Friends and advisors,
2017 was a monumental year for PayGo Energy, and we are very thankful to have had you in our corner through it all!
When PayGo Energy started, we were a self-funded team, fueled by home-brew and espresso, hell-bent on cracking an intractable development challenge: “how do we unlock clean cooking fuel for the nearly 3 billion people that need it?”
Today, our team is 19 strong. We have broadly de-risked the hardware component of our technology. Our pilot operations in Nairobi covers 300 homes and we have logged over 4,000 payments on our platform. Although we still have a lot to learn, what we have seen in the market and from the industry has been very promising.
In 2018, our founding mission and vision still holds true
As we better understand the global implications of our technology and service, PayGo’s founding mission and vision to “unlock clean energy for the next billion by revolutionizing the distribution of cooking gas” is perhaps more relevant today than ever. Our 300 house-hold pilot clearly demonstrated we can enter into a challenging market environment (low-incomes, high gas prices, low charcoal prices, etc.) and drive demand where it was previously thought to be impossible. What we have also found is that while a pay-as-you-go business model is key to generate demand early, an increase in connectivity throughout the supply chain is equally important to accelerate access.
Right time, right place
Globally, there has been an increase in LPG (propane/butane or “gas”) supply from US shale production and exports from Iran, Russia and China. This increase has been met with an uptick in global consumption, specifically from the residential sector in emerging markets. In more developed markets, LNG (methane or “natural gas”), renewables and other types of energy are more appropriate for cooking, power generation, etc. Thus, there is a strong argument that the residential sector in emerging markets is where the industry should make a significant bet.
To date, the prevailing strategy to unlock undeveloped markets includes a heavy reliance on government subsidies to increase penetration into low-income segments and cover losses attributed to illegal practices (i.e. India, Indonesia and Brazil). This approach definitely works but is difficult to implement in all markets. Although still directional, our pilot has shown PayGo’s technology can potentially drive similar outcomes with a market-based approach that is both fast and sustainable. As we look into the future, we are excited by the opportunity to present a new approach to growing the residential LPG market, and we also believe the timing is right as LPG production has hit an all-time high.
PayGo’s Virtual Gas Grid – Fixing the supply chain
To create a new market for LPG, a pay-as-you-go business model can drive demand early. However, you still need to navigate a supply chain that is usually constrained, if not broken. Today, downstream LPG operations are mostly analog. This creates a missing link between wholesale, retail and end-users, which ultimately drives up the cost of LPG. By converting cylinders into connected devices, we have an opportunity to bridge the gap between supply and demand. Moreover, much of downstream LPG operations are underpinned by business logic we can digitize thereby creating value for both end-users and for the industry. Mark O’Keefe, Head of Operations, and Laura Talsma, Head of Marketing, have been designing a technology platform that improves the connection between buyers and sellers of LPG. In 2018, we will continue to increase our investment in the virtual gas grid by doubling down on platform development and data science.
PayGo’s platform, which tracks real time usage at the household level, and orchestrates just-in-time delivery.
Hardware innovation is still critical
Hardware remains a cornerstone of our solution and long term strategy to digitize downstream LPG operations. In 2017, we invested heavily in PayGo’s smart meter. Mike Hahn, Head of Product, successfully navigated the design for manufacturing process, with a consortium of design and engineering partners in the US, Europe and India. In 2018, he and his team will prepare for mass production.
We are as hungry and humble as when we started. There are still many unknowns, but we are energized by what we have seen in the market and the opportunity we have to transform how billions of people access energy everyday. Thank you for your continued support. We have an exciting year ahead!