Beyond the grid

In remote villages across Kenya, the day no longer ends at sundown. Solar kits produced by UAE-based startup Pawame are helping to bring power to the people – and with it, social and financial inclusion

Kenya’s famed wide, cerulean sky remains largely unmarked by pylons. Excellent news if you’re a tourist. Less so if you’re one of the 700 million people across sub-Saharan Africa living without access to electricity.

“It’s not financially feasible to build up a whole distribution network on a continent that is so big,” says Alexandre Allegue, founder and chairman of the Abu Dhabi-based solar startup Pawame. “And for customers that are poor, there is no return on investment. That’s why the private sector would never go into transmission distribution in Africa.”

Embattled governments cannot stretch to it either, which is why it is down to social entrepreneurs like Allegue to come up with the type of alternative solution that Pawame (pronounced ‘power me’) offers: solar kits that are sold on microfinance and allow homes beyond the distribution network to generate their own power supply.

Solar home systems (SHS) such as Pawame’s are part of a growing market of clean energy social enterprises tackling the problem of electrification in Africa, where 70 per cent of people still live without electrical power. Since 2012, the global market for SHS has grown 23 per cent, representing more than four million units installed. A recent seed round saw Pawame raise over US$2m in equity from Gulf-based investors. More is in the pipeline.

“We’re currently raising a funding round of about $500,000,” says Allegue, whose background in solar energy, combined with a passion for Africa, led him to start Pawame with two friends – Nick Spark and Majd Chaaya – in 2016. “This is just to give us a cushion for Series A. Then for series A itself, we will raise $6m.”

Efforts to raise debt have proved more challenging. “Although Dubai is making more effort to become entrepreneur and startup friendly,” says Allegue, “it’s still a struggle to raise debt from banks here.”

Demands for collateral, as well as three years of financial statements - impossible in Pawame’s case - led them to seek crowdfunding instead. So far, they have raised $750,000 – mainly from Europe – with term sheets for a further $2m on the table. Debt is crucial to Pawame’s business model, says Allegue.

“We’re in a business where we need cash to finance our inventory and then we get paid back over time, so it doesn’t make sense to dilute ourselves with equity.”

Pawame’s kits, which are designed in Germany and produced in Thailand, are sold on a pay-as-you-go basis by a network of agents to people in off-grid communities. The kits comprise one solar panel, three lamps, a torch, a radio and a ‘magic’ box that contains the battery, controller and a small touch pad.

Whenever a customer pays, via Pawame’s PAYGO platform, they receive a code on their phone, which they dial into the keyboard to activate the kit. After around 18 months to two years of subscription payments, it is theirs to keep. An up-front payment of between $25 and $40, depending on the region, acts as a ‘microfinance filter’, says Allegue, “so we automatically eliminate the potential defaulters.”

These are classed by Pawame as customers who pay less than 60 per cent of the total sum of around $250. “Today, we have about 12 per cent defaulting,” says Allegue. “But we recover most of them, so it’s not a loss for us.”

In fact, he admits, it’s a gain. “By taking the kit and reselling it for another $30 upfront – usually the refurbishing cost is very low – we’re not losing. That’s the beauty of the model.

Pawame are making steady progress across Kenya, where ease of business and market size revealed it to be a natural testing ground. “When you create a startup and you’re limited in cash, you want to make sure you prove your concept quickly,” says Allegue. “And that’s why we started with an easier market. Nigeria is a bigger market but it’s more complex.

So far, Pawame has sold around 4,500 kits, which Allegue claims have impacted the lives of 20,000 people. They plan to sell 120,000 over the next three years.

The magic box is only part of the story, though. In fact, it acts as a portal to a whole new suite of life-changing products. “Based on your credit profile,” explains Allegue, “we’ll then be able to sell you a TV or a fridge on microfinance, or a scholarship loan or micro health insurance. We’re the gateway. And that’s why the social impact effect is exponential.”

Even without this next-tier offering, the social impact of SHS as a power source is profound: electric light means children can study after dark; businesses can remain open; and families are no longer at risk of injury from falling kerosene lamps and the toxic ‘black carbon’ vapour they emit. It also throws out sparks of new businesses, says Allegue.

“We have a lot of customers who get their kit paid back because they charge for charging the mobile phones of people in the neighbourhood.”

But the financial inclusion the scheme offers is perhaps, Allegue argues, the most significant. “It’s what allows you as a customer to grow financially,” he says. “And to get microcredit loans based on the track record you have built, thanks to the kit.”

Having a financial transaction in place is a crucial piece of that learning curve. “It’s more important than giving the kit away for free,” he says. “The more the customer pays, the more you help him and then he’ll be able to get more debt to test him. That’s the beauty of it.”

In a model with few quantifiable parameters, continuous monitoring of their customers’ growing credit history also allows them to measure the impact of their work.  "It’s not only an energy game. It allows you to connect to customers that you wouldn’t otherwise be able to reach”

Despite SHSs growth as a sustainable business model (Pawame is set to break even, following its next seed round), Allegue has had brick wall encounters with many potential backers in the Middle East.

“When it comes to social enterprise here,” he says, “you either have companies that are interested in investing in businesses, or foundations that are interested in giving money to nonprofit NGOs. If you tell them you’re having more of a social impact than any of those – and we’re sustainable - they’ll say, ‘yes, but you’re making a profit out of those customers, so I can’t give you money.’”

The tide may be turning though, with several multinationals now expressing interest in the venture. “There are multiple players interested in the space,” says Allegue, “because it’s not only an energy game. It’s basically a platform that allows you to connect to customers that you wouldn’t otherwise be able to reach.”

It is not yet clear whether SHS could mean an end to the problem of electrification in Africa. Allegue sees the trajectory developing similarly to that in telecoms – where the African market leapfrogged landlines and moved directly to mobile – and to what is currently happening in internet and TV.

“We see 3G and 4G is very well developed now,” says Allegue. “And no-one is installing cable TV. I think it’s going to be the same with electrical power.”

The number of people gaining access to electricity has been accelerating since 2010 to around 118 million each year, according to the World Bank. But even with SHS’s penetration into remote communities, things must ramp up considerably to achieve universal access to energy: a target of the UN-backed Sustainable Development Goals. At the current growth rate, an estimated 674 people worldwide will still be living without electricity by 2030.

Ongoing challenges include consumer awareness, product quality and logistics. Earlier this year, thousands of Pawame’s kits were stuck in the port for three months after they were unable to raise the money to pay for hefty customs fees.

On the ground in Kenya, several elements must now dovetail to make the perfect electrical storm; principally, government backing and a formal regulatory framework for off-grid technologies. Efforts in Bangladesh in this area have seen significant success, with the country’s Renewable Energy Policy of 2008 providing a framework for SHSs to scale up quickly, so that by the end of 2014, more than 3 million SHS kits had been distributed.

For Pawame, says Allegue, the long-range future involves picking a path: continuing to diversify – or specialising in one field.

“That could be TV and TV content, he says, “because we control the power on the TV. It could be a Netflix for Africa. That’s why I got into this business, because the potential of this model is so great.”