabor is a multimedia journalist currently working with Radio Univers in Accra. A graduate of the University of Ghana, he operates three distinct media outlets and contributes to running of entrepreneurial training programs for Ghana’s youth. He is a social change activist and believes in the media and technology as tools for social transformation.

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