In 2013, we launched the M4D Utilities Innovation Fund (formerly MECS) to test and scale the use of mobile to improve or increase access to energy and water services. With the support of the UK Government, £2.4 million in Seed and Market Validation grants was awarded to 13 organisations in 11 countries across Africa and Asia.
Today we continue our Case Study series on lessons learned from these 13 projects. A core output of the Innovation Fund is the lessons and evidence base developed throughout the grant timeline that can inform ecosystem players, such as commercial benefits to mobile operators, and social and economic impacts for the underserved. By making these lessons public, we intend to accelerate scaling and sector growth. Since the inception of these grants, we have already seen significant expansion and innovation to mobile-enabled products and services for water and energy delivery as well as sanitation, and the business models that support them.
The eleventh Case Study in our series focuses on Nova Lumos (Lumos), the Netherlands based company that designs and manufactures mobile-enabled solar home systems (SHS) and partners with mobile operators to make pay-as-you-go (PAYG) solar available in markets with a large addressable off-grid population and limited mobile money adoption.
In December 2013, Lumos was awarded a Seed grant to trial the development of a mobile-enabled energy service with MTN Nigeria. MTN Mobile Electricity, an MTN and Lumos co-branded service offers off-grid customers in Nigeria access to energy-as-a-service via SHS. The PAYG model is enabled by the use of airtime credit and GSM-based machine-to-machine (M2M) connectivity to remotely control and monitor the SHS usage, billing and performance.
The key objectives of the grant were to trial a prepaid utility service that uses airtime credit to test the feasibility of PAYG solar in West African markets with limited mobile money services. Key findings from the grant include:
- Airtime is a viable payment mechanism for PAYG in markets with limited mobile money penetration. During the course of the grant, Lumos proved that airtime credit could be successfully used as an alternative means to collect payments for its energy service. On the upside, mobile subscribers’ familiarity with airtime reduces the need for customer education on mobile money in a market where it’s rarely used. However, the technology integration is significantly more complex for airtime than for mobile money.
- PAYG energy can generate as much gross revenue as voice and SMS while reducing churn for mobile operators in large off-grid markets. In Lumos’ approach to PAYG, mobile operators are essential partners in the delivery of the service and are compensated through a revenue share agreement. MTN recognised the opportunity to generate significantly more revenue from its low-value, off-grid customers with Lumos’ pricing of $16.5 for 30 days of energy which represents twice the monthly Average Revenue per User (ARPU) in Nigeria of $8.09 . MTN data indicates Lumos customers actually spend on average as much or more on energy as they do on voice and SMS (although only a portion of this goes to MTN, and MTN also pays toward the cost of sale). MTN also benefits from increased customer loyalty through regular payments that lead to reduced churn.
- Mobile operators can provide a path to scale for sales and distribution. In Nigeria, MTN is co-branding the service with Lumos and helps build the customer facing relationship. The overall benefits of the partnership allow MTN to support distribution, sales and after-sales customer support. Thanks to the MTN partnership, Lumos enjoys access to MTN’s nationwide logistics, warehousing, inventory management, retail stores and call centre services, keeping the cost of service to a minimum and overcoming one of the main challenges PAYG providers face. MTN’s understanding of the local market was instrumental to better address and communicate with customers while their existing customer base of 60 million subscribers offers a head start and fast access to the Nigerian market.
- The Lumos system is a viable alternative to household petrol generators. The high prevalence of petrol generator ownership in Nigeria is perceived to be a hurdle to the sale of SHS and potential success of PAYG in the country. However, a customer survey revealed that 55 per cent of customers owned a petrol generator prior to purchasing a Lumos system. The value proposition of the Lumos service is thus evenly split between providing first-access to high quality electricity and reducing customer’s monthly expenditure on petrol. Customers’ experience with generators has increased their expectations and need for energy, therefore making a larger SHS a more robust solution to answer Nigerians’ energy aspirations.
As a first mover in the PAYG sector in Nigeria, Lumos’ experience highlights the opportunity that exists in the market and the ways that business models can be adapted to the local context. Lumos’ offering has demonstrated valuable revenue and customer loyalty benefits for MTN through their deep partnership. For Lumos, this partnership provides a promising route to scale. While PAYG providers have shied away from challenging markets with lower mobile money penetration, the Lumos and MTN example suggests that a close partnership with mobile operators may be a particularly important strategy for these markets.