CrossBoundary and Energy 4 Impact have published the second in a series of white papers for the Mini-Grid Innovation Lab. The paper reveals that offering appliances on credit to rural mini-grid customers is an effective way of unlocking demand for electricity.
A fundamental challenge to the sustainability of the mini-grid business model is that rural customers’ energy consumption is extremely low and doesn’t generate sufficient revenue for mini-grid developers to sustainably operate their grids.
The Lab, backed by the Rockefeller Foundation, works with mini-grid developers in sub-Saharan Africa to identify and test innovative prototypes that have the potential to improve the business model – and as the prototypes generate results, it shares evidence on their impact, so that successful innovations can spread. It also works closely with partners – developers, governments and funders – to create an enabling environment and scale the prototypes across markets.
To help developers determine whether appliance financing can profitably drive revenue and improve the mini-grid business model, the Innovation Lab started an Appliance Financing prototype in 2018, which has supported seven mini-grid developers to sell 663 appliances on credit across 27 sites in Kenya, Tanzania, and Nigeria.
Since the high upfront cost of appliances, such as TVs and refrigerators, is a major barrier for the rural, low-income households and businesses that mini-grids typically serve, the Lab offered appliances on credit to overcome this barrier by breaking up the high upfront cost into more manageable monthly payments.
Initial analysis of data generated from the prototype suggests that rural mini-grid customers are able and ready to consume more electricity, but don’t have the means to put this electricity to use. This can be seen in the fact that the median monthly consumption of appliance purchasers nearly doubled in East Africa and increased by 22% in Nigeria for the first five months following appliance delivery. Average revenue per user (ARPU) across all customers also saw significant increases sustained over time. In East Africa, ARPU is 18% above baseline levels after 11 months; in Nigeria, that number is 25% after five months.
The researchers cautiously emphasise that these preliminary results represent actionable intelligence rather than scientific evidence and may change with more data over time. By the end of the prototype they expect to have robust datasets over a full 12-month period and to be able to quantify observations with more confidence, in particular with regards to the costs associated with running these programmes, and the rate of customer repayment on the appliance loans.