An Evaluation of Factors Affecting Diffusion and Churn Rate of Solar Home Systems in Kenya

Abstract (Swedish)

Låg tillgänglighet till elektricitet är ett stort problem i Kenya, framförallt på landsbygden, och det förväntas fortfarande dröja flera decennier innan elnätet har nått ut till alla delar av landet. Detta innebar att det finns ett stort behov av andra lösningar som kan förse dessa områden med elektricitet. En av dessa lösningar är Solar-Home-System (SHS), ett system som kan ge elektricitet till lampor, användas för att ladda mobiltelefoner samt för att koppla upp en radio eller TV. En betalningsmodell som nyligen introducerades är Pay-As-You-Go (PAYG), en betalningsmodell som innebär att man gör regelbundna betalningar enligt en överenskommen avbetalningsplan, en lösning som gjort SHS tillgängligt till större delen av den Kenyanska befolkningen. För att företagen som distribuerar SHS ska kunna växa långsiktigt är det viktigt att de riktar sig till rätt kunder samt vårdar och skapar långsiktiga relationer med sina kunder. Därför är målet med denna rapport att hitta de faktorer som påverkar hur solcellsföretag bör arbeta med att hitta och behålla
kunder.

Rapporten best˚ar av en litteraturstudie, en kvantitativ analys samt en kvalitativ analys som tillsammans används för att kunna triangulera resultatet. Den kvantitativa analysen innehåller både en regressionsanalys
samt en kreditdataanalys med data från Trine, ett företag som arbetar med att låna ut pengar till solcellsföretag. Den kvalitativa analysen innehåller flera intervjuer med representanter från solcellsföretag och en solcellsorganisation.

Resultatet visar att solcellsföretag borde fokusera på områden med låg fattigdom, kunder som bor på landsbygden och kunder som arbetar med jordbruk eller andra arbeten som inte kräver att man reser eller förflyttar
sig under en längre tid. Solcellsföretag borde också fokusera på områden där det redan finns en närvaro av SHS. Eftersom att resultatet visar att de bäst lämpade kunderna inte nödvändigtvis är de som har störst behov av ett SHS så är det viktigt att samarbeta med staten och välgörenhetsorganisationer för att nå ut till dessa kunder. Inflytandet från grannar är också en viktig faktor för en snabb spridning av SHS i nya områden, därför är det speciellt viktigt att nya SHS installeras så att de har hög synlighet för grannar. Kunder som redan har tillgång till elnätet är fortfarande intressanta för solcellsföretagen även om dessa kunder möjligen har en långsammare betalningsprocess.

För att behålla kunder är det viktigt att se till att kunden förstår PAYG-modellen och hur systemet används på ett effektivt sätt. Därför är det viktigt att solcellsföretagen har en kontinuerlig support från kundtjänst
samt att deras försäljare har rätt incitament till att sälja. Det finns en säsongsvariation i kundernas vilja och förmåga att göra betalningar, därför bör solcellsföretagen fokusera på att skapa flexibla betalningslösningar.
Det är också viktigt för solcellsföretagen att tidigt ha koll på kunder som har hamnat efter med sina betalningar då dessa kunder har större risk att sluta betala för sina system.

Abstract

A problem in Kenya is the lack of access to electricity, mainly in rural areas. It will take many decades for the main grid to reach all rural areas wherefore several off-grid electrification options have been put forward
to solve this issue. One of them is the Solar Home System (SHS), which is an off-grid solar product that can be used for applications such as lamps, radios, TVs and charging mobile phones. A recent payment model for the SHS is the Pay-As-You-Go (PAYG) model where customers make regular payments according to a payment plan, whereafter they become the owner of the system. This payment model allows the SHS to be an affordable solution to many. In order for the companies providing SHS (Solar Companies) to grow in a
sustainable way, it is important to target the right customers and, because of the long term characteristics of the PAYG model, create long-lasting relationships with these customers. This thesis, therefore, aims to
find influential factors for how Solar Companies should target and keep customers.

The thesis consists of a literature review, a quantitative analysis, and a qualitative analysis in order to triangulate the findings. The quantitative analysis includes both a regression analysis and a credit data analysis
with data from Trine, who works with providing loans to Solar Companies, while the qualitative analysis includes several interviews with representatives from the off-grid solar industry.

The result shows that Solar Companies should target areas with lower poverty levels, customers who live in rural areas as well as customers who are working with agriculture or other immobile professions. Furthermore, Solar Companies should target customer in areas where there already is a presence of SHS. Since the result shows that the best customers are not the always the ones who have the greatest need for SHS, it is
important with support from governments and NPOs to reach these groups. Moreover, the neighbourhood influence is also a key factor as to why installing the system with high visibility is important. Potential customers that are already connected to the main grid are still interesting even though their payment process might be protracted.

In order for Solar Companies to keep the customers it is important that the customer understands the PAYG model as well as how to use the SHS effectively, wherefore continuous support from call-centers and sales
agents is important as well as making sure the sales agents have the right incentives to make the sale. There is a seasonality in customers’ ability and willingness to pay as to why focus should be put on enabling more flexible payments. It is also important for the Solar Companies to early monitor and support customers who are starting to fall behind on their payments because these customers have a higher risk of default.

Popular Abstract

Can farmers and having a highly visible Solar Home System really be the solution to the energy poverty problem in Kenya?

There are 1.2 billion people on earth without access to electricity. In order to extinguish the energy poverty in the world there is a need for sustainable off-grid solutions where one of them is the Solar Home System. The last couple of years a new payment model, Pay-As-You-Go has revolutionised the market in Kenya. The payment model allows customers to make small continuous
payments from a mobile phone, according to a payment plan, which enables people from various economic backgrounds to purchase a Solar Home System. So how can off-grid solar companies make sure they are targeting the right customers, thus, customers that will be the most inclined to buying the Pay-As-You-Go Solar Home System while also paying for a long period of time? The
answer to this question lies in focusing on rural areas with a lot of farmers, low poverty and a high presence of Solar Home Systems. However, this does not solve the issue with electricity poverty that UN wants to solve! Because of this, there is a need for support from governments and Non
Profit Organisations in order to help off-grid solar companies in their pursuit of lighting all of Kenya.

In order to keep the customers there are also several issues that needs to be solved. First of all, understanding the Pay-As-You-Go model can be troublesome wherefore the off-grid solar companies should make sure there is a system to continuously support their customers. The sales process is also crucial for creating a long-lasting relationship with the customer. Therefore the commission model and benefits for the sales agents should be carefully designed to create the right incentives. The next issue is the seasonal trends in ability and willingness to pay. To solve this issue there should be even more flexibility in the payment plan. Lastly, customers who fall behind on payments have a large risk of stop using the Solar Home System, why these customers should be closely monitored and supported.

Two particularly fascinating findings were that the visibility of the Solar Home System has a great influence on people’s willingness to adopt. The reason for this is because having a Solar Home System greatly affects the social status of the individual. The second finding was that having a high income from agriculture greatly influenced the willingness to adopt and ability to pay for a Solar Home System. The reason for this might be that successful farmers have variety of crops which leads to lower risk of harvest failure. They might also be more familiar with the concept of long term investments that the Pay-As-You-Go-model is based upon.

The results were found with the help of regression models, credit data analysis and interviews with experienced representatives from the off-grid solar market. The study was made in collaboration with Trine, a company who makes it easy for people to invest in solar energy in growing markets through funding loans to off-grid solar companies.

• author: Rundqvist, Felix and Nilsson Tengstrand, Sara
• supervisor: Dag Rydorff
• organization: Department of Economics
• course: EXTM10 20201
• year: 2020
• type: H2 - Master's Degree (Two Years)
• subject: Business and Economics
• keywords: Solar Home System, SHS, Pay-As-You-Go, PAYG, Diffusion, Churn, Innovation-Decision Process, Kenya
• language: English
• id: 9020877
• date added to LUP: 2020-06-23 13:35:18
• date last changed: 2020-06-23 13:35:18