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Ned Tozun, Co-founder and CRO d.light

Interview with

Ned Tozun, CEO, d.light

Ned Tozun founded d.light together with Sam Goldman. The company first began its operations in 2006, as a small solar lantern company. As the cost of solar and batteries declined, and as mobile money became increasingly prevalent in their markets, d.light could provide higher power products and a range of appliances, financed through a pay-go model which enabled the customers to make payments via mobile money.

By today d.light has shifted to a product, distribution, and financing solar energy company. The have sold more than 25 million products in over 70 countries, which have led to increased access to lighting and energy for more than 125 million people.

The pandemic has struck the world hard, can you elaborate on how the pandemic has affected the demand for your goods and services?

– With customers spending more time in their homes with curfews and lockdowns in place, the need for d.light’s products have increased. But at the same time, the ability of customers to pay has decreased with more limited economic activity. We have therefore seen a strong increase in demand in the market for products with less functionality but at lower price-points to match their ability to pay.

You refer to something called “climbing the energy ladder, what does that mean?

- We started d.light with a product that filled one of the most basic needs of lighting. Because of the high efficiencies of LEDs, this required only a very minimal amount of solar panel, often less than 1 watt. This simple product would radically transform people’s lives, and it helped customers to see the kind of transformation solar could enable in their lives. Once customers got access to quality lighting and were able to save money by not having to buy kerosene, it increased their spending power and also created a demand for more of what solar could enable. With larger investments (made more affordable through the Pay-Go financing business model), customers could now get products to charge their phones, to run a TV or a radio, to cool off with a fan, and to be able to power various other appliances that could continue to improve their quality of life.

Climate change is one of the most acute issues that needs to be solved. In developing countries, it is more a question on mitigating the consequences, what is your view on this?

– We fully agree that climate change is one of the most important problems facing humanity today. We also believe it is unacceptable there is more than two billion people in the world without reliable energy access. We believe it is critical that people without reliable energy access are fully powered using business models and technologies that will not further accelerate the climate crisis.

The good news is that with technologies available and without the sunk cost of legacy infrastructure, it’s actually possible for many rural communities to fully leapfrog the grid to renewable and sustainable energy solutions - in the same way that these communities leapfrogged incandescent bulbs and went straight to much more energy efficient LED. The lack of the legacy infrastructure actually enables developing countries to adopt these new transformative technologies much more quickly.

Can you elaborate on the needs for your type of solar energy solutions, compared to mini-grids or a national grid?

– In many countries in sub-Saharan Africa, the national grid is expanding slower than population growth. The national grid can also be very expensive with high connection costs and ongoing fees, while also being unreliable. We are funding an increasing number of customers who are choosing to go off-grid to solar because it is more economical for them, and they can own their own power.

Mini-grids fill an important gap in the ecosystem and we view mini-grids as complementary to our household focused energy solutions. To make the economics work for a mini-grid deployment, there needs to be a fairly high level of density of household distribution and generally there are anchor energy users such as a mill that ensures consistent baseline energy use on the system.  We believe mini-grids will be an important part of the solution for energy access but will not be able to economically provide energy for people living in less densely clustered communities.

Which are the most important obstacles to overcome in order to secure energy for all. And what is the correlation between access to energy and decreased poverty?

– The technologies for energy access have come so far over the last decade. There are now commercially viable renewable energy solutions to address the needs of households, small businesses and industry. There are two key obstacles to enable energy for all.

Access to Capital & Financing: Renewable energy solutions require a fixed investment upfront and then pay-off over time. The households and businesses in developing markets simply do not have the risk appetite or the capital to make these upfront investments, even if the economic return on investment makes sense after a relatively short period. This is why a Pay-Go model to the customer, where the daily rate is less than the alternative, is key. There is some capital starting to be unlocked over the last few years to enable financing on solar solutions in developing markets, but we will need to increase these facilities by an order of magnitude in order to provide financing for all who would want one of these solar solutions.

Reaching Marginalized Communities: If we want to get energy access for all, we must recognize that there are some very low-income or marginalized communities who will not be able to afford any solar solution, even if long-term financing plans are made available. For these communities, heavy subsidies may be required, or even 100% subsidies in some cases such as refugee camps where people may not have any ability to pay.

Meanwhile, we must ensure that there is a level playing field between solar solutions and the alternatives in terms of tax treatment, customs duties, etc. For instance, there are several countries where kerosene or diesel (used for generators) is subsidized whereas solar products are taxed.

We know that lack of energy affects people’s lives in many ways, not the least when it comes to job creation. Can you share your personal experience of this?

– When I visit the rural communities where we distribute our products, one of the first things I hear from people in the community is that they are thankful to d.light, first and foremost, for creating jobs in the local communities. For employing solar technicians and installers, and for creating opportunities for retailers, for sales agents. The reality is that there are very few job opportunities and especially skilled job opportunities in rural communities that don’t have access to energy. Without energy access, it means limited access to the internet. We have seen that when customers in rural communities get access to smartphones that they can power, their income increases significantly as opportunities begin opening up. Energy access can also enable many other kinds of businesses such as mills, barber shops, restaurants that can serve chilled drinks, etc - this creates a virtuous cycle where more people choose to stay in the local community rather than moving to the big city for opportunities, and this enables these local communities to better thrive.

The need for large investments in this sector is huge. From your perspective, what is needed to mobilize more capital from private and institutional investors?

– Investors are still risk-averse when it comes to deploying capital for the consumer financing for the Pay-Go model. There are strict requirements around collections and portfolio-at-risk, and this can make it difficult to extend credit into lower-income / higher-risk communities. The rural customers we serve are also more prone to economic shocks (droughts, COVID, locusts, etc), so there is more inherent risk as we try to reach customers in the last mile. In order to free up more capital at larger scale and with higher risk appetite (and therefore higher impact since we would be able to reach more people), the industry needs more concessionary capital that can be used as guarantees or first-loss reserves in facilities that are utilized for growing Pay-Go receivables.

What is the role of Development finance institutions, as you see it?

– I see the role of DFIs as patient capital to help bring the energy access sector to full economic viability - willing to accept lower return on investment than private equity as long as the companies stay focused on the mission of energy access for all. The reality is that companies in the energy access space are having to pioneer and invest in building the market awareness and demand for solar solutions in hard-to-reach communities, the ability to service and install these solutions in those communities, and the ability to creatively finance these products for unbanked customers. This requires significant upfront investment and time - d.light has reached 125 million people and has created a strong business that we can start looking at potential “exit” options for some of our investors, but it has taken us 15 years. This is not the typical time horizon venture capitalists or private equity would be comfortable with. We’ve only been able to achieve this because we had investors from the start who understood the challenges of being a pioneer and were willing to take a longer view. As the industry starts to mature, I think DFIs should lead the way in participating and growing the off-balance sheet structures to fund and provide first loss guarantees for the Pay-Go business model to take it to the next level of scale.

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