Interview: How solar home system provider Lumos addressed distribution and marketing regarding Nigeria’s off-grid market
As a part of the Practitioner Hub’s June 2017 theme on access to energy, Ron Margalit, Principal, Impact and Blended Investments at Lumos, told us about their partnership with Nigeria’s biggest mobile phone operator MTN.
Lumos is a leading distributed energy provider co-founded in 2012 by two entrepreneurs, Davidi Vortman and Nir Marom. Combining years of experience from the telecom and renewable energy sectors, the company now provides affordable, reliable, and clean solar energy to customers in emerging markets, in collaboration with mobile network operators, using an innovative pay-as-you-go model.
As of early 2017, Lumos has a distribution network of over 150 MTN stores across Nigeria. Over 100,000 people, including homes, clinics, schools and businesses now benefit from the service. Lumos raised a record $90 million in 2016 to support growth in Nigeria and expansion in new countries.
1. Lumos is collaborating with MTN, Nigeria’s biggest mobile phone operator. How does this partnership work?
When Lumos was founded we needed to quickly identify the best way to go to market. We knew that we could finance and manufacture the solar home systems, but as a start-up we needed a retail network in order to reach people in their homes. With the mobile revolution still playing out right across Africa, we realized the potential of mobile operators and started engagement with MTN Nigeria, the country’s largest provider. The MTN network provides us with an incredible reach into our key target markets.
The partnership is actually remarkably simple. Lumos finances and manufactures the solar home systems and sends them to Nigeria. In Nigeria, MTN is responsible for the distribution, the marketing and the sales of the system. Lumos takes advantage of MTN’s vast supply chain network and branding opportunities while MTN receives a small portion of the money that customers are paying for the electricity services that Lumos provides.
One of the unique aspects of this partnership is that we have developed a “telco-grid billing system” by aligning our services with MTN’s airtime billing system. The biggest advantage here is that customers don’t need any third party applications. Aside from giving our payment, billing and distribution systems a competitive advantage, the partnership with MTN also makes the service easy to use for the customer.
2. What are the lessons learnt partnering with a mobile operator for pay-as-you-go?
Lesson number 1: With the right partner, you get access to 100% of the market. Most of our competitors in the pay-go industry bill their customers using mobile money. Yet whilst not everyone has access to mobile money, everyone has airtime. Therefore, Lumos is able to reach everyone who needs the service.
Lesson number 2: There is no better marketing and distribution machine on the continent than phone companies. MTN Nigeria is best in class in this regard.
Lesson number 3: For consumers, solar is still a relatively new product. Market and product education are hugely important and our staff supported by MTN‘s network have been able to explain the benefits.
Last lesson: Financing is always a challenge, not only on the company but also on consumer level. On company level this is probably the biggest hurdle facing the industry as it takes off. On the consumer level, pay-as-you-go companies have to do a good job of understanding exactly who their targeted clients are and to tailor the product to those who need it but also to those who can afford it.
3. Do you think that pay-as-you-go models have the potential to provide universal access to energy at scale?
It’s clear to me that we are seeing a mobile revolution in energy access, in the same way that the mobile revolution swept telecoms a decade ago. This has huge potential to make real indents in the vast numbers of people across the developing world who have little or no access to electricity.
The grid has not expanded fast enough over the past 30 years to reach the 600 million people in Sub-Saharan Africa without access to electricity. There is no reason to think that it will expand quickly enough in the future. Nor will focusing on high solar, geothermal or wind farms solve the problem. These technologies can add to the capacity but not necessarily to the connection of rural households.
Home solar is leapfrogging the grid, and as companies like Lumos are able to add greater capacity to our home systems, our customer base will continue to grow.
4. Where do you see the biggest growth opportunities for Lumos going forward?
MTN estimates that Lumos’ potential market within the next five years is around ten million households in Nigeria. Yet with 600 million people across the continent without access to electricity it is just a drop in the ocean. Therefore, while Nigeria will remain a key market for us, we are keen to expand into other geographies, both in Africa and South East Asia.
As a technology company, we also want to continue to invest in innovating our product and our value proposition, ensuring we stay ahead of the curve and have the best equipment in the business.
This blog is a part of the July 2017 series on energy access in partnership with Hystra.
Read the full series for more lessons from practitioners, trends in business models, market penetration and understanding and measuring impact in the energy sector.