Could a Pay-as-You-Go Model Convince People to Go Solar?

Paul Needham is interested in why and how people buy things. As a doctoral student at Cambridge, he specialized in a field of economics that asked questions like “What does it cost a buyer to find a seller?” Does the buyer have to travel a great distance, for instance? Does she have to pay a fee to a middle man? So when he started thinking about energy access—how to improve the way people in places without strong electricity infrastructure get their power—one of the questions he asked himself was “Why don’t I own solar panels?”

His answer was that panels cost too much up front. Installing them made the most sense, he says, when he thought about the way he paid his phone bills, in monthly increments of about $100, which would add up over five years to $6,000.

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“I would never pay $6,000 up front for a phone that gave me free calls for 5 years or 10 years or 20 years,” he says. “I wouldn’t do it, even if I thought I’d be better off.”

But that’s what solar companies essentially ask customers to do: pay up front for electricity years into the future. For very poor people with irregular incomes, that doesn’t make sense. Simpa Networks, the company that Needham heads, is working towards offering an alternative. Customers put down a deposit for the solar panels, then pay for incremental units of electricity, the same way they might put minutes on their phone.

Simpa Networks is starting by working with solar installers already peddling panels in India. Right now, those companies tend to work with banks to offer potential customers loans in order to finance the cost of owning the system. But Needham thinks that’s the wrong approach for customers who currently rely on energy sources like kerosene. For anyone on an irregular income, kerosene has one advantage: you pay as you go.

Needham argues that companies need to price solar power correctly, not merely offer the right financing plan for the solar system. “What people really want is the service. Let's price for the service,” he says. Simpa pegged its prices to the costs of kerosene: it costs the same amount to light one room with its solar system as it does to light it with a kerosene lamp, and Simpa’s light is brighter.

The company also offers the “nice twist” of putting customers' incremental payments toward ownership, pricing it so that customers can own the panels within 12 to 36 months, a much shorter payback period than solar owners in the United States face. In the end, it’ll cost Simpa’s customers 30 percent more to own the system than if they buy it outright. Simpa’s system, though, offers flexibility and no commitment—customers can return the panels at any time and have their deposit refunded.

That policy is intended in part to help “make good customers,” Needham says. He’s less worried about people switching back to kerosene or other sources of fuel than selling the panels for cash or breaking them down for parts if they hit a rough financial patch. The company is also looking to tap into the group dynamics that have ensured that microlending customers repay their loans. Simpa might offer group purchasing, for instance, or group rewards. If a group spends a certain amount each month, a portion of their payments could go towards a community institution, like a temple or a school.

Although there are a host of companies and nonprofits that are working on different ways to get solar power to people living without reliable access to electricity, Needham is betting he’s found the right solution. Strategies that focus on solar technology, he says, forgot the reality of the consumer, who cares mostly that they have light, not how they get it.

“If I’m a consumer, I don’t care about the technology,” he says. “I just want to pay for the service, as I use the service.”

Photo via (cc) Flickr user dps