Buying half a loaf of bread, a small packet of washing powder, a single sachet of instant coffee or a few minutes’ worth of mobile-phone airtime is common practice for low-income households in sub-Saharan Africa. Many people purchase daily necessities in small quantities according to their available cash balance. This hand-to-mouth economy now also extends to energy purchases. In some African countries, liquefied petroleum gas (LPG) is being sold in smaller, more affordable cylinders and, ingenuously, even on a pay-as-you-go basis. The latest tech-based business models target domestic consumers at the bottom of the pyramid – particularly those in densely populated urban areas, informal settlements and off-grid rural regions – who can’t afford the upfront cost of gas cylinders for cooking and heating their homes.
Innovative social entrepreneurs have come up with solutions that involve mobile money payment systems, smart LPG cylinder valves and meters, and ‘pay-as-you-go’ cooking technology that uses the internet of things (IoT) to create a virtual gas grid for this target market. Africa is one of the world’s fastest-growing LPG markets and efforts are under way to align regulations and promote the uptake among the poor as a means of reaching the UN’s Sustainable Development Goals.
LPG is a by-product of natural gas and crude-oil refining. The exact concentration of the gases present in LPG varies, but it’s typically a blend of butane and propane, with minuscule quantities of other gases. Despite being non-toxic, colourless and odourless, LPG is flammable so a stenching agent is added for safety reasons.
In the past, LPG used to be considered an ‘unwanted’ by-product and was therefore frequently wasted by being burnt off through venting or flaring. Today it’s valued as a versatile thermal fuel for many industrial, commercial and residential uses (such as cooking, space heating and water heating) as well as for autogas, used to power motor vehicles.
Although LPG is almost entirely derived from fossil fuel, it’s generally considered a clean fuel, as it produces no soot or smoke and emits significantly fewer air pollutants than biomass burning. In addition, a study found the gas can be up to five times more efficient than traditional fuels.
‘LPG is an important clean energy source particularly for non-electrified households,’ says the Competition Commission South Africa, which in 2017 published a market inquiry that confirmed accusations of price fixing among certain LPG companies.
The South African LPG sector has moved on and is striving to raise awareness of the fuel as an attractive energy source that is more convenient for emerging economies than natural gas. ‘A comparison of LPG and natural gas reveals that in terms of functionality, they perform the same functions,’ notes the commission. ‘However, the distribution of natural gas, unlike LPG, requires reticulation infrastructure such as pipelines to be in place, and this infrastructure is only available in a few areas in South Africa. This shows that there is limited competition between LPG and LNG [liquefied natural gas], given the existing supply-side substitutability constraints.
‘The ease of portability, through cylinders, makes LPG access by poor households particularly important. On average, wholesalers distribute between 20% and 50% of LPG [in South Africa] through cylinders and the remainder through bulk.’ This ratio may change as disruptive technology makes LPG cylinders more affordable and accessible to Africa’s poor and rural households.
In July 2018, urban residents of Nairobi, Kenya, saw the commercial launch of Envirofit’s pay-as-you-cook solution, called SmartGas. The programme had already been successfully piloted in East and West Africa, where it was met with enthusiasm. ‘I like that I can buy gas in smaller amounts; a factor that ensures that I always have gas. I don’t have to save for a full tank refill, which was sometimes a challenge especially during those difficult curves of the month,’ says Cecilia Wanjiku, one of the customers who switched from cooking with biomass to gas.
‘SmartGas uses IoT and mobile technology to provide LPG at a cost 62% less than charcoal,’ says Ron Bills, CEO of Envirofit, a US social enterprise. ‘This revolutionary techno-logy is already changing lives ahead of our scale-up across Kenya and beyond in 2019.’
The model works like this: a sales agent delivers and installs the LPG system in the home and provides safety instructions. The customer prepays for gas with mobile money on their mobile-phone app, which controls a GPS-enabled SmartGas valve on the cylinder. The valve turns off when the prepaid amount has been used, alerting the customer by text message beforehand. When the fuel in the cylinder runs low, the smart valve sends a signal to Envirofit’s customer-care centre to schedule the next delivery.
In Tanzania, KopaGas started its pay-as-you-go service in 2015 in partnership with Oryx Energies. The company supplies LPG to around 22 000 families in Dar es Salaam, through its digital platform and metering technology.
In Kenya, tech start-up PayGo Energy is also providing smart-meter technology to enable customers to purchase LPG in small quantities. Like KopaGas and SmartGas, the PayGo platform tracks real-time usage at household level and arranges just-in-time delivery.
PayGo CEO Nick Quintong explains that this business model drives LPG demand at an early stage. ‘However, you still need to navigate a supply chain that is usually constrained, if not broken,’ he writes in a newsletter.
‘Today, downstream LPG operations are mostly analogue. 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 digitise, thereby creating value for both end-users and for the industry.’
Earlier this year, a cashless LPG refill service was launched in Cape Town, South Africa. PayGas allows customers to fill their cylinders with the gas quantity they want to consume instead of buying a full cylinder. ‘It’s like a petrol station, but it’s gas. You come with your cylinders and ask for ZAR10 or ZAR30, and it allows low-income families the opportunity to cook every day on safe and affordable energy,’ said PayGas CEO Philippe Hoeblich in a recent radio interview.
This also provides franchise opportunities for township entrepreneurs. However, the drawback is that customers have to take their cylinders to a PayGas station to be refilled.
Meanwhile Oryx Energies, which serves more than 20 sub-Saharan countries, has developed smaller, more affordable 3 kg cylinders that are combined with a cooker top to simplify the transition to LPG.
In 2018, Afrox, which owns the LPG brands Handigas and Safety Gas, launched lightweight 5 kg cylinders specifically for informal-settlement dwellers who often have to carry cylinders from gas depots to their homes on foot. The company already had 6 kg cylinders on offer for this target group. Afrox LPG distributor Ulula Energy, a black-women-owned BEE enterprise, is working to educate the public on the advantages of LPG and to encourage other informal businesses to become Ulula resellers.
‘We have been running our 6 kg Handipack promo each month since July  through stockists and activations at Makhaza shopping centre in Khayelitsha and we plan to continue with these activations at local shopping centres,’ says Ulula MD Rizelle Sampson.
Lack of public awareness – as well as inadequacies in LPG production, supply chain, import and storage facilities – are major challenges to the adoption of gas in Africa. However, in Nigeria, a presidential LPG expansion initiative was specifically formed to improve the situation. The Nigerian National Petroleum Corporation issued a statement in January saying that it intends to stop exporting propane and butane to increase the local supply of LPG.
Kenya Pipeline Company has plans to build LPG handling and storage facilities worth US$125 million, according to Bloom-berg. The East African nation has also waived VAT on cooking gas and subsidises the cost of 6 kg cylinders as an incentive to switch from firewood, charcoal and kerosene to LPG.
If correctly harnessed, with the support of smart technology, LPG can significantly improve the well-being and socio-economic conditions in large parts of the continent while contributing to decarbonisation. There’s even the possibility that LPG is not a transition fuel but a viable long-term solution for many poor and low-income households in Africa.