1220 19th Street NW, Suite 200 Washington, DC 20036 United States of America +1 (202) 822-9100 1 Bedford Avenue London, United Kingdom WC1B 3AU +44 207 636 4352 Driebergseweg 2, 3708 JB P.O. Box 55, 3700 AB Zeist, The Netherlands +31 0 30 693 37 66 %www.encludesolutions.com TRAINING MODULE: WORKING SERVICES Final Report MARKET ASSESSMENT OF MODERN OFF GRID LIGHTING SYSTEMS IN UGANDA Produced for Lighting Africa December 2014
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1220 19th Street NW, Suite 200 Washington, DC 20036 United States of America
+1 (202) 822-9100
1 Bedford Avenue London, United Kingdom WC1B 3AU
+44 207 636 4352
Driebergseweg 2, 3708 JB P.O. Box 55, 3700 AB Zeist, The Netherlands
+31 0 30 693 37 66
%www.encludesolutions.com
TRAINING MODULE: WORKING SERVICES
Final Report MARKET ASSESSMENT OF MODERN OFF GRID LIGHTING SYSTEMS
IN UGANDA
ProducedforLightingAfrica
December2014
1220 19th Street NW, Suite 200 Washington, DC 20036 United States of America
+1 (202) 822-9100
1 Bedford Avenue London, United Kingdom WC1B 3AU
+44 207 636 4352
Driebergseweg 2, 3708 JB P.O. Box 55, 3700 AB Zeist, The Netherlands
+31 0 30 693 37 66
Authors:EncludeBV,TheNetherlands
LisanneHeemskerk,GeertEenhoorn,BobbyNamitiDate:December2014Disclaimer: ThisreportwascommissionedbyWorldBankGroupandtheUgandanRuralElectrificationAgency,aspartoftheLighting Africa programm (a joint IFC andWorld Bank program). The findings, interpretations, and conclusionsexpressedinthispaperareentirelythoseoftheauthors.TheydonotnecessarilyrepresenttheviewoftheLightingAfricaProgram,itsaffiliatedorganizations,orthegovernmentstheyrepresent.This report has been developed with the utmost care and based on primary research conducted in Uganda.Nevertheless,EncludeBVcannotguaranteeorwarranttheaccuracy,reliability,completenessoftheinformationinthispublicationnoritsusefulnessinachievinganypurpose.Readersareresponsibleforassessingtherelevanceandaccuracyofthecontentofthispublication.EncludeBVwillnotbeliableforanyloss,damage,costorexpenseincurredorarisingbyreasonofanypersonusingorrelyingoninformationinthispublication.
LISTOFFIGURESFigure 1. Overview of actual locations where demand surveys were taken (see also Annex 3). Insert:
populationdensity................................................................................................................................15Figure2:Answerstothequestion9:‘Whatsourcesofenergydoesyourhouseholduse?’........................20Figure3:Question10:‘Howreliableareyourcurrentsourcesofenergy?’.................................................21Figure 4: Question 10: ‘How reliable are your current sources of energy?’ as perceived by Ugandan
Figure 42: Correlation between Question 32 and Question 33 shows that when neighbours, friend orrelativesownsolarpower,45%morerespondentsalsousesolarpower(32%vs22%non-solarowners)................................................................................................................................................................39
Figure 69. Direct Sales model. Direct contact between seller and customer, sometimes through (local)branchoffices.......................................................................................................................................60
SUMMARYLightingAfrica,ajointIFCandWorldBankprogram,catalysesandacceleratesdevelopmentofcommercialoff-gridlightingmarketsinSub-SaharanAfricaaspartoftheWorldBankGroup'swidereffortstoimproveaccesstoenergy.LightingAfricaismobilizingtheprivatesectortobuildmarketsthatprovideaffordable,modernoff-gridlightingproductstocommunitiesacrossAfricathatarenotconnectedtogridelectricity.Enclude was contracted to conduct an off-grid lightingmarket assessment in Uganda, with the overallobjectivesto:(i) offerinsightonhowtheLightingAfricaprogramcanaddvalueandsupportmarketplayersinorder
togrowthemarketformodernoff-gridproductsthatmeettheLightingGlobalQualityStandards;(ii) offerinsightthatcanbeusedbycurrentandpotentialmarketplayerstogrowtheirbusiness.Toachievethisobjectivethemarketassessmentaddressesdemand,supplyandkeyinstitutionsinvolvedintheoff-gridlightingmarketinUganda.ApproachThemarketassessmentconsistsofademandsurveyof845households;asupplysurveyof103retailers;and interviewswithmain importers/distributors andwith institutions andmarket influencers in all fourregions inUganda.For thedemandsurvey,quotasamplingwasusedtoensure thatat least20%of thehouseholdsinterviewedweregridconnectedand20%ownedsolarproductstoassesssatisfactionlevels.Inaddition, a balanced split wasmade to ensure sufficient representation of urban, peri-urban and ruralhouseholdsintwopreselecteddistrictsineachofthefourregionsofUganda.Forthesupplysurvey,quotasamplingwasalsousedtoensurethattheretailersinterviewedinthesupplysurveywereevenlydistributedovertheeightselecteddistricts.The10interviewedimportersandthe10interviewedmarketinfluencerswereselectedinconsultationwiththeUgandanRuralElectrificationAgency(REA).KeyfindingsThe solar market in Uganda is immature and dispersed, consisting of a multitude of relatively smallcompanies,withhardlyanylarge(multinational)corporationsactiveinthesector.Findings indicate that thesolarproductendusersaregenerallymoreawareandmoreconvincedof thequalityofsolarenergythanthemarketplayers, institutionsandNGOs/donorsrealise.Endusersarealsoquiteconvincedofthebenefitsthatsolarproductscanbringthem.Theneedtochargecellphonesseemstobeincreasinglyprevalent.Eightythreepercent(83%)ofthehouseholdssurveyedownoneormorecellphones.Eightypercentofhouseholdsthatownasolarproductwouldliketohavealargersystem(morethan20watts peak). Thedemandof thehouseholds that donot owna solar product ismorediverse, but theypredominantlydemandlargesolarhomesystems(SHS)andmobilesolarsystemswithaphonechargerandwithmorethanonelight.Theoff-gridlightingmarketinUgandafacesthefollowingkeychallenges:• Limitedsolarpurchasingpointsandbrandawareness;householdsneedsupporttomakeaninformed
Institutions,importersandsolarcompaniesbelievethatconsumershavedoubtsonthequalityofsolarproducts–mainlyduetoimportsoflowgrade,cheapChineseproductssoldthrough“dubioushardwareshops”.Thisassumptionaboutconsumerperceptionsisnotconfirmedbythisresearch.Solarproductsareboughtpredominantlyatelectronic/hardwareshops(55%ofSHSsand38%ofmobilesystems).About65%ofthesolarownerswereverysatisfiedwiththeirsolardevice,and80%wanttopurchaseothersolarproducts.Currentlightingsourcesused–mainlycandles,kerosenelampsandtorches–areconsideredtobeunreliableby56%ofthesurveyedhouseholds,especiallyinruralareas(68%).Ninetypercentof solarequipmentownersconsider it tobe reliable. In termsof satisfaction levels,60%ofhouseholdsarenotsatisfiedwiththeirkerosenelightingsource,and95%offixedsolarhomesystemownersaresatisfied.
• Limitedavailabilityofmaintenance&aftersalesservices–‘deeper’distributionnetworksrequiredOnly15%ofretailersinUgandaofferwarrantiesandonly6%offeraftersalesservicestotheircustomers,forbothmobileandfixedsolarsystems.Fourmaindistributionmodelsareprevalent:thedirectsalesmodel;thetraditionaldistributionmodel(throughindependent3rdparties);the(branded)franchise/agentmodel;andtherelativelynewMFI/SACCOmodel.Mostsuppliers,however,useamixoftwoorevenallfourdistributionmodelsinanefforttogettheproducttothe‘lastmile’consumer.Morethan45%ofsolarproductsaresoldthroughmultiplepartiesinthesupplychain,eachearningamargin,andthus driving up costs of the products. Nonetheless, end-users value direct contact andwarranties.Correlationsbetweenownershipandpresenceofsolarinthecommunity(neighbours,schools,clinics)suggestthatlocalpresence–andhence‘deeper’distributionnetworks–increasesolarproductuptake.
• Highinvestmentsrequiredtoobtainsolarproducts;workingcapital&affordablelendingareneededLackofmoneyandotherfinancialprioritieswerethemainreasonsthathouseholdscitedfornothavingpurchased a solar product yet. Since, on average, over 38% of the sample households’ disposableincomeisspentonschoolfees,thereislittleroomforotherexpenditures,includingenergy.Currently,lessthan5%ofthehousehold income isspentonenergy,andonaverageUGX1,910(US$0.70)perweekisspentonkerosene.However,householdinvestmentsinsolarproductscouldbeearnedbackwithin6-12monthsforsmallsystemsand2.5-3yearsforlargesystems,basedoncurrentenergyusage.DistributionisfurtherlimitedbythefactthatImporters,suppliers,franchiseesandagentsareoftennotabletopre-financestock,whichlimitstheirgrowth.Interviewedimporters indicatedloanconditionsareunfavourableandinterestratestoohigh.
The challenges above cannotbe considered independently fromeachother and seem tobe linked in aviciouscycle:financialinstitutionsarereluctanttoprovideloans(tosuppliers,retailersand/ortoend-users)→therefore,cash-poorsuppliers&retailerscanonlysellonacashbasisandcanonlyprovidelimitedservice&maintenanceinfrastructure→therefore,customersdonotbuy,resultinginalimited,highriskmarketthatfinancialinstitutionsarereluctanttofinance.A number of initiatives have acknowledged these interrelated issues and are working to solve them.Programs working to address the problems include the Promotion of Renewable Energy and EnergyEfficiencyProgramme(PREEEP)byGIZandENdev;FINCAPlusbyFINCA,REAandMEMD;SustainableEnergyMarketAcceleration(SEMA)byEnclude;andtheChampionDistrictInitiativebyWWF,MEMD,REA,GIZandCREEC.Inadditiontothechallenges,thisstudyidentifiedanumberofkeyopportunitiesforincreasedsolarproductuptakeinUganda.
Final report WB PO7170868 ‘ Enclude 12
• Householdsneedworkingsolutionsforchargingtheirmobilephones:Nearlyeveryruralhousehold(73%)owns amobile phone. Seventypercentof thesehouseholds charges their phoneoutside thehome,usuallyatakioskofsomesort,andspendsonaverageUGX1,000(US$0.40)perweektodoso.
• Households spend valuable time accessing energy: Rural households spend 26 minutes per weektravellingtocollectandpurchaselightingproducts.Peri-urbanresidentsspend21minutes,andurbandwellersspendanaverageof15minutesperweekoncollectingandpurchasinglightingproducts.
InterventionrecommendationsTo improve access to energy in the Sub-Saharan region, Lighting Africa can consider the followinginterventionstoacceleratethedevelopmentofcommercialoff-gridlightingmarketsinUganda.TobreaktheviciouscyclehamperingsolarmarketplayersinUganda,thereisaneedtosupport,createandfundfee-for-serviceorpay-as-you-gobusinessmodels(withfinancialinstitutions,suppliersandretailers).Wesuggestthefollowingmarketinterventions:• SolarCompanies:Set-upandstrengthendistributionandaftersalesnetworks;Increasecustomercare
and services (including after-sales); Increase informal marketing; and provide/facilitate warranties.Thesetypesofinterventionsarecapitalintensiveforsolarcompanies,hencestrengtheningtheworkingcapitalpositionofthesecompaniesiskey.
• Financial Institutions (FIs): Provide technical assistance (TA) to FIs, by training loan officers anddeveloping specificmarketingprograms;providea loanguarantee fund toparticipatingFIs;providepartialriskguaranteestoallowFIstofinancesolarcompanies;providetechnicalassistanceondefaultand bad debt management; and provide TA, seed money and/or guarantees to standardised andsimplified loan appraisal systems. These measures will add more capital to the supply chain, thusacceleratinggrowth.
• Government and development institutions: Government institutions: Radio awareness campaignspromotingsolarversuskerosenetostrengthenthesolarmarket,withafocusonwheretobuysolarproducts;MEMD(supportedbyLightingAfrica):Enforcestandards,strengthenUNBS(UgandaNationalBureauofStandards)tofurtherincreasemarkettrust;LightingAfrica(supportedbyUECCCandMEMD):Createaguaranteefundtoincreaseworkingcapitalthroughoutthesupplychain;MEMD(supportedbyLighting Africa): Create warranty legislation tomature themarket; extendworking capital to solarcompanies;promotesolar throughschoolprograms;andsubsidiseawarenesscampaignstosupportsolar companies and retailers. These measures will strengthen the solar market and build furtherproducttrust.
Final report WB PO7170868 ‘ Enclude 13
1 INTRODUCTION
1.1 OBJECTIVEOFTHESTUDY
ThismarketassessmentisconductedaspartoftheLightingAfricaprogram.LightingAfrica,ajointIFCandWorldBankprogram,catalysesandacceleratesdevelopmentofcommercialoff-gridlightingmarketsinSub-SaharanAfricaaspartoftheWorldBankGroup'swidereffortstoimproveaccesstoenergy.LightingAfricaismobilizingtheprivatesectortobuildmarketsthatprovideaffordable,modernoff-gridlightingproductstocommunitiesacrossAfricathatarenotconnectedtogridelectricity.Improvedlightingprovidessignificantsocio-economic,healthandenvironmentalbenefits,suchasnewincomegenerationopportunitiesforsmallbusinesses.LightingAfricacarriesoutongoingdiscussionswiththeGovernmentofUgandaandpreliminarybackgroundwork in preparation for a possible integration of its activities into the Uganda Energy for RuralTransformationPhaseIIIproject,anupcomingprojectundersupervisionofUganda’sRuralElectrificationAgency(REA).LightingAfricacontractedEncludetoconductthismarketassessmentinUganda.EncludewassupportedbyFriendsConsultLtd.Ugandaforsurveyimplementationandcoordination,andtheUgandanenergyexpert,BobbyNamiti.Theoverallobjectivesofthisassignmentareto:
(ii) offerinsightthatcanbeusedbycurrentandpotentialmarketplayerstogrowtheirbusinesses.
Toachievethisobjectivethemarketassessmentaddressesthedemand,supplyandkeyinstitutionsinvolvedin the off-grid lightingmarket. These off-grid lighting products include both fixed systems (solar homesystems,orSHS)andmobileorportablesystems(lanternsandplugandplaysystems).Morespecifically,thisstudyhasthreespecificobjectives:
3. Ontheinstitutionalside:Identifyinstitutions,bothinthepublicandprivatesectorandfromthepolicy to retail levels which can influence the sub-sector and prospective actors entering themodernoff-gridlightingmarket.Analysetheircurrentandprospectiverolesinthesub-sector.
1.2 RESEARCHMETHODOLOGY
1.2.1 ApproachThismarketassessmentexamineswhichLightingAfricainterventionsandactivitiescanbestaddvalueandsupport both existing market players (operating for 5-20 years) and newmarket entrants. This reportincludessuggestedactivitiesforLightingAfricatofurthergrowthemarket,andspurinvestmentinscalingupsuccessfulapproachesandinnovationsintheoff-gridlightingmarketinUganda.
SupplysurveyThesupplysurveywasconductedamong100retailersofoff-gridlightingproducts,spreadevenlyoverthefourregionsand8districtschoseninUganda(seeAnnex5forthesampledistributionbyregion).Thesurveyincludes a range of different suppliers and retailers: general shops, electronic/hardware shops, solarspecialistshops,andagentsandruralfinancialinstitutionsthatretailoff-gridlightingproducts.PilotsurveysApilotsurveywasconductedtotestandimprovethedemandandsupplysurveys.FriendsConsultprovidedfeedbackonlocalparameters.Thefollowingpre-identifiedstakeholderswereinvitedtocommentonthedraftdemandandsupplysurveys:Barefootpower,SolarNow,IncafexandREA.Commentswerereceivedfromthelattertwo(seeAnnex1).Enclude and Friends Consult ltd. used the pilot survey as field training for the two supervisors and 10enumerators on using the CAPI (computer assisted personal interviews) survey software for both thedemandandsupplysurvey.ThepilottookplaceintheareasofSeetaandMukono(incentralUganda).Forthedemandsurvey,40pilotsurveyswereconducted,including20%gridconnected,20%solarowners,andamixofurban(20%),peri-urban(40%)andruralinhabitants(40%).Duringthetraining,thedefinitions
Final report WB PO7170868 ‘ Enclude 16
of urban, peri-urban and rural were presented and discussed in detail1. Data from both surveys wasevaluatedandthesurveyswereimprovedwherenecessary.ThefinalsurveyscanbefoundinAnnexes2and3.ImporterInterviewsThefollowing10importersofoff-gridlightingproductsinUgandawereinterviewed:Table2:Interviewedimporters
MarketinfluencerInterviewsThefollowinginstitutionswereidentifiedwhoareeitheractiveinorinfluencetheoff-gridlightingmarketinUganda.Publicandprivateinstitutionsareincludedbecauseofcurrentandfuturerolesinthesector,andhigh potential new market entrants were also interviewed. The following market influencers wereinterviewed:Table3.Interviewedinfluencers
MarketinfluencersGovernment
- UgandaEnergyCreditandCapitalizationCompany- MinistryofEnergyandMineralDevelopment- UgandaNationalBureauofStandards- REA
Therearesomelimitationstohowtheresultspresentedinthisreportcanbeinterpreted.First,althoughweaimedtointerviewallactorsfacetoface,afewstakeholderswereinterviewedbyphoneduetotheirremotelocationsandtraveltime.Althoughquestionsinphoneinterviewswerethesameaswhenconductingaface-to-faceinterview,theremightbeslightinterpretationdifferenceswhenusingthismethod.Second, the results show an overrepresentation of solar owners and grid-connected households. Asexplainedintheresearchmethodology,thisisdeliberatetoensurecomparisonscouldbemadebetweengrid connected and off-grid households and between solar-owning and non-solar-owning households.Therefore,notallresultscanbedirectlygeneralizedtorepresentallhouseholdsinUganda.
1.4 STRUCTUREOFTHEREPORT
Followingtheintroductionandbackgroundmaterial,Chapter2providesanoverviewofthecurrentmarketsituationofoff-gridlightinginUganda,includingthemainplayersactiveinthemarket.Chapter3highlightsthemainfindingsofthedemandsurveyinrespecttoproductsusedandhouseholds’expendituresforsolarproductsinUganda.Chapter4providesanoverviewofthekeyfindingsofthesupplysurveyandinterviewsregarding the main distribution and business models of Ugandan retailers and importers. Chapter 5highlightsthekeycharacteristicsandactivitiesofmarketplayersthatwereinterviewed.InChapters6and7,thekeyconclusionsandmainrecommendationsofthestudyarepresented.
2.1.1 EnergyAccessChallengesinUgandaHistorically,Uganda’selectrificationratehasbeenquitelow.Grid-connectedhouseholdshavegrownfrom5.6%in1991to9%in2006and10%in2010.Presentlyonlyaboutfivemillionhouseholdsareconnectedtothenationalgrid.Thisisjustunder14%ofthecountry’sentirepopulationof36millionpeople.Thegridisalmostentirelyfocusedinurbanareasandprovincialtowns,oftenonlyconnectingafewthousandpeopleper district2. At the same, only about 16% of the population is urbanized. Of the rural population,approximately4%isgrid-connected.Hydro-generatedpoweristheprimarysourceofpowertothenationalgridandaccountsforjustover70%ofthe595MWinstalledgenerationcapacity(20103).Renewableenergysources,e.g.solarPVandbiogasproduce,contributeanegligible0.1%ofthetotalnationalenergysupply.Thatapproximately31millionpeopleinUgandalivewithoutelectricityhassignificantramificationsfortheeconomyandqualityoflife.Lackofaccesstoreliablelightinglimitstheproductivityofabout85%ofthecountry,hinderingpeoples’ability tocarryoutbasicactivitiesatnightor intheearlymorning, includinghousehold chores, reading, schoolwork, and business activities. Fuel-based lighting also has health andsafetyimplications:chronicillnessduetoindoorairpollution,andriskofinjuryduetotheflammablenatureof the fuels used. Kerosene lamps emit fine particles that are a major source of air pollution. Theseimplicationsalsohaveanegativeimpactontheeconomy(lowerproductivity,higherhealthcarecosts)andreducedqualityoflife(lowerlifeexpectancy,respiratoryissues).
2.1.2 TheUgandanSolarMarketThesolarPVmarket inUgandahas steadilygrownover the last15yearswithnewplayersentering themarket, includingforeigninvestors.WhiletenyearsagotherewereahandfulofsolarcompaniesmainlyengagedininstitutionalsolarPVinstallations,currentlyanumberofcompaniesareinvolvedinthesolarPVandevensolarthermalbusinesses.Themarketisintransition,however,anddifferentplayersarestrugglingtofindtheiroptimumservicinglevels,particularlyregardinglastmiledistribution.ThehistoricalgrowthofsolarintheUgandanmarketisaccountedforbyfivekeyfactors:4
iscurrentlyusedprimarilyforoff-gridelectrificationforruralcommunities,aswellasforwaterheatingandpoweringpublicbuildings,includinghospitals.In2009anestimated1.1MWofsolarPVpowerwasinstallednationwide5, including both institutional and home systems. The SHSmarket is regarded as one of thebiggestareasinUgandaforcommerciallydrivensolarPVbusiness,andconsideredtohavehighpotential.Despite its growth and promising potential, according to previous research themarket for solar is stillnascentandhampered6bythefollowingmainchallenges:• Cost of solar PV systems: Solar systems are expensive to buy both from an upfront investment
• Quality of solar PV products, systems and system components: Quality control is low both atimportationandlocalproductionlevels(forlocalcomponents),aswellasininstallationsofthesystems.Thehighmarketpotentialhasresultedinaninfluxofdealerssellinglowqualityproductsorinstallingsystemsincorrectly,especiallyinthecaseofsolarlanterns.Ruralcustomersaremoreconcernedwiththepriceofsystemswhilerelativelyuninformedabouthowtodeterminethequalityofsystems.
• Last mile distribution: Rural commercial marketing and distribution networks for solar are largelyabsent.ThesolarcompaniesinUgandaarestuckatalowlevelequilibriumoflowsalesvolumesandhighpriceswithlargeunitmargins.Thecompaniesaresmallandentrepreneurial,withlimitedfinancialcapabilities.Theyhaveneithertheresourcesnortheriskappetiteformajorinvestmentsontheirowninruralmarketingandlastmiledistribution.
• Financialrisks:Becauseofthehighcapitaloutlay,solarisconsideredbybothcashandcreditbuyerstobe a risky asset. Financial Institutions, including micro finance institutions and Savings and CreditCooperatives(SACCOs)oftenassumethatfinancingsolarproductscarriesahighcreditrisk,particularlybecauseitisanewproductofwhichthetechnicalaspectsaregenerallyunknown.
• Service and after-sales service: There is inadequate rural presence of solar equipment and serviceproviders and thus service and maintenance is often out of reach. As a result, solar consumersexperiencealackoftechnicalsupportontheground.
3.1.1 CurrentaccesstoanduseofenergysourcesThemainenergysourceusedbysurveyedhouseholdsiskerosene,particularlyintheruralareas.Onaverage,40%ofhouseholdsuse kerosene, and18%use candles. In the rural areas, over 56%ofhouseholdsusekerosene,whereasinurbanareasthefigureis21%.Figure2:Answerstothequestion9:‘Whatsourcesofenergydoesyourhouseholduse?’
Note:Becauseof thestratified/quotasamplingmethodused,grid-connectedhouseholdsandhouseholdsusingsolarenergyareoverrepresented.TheUgandanhouseholdssurveyedconsidertheenergysourcesusedtobeveryunreliable.Particularlyinruralandperi-urbanareas,almost70%and55%ofrespondentssaidtheirenergysourcewas‘extremelyunreliable’to‘notsoreliable’.Thisisprimarilythecaseforhouseholdsusingbasicenergysourcesincludingkerosene, candlesandnon-rechargeablebatteries, and far lessprevalent forgrid-connectedhouseholds(either national or local) and solar-using households. Urban households find their energy source mostreliable(67%sayitis‘very’or‘moderately’reliable).
Figure5showswhichappliancesareusedbythesurveyedhouseholds.Themajorityofthehouseholdsowna cell phone, radio and flashlight/torch (using dry cell batteries), particularly in the rural areas. ThehouseholdsinurbanareasalsotypicallyownTVs,refrigeratorsandelectriccookstoves.
Figure7demonstratesthatthemoreremote(orrural)thehousehold,themoreitreliesonbasicenergysources such as kerosene, wood and charcoal fire, and candles. Notably, although nearly 24% of thehouseholds in urban areas are grid-connected (either national or local grid), almost 50% still use basicsourcesforlightingthehome,generallyasaback-upduringpowercuts.Themajority(about57%)ofsurveyedhouseholdsusethese lightingsourcesfor lessthan2hoursaday.Othersusethelightingsourcebetween2to4hoursaday.
3.1.5 TypesofSolarSystemsIngeneral,householdsusefixedsolarsystemsmorethanmobilesolarsystems,particularlythefixedsolarhomesystemsofmorethan20watts(seeFigure14).Aprobablereasonforhighfixedsystemuseisthegovernmentsubsidiesprovidedforfixedsolarsystemsonly,providedthroughthePVTMA(SolarPVTargetedMarketing Approach) as part of the World Bank financed Energy for Rural Transformation (Phase II)programme,andthestrongmarketingeffortsofSolarNow(offeringfixedsystems),usingagentsalloverUganda.Figure13.ExamplesofsolarPVinstallations.
IntheCentralregion,thesmallersolarhomesystems(of0-10and10-20wattscapacities)arealsoownedin largenumbers,while in theEasternandNorthern regions,mobile systems (more thanone lightwithphonecharger)ranksecond(seeFigure15).
Whenlookingatregionalpurchasingpatterns,itisclearthatparticularlyhouseholdsintheCentral,NorthernandWesternregionsbuytheirsolarproductsathardwareshops.Onlyhouseholds in theEasternregionfrequentlyboughttheirsolarproductsatasolarspecialist(34%)orafieldagent(29%).Figure19:Question38:‘Wheredidyoubuyyoursolarproduct?’SolarHomeSystemowners(topgraph)andmobilesystemowners(bottomgraph)
Householdsdonot seemtoexperiencequality issueswith their solarproducts,which is contrary to theperception of other stakeholders such as suppliers, financial institutions (Banks) and donors/NGOs. Thesmallnumberofhouseholdsthat indicatedtheywerenotsatisfied,primarilyciteddifficulty inuse(forasingle lightwithout phone charger system), power unsuitable for lighting (formore thanone lightwithphonecharger&fixedSHSofmorethan20watts),orpowerunsuitableforotherappliances(singlelightwithphonecharger&fixedSHSofmorethan20watts).
• Thelightwastoodifficulttouse(solarlanternowner);• Itdidn'tworkanymore(a>20WSHSowner);• Thepowerwas not reliable for lighting (amobile systemwith charger owner and a >20WSHS
Between78%and82%ofallsolar-owninghouseholdswouldwanttoownmoresolarproducts,particularlyintheruralareasandparticularlyforhouseholdsowningasinglelightsystemwithaphonecharger(mobilesystem);morethanonelightsystemwithphonecharger(mobilesystem);orafixedSHSof10to20watts.In termsof trust in solarproductsandwhethersolar is seenasan indicationof themodernhousehold,responsesareextremelypositive.Over90%ofthehouseholdsinallregionsinUgandatrustsolarproducts,andbetween76%and94%feelitisanindicationofamodernhousehold.
Surveyed rural households spend, on average, 26minutes per week travelling to collect and purchaselighting products. Peri-urban residents spend 21 minutes, and urban dwellers spend an average of 15minutesperweekoncollectingandpurchasinglightingproducts.Non-solarownersindicatedthemainreasonfornothavingpurchasedasolarproducthastodowithnothavingthemoney(51%),followedby‘otherfinancialpriorities’(26%)(Figure26).Interestingly,about12%ofthehouseholdsinurbanareaswerenotconvincedofthequalityofsolarproducts,whichdoesnotseemtobeanissueinruralandperi-urbanareas.Thislackoffinancingamongthesehouseholdspointstoaclearneedtoexplorethepotentialforend-userfinancingsolutions.Forty-fivepercentofthenon-solarowninghouseholdsindicatedtheywouldbemoreinterestedinbuyingsolarifprovidedaloan,particularlyintheurbanareas.
Inall regions,morethan90%ofhouseholds indicatethatsolarproductscanbetrusted(Northern:95%,Eastern:94%Western:96%,Central:90%).Theconfidenceinsolarproductsisstronglydrivenbyawarranty,the Uganda Bureau of Standards (UNBS) mark or by Government recommendation. This is particularlyevidentintheNorthernandEasternregions.
3.1.9 DemandDriversofSolarOwnersAlthoughthemajorityofthesolarownerswerenotofferedanincentivewhenbuyingtheirsolarproduct(71%),thelargemajorityindicatedthattheywouldbewillingtopromotesolarproducts(bywordofmouth,forinstancetoneighboursandrelatives)whenofferedanincentivetodoso(81%onaverage).Ninety-fivepercent of the households that had been offered an incentive in the pastwerewilling to promote theproductagainwhenofferedanincentive.
3.2.1 CurrentUseofMobilePhonesThemajorityofthesurveyedhouseholdsownatleastonemobilephone,rangingfrom73%inruralareasto96% in urban areas. A large part of the households in peri-urban and urban areas generally own 2 orsometimeseven3mobilephones.Figure29:Left:Question11:‘Whichofthefollowingappliancesdoesyourhouseholdhave?’(Answersforcell-phonesonly)(n=845),Right:Question12:‘Howmanycellphonesdoesyourhouseholdhavetogether?’
3.3.1 BrandAwarenessAmongstHouseholdsBrand awareness is lowest in the Central andWestern regions,where 89% and 83%of the householdscouldn’tmentionanybrand.SolarNowisthemostwell-knownbrand,especiallyintheNorthernandEasternregionswhererespectively34%and38%ofthehouseholdsknewthebrand.
Froma regionalperspective,mosthouseholds in theCentral regiondon’tknowthebrandof their solarsystem (57%). In the Eastern region, 54%of the solar owners surveyedmentioned theyhave SolarNowsystems.AseSolarsystemsareownedby20%ofthehouseholdsintheNorthernregion.
A positive correlation exists between schools and clinics using solar power and the proportion of solarownersinthearea.Thereisalsoapositivecorrelationbetweensolarownerswhohaveneighbours,friendsand/orrelativesthatalsoownasolarproduct.Acausaleffecthowevercannotbedeterminedbasedonthissurvey.Figure41:CorrelationbetweenQuestion32andQuestion33showsthatwhenneighbours,friendorrelativesownsolarpower,45%morerespondentsalsousesolarpower(32%vs22%non-solarowners).
3.5 CURRENTDEMANDANDCONSUMERSPENDINGTRENDS
3.5.1 AwarenessofOff-gridLightingProductsThe awareness on solar power among households in Uganda is generally high, as 86% of surveyedhouseholdsknowaboutsolarpower.IntheEasternandNorthernregions,however,awarenessislower;intheseareas,12-14%ofthesurveyedhouseholdsdidn’tknowwhatsolarpoweris.
Althoughover86%oftheUgandanhouseholdsareawareofsolar,awarenessofwheretobuysolarproductsislessevident.ParticularlyintheCentralandWesternregions,alargepartofhouseholdssurveyed(between36-50%)didnotknowwhere tobuysolarproducts.Awarenesswasgenerally low in ruralareasaswell,whereonly52%knewwheretobuysolarproducts.
3.5.3 AbilitytoPayTo determine the ability of households to pay for solar systems, the income levels and sources wereexaminedinmoredetail.InAnnex6,theincomedistributionbymainincomesourceispresented.Thereisa clear breakdown within these market segments based on how households obtain their income andwhethertheydosothroughformalorinformalemployment.
Foroff-gridruralhouseholds,agriculturalcashcropsareakeysourceofincome.Respondentsindicatedthathousehold incomes often fluctuate due to the seasonal nature of these livelihoods. In rural areas themajorityofthehouseholdsrelyononesourceofincome,whileinurbanareashouseholdsgenerallyhavemultipleincomeearners.
Note:Candlesyearlyexpenditurecalculation:UGX500purchasecostsxaverageof3.25purchasesperweekx52weeks=UGX94,000(rounded),Tadoobacalculation:UGX1900perweekonkerosenex52weeksx2tadooba’speryearaverage=UGX100,000(rounded).BankingRelationships&LoansAlargenumberofhouseholdsalreadyhaveabankingrelationship,eveninruralareas.Inruralareas,themost households have an account ormembershipwith a Village Saving and LoanAssociation (VSLA) orSavingsandCreditCooperative(SACCO)whileintheurbanareas,MFIsandSACCOsweremostcommon.Figure50:Left:Question64:‘Doesanyoneinthehouseholdhaveabankingrelationship?’Right:Question65:‘Withwhichkind(s)oforganizationsisthisaccount?’
3.5.4 AbilityVersusWillingnesstoPayRural households said they arewilling to paymuchmore for the solar product (up to 70% ofmonthlyhouseholdincome),andarecurrentlypayingonly7.5%ofwhattheyarewillingtopaypermonthonlightingcosts.Inperi-urbanandurbanareasthevarianceislessextreme,astheamountrespondentswerewillingtopayrangedfrom37%to46%ofthehouseholdbudget.Figure52:Willingnessversusability(averagemonthlyhouseholdincome)topay.
Householdsindicatetheyarewillingtopayasubstantialamountoftheirmonthlyincomeonasolarsystem.Asseeninparagraph3.4mostoftheirincomeisalreadyspentonschoolfees,foodandhousingandinmostcasestheywouldnotbeabletospendtheindicatedamountallatonce.To study ability to pay, a comparisonwasmade between howmuch people are currently spending onlightingandphonecharging,andwhatthecalculatedpaybacktimewouldbefortheirpreferredsystem.Theaveragepaybacktimeforthepreferredsystem(inallcasesa‘LargeSHS’)is2.7,3.6and3.2yearsforurban,peri-urbanandruralhouseholds,respectively.Notethatbecauseruralhouseholdsspendmoreonphonechargingthanperi-urban,theirpaybacktimeisshorter.
*These results are basedonquantitative analysis.However, it isworthnoting that consumers often actdifferentlyfromwhatcouldbeexpectedfromsuchachartasthisanalysisdoesnottakeaspirationalvalueintoconsideration.Aspirationoftendrivesconsumerstospendconsiderablymorethattheirincomewouldsuggest.
3.5.6 WillingnessandDemandofSolarOwnersOfthehouseholdsalreadyowningasolarproduct,about80%wouldbeinterestedinbuyinganothersolarproduct. This is less relevant for households in the Western region, where between 28 – 36% of thehouseholds indicated no interest in owning another solar product, even though satisfaction levelswithexistingproductsintheWesternregionarenotparticularlylow.Mosthouseholdsthatownasolarproductindicatedesireforlargersystems.Thedemandforsmallermobilesystemsisalmostnon-existentinalldistricts.Figure56:Question50:‘Whatwouldyoubuy?’
3.6 CONSUMERSEGMENTATION
3.6.1 ConsumerSegmentationforOff-gridLightingProductsThesurveyshowedthatdemandforoff-gridlightingproductscanbesegmentedinto4distinctconsumertypes: urban grid-connected, urban underserved, off-grid non-remote (peri-urban) and off-grid remote(rural). The main characteristics are based on the current lighting sources used and their costs, howhouseholdsobtaintheirincome,andwhethertheydosothroughformalorinformalemployment.Inthetablebelow,theurbansegmenthasbeensplitintogrid-connectedandunderservedbecauseoftheirclearlydifferentcharacteristics(energyexpenditure,income,dwellingtype).Table7:Maincharacteristicsoftheidentifiedcustomersegments
Sources of lighting currently used differ substantially among the differentmarket segments. Themoreremoteandpoorerahouseholdis,themorelikelyitistorelyonbasicsourcesofenergysuchaskerosene,fireandcandlesforlightingthehome.Foroff-gridhouseholds,agriculturalcashcropsareakeysourceofincome. Because of the seasonal nature of these incomes, household incomes fluctuate. Urban grid-connectedhouseholdsspendmorethantwiceasmuchonenergythanothersegments.MarketCharacteristicsbyCustomerSegmentAll fourmarketsegmentsoffergoodprospects tomanufacturers,distributorsandretailers for increaseduptakeofoff-gridlightingproducts,andspecificallysolarproducts.Thetablebelowhighlightsthetypeofproductsdemanded,mostappealingbenefitsandtheirusesbyconsumersegment.Thisinformationcouldguideatargetedapproachtoeachconsumersegment.
particularly smallermobile and fixed systems) and for children studying (20%). TV watching isparticularlymentionedinconnectionwithSHSs(12%).
• Fifty-fivepercent(55%)oftheSHSsand38%ofthemobilesystemsareboughtatelectric/hardwareshops.Especially in theEastern regiona significantnumberofhouseholds (29%) indicated theyboughtfromafieldagent.
MobilePhones
• ThemajorityoftheUgandanhouseholdsownatleastonemobilephone(86%),andchargetheirmobile phone by purchasing charging timeoutside the home (68%), spending on averageUGX1,000(US$0.40)perweek.
QualityPerception:SatisfactionandWorkingSystems
• Ruralandperi-urbanhouseholdsexpressedhighlevelsofdissatisfactiontowardsthebasicoff-gridlighting sources currently used, 67 and 55%, respectively. Solar energy, on the other hand, isperceivedasveryreliableandtrustworthy.Over92%ofsolarpowerownersstatethattheirproductworkswell.Between78-and82%ofsolarownerswouldwanttoownmoresolarproducts,and90%of all households interviewed say that solarpower canbe trusted.Hence, contrary to theperceptionofsuppliersandotherstakeholdersinthemarket,householdsgenerallydonotseemtoexperiencesolarqualityissues.
Awareness,WillingnessandAbilitytoPay
• Althoughover86%ofthesurveyedUgandanhouseholdsareawareofsolar,35%don’tknowwheretheycanbuytheseproducts.Brandawarenessisverylow,especiallyintheCentralandWesternRegions. SolarNow was most often mentioned (23%), especially in the Eastern Region and inNorthernregion,where38%and34%ofhouseholds,respectively,haveheardofthatbrand.Thenextmostwell-known brand, Ase Solar,wasmentioned only by 7%. Approximately eighty-fivepercentofrespondentscouldn’tnameanybrandatall.
• Households on average spend only 4.8% of their monthly income on energy/fuel. Mainexpendituresarefood(18.5%)andschoolfees(38%).Themainreasonsindicatedwhyhouseholdsdonotconsiderpurchasingsolarpowerarelackofmoney(51%)andotherpriorities(26%).
• Althoughhouseholdsareverywillingtopayforsolarproducts,theirabilitytopayfortheamountsmentioned is very limited. Rural households rely on income from agriculture which fluctuatessignificantly,andincomeishighestinJuly/AugustandNovember/December.Householdsinperi-urbanandurbanareasareinafarbetterpositiontopayforasolarproduct.Solarownersarewillingtopay28%moreforasolarproductthanhouseholdsthatdonotownasolarproduct.Forty-fivepercent(45%)ofthenon-solarowninghouseholdsindicatedtheywouldbe(more)interestedinbuyingsolarifprovidedaloan.
• Confidence in solar products is strongly driven by warranty, UNBS mark or governmentrecommendation.ThisisparticularlysointheNorthernandEasternregions.
• Offering incentives to promote solar products promote solar products (promotion by word ofmouth, for instance toneighboursand relatives) is seenasa largedemanddriver tobuy solar.Eighty-onepercentofthehouseholdswouldbewillingtopromotesolarwhenofferedanincentive.
Householdsusingsolar findtheirproductreliableandarepredominantlyextremelysatisfiedwithit(74%),incontracttokerosene,drybatterytorch,andcandleuserswhoaregenerallyunsatisfiedwiththeircurrentlightingsource.Ninetypercenttrustsolarproductsandthreequartersseesolarastheintroductiontoamodernhousehold.People are receptive to warranty certificates, and also governmentrecommendationandtheUNBSsignwhenbuyingproducts.
Householdsspend lessonenergy thanexpected.Theaveragehouseholdspends less than 2% of their disposable income on kerosene, thereforeenergycostdoesn'tseemtobetheirmainconcern.Householdsspendonaverage38%oftheirdisposableincomeonschoolfees.Hence,energycostsarenotperceivedasbeinghigh,soinvestinginsolarsystemsdoesn’thaveaclearfinancialreturnandare,thus,achallengefortheindustry.
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4 SUPPLYANALYSISOFF-GRIDLIGHTINGInformation in thissectionwasgatheredthrough interviewsconductedwith importers,andthroughthesupplysurveyof101retailersinthewholeofUganda.
4.1 SUPPLYCHAINACTORSANDPRODUCTSONTHEMARKET
Uganda,likeotherEastAfricancountries,isstrugglingtomeetexistingenergydemandwith80%-90%ofthepopulationnotconnectedtothegrid.Whilesignificanteffortsareunderwaytoaddadditionalgenerationcapacityandtoextendthegrid,themajorityofthelow-incomehouseholdswillstillneedalternativesourcesofenergyduetothecostofgridpowerortherespectivegovernmentsfindingittoocostlytoextendthegrid. The current supply chain of off-grid products in Uganda can be visually mapped in the followingmanner:Figure57.GeneralrepresentationofUgandanoff-gridlightingproductsupplychain.
manufacturer (for instancefortadoobaandcandles)oran internationalmanufacturer,which is thecaseforsolarproductsandgenerators.
• Importer/distributor: Ifproductsaremanufacturedabroad, the importer imports theproductsandfurtherdistributes them in-country.Whenproductsaremanufactured in-country, this supply chainactormerelyservesasaproductdistributor.
• System Integrator: System integratorsare theexpertswhoassemble thesolar systemcomponentsbeforeinstalling.Thisactorisnotalwayspartofthesupplychain,dependingonthetechnicalexpertiseoftheimporter/distributers.
• Kampala-based dealer/technical/agent: The Kampala-based retailers are shops that buy theirproductsfromtheimporters/distributors(orsometimesimportthemselves)andselltheseproductstoruralbasedretailers.TheseKampala-basedretailersarenotalwayspartofthesupplychain,asthereareinstanceswheretheimporter/distributorsuppliesdirectlytotheruralbasedretailers.
• (Rural based) dealer/technician/franchise agent: This rural retailer is generally the last link in thesupplychainandsuppliestheoff-gridlightingproductdirectlytotheendconsumer.
4.1.1 Importers&DistributorsTherearequiteanumberof(anestimated25companies)importersanddistributorsactiveintheUgandanoff-gridlightingmarket.Theseimportersanddistributorsaregenerallysmallandmediumsizedenterprises(SMEs)thathavebeenactiveintheUgandanoff-gridlightingmarketsince2008(acouplebefore2008).ThemajorityoftheseSMEsarebasedinKampalaandgenerallyoperatefromhere.Somehavebranches(1or2)inotherareasinthecountry,andaremainlyrepresentedinthoseareaswherepopulationdensityishighest(includingMbarara,Mbale,Masaka,Arua,Lira).TheEasternRegionisslightlyunderrepresented.Thecompaniesimportanddistributeavarietyofdifferenttypesandsizesofsolarproducts,rangingfromsmallplugandplaysystems(withasinglelight)tolargesolarhomesystems(ofmorethan20watt).Theseproductsaregenerallysoldtoretailers,agents/dealersandhouseholds.Onaverage,thetotalsalesofeachcompany is5,000unitspermonth(includingbothmobileandfixedsystems)atanaveragepriceofUGX152,000(US$60.80)perunit.Avariationofapproachesisusedinpromoting,marketinganddistributingtheirproductstotheirtargetmarket,generallyinvolvingadditionaldistributors(agents,retailers,financialinstitutions)beforereachingtheendusers.Interviewswereconductedwithapreselectednumberofimporters/distributorsthattradeinmobilesolarsystems, SHS, or both. A selection of key importers in the Ugandanmarket was made based on theirlongevity in the industry (includingbothamixofnewentrantsandestablishedcompanies) andcurrentactivitiesinthedevelopmentofthesolarmarket.Thissectionprovidesanoverviewofsomeofthemainimporter’scharacteristicsandtheirproductsintheUgandanmarket.
• Small Solutions Ltd: Small Solutions Ltd started in 2009 as an NGO that provided businessdevelopment technical support to solar PV entrepreneurs but transformed slowly into a socialbusinessin2010.ThecompanystartedoutusingD.lightlanternsbutnowsellstwoGreenPlanetbrands, the Sun King Lamp and the Sun King Pro. These lanterns are designed in theUSA andmanufacturedinChina.
• BBOXX: Bboxx was established in 2010 and designs, manufactures, distributes and financesinnovativeplug&playsolarsystemstoimproveaccesstoenergyacrossAfricaandthedevelopingworld.BBOXXengineersproductsinitsLondonlab,andmanufacturestheminitsfactoryinChina.BBOXXdistributestopartnersin14countriesand30localsubsidiarysalesshopsinKenya,Rwanda,SierraLeoneandUgandawhereseveralkitsaresoldtocustomers.
• ABMatra:ABMatra’ssolardivisionstartedoperationsin2010basedinKampalawithbranchesinJinja, Mbale and Lira. The company trades in quality power generation, agricultural andconstructionmaterials.ABMatraspecializesintheprocurementandsaleofimportedsolarpowersystems,backupinvertersandagriculturalaswellasconstructionmaterials(includingchemicals).
• UltraTec:UltraTecisalocalprivatecompanythatwasestablishedin1999toservetheneedsofthegrowing energy and telecommunications sectors by supplyingproducts and services.UltraTec’sproducts fall into four categories: renewable energy, lightning & power surge protection,telecommunicationsandlightingProducts.UltraTecisthemaindistributorofD.lightsolarproductsinUganda.
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• TransAfrican Supply Services (TASS):Founded in 2002,TASS is a leading solar PV company in
Ugandaoperatinginthefieldsofcommunication,power,renewableenergy&environment,health,education,andscienceaswellasthetransportandindustrialsectors.TASSsellssolarproductsthatrange from core solar products to accessories, i.e. solar panels, inverters, batteries, cables,regulators,bulbs,switches,ducts,rooftopandgroundarrays.
4.1.2 RetailersThefollowingsectionprovidesanoverviewofthemainfindingsfromthesupplysurveyconductedamong101retailersacrossUganda.MostretailersrunanelectricalshopTheretailerssellingoff-gridlightingproductsinUgandaareprimarilyelectricalshops.Mostaresmallandhave less than 6 employees. In some districts, includingMasaka (Central region) and Nebbi, (Northernregion)therearealargenumberofsolarspecialistssellingsolarproducts.IntheEasternregion,therearealsomanyfieldagentssellingsolarproducts.Figure58:Question4:‘Whichorganizationbestdescribesthebusiness?’
Of thesecustomers,about79%are fromruralareas,and the retailers claimedoverwhelmingly that themajorityoftheirsolarcustomersaremale(95%).Figure61:QuestionS34:‘Wheredoesyouraveragesolarcustomerlive?’bydistrictandregion.
When asked which products sold best in the previousmonth, some notable regional differences wereevident:retailersintheNorthernregionindicatedthatSHSofmorethan20wattssoldbest(45%),whilesolarlanternsystemssoldwellintheCentralregion(48%).Figure64:QuestionS20:‘Whichproduct(s)soldbestlastmonth?’ProductsthatsoldbestinApril2014bydistrict
MostretailersobtaintheirstockviatheshoppingarcadesinKampalaClose to44%ofall solarproductswere soldvia theKampala shoppingarcades.Hence the supply chaingenerallyhasnotonebutatleasttworetailers,eachrequiringaprofitmargin.
At the same time, respondents to the demand survey said they see warranty, contact with a salesrepresentativeandgovernmentrecommendationsasthemainindicatorsofthequalityofsolarproducts.Retailerscannotinfluencegovernmentrecommendations,buttheycanaddresstheissueofwarrantiesnotbeingprovidedand/orfolloweduponandthedirectcontactthroughsalesrepresentatives.
Solar companies inUgandause a varietyofmethods topromote,market anddistribute their products.Settingupadistributionnetworkisveryexpensiveandmostofthesolarcompaniesrelyon(i)salesmadeattheheadofficethroughsystemintegrators,or(ii)upcountryentrepreneurswhosellthroughtheirownsmallsolarorelectricalshops.Theseindividualsactasdefactoagentsforamajorityofthesolarcompanies.Theyareindependent,havelittlecapitalandstock,andrelyonthegoodwilloftheclienttopayadepositforsalesandinstallation,sometimeswithoutevenseeingtheequipmenttheyarebuying.
Most suppliers use a combination of distribution models, and sometimes even use all four. The maincharacteristicsandchallengesofeachmodelarediscussedbelow.DirectSalesModelTwenty-ninepercent (29%)of the suppliers intervieweduse thedirect salesmodel. They approachendcustomersdirectly,includingindividuals,corporates,NGOsandfinancialinstitutions.Becauseofthedirectrelationshipwithendusers,payplansandcreditschemesareoftenusedinthismodel.Themainchallengeisthatthismodeliscommunication-andthusresource-intensive,andthereforecostlywithlimitedreach.Figure68.DirectSalesmodel.Directcontactbetweensellerandcustomer,sometimesthrough(local)branchoffices.
TraditionaldistributionmodelThe traditionaldistributionmodel ismainlyused for larger SHSs.One thirdof the intervieweesuse thismodelforatleastpartoftheiroperations,whereinthesupplier/importersuppliesindependentthirdparties–eitherdealers,tradersorsystemintegrators.Onlythesethirdpartiesareincontactwiththeenduser.Theindependent third party often procures products from other suppliers as well. These can be non-solarproductsrequiredfortheinstallation(e.g.batteries,inverters),orsimilarproductsfromcompetitors.Underthismodel,theimporterhaslimitedcontrolovertheendproductandendpriceandisrequiredtomaintainintensiverelationswithalltheiroff-takersortheyruntheriskoflosingthemtothecompetition.Providingafter-saleservicesandwarrantiescanbeachallengebecausetheimporteroftendoesn’thavealocal presence. Quality control can also be an issue as the importer doesn’t control the work of theindependentthirdparty.Figure69.Traditionaldistributionmodel.Onlyindirectcontactbetweenimporterandendcustomer.
Franchise/agentmodelThe franchise/agent model is mainly used for smaller mobile and plug-and-play systems. Twenty-ninepercent (29%)of importers interviewed said theyuse thismodel.Generally the agents/ franchisees arebrandedandworkexclusivelyfortheimporter’sbrand.Theseagentsareoftenmicro-entrepreneurs.Thismodelisoftenusedincombinationwithafee-for-service/pay-as-you-goscheme.Themainchallengeidentifiedwastherateofattritionoffranchisees.Insomeinstances,theimportercouldonly retain10-15%of trainedmicro-franchisees. Theprobable cause for thehighattrition rates are therelativelylowmarginsof10%onthesalespricethattheagents/franchiseesreceive.Thismodelrequireslargeamountsofworkingcapitalbecausetheagents/franchiseesoftenneedcreditfromtheimportertoholdstockand/orneedtoprovideaformofcredittothecustomer.Anotherseriouschallengeisqualitycontrol.Thepublicperceivestheagentsasrepresentativesofthesolarbrand.Misconductbytheagentthusreflectsonthebrandperception.Figure70:Franchise/agentdistributionmodel
MFI/SACCOmodelUnder this model, the importer sells via anMFI/SACCO or closely cooperates with them through jointpromotionschemes.Thismodelisrelativelynewandonly9%oftheimporterssaidtheyusethismodeltype.The importers using the model claimed limited success, mainly due to the limited knowledge of solarproductsonthepartofSACCOsandMFIs.
convincefinancialinstitutionsthattheycanmakecredibletechnicalpartners.AmajorityofMFIsandSACCOsarenotinterestedintheprovisionofasolarloanproductforeitherfixedormobilesystems.Outofthe40thathavebeenapproachedbySolarNowforexample,only2havebeeninterestedenoughtofollowupandmakesomesales.Ontheotherhand,MFIsandSACCOshavealsonotbeenabletoconvince solarPVcompanies theyhave thenumbers thatwouldmeritadditional investment in theregionsservedbythefinancialinstitutions.SACCOsfoundupcountryespeciallylacksadequatedepositsto finance the largeupfront costsof solar systems and loans. This couldbeoneof the reasons thefinancialinstitutionsarereluctanttoengageinprovidingthesolarloanproductaspartoftheirportfolio.In addition, service andmaintenance is out of reach due to inadequate rural presence of solar PVequipmentandserviceproviders.Consumerscontinuetocomplainaboutlackoftechnicalsupportonthe ground, and this provides additional cause for financial institutions to be sceptical about thesustainabilityofasolarPVportfolio.
Thishasscaredoffsomepotentialcustomers,whilecausinglossofinvestmentforothers.Thereexistsno standard insurancepackage for solarPV systems, andhence theft is a risk forboth lenders andbuyers.
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4.3.2 RetailersThemain growth barriers perceived by retailers in Uganda are the customers’ lack of money and lowawarenessofthebenefitsofsolarproducts(seefigure80).
Growthbarriers experiencedby retailers liemainlyon the customer sideandhave little todowith theinternaloperationsof thebusiness. Interestingly,maingrowthbarrierscitedby retailersdonotentirelycorrespondwithwhathouseholdsreport.Householdrespondentsbelieveawarenessofsolarproducts isfairlyhigh,retailersbelieveitisoneofthemainbarrierstogrowth.Possibly,householdawarenessofthebenefitsofsolarareinfactrelativelylowonapopulation-widebasis,andthushamperingsales.Inaddition,13%oftheretailersbelievedthecustomers’lackofconfidenceinsolarproductshamperssales.However, fromthehouseholddemandresults,wehaveseenthat94%ofthehouseholds feel thatsolarproducts can be trusted and the reason for not purchasing a solar product is primarily linked to thehouseholds’lackoffinancingorcompetingfinancialpriorities.
Retailers in the central region are predominantly self-financed (93% said ‘There is no external capital’,‘Businessisfinancedthroughprivatecapital’or‘Loanfromfriend/family/localconnection’).Ofretailersinterviewed,68%are self-financed.Thirty-fourpercent (34%)of the retailers inNorthern region receivesuppliercredit.Figure78:QuestionS40:‘Howisyourbusinessfinanced?’Multipleanswerspossible.
Seventy-fivepercent (75%)of the retailersdon’thavea loanoronlyhada loan in thepast.Only in theNorthernregiondidretailershavealoanwithaSACCO.Ninepercent(9%)oftheretailershavealoanwithabank. Figure79:QuestionS41:‘Doyoucurrentlyhaveanoutstandingloanforyourbusiness?’Multipleanswerspossible.
4.5.1 CurrentHouseholdUseofSolarLightingproductsAsmentionedinChapter3,householdsingeneralusefixedsolarsystemsmorethanmobilesolarsystems,particularlyfixedsolarhomesystemsofmorethan20watts(see14&15).Thehouseholdsurveyshowedthatproductinterest,useandmostappealingbenefitsdiffersomewhatbycustomersegment(seeTable8).Ifthehousehold’saccesstoenergywouldincreaseinthefuture,themainusesofthisenergywouldbeforchargingmobilephonesandlightingthehome,particularly inruralandperi-urbanareas.Inurbanareas,additionalpowerwouldlargelybeusedinpoweringotherapplianceslikeradio, refrigeratorandwashingmachine. This indicatesa clearpotential for growth in salesofproductsprovidingthesetypesofusesandbenefits.Over50%ofthehouseholdspurchasedtheirsolarproductlessthan6monthsago,suggestingadoublingofthemarketinthatsameperiod(seefigure20).Householdsboughtrelativelymoremobilesystemsinthelastyearthansolarsystems(49%vs38%).
4.5.2 EstimatedSalesbyImporters.The10importersinterviewedestimatedtotalsalesof5,000unitspermonth(bothmobileandfixedsystems)atanaveragepriceofUGX152,000(US$60.80)perunit.ThisamountstoanaverageannualturnoverofUGX9,110million(US$3.64k).Weestimatethatoursampleconstitutesroughly40%9oftheentireUgandanmarket (or 50% of the official market, given a rough estimate of 20% illegal imports entering fromneighbouringcountries).Thus,thetotalwholesalemarketsizewouldbeUGX23billion(US$9.2million)peryear,andthetotalretailmarketsizewouldbeUGX32billion(US$12.8million),assumingretailersmakea40%margin.
4.5.3 MarketGrowthBasedonAverageAgeofRetailersMostbusinessesarebetween2and5yearsold(53%).Justover17%oftheretailershavebeeninbusinesslessthantwoyears.Thissuggeststhattheincreaseinretailersislessthan10%peryear(seefigure59).EstimatedSalesbyRetailersThe101retailerssurveyedindicatedtheysold2,050systemspermonth,dividedalmostevenlybetweenmobilesystemsandSHSs.Thisamountstoatotalof25,000unitsperyear.TheweightedaveragepriceofamobilesystemwasUGX55,000(US$22)andtheweightedaveragepriceofaSHSwasUGX230,000(US$92)10. Hencethetotal turnoverofall retailerswasUGX3.8billion(US$1.52million;averageofUGX37millionorUS$14.8kperretailer).Thegraphbelowshowsthattheretailersinthenorthsoldrelativelymoremobilesystems,whiletheretailersintheCentralRegionsoldrelativelymoreSHSsystems.However,theaverageprice of a SHS is higher in theNorthernRegion, hence retailers in this regionhave thehighestaverage turnover. The 101 interviewed retailers are estimated to constitute less than 10% of the totalnumberofrelevantretailersactiveinUganda.Figure81.QuestionS18andS19:‘Howmanyfixed/mobilesolarunitsdidyouselloveralllastmonth?
Notably,despite the fact that solarunitsare relativelymoreexpensive in theNorthernRegion, retailerstherealsosellthemostunits.AveragepricesintheCentralRegionarelowest.Figure82.QuestionS12:‘Atwhatpricedoyouselltheproducts?’AggregatedintomobilesolarunitsandSHSsandsplitretailersperregion(andaggregatedfornationalaverages).
4.5.4 MarketSizeandAbilitytoPayIngeneral,solarownersarewillingtopay28%moreforasolarproductthanhouseholdsthatdonotownasolarproduct(seeFigure41).Interestingly,bothtypesofhouseholdsarewillingtopaysignificantlymorethantheactualaverageretailprice,except inthecaseofasingle lightwithoutphonechargerforwhichownersarepreparedtopaylessthantheactualprice.Theverybigdifferencebetweentheretailpriceandthepricehouseholds areprepared topay for larger SHSs (<20W) canmean that peoplewish for largersystemsbutendupwithsmallerones.Basedon the input from importers, suppliers and retailers, the total annualmarket size is estimatedatbetween150,000and250,000unitsandbetweenUGX32and37Billion(US$12.8and14.8million)inretailsales,ofwhich74%isattributabletotheSHSmarket.
The salesnumbersof retailers grewnomore than10%per year,butover50%of surveyedhouseholdsindicatedtheyboughttheirproductwithinthelast6months,whichsuggestsadoublingofthemarketinthatsameperiod.
4.6 FACTORSINFLUENCINGDECISIONMAKERS
WhenaskedwhetherornottheywerewillingtoalsosellproductsthatmeettheLightingGlobalQualityStandards,abouthalfofthesuppliersinterviewedconfirmedtheywerewillingtodoso.Theotherseitheralreadyhadproductsthatmetthestandards,saidtheyhadspecialistproducts,orwerewillingtohavetheirproductstestedandcertifiedundertheprogram.Thosethatwerewillingtoconsiderincludingqualityproductsintheirportfoliossaidthefollowingfactorsinfluencetheirdecisiontointroducenewproducts:• Customer feedback and field intelligence: After an initial product offering is made to a potential
market,companiesassesssatisfactionlevelsinmeetingcurrentenergydemandsoftheirclients.Thisisnot standardized and more often than not occurs by default. If customer feedback is positive,companieswillthenordermoreoftheproductandinvestalittlemoneyinthepromotionandmarketingoftheproduct.
• Themajority (65%) of the 103 surveyed retailers run a small electrical shop and 52%havebeen inbusinessbetween2-5years.Seventeenpercent(17%)havebeeninbusinessforlessthan2yearssoannualgrowth isnomore than9%.Forty-fourpercent (44%)of retailers say they supplydirectly toindividualcustomers.Theyclaimthat95%of theircustomersaremaleandthat79%are fromruralareas.
• Main services provided by retailers are the installation of systems (24%), the provision of userinstruction(21%)andinsomecasesawarranty(17%).After-salesservicesdonotseemtobeaserviceprovidedoften(6%).However,customersindicatetheyvalueawarrantycertificateanddirectcontactconvincesthemofthequalityofsolarproducts,soretailerscouldconsiderputtingmoreemphasisontheseservices.
• ThemaingrowthbarriersperceivedbytheretailersinUgandaarecustomers’lackofmoneyandlowawareness of solar products. These growthbarriers however donot entirely correspondwithwhathouseholdrespondentsreported.Householdawarenessofsolarproductsisseentobeveryhigh(94%)saidtheyknowwhatsolar is.However,householdawarenessofwheretobuysolar is indeedlower,55%didnotknowwheresolarproductscouldbebought),thushamperingsales.
Finance• Sixty-eightpercentoftheretailersself-financeand75%havenoloan.• Themajorityindicatetheyneverconsideredloansasanoption.Marketsizeandgrowth• Sales of SHS and mobile systems are about equal in terms of units. The fact that the majority of
Distance to end-user is very large. Retailers offer limited services. Nomaintenance network. Suppliers/franchise concepts (notably Barefoot)sufferfromhighattritionratesoftrainedfranchisees.Mostretailersaresmallelectronicshopsoragents(Easternregion).Close to 45% of all solar products are sold indirectly – via the shoppingarcadesinKampala–increasingtheend-usermarketprice.SmallSolutions’regionalwarehousemanagersgaveoutunapprovedcredit,henceregionaldistributioncentreswereclosed.Nowthereisonly1centreinKampala
Energycostdoesn'tseemtobehouseholds’mainconcern.Householdsspendonaverageover50%oftheirdisposableincomeonschoolfees.Azuri and FRES offer fee-for-service (‘pay-as-you-go’). FRES had a 90%paymentrateafterthefirsttwoyears.Despiteendusersclaiminglimitedinterestinsolarlanterns,retailersindicatethatthesesellbest–togetherwiththe>20Wpsystems.
Many suppliers indicate that lack of working capital limits their growthprospects. Financial institutions acknowledge this aswell. Franchisees andagentsoftencannotpayforrequiredstock.
Loanconditionsareunfavourableandinterestratesarehigh.Retailersclaimuserslackcashordonothaveaccesstoloans.MFIsandSACCOsarehardlyinterested in solar product loans (only 2 in 40 approached by SolarNowfollowed-up andmade sales). Retailers believe lack ofmoney is themainreason customers are not buying. Non-solar owners indicated the mainreason for not purchasing a solar product has to do with not having themoney.
Some suppliers (e.g. AB Matra and BBbox) have had major issues withdefaultingretailers.Thishascausedmarketpenetrationtoslowdownandsupplierstoshrinktheirdistributionnetworks.Defaultingalsohappenswhenproductsmalfunctionasusersarereluctanttopayremaininginstalmentsinthatthecase.FREShasa10%defaultrateattheendoftheirfirst2yearsofoperation.SolarNowonlyhasa1%defaultrate,mainlyduetocarefulduediligencebytheiragentsofnewcustomers.HighdefaultratesarecommoninB2B,withlowerratesofdefaultbyB2Ccustomers.
Increasing access to modern energy services through alternative and renewable energy developmentremainsakeypriorityfortheUgandangovernmentandenergyministry.TheGovernmentofUgandahasdeveloped an energy policy (2002) and renewable energy (RE) policy (2007) that both fall under theElectricity Act of 1999. In addition, the government established the independent Electricity RegulatoryAuthority (ERA) in 2000 to regulate the generation, transmission, distribution, sale, export& import ofelectrical energy inUganda, and to guide the liberalizationof theelectricity industry,manage licensing,rates,safetyandothermattersconcerningtheelectricityindustry.TheRuralElectrificationAgency(REA)wasestablishedtopromotebothoff-gridandgrid-connectedelectricitythroughprivatesector-ledinitiativesinruralelectrification11.AsperthenewRESP2013-2022,theoverallresponsibilitylieswithUNREA.REAoversees and coordinates the implementation of this policy by various stakeholders and ensures theeffectivenessoftheseactivities.WithintheMinistry,theRenewableEnergyDepartment isresponsibleforthepromotionofREandRETs(RenewableEnergyTechnologies)andanEnergyEfficiencyandConservationDepartmentisresponsibleforthepromotionofEnergyEfficiencyandConservation.Since2005,thegovernmentofUgandahasremovedtaxesonsolarproductsandequipment,aninitiativeaimedtoreducepricesofsolarPVproductsandincreaseaccesstosolarenergyforUganda’spopulation.TheUgandaNational Bureau of Standards (UNBS) has played an important role in the development ofstandardsforsolarproductssincetheUNDPsolarpilotprojectin2001.Currently,UNBSisabletoproduceauniquemark12,whichisonalltestedandcertifiedproducts.However,usersneedtobeeducatedtolookforthismark.Whilestandardshavebeendeveloped,enforcementisthebiggerconstraintduetothelimitedfinancialandhumanresourcesofUNBS.Furthermore,theGovernmentofUgandahasinitiatedaprogrammetotestandcertifyproductsatsource,ratherthanrequiringthemalltobetestedinUganda.Theprogrammeisworkingwiththreeinternationalcompanies,whichhave aworldwidepresence and can ensureproducts are certified in their country oforigin,whichwillincludesolarproductswhicharemadeinChina.Finally,throughfundsprovidedbytheOfficeofthePresidentofUganda,theCentreforResearchandEnergyConservation (CREEC) is constructing a solar PV laboratory that will be furnished with state-of-the-artequipment.ThislaboratorywillbeusedtotestvarioustypesofsolarPVequipmentrangingfrompanelstoinverterstolamps.Thisshouldbecomeanindependenttestingandcertifyinglaboratoryforprivatesectorimportation,marketingandsalesofsolarPVsystems.
5.1.1 UgandaEnergyCreditandCapitalizationCompanyThegovernment-ownedUgandaEnergyandCreditCapitalizationCompany(UECCC)facilitatesinvestmentsin Uganda’s renewable energy sector. UECCC’smandate is to provide a reliable framework for poolingresources from various sources like government, investors and development partners and channellingresourcestorenewableenergyprojects.
The company’smain objective is to provide financial, technical and other support to renewable energyinfrastructuredevelopmentinUgandawithparticularfocusonenablingprivatesectorparticipation.UECCCprovidestechnicalassistancetoprojectstoovercomebarrierstoinvestmentaswellasfinancingoptionslikeapartialriskguaranteeduringtheconstructionphaseofprojects.Thisfacilityenablesprojectstoinitiallyaccess guaranteed cover for cost overruns beyond 15% of the total project cost. UECCC also works tointroducenewandinnovativefinancingmodalitiesincludingcreditenhancementinstrumentsdirectedatreductionofrealorperceivedrisksfacedbyprimarylendersandfinancialintermediaries.Inaddition,UECCCoffers transaction advisory services and various forms of technical assistance to independent powerproducersandfinancialinstitutions.UECCCoffersasolarrefinancefacilitytoparticipatingandregulatedmicrofinanceinstitutions(MFIs)foron-lendingtoruralbeneficiaries,bothhouseholdsandSMEsacquiringsolarPVsystems.Thisfacilityhasaceilingof$300,000perparticipatinginstitution.Currentlythefollowingthreefinancialinstitutionsusethisfacility:CentenaryBank($250,000seealsoparagraph2.2.2),PostBankandFinanceTrustBank.UECCCisnegotiatingwithafourthinstitution.UECCCcurrentlyprovidesrefinancingfacilitiestoPFItomitigatethehighcostoffundsforenergyloans.Thisinitiativehasreceivedsupportfromparticipatingfinancialinstitutionsandthereisongoingworktochangethecurrentlegislationtosupportsolarcompaniesdirectlywithoutgoingthroughfinancialinstitutions.Thecompanycurrentlyhason-goingpartnershipswiththeMinistryofEnergyandMineralDevelopment,MinistryofFinanceanddevelopmentpartners(BTC,GIZandKfW).Inaddition,itcoordinatestheOrioMinihydropowerandruralelectrificationproject.UECCCisfacedwithnumerouschallengesasthefinancialinstitutionslackguaranteesforonlendingtosolarcompanieswhileborrowerslackcollateraltoincreasetheirborrowingcapacity.
5.1.2 MinistryofEnergyandMineralDevelopment(MEMD)TheMinistryofEnergyandMineralDevelopmentwasestablishedin1995withavisionofensuringthatthepopulation of Uganda use inexhaustible and environmentally-friendly renewable energy for social andeconomicdevelopment.ThemissionofMEMDistoincreasetheuseofmodernrenewableenergyinthenationalenergymixtodevelopandsustaintheeconomy.KeyfunctionsoftheMinistryinclude:• Toestablishandimplementpolicies,strategies,legalandinstitutionalframeworksgoverningrenewable
energyresources;• To promote and develop renewable energy technologies (solar, wind, small/mini/pico hydro,
geothermal,andbiomassresources);• To develop technical and managerial capacities to develop and promote renewable energy
Further,theMinistryrunsprogrammesacrossallsectorsincludingagriculture,health,communicationandwatersupply,andsupportsprivatesectorenterprisedevelopmentthroughCivilSocietyorganizations,theUgandaNationalRenewableEnergyAssociation (UNREA),UgandaNationalAlliance forCleaningCooking(UNAAC),andtheFocalPointfortheInternationalRenewableEnergyAgency(IRENA).Finally,theMinistrycoordinates RE activities within the East African Community (EAC) and the Energy and EnvironmentalPartnership(EEP)ProgramofEasternandSouthernAfrica.TheUgandaRenewableEnergyPolicyof2007setsouttheGovernment’svisionforrenewableenergy inUgandawiththeaimofincreasingtheuseofmodernrenewableenergyfromthecurrent4%oftotalenergyconsumption to 61% by the year 2017. The policy defines renewable energy as those sources that arereplenished continuously by natural processes, including solar energy, hydro power, biomass,wind andgeothermalaswellasthesustainableuseoforganicwastes.Under the Renewable Energy Policy, there are specificmeasures to support the promotion of solar PVpower.TheseincludesupporttosolarPVmarketdevelopment,financingforhouseholdsandinstitutionsacquiring solar PV systems, and the introduction of a curriculum to train solar PV technicians throughtechnicalinstitutes.TheoverallresponsibilityforpolicyimplementationlieswithMEMD.TheMinistryoverseesandcoordinatesthe implementation of policy by various stakeholders and ensures the effectiveness of these activitiesthroughmonitoring.WithintheMinistry,aRenewableEnergyDepartmenthasbeencreatedtospecificallyfocusonthepromotionofrenewableenergyandrenewableenergytechnologies.Due to the support being provided to the energy sector by the Ministry, a multiplier effect has beenstimulated in thedevelopment andadoptionofRE technologies. SolarPVgrowthhasevolved fromanestimated capacity of over 10MW, compared to 2MW10 years ago. Adoption of improved stoves hasincreasedfrom170,000in2007to700,000currently.13
5.1.3 UgandaNationalBureauofStandardsThe Uganda National Bureau of Standards (UNBS) is a statutory organization established by an Act ofParliamentinJune1983.Itbecameoperationalin1989.UNBSisamemberoftheInternationalOrganizationforStandardization(ISO)andalsoamemberoftheAfricaRegionalOrganizationforStandardization(ARSO).UNBS is a leading institution of international repute in provision of sustainable standardization serviceswhosemission is toprovidestandards,measurementsandconformityassessmentservicesfor improvedqualityoflife.ThemainobjectivesofUNBSaretoformulateandpromotetheuseofnationalstandardsandtodevelopquality control andquality assurance systems thatwill enhance consumerprotection,publichealth andsafety,industrialandcommercialdevelopment,andinternationaltrade.UNBSiscurrentlyundertakingthefollowingactivities:• Developingandissuingnationalstandards;• Provisionofimportinspectionservices;• Provisionofqualityassuranceservices;• Testingandcertificationofimportedandlocallymanufacturedproducts;• Calibration,checkingandmeasuringequipmentintrade;• DevelopingstandardsonICT,power-linesandpoles,petroleumstandardsandagriculturalstandards.Whilestandardshavebeendeveloped,UNBSisfacedwithnumerouschallenges,suchas:• porousborderswhichallowimportofpoorqualityproductswithoutnecessarychecksandcertification;• lackofadequatestaffingtocopewiththedemandforservices;
• numeroussectors/areaswithoutstandards,sincestandardsareproducedondemand;and• theneedtotrainusersonthestandards,whichisperceivedasacostlyexercise.ManytimesUNBSstaffresorttorelyingonlabelsandsamplestocertifyproducts.Labelshavebeenknowntobecounterfeitedandpoorqualityproductshavebeenimportedintothecountry.FurtheruseofE-Tax(internet based tax) services pressurizes UNBS staff to sometimes release products without adequatechecks.
5.1.4 RuralElectrificationAgency(REA)TheRuralElectrificationAgency (REA)wasestablishedasa semi-autonomousagencyby theMinisterofEnergy and Mineral Development through Statutory Instrument 2001 no. 75, to operationaliseGovernment's rural electrification function under a public-private partnership. REA is responsible forexecutingthegovernment’sRuralElectrificationProgrammeandfunctionsasthesecretariatoftheRuralElectrificationBoard(REB),whichcarriesouttheMinister'sruralelectrificationresponsibilities,asdefinedintheElectricityActof1999.REAismandatedtofacilitatethegovernment’sgoalofachievingaruralelectrificationrateofatleast22%bytheyear2022, from1%atthebeginningof thedecadeas indicated inREA'sstrategyandplan2013-202214.REA'smissionis"tofacilitatetheprovisionofelectricityforsocial-economicruraltransformationinanequitableandsustainablemanner".REAisspearheadingtheenergysectortransformationfromtheuseoftraditionalenergysources(firewoodandotherbasicformsofbiomass)totheadoptionofmodernenergyservices(e.g.electricity,petroleumfuels,bio-fuelsandimprovedstoves).REAdevelopedaRuralElectrificationMasterPlantoguideprojectdesignandsequencingtoprovideappropriateenergyservices.ThisMasterPlanprioritisesprojectsonthebasis of their value in financing the economy (economic growth centres), social well-being, education,health,watersupply,andsupporttolocaladministration.REA’smajorresponsibilitiesinclude:planningandpackagingprojectsforpublicorprivateinvestmentinruralelectrification and renewable energy power generation; implementation of priority rural electrificationprojects;administeringcapitalsubsidiesforprivateinvestments;maintaininganationaldatabaseforruralelectrification; and advising the Ministry of Energy and Mineral Development on policy issues in ruralelectrification. TheAgencyhas been able to procureprivate operators tomanage7 rural electrificationdistributionconcessions.
5.2 FINANCIALINSTITUTIONS
5.2.1 CentenaryBankLtdCentenaryBank,foundedin1983,hasover60branchesacrossthecountry,withbranchlocationsinmostofthekeyurbancentresaswellasavastruralandurbanclientele.In2011CentenaryBanksignedaMemorandumofUnderstanding(MoU)withtheGovernmentofUgandatofacilitatetheEnergyforRuralTransformationProgram(ERTP)intheruralsectorthroughaccesstocredit.Under the partnership, REA pre-qualifies technical providers and provides the bank with a subsidycomponentforqualifyingruralborrowers.Asmentionedinparagraph2.2.1,aSolarRefinancefacilityofUS$250.000wasalsosignedwithUECCCinJuly 2012 to access on-lending funds to be applied exclusively to the provision of solar loans to ruralhouseholds.CentenaryBankhasalsopreviouslypartneredwithGlobalVillageEnergyPartnership (GVEPInternational) to access a 50% energy-product loan guarantee fund. The latter was aimed at partiallycoveringlossesonloanstopurchasecookstoves.
FINCAreduceddefault riskofon-lending tohouseholds, solardealersand importersof solarequipmentthrougharigorousappraisalprocessforborrowers. FINCAbelievesthatreducingtheloanrequirementswouldincreasetheriskofdefaultingonloans.Six solar installers (NacoSolar,Powercom,BareFootPower,SolexandPhoenix)are thecurrent installingpartnersofFINCA.FINCAindicatedtheyaresettingupanewinitiative,FINCAPlus,toboosttheenergyloanproduct.Underthisinitiative,FINCAwillbepositionedtoimportsolarsystemsinbulk,setupadistributionnetwork,recruitparticipatingentrepreneursandprovidebusinesssupportservices,suchasmarketingandtechnicaltraining,totheseentrepreneurs.Thisnetworkofentrepreneurswillserveasthemaindistributionchannelforthisnew initiative. FINCA also plans to venture into biogas, briquettes and improved cookstoves, aswell assanitizationandcleandrinkingwaterinthenearfuture.FINCA representatives identified unfavourable loan terms for clients and limited marketing budget asconstraintstotheprogram.
5.3 DONOR/NGOPROGRAMMES
5.3.1 SEMAprojectTheSEMAproject(SustainableEnergyMarketAcceleration)isafour-yearproject(2011-2015)activeinUganda,KenyaandTanzania.TheprojectisfundedbytheEUEnergyFacilityandHIVOS,andisimplementedbyEnclude(formerlyTriodosFacet),FriendsConsultUgandaandIntegralAdvisoryKenya.TheoverallobjectiveoftheSEMAprojectistoincreaseaccesstoaffordableandsustainableenergyservices(solar,biogasandcleancookstoves)forrurallow-incomepeopleinUgandaandKenyathroughsmallloans.Todothis, theprojectpromotesbusinesspartnershipsbetweenrenewableenergyenterprisesandruralfinancialinstitutions.Thestartingpointoftheprojectistherealisationthat,whileend-userfinancingforenergyaccesscanbecriticalforensuringproductaffordability, italsointroducescomplications.Companiesprovidingend-userfinanceneedtodevelopnewskillsandback-officestructures,andtheymusthaveappropriatelystructuredcapitalbackingthem.Energycompaniesthatpartnerwithfinancialinstitutionsneedtoagreeonproductspecifications, prices, payment conditions, terms of delivery and after-sales services. Also, roles in thepartnershipneedtobeclear:whowillmarketandselltheproducts,whowillcompleteinstallations,andwhowill provide repair services?Toaddress these issues, theSEMAproject facilitatespartnershipsandprovidestechnicalsupporttoruralenergycompaniesandfinancialinstitutionstoovercometheseobstaclesandmakeenergysolutionsmoreaccessibletoruralhouseholds.In Uganda, the project is active in particularly the northern areas in the country, and has partnershipsestablishedwith7solarcompanies,includingBarefootPower,IncafexSolarSystems,KirchnerSolar,NACOSolar,SolarEnergyUgandaLtd,MOSETInvestmentsandSolarEnergyDistributors.Inaddition,SEMAworkswithover35financialinstitutions,particularlySavingsandCreditCooperativeSocieties(SACCOs)andMicroFinanceInstitutes(MFIs).PartnershipsbetweenSACCOsandsolarcompanieshaverequiredmoremaintenanceandattentionthananticipated, resulting in sloweruptakeand limitedsuccess.Somepartnershipshave takenmore timetobuildthanothers.ParticularlyintermsofthecapacitybuildingneedsoftheSACCOs,significanteffortswererequiredtoraiseawarenessofsolarproducts,thebenefitssolarcanbringtohouseholds,andthebenefitsofprovidingsolar(loans)asaSACCO.OtherSACCOswereslowinfollowinguponpartnershippossibilitiesduetoselectionofnewSACCOboards.TheparticipatingsolarcompanieswerechallengedintheirabilitytoquicklyrespondtosolarproductneedsfromSACCOslocatedintheruralareas,duetolimiteddistributioncentresandafter-salescapabilities.
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However,theprojecthasbeensuccessfulintakingonathirdpartyroletoeffectivelyfacilitatelong-termpartnerships between financial institutions and solar companies,which has resulted in 3,515 units soldthroughfinancialinstitutionsand1,090energyloans.
5.3.2 GIZ/ENdevThePromotionofRenewableEnergyandEnergyEfficiencyProgramme (PREEEP) is implementedbyGIZ(GesellschaftfürInternationaleZusammenarbeit)onbehalfoftheGermanFederalMinistryforEconomicCooperationandDevelopment(BMZ). Theprogrammeofferssupportindevelopingskills,resourcesandcapacities in the fields of energy policy, disseminatingmodernbiomass energy technologies, promotingenergy efficiency and rural electrification. This work includes capacity development activities for theMinistryofEnergyandMineralDevelopment,forstakeholdersatthenationalanddistrict levels,andforselectedcommunity-basedenergysuppliers.GIZcurrentlyoffersspecificsectorsupporttoruralelectrificationthroughgriddensification,microhydroinstallations and promotion of solar PV to households, social institutions, government centres and forproductive use in the Lango andWest Nile regions (solar PV) and Kiboga,Masaka, and Lwamata (griddensification).Theresponsetosupportforruralelectrificationactivitieshasbeenverypositive.Griddensificationhasbeensupportedwitha70%subsidyaswellascoordinationandtechnicalassistancefromGIZ.SolarPVactivitieshavebeensupportedbyofferingsolarinstallersalocalsubsidycontractwithfinancialsupportfromGIZ.AsaresultofPREEEP,morethan120social institutions(schools,healthcentresandothers)havegainedaccesstoelectricitythroughconnectiontothenationalelectricitygridoroff-gridphotovoltaicsystems.Inaddition,over2,800householdsandsmallandmedium-sizedenterprises(SMEs)havebeenabletopurchaseasolarsystemthatgeneratesenoughpowertolightahouse,rechargemobiletelephonesandpoweraradioor television. These systems are also being used for commercial purposes to run hair trimmers, chargemobiletelephonesandpowersmallshops,forinstance.Theadventof LED lightinghasmade it possible to increase thenumberof lights a solarPV systemcanaccommodate.Despitethispositivetrend,PVsystemsinstalledwithGIZsupportstillrequiredonorfundingtostayfunctionalsincethesupportedinstitutionsareunabletosustainablymaintainthem.In the original plan, GIZ project partners would provide co-funding. But during implementation thishappenedonlytoalimitedextent.Wheninstitutionalsupportprogramswerebeingdesigned,partnersintheprogramwererequiredtocontributetothefundingoftheprogram,whichwasreferredtoascounter-partfunding.However,thiscounter-partfundinghasbeenslowincontributingtoprojectcostsandhasonoccasion resulted in delays in project implementation. As a response to this particular challenge, GIZprovided the necessary financing to overcome the funding gap that was slowing down projectimplementation.Other problems faced by the program include unreliable equipment, with batteries and lights of thesponsoredsystemsoftenfailing,leadingtoabadreputationforquality.
5.3.3 WWFWWFUgandaCountryOffice (WWF-UCO)wasestablished in2009byWWF-International topromote itsmissioninthecountryasanintegralpartofWWF’sGlobalmissioninEastAfrica.TheGoalofWWF-Easternand Southern Africa Regional Programme (WWF-ESARP) is to ensure that biodiversity and biologicalprocesses in Eastern Africa are conserved in harmony with the aspirations of the East African people,throughtheactivitiesofWWF-UCOandothersectorplayers.WWF’ssectorsofoperationincludefreshwater,forestrybiodiversity,andenergyandclimate.Undertheenergyandclimateprogram,WWFisrunningtheCleanEnergyChampionDistrictprogram.Inthisprogram,
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WWF-UCO is supporting the Government of Uganda in increasing access to clean energy alternativesthroughadistrictledapproachdubbedthe“ChampionDistrictInitiative”.TheinitiativeispilotedintheKasesedistrict,whereWWFisshowcasingtoolsandapproachesforengagingwithlocalstakeholdersatthedistrictlevel,whichisWWF’spreferredapproachtoincreasingenergyaccessforoff-gridcommunitiesinUganda.Focusareasincludecleanenergyforhouseholdcookingandlighting,anddocumentingandsharinglessonslearned.WWF has provided technical assistance, linkages to pre-qualified suppliers and seed funding under theinitiative.KaseseDistricthascooperatedwiththeprivatesectortoprovideanenablingenvironmentforsolarlightingcompaniestoworkintheDistrictbywaivingtaxesthatwouldotherwisehavebeenpaidbythecompaniestooperateintheDistrict.PartnersinthisprogramincludeMEMD,REA,GIZ,CREEC,BareFootPower,BBOXXandUgastove.Marketplayershavewelcomedfinancialinitiativesthatsupportcreditbothatanindividualandgrouplevel,whichhavegreatly increasedaccesstogoodquality lightingproducts. Markettrends indicateagrowingneedforportablelightingforBaseofthePyramid(BoP)customersasgridextensionwillnotreachallareasoftheDistrictinthemediumterm.Therehavebeenafewchallenges,however,limitingtheimpactoftheinitiative.Uptakeofproductswasslowuntiltheprogramintroducedplanswitha30%upfrontpaymentforlightingproductsand4,6or12monthly payments thereafter.WWFhas also noted thatmultiple actors are trying to provide the sameservices,whichleadstoinefficiencies.Forgrowthandefficiency,WWFbelievesconsolidationinthesectorisneeded.
Interestonthepartoftheseorganizationswasestablishedbycontactingthemdirectly,orbythefactthatthey had previously voiced their interest to or were alreadyworkingwith REA.When contacting likelycandidates,theresearchteamaskedifparticipationinlargescaleSHSbusinesswasaninterestingareaforthem.Theorganizationsstudiedcanbedividedintothreecategories:a) thosethathadinterestandcapacitytoengage, includingWenreco,FerdsultandBundibugyoEnergy
Cooperative;b) thosewithcapacitybutnointerest,includingUmemeandKalangalaInfrastructureServices;andc) thosewithinterestbutnocapacity,including.TheorganisationslistedbelowbelongtoCategory‘a’above.Theresearchteamhasfoundthemtohavetheinterestandcapacitytoundertakeoff-gridcommercialactivitiesatscale,andthusdeemsthemthemostsuitablepotentialactors.Theseorganizationshaveauniquestanding in thecommunitiesandregions inwhichtheyoperate.Theyhavegoodmanagementteamsinplace,havecapabletechnical/operationsteams,have a history of service delivery, have strong support structures within the community that providecustomercare,andhavebeenabletodeliverontheservicesforwhichtheyhavebeencontracted.Themost important attribute these organizations possess,which is very important in undertaking solaractivitiesonacommercialscale,istheirpresenceonthegroundandthegoodreputationthattheyenjoywithinthecommunitiesinwhichtheyoperate.Theseorganisationsalsomentionedtotheresearchteamthat they are currently in discussion with the Rural Electrification Authority about engaging in solardistributionactivitiesinthenearfuture.
5.5.1 WestNileRuralElectrificationCompanyLimited(WENRECO)WestNileRuralElectrificationCompanyLimited (WENRECO) is anelectricitygeneratinganddistributioncompany in the West Nile sub-region, in Northern Uganda. WENRECO is a subsidiary of IndustrialPromotionalServices,theindustrialdevelopmentarmoftheAgaKhanFundforEconomicDevelopment,andamemberoftheAgaKhanDevelopmentNetwork.WENRECO,throughcompetitivebidding,wonaconcessiontogenerate,distributeandsellelectricityinWestNile,whichconsistsofeightdistrictsandishometoanestimated2.3millionpeople.WENRECOoperatestwo power stations: WENRECO heavy fuel thermal plant with capacity of 1.5 megawatts, located inEwuata, Arua District; and Nyagak I Power Station, a 3.5 megawatt mini-hydropower station, locatedinPaidha,ZomboDistrict.ThesetwofacilitiesarecurrentlythemainpublicelectricpowersourcesavailabletotheWestNilesub-region,whichisnotyetconnectedtothenationalgrid.ConnectiontothenationalgridisexpectedfollowingthecompletionofKarumaHEParound2018.WENRECOhasa20-yearconcessiontosupplypowertotheWestNilesub-region.WENRECO is the implementer and co-funder of the West Nile Rural Electrification Project, which wasinitiatedin2013.TheProjecttargetedelectrificationof30healthcentres,60schools,250businessesand6,000householdsbetween2013and2015throughhydropoweranddieselgensets.Fundingfortheprojectwasprovidedby theGovernmentofUganda, theGermanDevelopmentBank (KfW),WENRECOand theEnergyFacilityPoolingMechanism.Lastyear,WENRECObeganswitchingthe4,000customerstopre-paidmeteringservice. Theadditionof2,500newcustomersincreasedthenumberofcustomersservedbythecompanyto6,500.
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5.5.2 FerdsultEngineeringServicesLimitedFerdsultEngineeringServicesLimited(FESL)wasestablishedin1999andisoneoftheleadingorganizationsinmaintainingandconstructingthehigh-voltageelectricitytransmissionsysteminUganda.Thecompanyinitially provided engineering services, ranging from construction of tower bases, building & civilengineering,electricalandmechanicalworkstoconstructionofpowerlinesrangingfrom132kVto0.415kVandinstallationofopticfibres.Thecompanyhassincebroadeneditsservicestoincludepowerdistribution.FESLhassuccessfullyexecutedseveralprojectsfundedbythegovernmentofUganda,theWorldBank,SIDA,NORAD, and JICA. As part of the rural electrification effort being undertaken by both the Ugandangovernmentandtheprivatesector,FESLisinvolvedinmaintainingandoperatingruralpowerdistribution.Asadistributionutility,thecompanyisactiveinthefollowingelectricitydistributionconcessions:Kakumiro–Kibaale–Kagadi, Rukungiri–Kanungu, Ntugamo–Kitwe–Isingiro, Kyotera–Mutukula–Kansensero, Masaka–BukakataandRugombe–Kyenjojo–Katooke.Todate,thetotalnumberofconsumers(bothhouseholdsandSMEs)connectedtoFESLpowerdistributionnetworkisover5,000,allofwhichareonapre-paymentmeteringsystem.
o underdevelopmentofthesolarmarket;o needforsubstantialinvestmentinmarketawarenesscampaigns;ando lowconsumerpurchasingpower.
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6 CONCLUSIONSDemandforOff-gridLightingProductsThe solarmarket is dominated by several relatively small companies. Hardly any larger (multinational)corporationsareactive.However,thedemandsurveyindicatesthattheendusersaregenerallymoreawareandmoreconvincedofthequalityofsolarenergythanmarketplayers,institutionsandNGOs/donorsthink.Endusersarealsoquiteconvincedofthebenefitsofsolar.Theneedtochargecellphonesisbecomingmorewidespread.Eighty-threepercent(83%)ofthehouseholdsownoneormorecellphonesandspendonaverage1000UGX(US$0.40)forphonechargingperweek.Sixty-eightpercent(68%)oftheintervieweesindicatedtheypurchasechargingtimeoutsidetheirhome.Urban-basedhouseholdswhoaregrid-connectedpayonaverage2to3timesmorefortheirelectricitythannon-grid connected households. Eighty percent (80%) of (local) grid connected households use acomplementarylightingsource,mainlykerosene.Thisimpliesthateventhegridconnectedmarketmaybeaninterestingoneforsolarlightingproducts.Eightypercentofhouseholdsthatownasolarproductwould liketohavea largesystem(morethan20watts peak). Demand for mobile systems is practically non-existent in this group. The demand of thehouseholdswhodonotownasolarproductismorediverse,buttheypredominantlydemandlargeSHSandmobilesystemswithchargerandmorethanonelight.MainChallengesRevealedbySurveysandInterviewsFourteenmainchallengescanbedistilledfromthequantitativeandqualitativedatacollected,whichinturncanbegroupedinfourcategories:
1. Challenges related to the solar products themselves, namely product quality, marketing andpositioning;
7 RECOMMENDATIONSFor LightingAfrica toachieve itsobjectiveof improvingaccess toenergy in theSub-Saharan regionandacceleratingthedevelopmentofcommercialoff-gridlightingmarkets,specificinterventionsarerequired.ThiscanbeachievedbyprovidingsupporttospecificactorsinthelightingmarketinUganda.Outlinedbelowis a set of recommendations informing the design andmarket development ofmodern off-grid lightingproductsdeploymentactivitiestospurdemand.Basedondeskandfieldresearch,threedifferentbusinessinterventionswereidentifiedthatcouldachievesocialimpact,financialsustainabilityandpotentiallyscale.Theseinterventiontypeswillbefurtherdiscussedwiththeclient,LightingAfrica,anduponapprovalfurtherdetailedandresearched.RecommendedInterventionsTobreaktheviciouscycledescribedabove,werecommendsupporting,creatingandfundingfee-for-servicebusinessmodels,workingwithfinancial institutions,suppliersandretailers. Belowwesuggesttargetedinterventionsforspecificmarketactorsthatwillstrengthenthesolarmarketandfurtherbuildconsumertrust.
InterventionsRelatedtoSolarCompanieso Further improve management skills in business development, marketing, promotions and
models which include servicing, thereby adding additional revenue streams beyond initialsales.
o Increasecustomercareandcustomersatisfactionbysettingupcustomerfeedbacksystemsandimprovingabilitytoimplementcustomerserviceprograms.
o Increase informalmarketing through incentive offers such as coupons anddiscountswhenfamilymembersbuythesameproduct.
o Provide or facilitate warranties, which are demanded by end-users and will improverelationshipsbetweenretailerandcustomer.
InterventionsRelatedtoFinancialInstitutions
o ProvidetechnicalassistancetoFIs intrainingof loansofficersondifferent lightingproductsandthebenefitsofsolarenergyvs.kerosene(lesscontaminating,healthier, lower lifetime/operationalcosts,increasedproductivityofthehousehold).
o Improvingknowledgeofsolarproductswillmakeloanofficersmoreconfidentinpromotingfinancial products to fund purchases of solar equipment. Further technical assistance isrequiredinthedevelopmentofarea-andorganization-specificmarketingprogramstoimprovepromotionanduptakeofloansforlightingproducts.
o ProvidealoanguaranteefundtoparticipatingFIs.Usethisfundtoreduceinterestratesforsolarloans,thusmakingthemmoreaffordabletoamajorityofcustomers.Limitsuchloanstoprequalified suppliers and to products that complywith the solar product standard of theUgandanNationalBureauofStandards.
o Providepartialriskguaranteetoallowfinancial institutionstofinancesolarcompanies.Thiswill also improve the solar companies’ position in accessing finance for import of solarproducts.
o Providetechnicalassistanceondefaultandbaddebtmanagement.o Provide TA, seed money and/or guarantees to standardised and simplified loan appraisal
o Government institutions: Radio awareness campaigns promoting solar vs. kerosene tostrengthenthesolarmarket.
o MEMD(supportedbyLightingAfrica):Enforcestandards,strengthenUNBStofurtherincreasemarkettrust.
o LightingAfrica(supportedbyUECCCandMEMD):Createguaranteefundtoincreaseworkingcapitalthroughoutthesupplychain.
o MEMD(supportedbyLightingAfrica):Createwarrantylegislation.o Extendworkingcapitaltosolarcompanies.o Promotesolarthroughschoolprograms.Schoolfeesarehigh,asisawarenessthatsolarlight