Powering small business: Understanding the impact of solar energy under different pricing schemes

587 million people, roughly 69.5% of the population, lack access to electricity in Sub-Saharan Africa. Retailers with poor access to electricity have limited means to keep their shops open at night. This limits their ability to operate during evening hours and reach customers who might be at work during the day. Solutions like kerosene do a poor job of lighting the room and have negative health effects. Indeed, the World Health Organization estimates that the use of solid fuels contributes to 551,000 premature deaths in Sub-Saharan Africa every year. Besides, traditional off-grid solutions require significant one time investments, making them unrealistic for poorer consumers.

This project studies the pricing schemes for a new solar technology that combines solar power, mobile repayment, and mobile enforcement. We are partnering with Angaza Design who will roll out 1000 units of their Solite-3: a solar-powered device that provides light and charges phones. The devices allow payment via mobile money and monitoring of payments with enforcement upon non-payment. This enables Angaza to ask retailers for a very low and affordable down payment and allows them to gradually pay back the full amount of the device over time, based on use and at no transaction cost (PAYG using M-PESA, the current mobile money system in Kenya).

The project aims to study three broad sets of research questions.

  1. First, what is the impact of electricity (and light) on small retailers? Retailers may be able to keep their shops open later, and could get additional income from phone charging. They may also offset current kerosene or lamp expenditures.
  2. Second, what is the impact of mobile repayments and mobile enforcement on asset purchases relating to take-up, default rates and use? This is a very cheap and simple way to enforce credit contracts in environments where such enforcement is usually extremely costly and involves door to door, group visits and in person collections.
  3. Third, what is the impact of varying the pricing structure? What is the effect of different per-hour prices on take-up, default rates and energy consumption? We will offer a lower and a higher per-hour price and we expect differences in take-up, repayment and use. The variation in the price structure also helps us determine how to optimally price such an asset in a developing country environment.
    The study is being conducted in low-income peri-urban areas of Nairobi, Kenya. The targeted retailers are small shop keepers –ranging from butchers to green grocers- who do not have access to grid electricity. We therefore believe they should benefit the most from this solar light and phone charger.

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