How smart meters are increasing access to cooking gas for millions in East Africa.

With Nick Quintong, CEO of Paygo Energy

Nick Quintong

CEO, PayGo Energy

In Kenya, more than 75% of households use dirty fuel for cooking. Though clean LPG is available, it comes in cylinders sold in fixed quantities, making it unaffordable for most people. PayGo Energy, a Kenyan startup, has introduced a Cylinder Smart Meter that can be attached to these cylinders to measure gas flow and enable payment per consumption. This is driving affordability, accessibility, and scale in the market.

PayGo Energy

PayGo Energy, a technology company backed by venture capitalists, strives to increase access to clean cooking in developing countries. The team established the company in Kenya in 2015 to address a problematic issue: Liquified Petroleum Gas (LPG) is only available in large quantities, which causes clean cooking gas to be too expensive for many low-income families.

PayGo identified that many consumers have a steady income to buy fuel frequently but may not have enough funds to buy an entire cylinder. Consequently, they use hazardous and costly fuels like charcoal, kerosene, and firewood.

To address this issue, PayGo developed a solution that utilizes intelligent metering and mobile payment technology to offer LPG in a pay-as-you-go format. The Cylinder Smart Meter (CSM) by PayGo is the first ever ATEX-certified LPG smart meter in the world. This device can be attached to an LPG cylinder and measure the gas flow, allowing customers to purchase LPG in any amount using mobile money. Furthermore, PayGo’s Tag & Trace software is an end-to-end LPG distribution, retail, and analytics platform.

PayGo collaborates with LPG marketers and next-generation utilities to distribute its technology in key markets. We are expanding our operations in Kenya and testing with partners in the Philippines, Bangladesh, Vietnam, and the Democratic Republic of Congo.

Problems and Opportunities

PayGo has identified two primary issues they aim to solve:

  1. Providing access to low-income households – In countries like Kenya, most households still use dirty fuels for cooking. Although LPG is a clean and readily available alternative, the industry hasn’t yet offered a solution that caters to the needs of low-income consumers. PayGo’s technology is geared towards this group, potentially offering millions of households access to “affordable, reliable, sustainable and modern energy” (as per UN SDG7).
  2. In PayGo’s various markets, a notable “informal” sector hinders market growth by engaging in illegal refilling. These refillers offer lower prices than established LPG brands by refilling cylinders that belong to marketers instead of manufacturing their own cylinders or following market standards. This increases the working capital costs for the marketers and poses potential risks to safety and reputation.

Beyond solving these problems, we see considerable opportunities in the data and analytics space. The LPG sector has seen remarkably little digital innovation. Marketers need to learn who their customers are. We can collect and analyze household-level consumption, spending, and demographic data through our hardware and platform. We can also track the movement of cylinder stock across the supply chain. As we scale, we’re only just starting to see the power of this data – from understanding price elasticity better, comparing behaviours over time and across regions, improving supply chain efficiency, and selling lateral products and services. It’s just the beginning.

Competitors

PayGo’s main competitor is M-Gas, which offers pay-as-you-go LPG in Kenya. The main difference between M-Gas and PayGo is the business model. M-Gas is focused on building its own LPG distribution and retail business, whereas PayGo partners with LPG companies that distribute its technology. Koko Networks is another competitor. Koko has developed an ethanol cookstove and canister, enabling households to access liquid ethanol as a renewable alternative to LPG.

Competition is a good thing. The problem we are trying to solve is so vast and entrenched that it necessitates an ecosystem approach. The more companies bring awareness to the clean cooking crisis and invest in the space, the better.

Market size

PayGo’s target end-customers are low-income households (PPP per capita GDP of < $5,000) situated in large urban areas (1 million+ people). PayGo estimates that in 2019, there were 49.9 million households that met these criteria in its ten priority markets alone. By 2025, this number will grow to 59.6 million.

Challenges

On the end-customer side, the response is positive. Pay-as-you-go is a concept that consumers in this part of the world are familiar with, and mobile money adoption is high – so we do not need to create new behaviours. One area we have been working on with our partners is pricing. We need to charge a premium on pay-as-you-go to cover the cost of the technology and generate profit. However, it is a price-sensitive market, and consumers are savvy. So, balancing commerciality and providing good value to the customer is a balancing act.

We have also made significant progress securing partnerships with top LPG marketers in our target regions. While these companies are well-versed in LPG distribution, they require additional knowledge in last-mile logistics and using digital tools. Therefore, we must put in a lot of effort to bring our partners up to speed and guarantee the successful implementation and scaling of the PayGo model.

As for our supply, we are still experiencing difficulties due to the global semiconductor shortage, which is affecting hardware companies worldwide. We are working diligently to find solutions that will help us improve lead times and decrease our vulnerability to these challenges.

Expansion

We focus on expanding in Kenya and conducting successful test runs in the Philippines, Bangladesh, Vietnam, and the DRC. These markets have great potential for significant growth. While we have several potential partnerships and expansion markets in mind, we are being careful not to fall into the common startup mistake of trying to do too much at once. Before considering new markets, we examine various factors such as commercial viability (such as the size of the market and LPG infrastructure), technical feasibility (including cylinder valve compatibility and mobile money adoption), and regulatory requirements (such as import regulations and LPG pricing regulations).

Regulatory Compliance

Regulatory and compliance requirements vary across different markets. In Kenya, we collaborated with the regulatory authority to establish a Standard for LPG Smart Metering. We are committed to compliance and regularly engage with regulatory and industry bodies. Our CSM is certified with ATEX Zone II, the top safety standard for electronic devices in an explosive environment. This certification is important to demonstrate our commitment to safety when working with regulators.

Customer Persona

The average customer belongs to a low-income group (< $5,000 PPP GDP per capita), an urban household (in an urban area greater than 1 million people) that cooks predominantly with charcoal and kerosene. In most instances (~70%), a female head of the household makes the purchasing decision.

Logistics and Costs

In the Branded Cylinder Recirculation Model, the LPG marketer owns the cylinder required in most PayGo markets. The upfront costs include sales and marketing, in-home installation, and equipment such as cylinders, gas, smart meter, and cookstove.

The customer contract includes a clause that requires the user to maintain a certain level of consumption to continue receiving the service. However, this is usually not a problem as our customers use the service daily as part of their cooking routine, as long as the pricing remains affordable. During the holiday season in December and January, we typically see a decrease in consumption as many customers travel to their hometowns to spend time with their families.

Supply chain

At PayGo, we work with LPG marketers who usually sell LPG in bulk to a network of distributors and retailers. Some of them also sell directly to consumers. Our partnership model provides our partners access to our technology, including hardware and software, implementation support, staff training, and ongoing technical assistance. Our distribution partners are responsible for acquiring customers and providing after-sales support. They set the pay-as-you-go service price and own the end customer.

Delivery and Installation

Check out our website’s Cylinder Smart Meter page for a step-by-step guide. You can also contact our team (info@paygoenergy.co) to request a copy of our product demo video.

Scalability and Growth

Our goal is to reach 1 million households by 2025. The market opportunity is there, and we have outstanding partners and a strong pipeline of further opportunities. The critical lever for us will be the ability to drive down the cost of unit production to achieve a healthy operating margin.

Emerging Trends

The shift towards cleaner fuel sources is underway, but more action is necessary. In countries like Kenya, access to eco-friendly cooking fuel only increases slightly as the population expands. Various solutions must be available in the market to make a real impact, such as LPG, biomass, electric, and ethanol.

However, significant investment is required to scale up these solutions, particularly if we want to help the most vulnerable consumers. Sadly, the amount of investment currently being made is nowhere near enough. We believe that carbon finance could be a game-changer in this regard. We also feel that concessional debt could play a more significant role, as these businesses require considerable money, and VC funding alone will not be enough to achieve the necessary scale.

Investment

Invest in PayGo! We will raise a Series B next year and are happy to chat with any Canadian businesses interested in the space.