Pay-as-you solar in East Africa began by producing excellent customer numbers but the first in have reaped the whirlwind. The cost of payments has seen customers drop off at alarming rates. Russell Southwood talked to Trend Solar's CEO Irfan Mirza about how it wants to avoid this pitfall.
Trend Solar has spent a year piloting its pay-as-you-go solar plus products (light, smartphone and TV) services. In October 2018, it launched itself: "We're going commercial and need to be smart about things. We're officially launched as a business".
Trend Solar's USP is that it is selling customers smartphones (one of which is a 4G phone) that allows the company to control the solar unit it is selling: only one other company (PayGo) is selling a similar product.
It currently has two products in the market: an entry level one with 3 light bulbs, a smartphone, a 20 Watt solar panel, a portable torch and a small data bundle. This requires a US$30 deposit and the remainder (US$230) is paid over 12 months.
The more advanced product has a 40 Watt solar panel, a battery, 4 light bulbs, a 4G smartphone, a data bundle, a 24" HD TV and satellite decoder with an integrated satellite dish and a mobile torch, This requires a deposit of US$60 and 18 months to pay the remainder (US$670). On the current base of 700 customers, 65% have the basic kit and 35% the more advanced one. In due course it will be rolling out more products:"The market is saying they want more products".
Each of these products includes a mobile wallet on the smartphone and "customers are starting to leverage it, paying us more than we need and keeping money in the wallet. We can also provide insurance via an underwriting company and in due course other value-added services".
"We've partnered with StarTimes and we use their TV channels as it fits our customer profile. We want to make sure all our customers get content. We want to leave customers so they have energy, lighting, a TV and content. StarTimes is seeking an electrified market and a partner like us can enable them to get rural customers. We give them access to distribution and customers".
So how do its customers use its product?:" Most use a single light bulb as a security light. There are 200 customers for the TV and most watch it on a daily basis between 3-7 hours. Most power is used in the evening hours and for phone charging. 70% of households use a light bulb for at least eight hours".
Who are these customers?:" They're in agriculture; fishing in the lake zone; shop-keepers; a couple of teachers; police officers; and civil servants. It's farmers who are making a sufficient living with crops like coffee, cashew nuts, cotton and sugar cane. We are approved by the Government to engage with farmers, particularly cashew nut farmers. The quality of customers is second to none. When they're not farming, they're doing something else".
And whose the competition?:"Azuri, M-KOPA, Zola and Mobisol." Zola has 140,000 customers and Mobisol has 120,000 customers of which 80-90,000 are in Tanzania. Mirza estimates that there are around 7 million addressable households without power:"We're going after a demographic segment of that, not everyone. We want to qualify our customers and fulfill their needs".
The 12-month pilot period has enabled Trend Solar to learn a number of lessons. Distribution is one of the hard nuts to crack:" We're looking for new distributors. We had been working with Viettel-owned MNO Halotel who wanted (sales of) 2,000 systems a month because they have 6 million users. It was too big for us. In 12 months time we will have a fully owned and operational distribution team with 15 sales outlets. We're also working with another distributor but will still build out our own direct distribution".
"Over the next 12 months we want to build up a customer base of 10-15,000 users. We don't want to go the M-KOPA way. We've seen the pitch decks praising high growth in rural areas but there's a high level of attrition when you do that. We believe slow and steady is better".
"We want to individually understand what customers want and whether they can afford what we have. A debt instrument underlies each of our sales so we need to make customers aware of what they're getting themselves into. You do have to pay for it. There's not enough education for customers and there's been a high level of defaults with companies like M-KOPA and Mobisol, as much as a 30-40% drop-off in customers".
"We're looking for would-be investors. On investment, we're starting to work with Power Africa. It is helping us with advisors to raise our round. The investors will be funding debt".
"The thought leaders in our industry think the best structure is to have an operating company and a finance company. The debt is therefore off the balance sheet. The finance company has its own metrics and these are attractive to investors".
"Debt lenders are not comfortable looking at a consolidated structure. Impact investors can fund the opcos and VC/debt companies can fund the fincos. As we're at early stage we can pay heed to that advice. US$3-5 million will enable us to achieve the 10,000 (sales target) figure".