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| | = Overview = | | = Overview = |
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| − | Pay-as-you-go (PAYGO): Companies sell solar services or the solar products through a pre-paid model (in small instalments) to persons that can afford these services and become potential or actual customers. This article explains briefly how PAYGO works for customers and for the companies that offer this service. | + | Pay-as-you-go (PAYGO): Companies sell services or products to customers through a pre-paid model. In case of products PAYGO is a kind of paying in small installments to persons that cannot afford or are not willing to buy products in cash. <span style="color: rgb(0, 0, 0); font-family: arial, helvetica; font-size: 13.6px; font-style: normal; font-variant-ligatures: normal; font-variant-caps: normal; font-weight: 400; letter-spacing: normal; orphans: 2; text-align: start; text-indent: 0px; text-transform: none; white-space: normal; widows: 2; word-spacing: 0px; -webkit-text-stroke-width: 0px; background-color: rgb(255, 255, 255); text-decoration-style: initial; text-decoration-color: initial; display: inline !important; float: none">Under PAYGO, the companies not only provide product and services but also the necessary finance to consumers. Customers usually pay 10-20% as upfront cost and rest as loan over a period of 1-2 year. For PAYGO, it may take more than 3 years to convert product inventory into cash flow <ref name="Funding the Sun : New Paradigms for Financing Off-Grid Solar Companies- https://energypedia.info/wiki/Publication_-_Funding_the_Sun_:_New_Paradigms_for_Financing_Off-Grid_Solar_Companies_(English)">The World Bank, 2020. Funding the Sun : New Paradigms for Financing Off-Grid Solar Companies- https://energypedia.info/wiki/Publication_-_Funding_the_Sun_:_New_Paradigms_for_Financing_Off-Grid_Solar_Companies_(English)</ref>. </span> |
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| | + | This article explains briefly how PAYGO works for customers paying for electric services from off-grid solar systems as well as for the companies offering this service. |
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| | *For SHS, see also [[Fee-For-Service or Pay-As-You-Go Concepts for Photovoltaic Systems|Fee-For-Service_or_Pay-As-You-Go_Concepts_for_Photovoltaic_Systems]] | | *For SHS, see also [[Fee-For-Service or Pay-As-You-Go Concepts for Photovoltaic Systems|Fee-For-Service_or_Pay-As-You-Go_Concepts_for_Photovoltaic_Systems]] |
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| | + | <span style="color: rgb(0, 0, 0); font-family: arial, helvetica; font-size: 13.6px; font-style: normal; font-variant-ligatures: normal; font-variant-caps: normal; font-weight: 400; letter-spacing: normal; orphans: 2; text-align: start; text-indent: 0px; text-transform: none; white-space: normal; widows: 2; word-spacing: 0px; -webkit-text-stroke-width: 0px; background-color: rgb(255, 255, 255); text-decoration-style: initial; text-decoration-color: initial; display: inline !important; float: none"> </span> |
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| | = Pay-as-you-go Approaches = | | = Pay-as-you-go Approaches = |
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| | == Definition: PAYGO == | | == Definition: PAYGO == |
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| − | Pay-as-you-go (PAYGO) is a digital financing technology that allows end-users to digitally pay for solar energy in weekly instalments. PAYGO is a pioneering, game-changing digital credit system that removes the initial financial barrier to solar energy access by allowing consumers to make a series of modest payments to purchase a week’s worth of solar energy rather than paying upfront for the entire solar lighting system.<ref name="Paul Winkel, ‘Startup Peru Winner | Powermundo’, 2016, http://www.powermundo.com/media-resources/news-events/startup-peru-winner/.">Paul Winkel, ‘Startup Peru Winner | Powermundo’, 2016, http://www.powermundo.com/media-resources/news-events/startup-peru-winner/.</ref> | + | Pay-as-you-go (PAYGO) is a financing technology that allows end-users to pay for solar energy in weekly instalments or whenever they are financially liquid. PAYGO is a pioneering, game-changing credit system that removes the initial financial barrier to solar energy access by allowing consumers to make a series of modest payments to purchase time units for using solar electricity instead of paying upfront for the entire solar lighting system.<ref name="Paul Winkel, ‘Startup Peru Winner | Powermundo’, 2016, http://www.powermundo.com/media-resources/news-events/startup-peru-winner/.">Paul Winkel, ‘Startup Peru Winner | Powermundo’, 2016, http://www.powermundo.com/media-resources/news-events/startup-peru-winner/.</ref> |
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| | PAYGO is emerging as a solution that addresses both end-customer affordability and provides sufficient margins to fuel operational models that can scale.<ref name="Jacob Winiecki, Michelle Hassan, and David del Ser, ‘Briefing Note PAYGo Solar: Lighting the Way for Flexible Financing and Services’ (FIBR, mastercard foundation, BFA, 2017), https://www.gogla.org/sites/default/files/resource_docs/finalfibrbriefingnotepaygosolarjuly2017.pdf.">Jacob Winiecki, Michelle Hassan, and David del Ser, ‘Briefing Note PAYGo Solar: Lighting the Way for Flexible Financing and Services’ (FIBR, mastercard foundation, BFA, 2017), https://www.gogla.org/sites/default/files/resource_docs/finalfibrbriefingnotepaygosolarjuly2017.pdf.</ref> | | PAYGO is emerging as a solution that addresses both end-customer affordability and provides sufficient margins to fuel operational models that can scale.<ref name="Jacob Winiecki, Michelle Hassan, and David del Ser, ‘Briefing Note PAYGo Solar: Lighting the Way for Flexible Financing and Services’ (FIBR, mastercard foundation, BFA, 2017), https://www.gogla.org/sites/default/files/resource_docs/finalfibrbriefingnotepaygosolarjuly2017.pdf.">Jacob Winiecki, Michelle Hassan, and David del Ser, ‘Briefing Note PAYGo Solar: Lighting the Way for Flexible Financing and Services’ (FIBR, mastercard foundation, BFA, 2017), https://www.gogla.org/sites/default/files/resource_docs/finalfibrbriefingnotepaygosolarjuly2017.pdf.</ref> |
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| | #business-to-business (B2B) intermediaries: supplying hardware and software support from global operations to last-mile energy service and payment logistics | | #business-to-business (B2B) intermediaries: supplying hardware and software support from global operations to last-mile energy service and payment logistics |
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| − | The first PAYGO companies are vertically integrated companies (one-stop-shops). They do all steps: <ref name="Daniel Waldron, ‘Solar Energy: A New Frontier for Microfinance’, CGAP, 17 April 2017, http://www.cgap.org/blog/solar-energy-new-frontier-microfinance.">Daniel Waldron, ‘Solar Energy: A New Frontier for Microfinance’, CGAP, 17 April 2017, http://www.cgap.org/blog/solar-energy-new-frontier-microfinance.</ref> | + | The first PAYGO companies were vertically integrated companies (one-stop-shops). They did all steps: <ref name="Daniel Waldron, ‘Solar Energy: A New Frontier for Microfinance’, CGAP, 17 April 2017, http://www.cgap.org/blog/solar-energy-new-frontier-microfinance.">Daniel Waldron, ‘Solar Energy: A New Frontier for Microfinance’, CGAP, 17 April 2017, http://www.cgap.org/blog/solar-energy-new-frontier-microfinance.</ref> |
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| | *hardware and software design | | *hardware and software design |
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| | In the energy access sector, PAYGO approaches are mostly used to sell picoPV and SHS solar products, but also mini-grids can be operated implementing a PAYGO tariff. <ref name="Alejandro Moreno, Asta Bareisaite, and others, ‘Scaling up Access to Electricity: Pay-as-You-Go Plans in off-Grid Energy Services’ (The World Bank, 2015), http://bit.ly/2wkwf4f.">Alejandro Moreno, Asta Bareisaite, and others, ‘Scaling up Access to Electricity: Pay-as-You-Go Plans in off-Grid Energy Services’ (The World Bank, 2015), http://bit.ly/2wkwf4f.</ref> | | In the energy access sector, PAYGO approaches are mostly used to sell picoPV and SHS solar products, but also mini-grids can be operated implementing a PAYGO tariff. <ref name="Alejandro Moreno, Asta Bareisaite, and others, ‘Scaling up Access to Electricity: Pay-as-You-Go Plans in off-Grid Energy Services’ (The World Bank, 2015), http://bit.ly/2wkwf4f.">Alejandro Moreno, Asta Bareisaite, and others, ‘Scaling up Access to Electricity: Pay-as-You-Go Plans in off-Grid Energy Services’ (The World Bank, 2015), http://bit.ly/2wkwf4f.</ref> |
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| | == How it Works: PAYGO for customers == | | == How it Works: PAYGO for customers == |
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| | + | There are different systems, how PAYGO works. A relatively simple system is using recharge scratch cards, where each card has a code that is revealed by scratching off the silvery layer. The customer enters this code either into the keypade of his system or into their phone. The backend computer systems receive the code, verify it, and finally the PAYG operator unlocks the system. However, the scratch card method requires a complex stock of cards to manage and distribute across agents’ network. |
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| | + | Another system is presented in the following figure. Here, the code is sent to the customers via SMS. This system is also working with an agent, which plays an important role in the uptake and use of mobile money based PAYG systems in rural areas, where people do not often use phones for mobile money transaction or cannot read. Agents help customers, who are hesitant to use mobile money or don't know how it works, to make transactions so that mobile money services become accessible to communities with low digital financial literacy. <br/> |
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| | '''Figure: PAYGO for customers step-by-step''' | | '''Figure: PAYGO for customers step-by-step''' |
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| − | [[File:Winiecke 2017 How Paygo solar works.PNG|center|700pxpx|How Paygo solar works]]Source: Winiecki et al. 2017.<ref name="Winiecki, Jacob, Michelle Hassan, and David del Ser. ‘Briefing Note PAYGo Solar: Lighting the Way for Flexible Financing and Services’. FIBR, mastercard foundation, BFA, 2017. https://www.gogla.org/sites/default/files/resource_docs/finalfibrbriefingnotepaygosolarjuly2017.pdf.">Winiecki, Jacob, Michelle Hassan, and David del Ser. ‘Briefing Note PAYGo Solar: Lighting the Way for Flexible Financing and Services’. FIBR, mastercard foundation, BFA, 2017. https://www.gogla.org/sites/default/files/resource_docs/finalfibrbriefingnotepaygosolarjuly2017.pdf.</ref> | + | [[File:Winiecke 2017 How Paygo solar works.PNG|center|700px|How Paygo solar works|alt=How Paygo solar works]]Source: Winiecki et al. 2017.<ref name="Winiecki, Jacob, Michelle Hassan, and David del Ser. ‘Briefing Note PAYGo Solar: Lighting the Way for Flexible Financing and Services’. FIBR, mastercard foundation, BFA, 2017. https://www.gogla.org/sites/default/files/resource_docs/finalfibrbriefingnotepaygosolarjuly2017.pdf.">Winiecki, Jacob, Michelle Hassan, and David del Ser. ‘Briefing Note PAYGo Solar: Lighting the Way for Flexible Financing and Services’. FIBR, mastercard foundation, BFA, 2017. https://www.gogla.org/sites/default/files/resource_docs/finalfibrbriefingnotepaygosolarjuly2017.pdf.</ref><br/> |
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| | + | In other systems, customers make a payment to their account at the PAYG provider through a platform of the mobile network operator. Payment notification is sent to the PAYG payment service of the provider, which activitates a credit and unlocks the system of the customer. In some cases, customer can also pay with airtime by transfering airtime to the PAYG provider. |
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| | Examples: | | Examples: |
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| | *Ugandan Mobile Pay-Go Solar Provider Fenix International doubled the number of customers in the year 2016 to 100,000. Fenix deploys solar leases of over USD 20 million. Fenix’s ReadyPay Power high-efficiency solar products and services worth 1.2-MWs serve over 600,000 Ugandan households.<ref name="Andrew Burger, ‘Uganda Mobile Pay-Go Solar Provider Doubles Customer Base to 100,000 in 12 Months’, Microgrid Media, 25 January 2017, http://microgridmedia.com/uganda-mobile-pay-go-solar-provider-doubles-customer-base-100000-12-months/.">Andrew Burger, ‘Uganda Mobile Pay-Go Solar Provider Doubles Customer Base to 100,000 in 12 Months’, Microgrid Media, 25 January 2017, http://microgridmedia.com/uganda-mobile-pay-go-solar-provider-doubles-customer-base-100000-12-months/.</ref><ref name="Allegra Fisher, ‘Pay-to-Own Solar Energy System Doubles Off-Grid Customer Base in Just 12 Months’, Fenix International, 22 January 2017, http://www.fenixintl.com/2017/01/22/pay-to-own-solar-energy-system-doubles-off-grid-customer-base-in-just-12-months/.">Allegra Fisher, ‘Pay-to-Own Solar Energy System Doubles Off-Grid Customer Base in Just 12 Months’, Fenix International, 22 January 2017, http://www.fenixintl.com/2017/01/22/pay-to-own-solar-energy-system-doubles-off-grid-customer-base-in-just-12-months/.</ref> | | *Ugandan Mobile Pay-Go Solar Provider Fenix International doubled the number of customers in the year 2016 to 100,000. Fenix deploys solar leases of over USD 20 million. Fenix’s ReadyPay Power high-efficiency solar products and services worth 1.2-MWs serve over 600,000 Ugandan households.<ref name="Andrew Burger, ‘Uganda Mobile Pay-Go Solar Provider Doubles Customer Base to 100,000 in 12 Months’, Microgrid Media, 25 January 2017, http://microgridmedia.com/uganda-mobile-pay-go-solar-provider-doubles-customer-base-100000-12-months/.">Andrew Burger, ‘Uganda Mobile Pay-Go Solar Provider Doubles Customer Base to 100,000 in 12 Months’, Microgrid Media, 25 January 2017, http://microgridmedia.com/uganda-mobile-pay-go-solar-provider-doubles-customer-base-100000-12-months/.</ref><ref name="Allegra Fisher, ‘Pay-to-Own Solar Energy System Doubles Off-Grid Customer Base in Just 12 Months’, Fenix International, 22 January 2017, http://www.fenixintl.com/2017/01/22/pay-to-own-solar-energy-system-doubles-off-grid-customer-base-in-just-12-months/.">Allegra Fisher, ‘Pay-to-Own Solar Energy System Doubles Off-Grid Customer Base in Just 12 Months’, Fenix International, 22 January 2017, http://www.fenixintl.com/2017/01/22/pay-to-own-solar-energy-system-doubles-off-grid-customer-base-in-just-12-months/.</ref> |
| | *Power Mundo in Peru is successfully implementing PAYG projects with support from ADB and others. The main aim of the project is to develop a distribution network for efficient, low cost off-grid picoPV and SHS energy products that residents in rural Peru can afford while at the same time creating local employment opportunities that can raise residents’ incomes.<ref name="Andrew Burger, ‘Off-Grid Solar Start-Ups Pierce the ¨Heart of Darkness¨’, Microgrid Media, 8 December 2016, http://microgridmedia.com/off-grid-solar-start-ups-pierce-%c2%a8heart-darkness%c2%a8/.">Andrew Burger, ‘Off-Grid Solar Start-Ups Pierce the ¨Heart of Darkness¨’, Microgrid Media, 8 December 2016, http://microgridmedia.com/off-grid-solar-start-ups-pierce-%c2%a8heart-darkness%c2%a8/.</ref> | | *Power Mundo in Peru is successfully implementing PAYG projects with support from ADB and others. The main aim of the project is to develop a distribution network for efficient, low cost off-grid picoPV and SHS energy products that residents in rural Peru can afford while at the same time creating local employment opportunities that can raise residents’ incomes.<ref name="Andrew Burger, ‘Off-Grid Solar Start-Ups Pierce the ¨Heart of Darkness¨’, Microgrid Media, 8 December 2016, http://microgridmedia.com/off-grid-solar-start-ups-pierce-%c2%a8heart-darkness%c2%a8/.">Andrew Burger, ‘Off-Grid Solar Start-Ups Pierce the ¨Heart of Darkness¨’, Microgrid Media, 8 December 2016, http://microgridmedia.com/off-grid-solar-start-ups-pierce-%c2%a8heart-darkness%c2%a8/.</ref> |
| | + | *In Kenya, [https://hapakenya.com/2020/01/14/safaricom-partners-with-m-gas-to-offer-prepaid-cooking-gas/ PAYG is also offered for cooking gas by M-Gas] - people do not have to buy the cooking gas cylinder or burners which often costs more than KES 6,000 and refilling a cylinder costs above KES 2,000 per cylinder. With this approach, the company provides a cylinder with a smart metering and people only use the cooking gas that they need. |
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| | = Conclusion = | | = Conclusion = |
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| | This article offers a definition for PAYGO approaches and shortly explains how it works with examples from the major companies. | | This article offers a definition for PAYGO approaches and shortly explains how it works with examples from the major companies. |
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| | *[[Advantages and Disadvantages of PAYGO Approaches|Advantages and Disadvantages of PAYGO Approaches]] | | *[[Advantages and Disadvantages of PAYGO Approaches|Advantages and Disadvantages of PAYGO Approaches]] |
| | *[[PAYGO Approaches: Overhyped or Justified|PAYGO Approaches: Overhyped or Justified]]<br/> | | *[[PAYGO Approaches: Overhyped or Justified|PAYGO Approaches: Overhyped or Justified]]<br/> |
| − | *[[Role_of_Supporting_Environment_in_Fostering_Pay-as-you-go_Approaches_(PAYGO)|Role of Supporting Environment in Fostering Pay-as-you-go Approaches (PAYGO)]] | + | *[[Role of Supporting Environment in Fostering Pay-as-you-go Approaches (PAYGO)|Role of Supporting Environment in Fostering Pay-as-you-go Approaches (PAYGO)]] |
| | *[[Fee-For-Service or Pay-As-You-Go Concepts for Photovoltaic Systems|Fee-For-Service or PAYGO for PV systemsincluding]] information about the major PAYGO companies<br/> | | *[[Fee-For-Service or Pay-As-You-Go Concepts for Photovoltaic Systems|Fee-For-Service or PAYGO for PV systemsincluding]] information about the major PAYGO companies<br/> |
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| | *Lighting Global (2015): Alstone, Peter Michael. Connections beyond the Margins of the Power Grid Information Technology and the Evolution of Off-Grid Solar Electricity in the Developing World. University of California, Berkeley, 2015. [http://search.proquest.com/openview/0a39e3cd025b0300cc030729278ccf1d/1?pq-origsite=gscholar&cbl=18750&diss=y Link]. | | *Lighting Global (2015): Alstone, Peter Michael. Connections beyond the Margins of the Power Grid Information Technology and the Evolution of Off-Grid Solar Electricity in the Developing World. University of California, Berkeley, 2015. [http://search.proquest.com/openview/0a39e3cd025b0300cc030729278ccf1d/1?pq-origsite=gscholar&cbl=18750&diss=y Link]. |
| | *Winiecki, Jacob, and Kabir Kumar. ‘Access to Energy via Digital Finance: Overview of Models and Prospects for Innovation’. Consultative Group to Assist the Poor (CGAP), Washington, DC, USA, 2014. [http://www.fgda.org/dati/ContentManager/files/Documenti_microfinanza/Access-to-Energy-via-Digital-Finance.pdf Link]. | | *Winiecki, Jacob, and Kabir Kumar. ‘Access to Energy via Digital Finance: Overview of Models and Prospects for Innovation’. Consultative Group to Assist the Poor (CGAP), Washington, DC, USA, 2014. [http://www.fgda.org/dati/ContentManager/files/Documenti_microfinanza/Access-to-Energy-via-Digital-Finance.pdf Link]. |
| | + | *[https://www.usaid.gov/powerafrica/beyondthegrid/off-grid-solar-market-assessments#finmodtool Financial Modeling Tool for PAYGO Energy Access Companies] (2021 by USAID and Power Africa): The tool is intended for use by companies evaluating pay-as-you-go (PAYGO) technology and business models. It is designed primarily for solar home system (SHS) and productive use of energy companies. |
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| | [[Category:Financing_Solar]] | | [[Category:Financing_Solar]] |
| | + | [[Category:PAY-GO]] |
| | [[Category:Solar]] | | [[Category:Solar]] |
| | [[Category:Financing_and_Funding]] | | [[Category:Financing_and_Funding]] |
| | [[Category:Off-grid]] | | [[Category:Off-grid]] |
Pay-as-you-go (PAYGO): Companies sell services or products to customers through a pre-paid model. In case of products PAYGO is a kind of paying in small installments to persons that cannot afford or are not willing to buy products in cash. Under PAYGO, the companies not only provide product and services but also the necessary finance to consumers. Customers usually pay 10-20% as upfront cost and rest as loan over a period of 1-2 year. For PAYGO, it may take more than 3 years to convert product inventory into cash flow [1].
This article explains briefly how PAYGO works for customers paying for electric services from off-grid solar systems as well as for the companies offering this service.
Pay-as-you-go (PAYGO) is a financing technology that allows end-users to pay for solar energy in weekly instalments or whenever they are financially liquid. PAYGO is a pioneering, game-changing credit system that removes the initial financial barrier to solar energy access by allowing consumers to make a series of modest payments to purchase time units for using solar electricity instead of paying upfront for the entire solar lighting system.[2]
PAYGO is emerging as a solution that addresses both end-customer affordability and provides sufficient margins to fuel operational models that can scale.[3]
The first PAYGO companies were vertically integrated companies (one-stop-shops). They did all steps: [5]
While most of them have competencies in 3-4 areas, financing became a challenge for them. Expanding and scaling is hampered by two factors: As there are no financial intermediaries, currency risks are an obstacle to growth; and as customers pay within years, working capital is limited. [5]
As a recent development, more mirco financing insitutions enter the market. See Market Overview: Disaggregating the PAYGO value chain.
They use enforcement mechanisms like remote GSM connections and keypad verification.[4] Because most of them use mobile payments, PAYGO is cheaper than traditional microfinance options.
In the energy access sector, PAYGO approaches are mostly used to sell picoPV and SHS solar products, but also mini-grids can be operated implementing a PAYGO tariff. [6]
There are different systems, how PAYGO works. A relatively simple system is using recharge scratch cards, where each card has a code that is revealed by scratching off the silvery layer. The customer enters this code either into the keypade of his system or into their phone. The backend computer systems receive the code, verify it, and finally the PAYG operator unlocks the system. However, the scratch card method requires a complex stock of cards to manage and distribute across agents’ network.
Another system is presented in the following figure. Here, the code is sent to the customers via SMS. This system is also working with an agent, which plays an important role in the uptake and use of mobile money based PAYG systems in rural areas, where people do not often use phones for mobile money transaction or cannot read. Agents help customers, who are hesitant to use mobile money or don't know how it works, to make transactions so that mobile money services become accessible to communities with low digital financial literacy.
Source: Winiecki et al. 2017.
In other systems, customers make a payment to their account at the PAYG provider through a platform of the mobile network operator. Payment notification is sent to the PAYG payment service of the provider, which activitates a credit and unlocks the system of the customer. In some cases, customer can also pay with airtime by transfering airtime to the PAYG provider.
This article offers a definition for PAYGO approaches and shortly explains how it works with examples from the major companies.
