Electricity payments: a massive opportunity for startups across Africa

In August 2014, US president Barack Obama announced a renewed commitment to Power Africa, a private sector-led initiative aimed at doubling electricity access in sub-Saharan Africa, where an estimated 600 million people are without reliable access to power. He raised the bar, pledging to add 30 000MW of energy (triple last year’s goal of 10 000MW) and create new connections for at least 60 million households and businesses. He also pledged US$300-million in grant assistance per year to expand Power Africa’s reach across the continent.

Installing prepaid meters is a big part of the solution, and will play a huge role in protecting electricity suppliers’ revenues, enabling them to provide sustainable power for the long term. These meters are already having an impact in a number of countries including Kenya, Nigeria, Uganda and Zambia, and the potential for growth is huge. In Nigeria alone, the prepaid electricity market is worth an estimated NGN150bn, with 50% of the market yet to receive prepaid meters.

We are finally starting to see some real progress in lighting up the continent! But very soon, infrastructure won’t be the biggest obstacle, payment will be.

While prepaid meters go halfway to solving the problem, making payment points widely available for people to purchase prepaid electricity vouchers is just as important. Unfortunately, it’s proving difficult in areas where retail is primarily informal, and where household incomes are so low that people can often only afford to purchase a couple of dollars’ worth of electricity at a time.

In Zimbabwe for example, rolling out prepaid meters has been quite successful, with over 400,000 installed since August 2012. However, many Zimbabweans with meters are still without electricity because, in order to purchase prepaid vouchers, they are forced to travel to banking halls and queue for hours – something that could take the better part of a day for someone who lives in a very remote area.

In Africa, where people have high levels of mobile access compared to other basic services (like in Tanzania for example, where over 60 percent of the population use a mobile phone, but only 12 percent have access to electricity), mobile seems to be the best way to distribute prepaid vouchers. It is important to consider however, that although mobile is growing, cash is still king in a lot of informal markets where many people are unbanked (and lack access to online or mobile banking).

Perhaps the best solution to Africa’s electricity payment challenge is to empower informal vendors such as taxi drivers, local shop owners and micro entrepreneurs to use mobile technology to buy prepaid electricity vouchers, which they can then sell for cash. This replicates the success of mobile airtime distribution and enables electricity providers to ensure that even unbanked, unconnected people in the remotest of areas can access and pay for electricity conveniently. And they’ll be empowering local entrepreneurs in the process!

Image: Nayu Kim via Flickr.