How a Kenyan startup is making cooking gas attainable to 75% of Kenyan households

Image Credit: The Index project

Over three-quarters of Kenyan households cook with dirty fuel. While LPG is readily available and provides a clean cooking alternative, it is sold in cylinders and in fixed quantity which, as a single purchase, is unaffordable to a majority in this market. By introducing a proprietary Cylinder Smart Meter that can attach to these cylinders, measure gas flow, and enable payment per consumption, Kenyan-based startup Paygo Energy is driving affordability, accessibility, and scale across this market segment! Canada Africa Business Forum engaged with the CEO of Paygo Energy, Nick Quintong, to gain expert insight into this accelerating opportunity.

Please tell us a little bit about Paygo Energy?

PayGo Energy (PayGo) is a venture-backed technology company expanding access to clean cooking in the developing world. Founded in Kenya in 2015, the PayGo team sought to solve a simple yet intractable problem: Liquified Petroleum Gas (LPG) is only sold in bulk, making clean cooking gas unaffordable for the majority of low-income households.

PayGo recognized that these consumers had sufficient income to purchase fuel regularly but insufficient liquidity to purchase a whole cylinder. As a result, they use dirty, dangerous, and expensive cooking fuels such as charcoal, kerosene, and firewood.

PayGo’s solution: utilize smart metering and mobile payment technology to sell LPG in a pay-as-you-go form. PayGo’s Cylinder Smart Meter (CSM) is the world’s first ATEX certified LPG smart meter. The device attaches to an LPG cylinder and measures the flow of gas, enabling consumers to purchase LPG in any amount using mobile money. PayGo’s Tag & Trace software is an end-to-end LPG distribution, retail, and analytics platform.

PayGo partners with LPG marketers and next-generation utilities to distribute its technology in priority markets. We are currently scaling our operations in Kenya, and piloting with partners in the Philippines, Bangladesh, Vietnam, and the Democratic Republic of Congo.

Please explain more about the problems and opportunities that the smart meter is addressing?

The two core problems PayGo is trying to address are:

  1. Reaching low-income households – In markets like Kenya, over three-quarters of households still cook with dirty fuels. LPG is a clean, abundantly available alternative but the industry has failed to provide a solution that meets the needs of low-income consumers. Our technology is targeted at this segment, with the potential to enable access to “affordable, reliable, sustainable and modern energy” (UN SDG7) for millions of households. 
  2. Illegal refilling – In all of PayGo’s markets, there is a significant ‘informal’ sector that undermines market development. Illegal refillers undercut established LPG brands because they do not invest in the cylinder manufacture (instead refilling cylinders that belong to the marketers) or adhere to market standards. This drives up working capital costs for marketers and creates safety and reputational risk. 

Beyond solving these problems, we see huge opportunities in the data and analytics space. The LPG sector has seen remarkably little digital innovation. Marketers do not know who their customers are. Through our hardware and our platform, we are able to collect and analyze household-level consumption, spending, and demographic data. We’re also able to 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 being able to better understand price elasticity, to comparing behaviors over time and across regions, to improving supply chain efficiency, to selling lateral products and services. It’s just the beginning.

Through our hardware and our platform, we are able to collect and analyze household-level consumption, spending, and demographic data

Who are your Competitors in the Market

PayGo’s main competitor is a company called M-Gas, which also 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.

We think competition is a good thing. The problem we are trying to solve is so vast and so entrenched that it necessitates an ecosystem approach. The more companies draw awareness to the clean cooking crisis and bring investment into the space, the better.

What is the 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. 

PayGo estimates that in 2019 there were 49.9 million households that met these criteria in its ten priority markets alone

What are some of the challenges or barriers to adoption?

On the end-customer side, we have found the response to be really 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 are not needing to create new behaviors. 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 getting the balance right between commerciality and providing good value to the customer is a bit of a balancing act.

On the partner side, we have done a lot of work to secure partnerships with leading LPG marketers in our target markets. These companies, although experts in LPG distribution, lack expertise in last-mile, and in the utilization of digital tools. So there is lots of work we need to do to bring our partners along for the journey and ensure they are able to successfully implement and scale the PayGo model. 

On the supply side, we continue to face supply chain challenges as we, like every other hardware company, have been impacted by the global semiconductor shortage. We’re constantly looking for ways to bring in our lead times and reduce our exposure.

Any plans to expand and what are the considerations to doing so?

We are currently focussing on scaling in Kenya and running successful pilots in the Philippines, Bangladesh, Vietnam, and the DRC. We believe there is scope for us to scale significantly in these markets alone. We have many more expansion markets on our radar, and a long pipeline of partnership opportunities, but we are trying to avoid the classic startup trap of doing too much. When considering new markets there are several factors we look at – commercial (e.g. addressable market, LPG infrastructure), technical (e.g. cylinder valve compatibility, mobile money adoption), and regulatory (e.g. import requirements, LPG price regulation). 

What are the regulatory / compliance requirements?

The regulatory / compliance requirements differ from market to market. In Kenya, we worked with the regulatory authority to create a Standard for LPG Smart Metering, and we are constantly engaging with regulatory and industry bodies to ensure we are compliant. Our CSM is ATEX Zone II certified (this is the highest safety standard for electronic devices in an explosive environment), which is a valuable artifact to be able to point to when engaging with regulators. 

The typical customer persona?

The typical customer is a low-income (< $5,000 PPP GDP per capita), urban household (in an urban area greater than 1 million people) that cooks predominantly with charcoal and/or kerosene. In the majority of instances (~70%) it is a female head of household who makes the purchasing decision. 

Can you tell us who owns the cylinders, what the upfront acquisition costs are, and any logistics involvement?

The cylinder is owned by the LPG marketer. This is a requirement in the majority of PayGo’s markets under the Branded Cylinder Recirculation Model. The upfront acquisition costs include sales and marketing, in-home installation, and equipment (cylinder, gas, smart meter, and cookstove).

Is there a timeframe under which the customer must exhaust the cooking gas?

There is a clause in the customer contract that states that the user must meet a consumption threshold to maintain the service. We find that this is typically not an issue as our customers need to cook every day – so long as our pricing remains affordable. We do typically see a dip in consumption over Dec / Jan as many customers go upcountry to be with their families over the holidays. 

Describe your partnership across the supply chain?

We partner with LPG marketers, who typically wholesale LPG to a network of distributors and retailers. In some instances, they are vertically integrated and also sell directly to consumers. Under our partnerships model, PayGo provides access to its technology (hardware and software), implementation support, staff training, and ongoing technical support. Our distribution partners are responsible for customer acquisition and after-sales support. They set the price of the pay-as-you-go service, and own the end customer. 

 Please describe the process of installing and delivering a smart metered cylinder?

Check out the Cylinder Smart Meter page on our website for a step-by-step guide. You can also reach out to our team ([email protected]) to request a copy of our product demo video.

Scalability and Growth?

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

Speaking more broadly to the Kenyan / African market for cooking fuel, what trends are you seeing?

The fuel transition is starting to happen, but not fast enough. In markets like Kenya, access to clean cooking fuel is only increasing incrementally as the population continues to grow. There needs to be a range of solutions in the market – LPG, biomass, electric, ethanol – in order to really move the needle.

But scaling these solutions requires significant investment – especially if we’re going to reach the most vulnerable consumers – and investment is orders of magnitude below what it needs to be. We’re seeing carbon finance as an emerging space that can make a real difference. We also think that concessional debt can play a larger role. These are cash-heavy businesses and VC money alone is not sufficient to reach the scale required. 

How can businesses and investors in Canada engage?

Invest in PayGo! We will be raising a Series B next year and are very happy to chat with any Canadian businesses with an interest in the space. 

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