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Creating a market for clean energy products in rural India: lessons from smokeless chulas
Last-mile distribution and re-seller networks continue to be critical for actioning uptake of domestic clean energy products in rural India.
Sustainability Outlook spoke to players in the clean cook-stoves sector and saw carbon financing was playing an increasingly vital role in the last few years.
Rural distribution networks extremely valuable
“The deeper you go, the more expensive it is” is the simple rule for taking on India’s rural markets. From a business standpoint, the capacity to transport & store goods in rural India comes at a premium.
From Sustainability Outlook’s conversations with solar lantern and cook-stove industry players, the balance tips when the cost of transport is beyond the capacity for many rural families to pay – regardless of what the product actually is.
As manufacturers pointed out during India Cook Stoves Forum 2013 last week, traditional logistics in rural areas relies on trucks. Niche products (such as cook-stoves) are not operating at a scale where sufficient volumes can be dispatched via trucks cheaply.
Private companies like HUL, P&G, Prestige have their own products to sell and will seek to optimize their load factors, making it difficult for niche producers to make a case for piggybacking on some of that capacity, manufacturers said.
Sustainability Outlook observed that some organisations had found good alternatives by promoting & distributing products through womens’ networks and community groups, yet the scalability of these partnerships was limited.
Other players at India Cook Stoves Forum were looking to leverage national dairy cooperatives, India Post, and major finance institutions in rural areas to enable manufacturers of sustainable products to penetrate these markets.
Investment in re-sellers critical to sales
Sustainability Outlook observes that the sales journey is difficult for sustainability products and sales rely on word-of-mouth or local re-sellers.
Amongst the smokeless chula companies showcased at the Clean Cookstoves Forum 2013, the price range was Rs. 2500 – Rs 3500 with a maximum subsidy of up to Rs. 500; thus price still being beyond the capacity of 70-80% of rural households, where monthly rural incomes typically hover between Rs. 3000 – Rs.6000.
Sustainability Outlook spoke to manufacturers and implementation partners working in rural markets. Selling sustainable products in rural areas particularly depends on the success of the local re-sellers. Re-sellers are usually engaged in:
- Creating awareness of the product and helping customers prioritise purchase in relation with other purchases (e.g. bicycles, mobile phones)
- Basic credit e.g. they enable ‘regulars’ to pay in 2 or 3 installments rather than the whole upfront purchase price at once
- Frontline aftersales i.e. they are the first point of contact for after-sales services such as training for using the product correctly, addressing failures
Hence, re-sellers are critical to the success of sustainable products in rural markers.
Use carbon markets to lower cost of reaching out to rural families
One innovative model in the cook-stove sector is the use of carbon funding mechanisms to help stimulate demand, and hence cover the cost of last mile distribution and re-seller networks.
Carbon credits generated by households using cook-stoves are bought by companies (or carbon funders) and money is made available upfront i.e. before the credits are generated. This helps pay for the last-mile per unit cost required to distribute, sell, and service products in rural markets or to reduce end-user purchase prices.
Marks and Spencer was the first to announce that it will back a carbon offset scheme for cook-stoves in Bangladesh implemented by UNICEF.
In India, an early, pioneering partnership of this kind was implemented by Sapient InfoTech in West Bengal alongside carbon funders and private technology companies. The Shell Foundation is currently backing a similar carbon fund to promote clean energy services for lighting and cooking in India.
The purchase of carbon credits to help make products more affordable for end users is a model which may demonstrate better scalability than other business models which are vulnerable to the challenges typically associated with direct cash transfers, government subsidy schemes or one-off grant funded / CSR projects. However, the due diligence effort required to certify credits is considerable.
A key issue is disaggregated demand i.e. for example, to access carbon finance upfront, the scale at which individual consumers or households are enlisted will determine whether or not carbon finance is a feasible option.
Sustainability Outlook expects that a carbon funding model based on the organised purchase of carbon credits could gain traction in this space.
Image Credits: Urban Wanderer, Engineering for Change, McKay Savage, Shahbasharat