ALUMNI: Erica Mackey and Xavier Helgesen
Lighting the way
Off Grid Electric, a start-up launched by Oxford Saïd MBAs Erica Mackey and Xavier Helgesen, is powering a brighter future for sub-Saharan Africa households.
Words: Rob Brown
It's a cruel irony: just one in five people in sub-Saharan Africa have access to electricity and much of that comes from crumbling hydropower plants. So when the rains fail, so do the lights. Power supply relies on water, and water scarcity across the region is at crisis point, yet Africa is awash with Earth's most powerful energy source: sunlight.
Now the hot African sun is being turned from a curse into a blessing. And a company set up by Saïd Business School MBA graduates is powering that transformation. Off Grid Electric, the brainchild of the class of 2010's Erica Mackey and Xavier Helgesen, is distributing solar panels and electrical goods across East Africa, and providing finance to make this life-changing hardware affordable.
‘After attracting investment of more than US$100m, Off Grid Electric set up in Tanzania in 2012’
Business is booming. After attracting investment of more than US$100m, Off Grid Electric set up in Tanzania in 2012. Last year it tripled its customer base. Earlier this year, it expanded into Rwanda. It plans to have set up in West Africa by the year end. So what's fuelling this growth and how is Off Grid Electric balancing the need to turn a profit with its social responsibilities?
The alternatives to solar are ugly. As the sunlight fades every evening, millions of kerosene or diesel lamps flicker on across Africa. Spending just a few hours in a room lit in this way is the equivalent of smoking two packs of cigarettes, it is said. But for the average African, this filthy, inefficient fuel allows more than just being able to see when the sun goes down. It means being able to study, do business, tend the sick, to live.
‘We have tightly aligned our commercial and social impact goals’
'It is crazy that some of the lowest income populations in the world are paying the most for the dirtiest and unhealthiest energy solutions out there, such as burning jet fuel for lighting,' says 33-year-old Mackey, a University of California ecology graduate who served as Executive Director of Support for International Change, an East African rural health service provider, before coming to Oxford Saïd. In 2012, she made Forbes' 30 Under 30 list of social entrepreneurs.
'In order to solve this inequity, we have tightly aligned our commercial and social impact goals,' she says. 'Every house or small business we provide clean energy for creates business value and by removing kerosene and diesel also creates positive social and environmental impact.'
The business has transformed the lives of millions. Its army of more than 500 "Light Riders", a salesforce modelled on that of US cosmetics giant Avon that travels door-to-door by motorcycle in the countries' remotest regions to sell and service the hardware, is currently signing up 10,000 new customers a month in Tanzania and Rwanda.
Levelling the playing field
The more remote the region, the greater the need. Sub-Saharan rural communities pay an average of 35% more for kerosene than city dwellers, according to a 2012 IFC-World Bank Group study. Solar energy helps level the playing field; it frees users from oil price fluctuations and the expense of transporting fuel cross-country.
‘If they don't sell enough milk from their cows, they face not having enough money for fuel’
'When we started, our customer base was anyone who could afford a kerosene lamp,' explains Mackey. 'These are people who make a dollar or two a day. One of the biggest issues that these people have is cash flow. If they don't sell enough milk from their cows, for example, they face not having enough money for fuel.'
Off Grid's margins are kept low at this end of the market. 'The balancing act comes more at entry level where we have to walk the line to push the offering price down as far as we can for our customers while still making sure that each product offering on its own is financially viable,' adds Mackey. 'As you move up the energy ladder, our products have more attractive returns, but also provide a more robust impact such as educational and connectivity solutions through our TVs and radios.'
‘Mobile phones are a crucial part of the equation’
Indeed, this is about more than just light. Off Grid Electric develops entire closed-loop systems to suit the needs of its customers, ranging from efficient LED lighting systems designed to make the most of a panel's output, through to tailored "business in a box" solutions that provide all the hardware required for a customer to set up shop in their chosen discipline. Examples include boxed barber businesses, containing solar equipment and hair clippers, or mobile phone charging facilities.
Mobile phones are a crucial part of the equation. Off Grid Electric is a cashless business, explains Mackey; after paying an initial deposit for the equipment, customers pay monthly, weekly or even daily instalments via mobile money systems on their phones. Each payment goes towards settling the initial cost of the system and buys enough power for the allotted period of time.
Of course, providing finance for some of the poorest people in the world doesn't come without risks, but Mackey says these are assessed and mitigated in a number of ways. 'First, we ask customers to put down a deposit upfront that is significant enough to build enough equity in the system to be incentivised to continue making payments,' she explains. 'Second, we incentivise our sales people in their commission structure to make the assessment accurately. Third, we repossess the system if a customer defaults on their payments after a reasonable amount of time. We are also working with a few microlending partners to explore whether there are reliable predictors and databases available for our market to help make this assessment.'
Competition is stiffening in Tanzania and across Africa as entrepreneurs wake up to the opportunities of solar energy. This has prompted Off Grid Electric to rebrand its core consumer offering from M-POWER to Zola. 'Zola relates to the Swahili word Sola (solar), with a similar sound but a distinct style. We're setting up for pan-African expansion and we've spent a lot of time and money thinking about who we are and how we can communicate our values,' says Mackey.
‘The support provided by Saïd Business School's Skoll Centre is central to the company's ongoing success’
This is particularly important if the company is to achieve its goal of providing power to 10m households within ten years, to benefit 50m people. Mackey says the support provided by Saïd Business School's Skoll Centre is central to the company's ongoing success. In the early days, the centre allowed Mackey and Helgesen to access a network of social innovators and financiers and it continues to provide support.
'The Skoll Centre was the major reason that I was so attracted to the MBA programme at Oxford,' says Mackey. 'The Centre and particularly Pamela Hartigan, who recently passed away, were a huge influence. I am still struggling to process the loss of Pamela. She was one of this world's brightest spots, a perfect storm of selfless and relentless whenever she saw an opportunity to create value for the people and ideas around her. Pamela and the Skoll Centre team mentored us through the early stages of our idea development, encouraging us to always think bigger. They have given us a platform at the School and at the Skoll World Forum to share our ideas and harness resources. We have also recruited multiple Skoll Skollar alumni to work with us either as interns or in full-time positions. There is no question that we would not have achieved what we have without our start and constant support at the Skoll Centre.'
‘In Ghana, 83% of the population are estimated to own mobile phones, yet 5m rural Ghanaians live off grid’
And they're still thinking bigger now. There are two prerequisites for Off Grid Electric's expansion across Africa, says Mackey: a high percentage of people living off grid and the existence of a mobile phone network to allow payment through mobile money. Estimates vary, but it's believed that as many as 85% of Tanzanians were living off grid when Mackey and Helgesen set up in the country four years ago. Neighbouring countries have a similar lack of access, as do countries further afield in West Africa, which Mackey says is ripe for the next stage of the company's expansion. In Ghana, for example, 83% of the population are estimated to own mobile phones, yet 5m rural Ghanaians live off grid. Those that are connected face regular power outages (Ghana's President John Mahama has even been nicknamed Mr Dumsor, after the slang term for power cut).
This picture is repeated across sub-Saharan Africa. The region's 48 countries' combined capacity to generate electricity is just 68 gigawatts, says the World Bank; no more than that of Spain. What's more, per capita consumption of energy is actually falling as populations grow and the energy crisis deepens. But in all this desperation, Mackey sees opportunity. She's doing much more than just selling electricity; she's selling hope.