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Report: Energy security at the base of the pyramid

How to provide access to light for 1.6 billion people that experience darkness each night? And how to improve the centuries old inefficient biomass energy being used by 3 billion people?

This concise report from Hystra in collaboration with Ashoka outlines approaches being taken to address the above questions. The report provides a global perspcetive citing examples from 10 countries: India, Morocco, Argentina, Sudan, Colombia, Indonesia, The Phillipines, Bangladesh, Mozambique, Ethiopia.

Scale of the challenge= size of the opportunity
The estimates from the report place the market opportunity at $500 billion. The break-up of these figures below. Howver, it is important to highlight that rather than consider the problem purely from an economic one, the authors impress the security aspect of providing access to energy.

Addressing the challenge
The report categorizes the approaches into the following 4 categories
1.    Grid connections for the urban poor
2.    Devices and innovations for lighting and energy
3.    Solar home systems
4.    Rural cooperatives

Grid  connections  turn  slum  communities  into legal, paying customers using community organizing, technological    innovation,    and    complementary business lines. These enterprises, in Sudan, Colombia, or   Argentina,   are   economically   viable   without subsidies and very attractive to their customers. With some work to overcome hesitations from utilities and slum dwellers, grid connections could reach more of the 1b people currently living in slums.
Devices  such  as  solar  lanterns  and  efficient biomass cookstoves provide energy for lighting and cooking  and  are  affordable  to  the  poorest  of  the poor. Both solar lantern and cookstove enterprises demonstrate high potential for profitability, and are receiving social venture capital. Growth goals are ambitious  and  entrepreneurs  expect  significant scale over the coming years.
Solar home systems (SHS) provide electricity for households  and  home-based  entrepreneurs  with  a stand-alone solar photovoltaic panel wired into lamps and a plug. SHS enterprises have demonstrated profitability, but are vulnerable to the expectation of free help from governments and the swings in input prices that  have  characterized  the  solar  PV  market.  SHS entrepreneurs expect strong growth, and are working to reduce complexity in their operating models.
Rural cooperatives take the challenge of providing sustainable power supply and create income generation opportunities that increase people’s ability to pay for the electricity generated. Such models are technologically  neutral  as  they  can  use  biomass gasification, wind, or hydro. But rural cooperatives require local maintenance and administration and often an effort to set up local enterprises to use the increased power supply.

Need for capital
The report touches upon financing needs and innovation to make the some of the solutions more affordable. As an example the chart below outlines how solar home systems can be made more affordable through the use of 4 year instruments. With that tenure the monthly outlay for an SHS will be equivalent to the average spending for lighting and communication.

As the market for energy products for the BOP develops, there are an increasing range of financing, from grant-based assistance to start the market, to patient capital with sector expertise, to links with broader capital and carbon markets. However, financing  is  still  a  significant  bottleneck  for  energy entrepreneurs. Subsidies in some form were necessary to launch almost all energy enterprises targeting low-income people, even those with a self-sustaining market-based  operating  model.  Further  creative  financing solutions are needed which are tailored to the high risk, expensive early stages of energy enterprises

Recommendations
The report provides a range of recommendations to the different players in the ecosystem
Recommendation for Aid Agencies
1.    Design targeted subsidies with the recognition that these could risk  to  create  market  confusion 
2.    Support social entrepreneurs with grants or low-cost financing.
3.    Finance  ecosystem  for  poorest  customers, especially  MFIs. 
4.    Invest  in  programs  designed  to  create  the required    “infrastructure”    for    the    energy initiatives.
5.    Support  favourable  energy  regulation.
6.    Avoid market distortions such as the promise of free  help.
7.    Build tools for the market of ideas and money.

Governments
Many of the roles for governments overlap with those of aid  agencies.  In addition, governments have a unique role to play:
1.    Design tax incentives and duty rules to support energy  enterprises. 
2.    Set quality standards to weed out sub-standard products.  
3.    Solidify  relationships  between  public  utilities and  energy  enterprises. 

Strategic Social Investors and Foundations
SSIs and foundations need to use  their  very  precious  moneys  in  ways  that  other development players cannot.
1.    Provide   a   range   of   financial   instruments including  grants,  loans  and  equity  at  reduced returns, and loan guarantees.
2.    Build  investment  pipelines. 
3.    Examine     portfolio     and     reduce     market distortions. 
4.    Take  on  orphan  strategies  and  support  natural owners.

Citizen Sector Organizations
1.    Distribute energy products.
2.    Organize local communities for grid connection in  slum  communities. 
3.    Provide  microcredit  for  clean  energy  purchases.
4.    Train  micro  entrepreneurs  for  access  to  energy businesses.
5.    Social   marketing   and   awareness   building especially  around  health  and  safety  benefits. 

Energy social entrepreneurs
1.    Expand  range  of  products. 
2.    Promote  IP  if  distinctive  and  leverageable. 
3.    Examine best value-add as new entrants emerge.

Multinational companies
1.    Support a social entrepreneur.
2.    Build  a  portfolio  of  social  entrepreneurs. 
3.    Launch  a  project  around  a  key  installation.
4.    Build a BOP business in a priority segment.

For the complete report click here