TOPLINE

Seeking its day in the sun

Singapore startup SolarHome taps record demand in Myanmar for Internet connectivity - through solar power.

IT IS often said that in Myanmar, you don't have the Internet. You have Facebook.

That folksy view of the Internet may mask the fact that since 2016, an estimated 90 per cent of the country's 54 million people have been armed with a basic smartphone to connect with one another online.

The investments pouring in from countries such as Japan, Qatar and Norway have translated into new, tall, cell towers poking into the skies in the country's rural outskirts.

The freshly wired-up conditions of Myanmar have created new demands for connectivity powered by solar energy - and these are needs that Singapore-based startup SolarHome have latched upon since its launch in late 2016.

SolarHome does business by renting out "electricification-in-a-box". These units hold a small solar panel with a battery that soaks up enough sunlight to power a single household's electricity needs - including phone charging - for about six hours every night.

Each basic unit costs about US$40, and the users are charged about US$3.70 per month, or 5,000 kyat, for up to two years, following which the system is transferred to the consumer.

Even as Myanmar still has much work to do in lifting millions out of poverty, SolarHome's charges are manageable for households that have a monthly income of at least US$80. The charges translate to two to three days of income - and the price beats paying for candles and kerosene.

The economics of a pay-as-you-go model (PAYG) are designed so that customers with a simple mobile phone can afford to lease a small power unit at an affordable rate.

This rent-to-own idea had earlier spread through parts of the African continent. Large groups of the rural population there could afford electricity access by using similar units leased out by SolarHome.

These units run on a system that locks out users unless customers pay the monthly rental, and get an activation code through their mobile phones to turn on the system again.

It is common in developed countries to offer a straight loan against collateral. But the problem is that in developing markets, almost all of such customers are unbanked, and have no credit history.

"Lending without collateral is very risky and would never attract commercial capability," Vaishnav Sunil, the former chief financial officer at SolarHome tells The Business Times.

Funding

Today, the PAYG solar business has attracted more than US$500 million in funding globally, with most of it concentrated in Africa and India. SolarHome's hope is to turn that funding attention to South-east Asia.

SolarHome has also earned a pretty sum of a two-time return on investments so far, with the startup zipping through funding stages straight from seed capital to Series B funding stage - a rare feat for any startup. SolarHome is due to raise Series B funding in October.

The startup's existing investors include famed Singaporean investor Koh Boon Hwee, who is said to have put some money on the table after a close relative piqued his interest on this investment idea.

SolarHome's business is tapping into power needs in this region at a time when the demand for electricity is rising while the costs of renewable energy is falling, offering a great opportunity for growth.

There is significant demand for electricity from off-grid households in Myanmar and other parts of the region. In rural Myanmar, more than 80 per cent of households remains off-grid; overall in South-east Asia, an estimated 150 million people have no access to electricity.

This also comes as grid extension remains elusive for most rural populations in South-east Asia, and as efforts to put more households on the grid can be unattractive for rural households given the large upfront signing fee and sometimes, unreliable power supply in return.

The model is flawed under these circumstances for developing countries. It can be worsened by any government subsidies that distort the true price of solar energy, even as solar prices are falling dramatically, notes Mr Sunil, now an investment manager at venture builder Forum Capital, which counts SolarHome as one of its portfolio companies.

For that reason, SolarHome has taken impact grants - funding given to startups creating social impact on communities in developing countries - but would turn down funding that forces them to artificially depress their costs. It is also in close partnership with IFC and the World Bank to bring PAYG solar power to more rural communities in Myanmar.

"We don't want the subsidy if you want us to re-price," says Mr Sunil.

SolarHome has already secured US$5 million in funding after a recent investment from venture capital (VC) firm Insitor Impact Asia Fund.

Expansion

The latest US$1 million in growth capital from the VC - funded through a convertible note - will be used for network expansion across Myanmar, entry into more premium products and expansion into Indonesia and Cambodia by year-end.

In just about a year, SolarHome has rounded up some 15,000 customers in Myanmar, and by the end of the year, it expects to have 40,000 customers renting such units from the startup.

With the use of data analytics, SolarHome has been able to run credit analysis on its customers to weed out delinquency in its portfolio.

Default rates have been manageable, with the bigger challenge now focussed on figuring out how to deploy a repossessed system that has not been paid for by the users.

Over time, with its expanding credit data and regional network, SolarHome sees itself pivoting towards a business that can offer credit scoring to global banks that are still reluctant to open their balance sheets to the unbanked population.

As the income demographics shifts favourably in this region, SolarHome can eventually find a bigger and more meaningful play in the financial inclusion theme, says Mr Sunil. And with this, a sunrise industry can find its new turn of phrase.