AFRICA: Developing a Regulatory Framework for Pay-as-you-Go Off-Grid Solar
The lack of electricity access continues to plague many rural communities across Africa. The overall electrification rate in Ethiopia, for example, stands at 51 percent, with a massive disparity between urban and rural areas. Urban households enjoy 96 percent electricity connectivity, but only 27 percent of rural households have access.
As Ethiopia aims to achieve universal access by 2030 under its National Electrification Program (NEP) 2.0, providing affordable and reliable off-grid energy to remote regions is crucial. NEP 2.0 adopts a mixed approach, with 65 percent of connections to be grid-based and the remaining 35 percent through off-grid solutions. Off-grid solar, especially solar home systems with a pay-as-you-go (PAYGO) model, is seen as a solution. PAYGO-enabled products to follow a lease-to-own structure, allowing users to repay the unit’s cost over time through installments. This approach reduces upfront costs and encourages digital financial inclusion through services like mobile money for repayment.
These PAYGO-enabled solutions are pivotal in facilitating access to affordable energy, thereby contributing to the nation’s electrification targets, economic advancement, and digital development goals. Over two million solar products have been sold in Uganda since 2014, with about half employing PAYGO financing. Despite the challenges posed by the COVID-19 pandemic, more than 140,000 PAYGO-enabled offgrid solar products were sold in 2020, boosting energy access from 18 percent in 2017 to 38 percent in 2020.
Despite this progress, significant gaps remain. PAYGO initiatives intersect with policies and regulations spanning the electricity, finance, and information and communication technology (ICT) sectors. These frameworks were not designed to work with PAYGO technologies and business models. Establishing a favorable policy and regulatory landscape for the PAYGO sector could spur growth by attracting investment, mitigating risks, and fostering responsible consumer financing practices.
Recognizing these challenges, PPIAF stepped in to facilitate critical policy dialogue between governments, the private sector, and civil society in Ethiopia and Uganda. The aim was to develop comprehensive national “roadmaps” to create an enabling environment for PAYGO and solar home systems to scale sustainably.
The roadmaps establish a strategic blueprint for advancing reforms through stakeholder coordination and clear allocation of roles. Key government entities in both countries have officially endorsed these roadmaps, such as Ethiopia’s Ministry of Water and Energy and Uganda’s Ministry of Energy and Mineral Development.
With PPIAF’s support, Ethiopia and Uganda have established foundations to unlock the full potential of PAYGO solar energy to connect millions to affordable, reliable, clean electricity. The roadmaps provide a model for other African nations to create enabling environments for off-grid solutions.