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    Date submitted
  • 18-Feb-2016

PayGo Energy

Abstract

PayGo Energy solves the root causes for reliance on inefficient fuels, such as charcoal or kerosene, by removing key cost and supply barriers to modern energy. The PayGo smart meter technology (SMT) couples to any LPG cylinder, enabling micro-asset financing and pay-as-you-go functionality that critically align with BoP customers’ variable income streams. Our system is the first solution to provide energy security through access to modern fuels and cooking appliances within a payment structure BoP customers can afford.

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Additional Questions

Who is your customer?

PayGo Energy target's urban charcoal and kerosene users that make more than 10,000 KES a month (per household). Market Scoping: In 2014, PayGo Energy personnel working for Eawag conducted a market-scoping study of 1,500 households in two informal settlements in Nairobi (Mukuru and Kibera). The study highlighted that 88% of households purchase kerosene or charcoal, or a mix of both, to use as their main source of cooking fuel (O’Keefe et al., forthcoming). These customers pay in small amounts ($0.54 USD per day) everyday to cook with inefficient fuels. A follow-up 200-household survey was conducted in Mukuru in 2015 by PayGo Energy. The survey focused on motivations behind household decision making on energy supply and providing more detail on energy spending and end use. Ten households from the survey agreed to take part in a pilot of the PayGo Energy service. LPG systems were installed in all of the households. A prepayment system using M-Pesa was setup and gas consumption was monitored on a daily basis. This minimum viable service enabled customers to purchase LPG in small amounts for cooking. The pilot demonstrated a clear willingness to pay for LPG using a pay-as-you-go system, while also demonstrating that cooking with LPG can be just as affordable as cooking with kerosene (the average amount spent during the pilot was $0.43 USD per day). Within almost all of the pilot households LPG displaced charcoal and kerosene as the primary cooking fuel. The pilot confirms the hypothesis that customers want to be provided with clean fuel and a linked appliance at an affordable price. It also demonstrates that our target customers are willing to adopt a fuel stacking approach to provide energy security to the household (Kroon et al., 2012). PayGo Energy’s early adopter market consists of urban low-income households earning less than $4/day who regularly employ charcoal and/or kerosene as their main cooking fuel. In Kenya there is an addressable LPG market of 14.5 million people, with Nairobi accounting for 3.9 million of the total market (Dalberg, 2013). Globally, PayGo Energy estimates the total addressable LPG market to be ~900 million.

What problem does this idea/product solve or what market need does it serve?

Household Air Pollution (HAP) caused from cooking with inefficient fuels results in 4.3 million deaths per year; this total represents more fatalities than malaria, HIV/AIDS, and tuberculosis combined (Gordon et al. 2014). In Kenya, where 88% of the population cooks with biomass or kerosene, 15,000 people die annually from respiratory illnesses due to exposure to kerosene, wood, and charcoal emissions. Over 40% of childhood deaths are attributed to respiratory illness (Dalberg, 2013). The delivery of modern fuel to households will significantly reduce the time women and children spend collecting fuel as well as reduce the risks of respiratory illness as women are mainly responsible for cooking within households (Leech, 1992). In addition, the use of charcoal for cooking fuel spurs demand for the removal of wood from tropical forests, leading to forest degradation. Degradation of tropical forests releases an estimated 2.2 to 5.39 gigatonnes of CO2 per year, equivalent to the amount of CO2 released through deforestation (Hosonuma et al. 2012). Reducing demand for charcoal will lessen the impacts of forest degradation and reduce CO2 emissions. Switching from inefficient fuels to LPG significantly reduces household air pollution (50 times less polluting than charcoal) and forest degradation (1 hectare of forest saved for every 100 households that switch to LPG). PayGo’s vision to scale is to prove out a replicable model in Mukuru via a single distribution hub servicing 26,000 homes. Based on M-KOPA Solar’s growth trajectory, PayGo will reach an additional 75,000 homes in Nairobi by 2020. Once the PayGo Energy model is proven in Nairobi, the opportunity exists to leverage the existing global LPG infrastructure to replicate the PayGo model and unlock clean cooking fuel for millions of homes.

What attributes will make this idea/product successful? Why do you believe that those features will create success?

At the unit level gas is cheaper than kerosene or charcoal. However, the upfront cost of the cylinder, regulator, hose and appliance prices out most BoP customers (total cost ~$50 USD). PayGo Energy not only removes the upfront cost barrier of accessing clean cooking fuel, but the pay as you go functionality that our technology enables breaks the recurring cost of cooking with gas up into a micropayment structure that BoP customer's can afford (currently ~$11 to refill, with PayGo you can top up your account with as little as $.50). PayGo does not require a behavior change in how customer's purchase fuel today, in fact it matches their current spending patterns with other fuel types. In Kenya, where the majority of the population lives below the poverty line, product market fit is a key. Based on our pilot data, we are confident that our solution fits within the market and within lives of our end-users.

Explain how you (your team) will execute to make this idea/product successful? What gives you (your team) an advantage over others already in the market or new to this market?

The core members of our team have expertise and experience executing in critical areas related to PayGo Energy’s early development: product design and development, product launch, business systems design, market research and enterprise sales. Combined PayGo Energy’s team has over twenty years of experience designing, building, and launching products in emerging markets, as well as five years of experience in infrastructure business development. Two co-founders are located in Nairobi, Kenya, working full-time on PayGo Energy. Three additional members are working part-time until funding is secured. Over the past 4 years PayGo team members have developed a portfolio of products and utility services in Sub-Saharan Africa. In Madagascar, we developed a sanitation resource recovery enterprise for Loowatt. In Kenya, we developed a pioneering sanitation product to improve the sanitation value chain and facilitate Sanergy’s expansion into new markets. In Uganda and Kenya we conducted in-depth product testing and market research for early-stage innovative products such as the Blue Diversion Toilet funded through the Bill and Melinda Gates Foundation. These solutions have increased access to sanitation and energy for over 60,000 people in East Africa. Fausto Marcigot, Engineering: MEng Mechanical Engineering with Management – University of Manchester. Founded Global Service Design (GSD). R&D manager at Sanergy. Project Manager at Loowatt. CTO & Co-founder of Gapguard Systems. Project Engineer at SPIE. Nick Quintong, Business Development: BA Philosophy – University of Southern California. Business Development at GSD. GE Commercial Leadership Program Graduate; closed over $55MM in GE Service and Asset Management Business. Grew Kiva Zip Trustee base by 80% during fellowship in Kenya. Laura Talsma, Strategy/Operations: MSc Strategic Product Design - TU Delft. Founded the User’s Advocate, Project Manager at Climate Foundation. BD for Simgas. Project leader Gates Foundation – RTTC for TU Delft. Michael Hahn, Product Design: BA Industrial Design – Rhode Island School of Design. Product Design manager at Sanergy. Product Designer at iDE. Fulbright Fellow. Product Designer at Design That Matters. Mark O’Keefe, Operations/Research: BA Geography, MSc Humanitarian Studies – University of Liverpool. Sanergy Operations Research Lead. EAWAG Social Scientist. LJMU Public Health Researcher. Key Partnerships & Advisors: Cascade Designs/Mountain Safety Research has agreed to engineer, manufacture, and certify the PayGo Smart Meter Technology under their Global Health Unit. Catapult Design is an emerging markets design consultancy and has partnered to provide labor, expertise, and facilities to design and develop the PayGo unit. Village Capital provides business support, mentoring, and funding opportunities through the Village Capital Hardware Africa Accelerator. Open Capital Advisors is helping to prepare PayGo Energy for investment. Global Village Energy Partnership is a strategic partner for business consulting, investment readiness, and access to investment. Kiva has partnered to provide a flexible microfinance product to cover the up-front unit costs. Andy Narracott, Deputy Director Global Safe Water and Evidence Action, is a key business advisor.