Finance

Pay-As-You-Go for LPG Supply - Exploring a New Business Model to Enhance Access to Clean Cooking Solutions in Urban Areas in Ghana

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In Ghana, the vast majority of households (72.7%) still rely on wood and charcoal as their main cooking fuels. Liquefied petroleum gas (LPG) is used as the main cooking fuel by just 40.5% of urban households and by only 9.1% of rural households. The key reason is the lack of availability of clean cooking solutions, such as LPG, within a reachable distance and at an affordable price. Indeed, the high initial expenditure for LPG adoption?the need to buy the cylinder and the stove?is a critical barrier for low-income households.

The objective of this study is to offer a brief assessment on the potential of providing LPG (fuel and stove) to urban areas in Ghana through the pay-as-you-go (PAYG) model to alleviate the aforementioned problems. 

By reducing initial expenditure, eliminating the need to buy a whole cylinder of fuel and exchanging the LPG cylinders when needed, the model will be mitigating both affordability and accessibility problems.

The LPG market is in expansion, and there are more than two million urban households yet to be served. It is an interesting opportunity for companies already operating in the LPG supply chain, especially as a pivotal business model for the companies currently operating refilling stations that, with the implementation of the new cylinder recirculation model, are under threat of closure.
In general, the PAYG model can benefit from current and future policies that aim to promote LPG and regulate the charcoal supply chain. Specifically, the new LPG recirculation model creates momentum, although its final implementation is still uncertain. In addition, mobile money is becoming more and more popular, and the country is well served by telecom operators. At the same time, although current LPG infrastructure is still limited, efforts are being made to enhance storage, depots and refilling facilities. 
The implementation of this solution has several challenges, many of which can be solved with good management. In this sense, it is important to understand and manage the inherent risks of the PAYG model (high working capital and financing up-front expenditure) and the market risks (volatility of oil prices and foreign exchange risks). Finding a partner to provide the LPG smart-meter technology is another crucial aspect to take into consideration. If these barriers are overcome, we believe that the new LPG model could create excellent momentum to implement such business.
Bibliographic citation: Pelizan, Leticia; Lickteig, Lena; Martí, Gina, "Pay-As-You-Go for LPG Supply - Exploring a New Business Model to Enhance Access to Clean Cooking Solutions in Urban Areas in Ghana", 10/2019
Date: 11/10/2019
Author(s): Pelizan, Leticia; Lickteig, Lena; Martí, Gina
Document type: Occasional Paper
Supervisor(s): Rahnema Alavi, Ahmad
Sponsor(s): Cátedra Fuel Freedom de Energía y Desarrollo Social
Languages: English
Geographic area: Ghana