Innovation and Change

Solar Home Solutions Using a Pay-As-You-Go Model in Ghana: Exploring the Opportunity

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This study offers an assessment on one specific, potential opportunity to address the issue of electricity access in the rural areas of Ghana: commercialize solar home solutions using the pay-as-you-go (PAYG) business model to facilitate electricity access to households living off-grid in rural areas. The study analyzes the market conditions and the existent policies in order to assess the feasibility of the model to the Ghanaian market.

Through the PAYG model, the population still living without electricity can lease or rent small stand-alone photovoltaic systems (a kit with a solar panel, battery and basic appliances such as lamps, a radio and a mobile charger) by paying small amounts with mobile money, usually less than their current expenditure on batteries for torches or kerosene. After a payment period that usually varies from 12 to 36 months, the client owns the solar kit. This solution provides a basic and affordable electricity service, with small upfront costs, an easy and quick installment, and a convenient and flexible payment system.

Although Ghana is one of the countries with the highest electrification rate in Sub-Saharan Africa (84.3%), approximately 4.5 million people are still lacking access to electricity. This translates to an estimated total of 1 to 1.2 million households without electricity, of which between 391 and 511 thousand households could be marketed for solar home systems, resulting in a potential market of USD 70-92 million.

There are, however, challenging conditions to the setup of this particular model:

Due to Ghana's high electricity access rate, the market for standalone solar home solutions is more limited than most other Sub-Saharan Africa countries.

The government has been leading the programs to extend electricity access to remote localities, offering, in many cases, subsidized solutions.

The high interest rates, the devaluation of the local currency and limited funding in the local markets imposes financial constraints for companies.

However, the combination of a limited but still considerable market and the current administration's pursuit of enhanced electricity access through public-led initiatives creates an interesting opportunity to design a program based on a public-private partnership to implement PAYG solar solutions on a national scale. Such approach could bring the following advantages:

Creation of economies of scale and the consequent reduction of the monthly prices paid by the households.

Accelerate the electrification of remote communities, without incurring in high investment costs.

Put in place the conditions for the local manufacturing of solar panels and to raise funds to finance the company´s operations.

Including such solutions as part of the centrally planned energy roadmap will allow better resource allocation.

The model allows for better protection of the customers´ interests.

Bibliographic citation: Pelizan, Leticia; Rahnema Alavi, Ahmad; Lickteig, Lena, "Solar Home Solutions Using a Pay-As-You-Go Model in Ghana: Exploring the Opportunity", IESE, OP-319-E, 10/2019

Reference: 10.15581/018.ST-319 (DOI)
Date: 11/10/2019
Author(s): Pelizan, Leticia; Rahnema Alavi, Ahmad; Lickteig, Lena
Document type: Occasional Paper
Sponsor(s): Cátedra Fuel Freedom de Energía y Desarrollo Social
Languages: English
Geographic area: Ghana