Off-Grid Electric’s Mobile Power

A startup in Tanzania seeks to provide affordable electricity to households, by replicating the success of prepaid cellphones.

Off-Grid Electric (OGE) is a power services company based in Tanzania. The company makes solar power accessible to houses in remote areas, where public infrastructure such as power transmission lines is not present, or to households where it is too expensive to connect to the power grid. It does so by first selling a proprietary power system consisting of a small box, and a small solar panel. The box can provide electricity to a small home system at either a 5 Watt or a 10 Watt level. While that may sound small, it is enough to power a few LED lamps and charge a phone, which is a substantial improvement for a rural household that is completely lacking in electricity.

Inspiration: The Prepaid Cellphone Model

The cleverness of their business model lies in their adaptation of the prepaid cellphone model for their service. Cellphone usage has grown dramatically in developing parts of the world, primarily due to the prepaid business model. This model allows users to purchase a limited amount of “minutes” or “texts” for their phone, which they can then use on an as needed-basis. For the cellphone provider, this eliminates the risk of customers defaulting on their bills, which is a significant concern for any business in a less-developed economy. Cellphone users also benefit from this model as they know exactly what they are paying for, and can more efficiently use their money.

The introduction of prepaid model made cellphones more accessible to the developing world. In Tanzania, according to OGE, cellphone uses have far outstripped the spread of the electric power grid, which is where they come in.

More Power to the People

Solar Home Power System

A customer seeking to put OGE’s solar home system pays an initial deposit of $6 or $9 per system, and then a daily fee between $0.19 and $0.63, depending on the level of service. Payments are made using mobile money, or through a local mobile money kiosk, or through local OGE agents who take cash and make payments for the customer.

Upon payment, the customer gets an activation code, which they can use to “add minutes” to their solar power system to provide power (OGE requires a minimum one day payment at a time, however the usage itself is pro-rated down to the nearest minute). Flexibility in payment means that those without reliable income can pay one day at a time, and those with seasonal income (such as agriculture) can pay for several months in advance.

It’s Also about the Service

OGE runs a customer service call center every day for 18 hours a day. The call centers are there for customers to report any problems, ask for any help on how to use their existing system, or questions on adding more services to their account such as an extra light, or more appliances such as a television. For issues that can’t be resolved over the phone, an agent is sent to the customer site.

Leveraging Local Agents

Agents are an important of OGE’s operating model, which is why OGE invests significantly in their success. These agents are local residents, and are therefore most knowledgeable about their local markets. They are responsible for finding and retaining customers. Each regional office has an “agent success” staff team responsible for recruiting, training, and supporting agents in the region.

The agents earn commission not only for finding customers, but also for providing good customer support (notice the connection here from the previous section on customer service). Therefore, even if agents have exhausted their immediate neighborhood for new sales, they can continue to earn through customer service. In many ways, these customer service agents can make or break the success of this company. They can also provide OGE with competitive advantage should any major competitor enter the market.

Electricity: Enabler of Other Products

Once households have electricity, it enables them to use other appliances such as TVs, computers, etc. In that regard, OGE is well-situated to sell these products to customers as well. Furthermore, because OGE has a history of its customer’s payments on their system, it can establish its own version of a credit score for that customer. This score can then be used to determine whether additional products should be sold on credit to the customer.

Ready to Grow!Solar Power In Action

OGE launched their services in Tanzania in April 2012, and within two years its customer base had expanded to over 10,000 households. They’ve
created an effective business in a difficult and foreign environment by leveraging existing local telecommunication infrastructure, and by hiring local individuals as their own agents. OGE is clearly a winner!

References

  1. Ashden Case Study. Available at: https://www.ashden.org/files/case_studies/OFF%20GRID%20FULL_0.pdf (Accessed on November 29, 2015)
  2. Crunchbase Company Profile. Available at: https://www.usaid.gov/news-information/frontlines/science-technology-innovation-and-partnerships/gridelectric-brings-solar (Accessed on November 29, 2015)
  3. Off-Grid Electric Company Website. Accessible at: http://offgrid-electric.com/

 

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7 thoughts on “Off-Grid Electric’s Mobile Power

  1. Pay-as-you-go models are interesting to me because for some things they work very well, and for some things they do not. For example, the prepaid cellphones are an example of when it works well, for all the reasons you discuss. In general, in my mind this is because the expense is relatively small, and the consequences of not being able to use your cellphone are typically limited. In contrast, an industry like health care is much less attractive for a pay-as-you-go model because the costs of health care without insurance can be debilitating. In fact, approximately 50% of bankruptcies in the U.S. are the result of health care costs. The point to me is that it is excellent when a pay-as-you-go model is mutually beneficial to customers and suppliers, but one must also be wary that such a model could be used to exploit customers.

    1. Noah, your comment is an excellent one!

      I can see the pay as you go model being exploited in the electrical sector too. Fortunately, unlike healthcare, whether or not to use power isn’t always a life or death situation.

  2. Ankit, this is a really interesting business model to me. I am quite fascinated by power from alternative energy sources, but generally turned off when the economic model requires significant support from the Government or another outside organization to remain sustainable. Combining two needed items (cell phones and a power supply) gets around some of those problems, but it also seems to require that the country has poor power generation/grid capabilities [Off topic, but it makes me wonder if a similar concept could be used in developed countries]. OGE seems like a great company to watch!

    1. Doug, thank you for the comment. This concept is being successfully carried out in other African countries. I agree with your observation that the reason this model works is because there is no alternative way of getting power. So in the U.S., where electricity from the grid is highly reliable, this model wouldn’t work.

  3. OGE’s mission is fantastic – sustainability, ease of use, and access in areas that need it. Regarding the operations model, does 18 hours of customer support really accomplish the mission of access and ease of use, when it only covers 75% of the day (in the event of an emergency)? Additionally, this model depends greatly on the consumer’s access to mobile payments, which may be more difficult to access in rural settings in emerging markets. If the market research supports the fact that consumers in these areas (in Tanzania) have access to mobile payment methods, and often do not use electricity for the same 8 hours a day that there is not technical support, these points are not valid. The challenge could be offering this service in countries that do not meet those conditions and OGE expanding beyond Tanzania.

    1. Hi “John”, thank you for your comment. I will clarify that mobile payment is the principal means, but not the only means of payment. When individuals don’t have cell phones, the agents can collect money directly too. Also, while 24/7 support would be ideal, having 18 hours is probably what is economically feasible. Although, I can’t comment much on that without more knowledge about the company.

      The challenge of expanding beyond Tanzania is a realistic one. As I mentioned in a separate comment above, this model relies on the fact that governments are unable to build reliable infrastructure for their demographic. So, this model could break down even in Tanzania, if these infrastructures started getting better. However, practically speaking, that will not likely happen quickly, and OGE will still have customers to serve until then.

  4. Off-Grid Electric seems to be a logical combination of the pay-as-you-go model that is prevalent in East Africa for banking and cell phones with SolarCity’s leasing model that has gained traction in the U.S. Not coincidentally, I noticed that SolarCity and DBL Investors, an investor in SolarCity, have both invested in OGE’s early funding rounds. It seems that OGE is well set up on the payment side to support residential solar installations, but I imagine that the sustainability of OGE’s business model will depend heavily on execution, access to low-cost capital, and customer acquisition.

    This past summer, I worked with CrossBoundary Energy, which provides a platform to aggregate financing for commercial and industrial solar installation in East Africa. The company chose to focus on commercial rather than residential installations because of the high cost of customer acquisition in rural areas (note that this is an issue that SolarCity and other U.S.-based installers have also struggled with). In addition, the company found that there was little to no access to capital to support a leasing model for residential installations given the low cost of individual solar systems and the fact there was not a mechanism to aggregate disparate projects to attract international capital. Without access to these sources of capital, solar installations will be expensive and difficult to fund over the long-term. OGE could be positioned to address these challenges by leveraging the strong network for SolarCity and DBL to bring in foreign capital at a lower cost. However, I think that the ability for OGE to emerge from its current start-up stage will depend on the company’s efficacy of acquiring customers and delivering solar installations at less than the market cost for diesel-powered generation. I am hopeful that the company will succeed, but I recognize that it is up against some fairly stiff hurdles in terms of access to capital markets and the fact that its customers have absolutely no credit history. The commercial and industrial segment has attracted more capital for solar installations due to the lower risk profile of the customer and the fact that the customer has extremely high energy costs due to back-up diesel generation. If OGE is able to expand beyond the residential segment, it may be able to more effectively cross-subsidize its initiatives in residential solar given that there are few competitors in the East African market.

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