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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
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.
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.
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