Serving as the voice of the nascent climate movement in India, “What’s with the Climate?” is attempting to provide an open forum for the discussion of climate change in the Indian as well as the global context. More?
20 of the world’s leading off-grid clean energy entrepreneurs sent a letter today to World Bank Group president Robert Zoellick requesting $500 million in financial commitments to help them deliver on the world’s energy access goals. The group’s letter was backed by a letter of support from the CEOS of more than 25 leading civil society organizations from around the world, which calls for these commitments to take the form of a pledge at the upcoming Rio+20 earth summit.
The call comes six months into the United Nations Sustainable Energy for All (UN SEFA) campaign, which seeks to deliver universal energy access by 2030. In order to make good on that pledge the International Energy Agency (IEA) has found that half of all energy services must be provided by off-grid clean energy. Unfortunately, today’s investments in energy access are heavily skewed toward traditional grid extension with billions going to large scale centralized power projects which are often heavily polluting coal plants. Worse, according to the IEA, an over reliance on these investments at the expense of off grid clean energy investments will leave one billion of the world’s poor without energy access by 2030.
“There are literally 1 billion reasons to change our current approach to energy access,” says Justin Guay, Washington Representative with the Sierra Club’s International Climate Program. “The World Bank has a tremendous opportunity to do just that by committing to rapidly scale up investments in off grid clean energy at Rio.”
Entrepreneurs agree. The letter states in part, “We work in these markets and we know they suffer from, among other things, a distinct lack of access to finance.” The entrepreneurs go on to argue that a significant investment in the sector from the World Bank Group can reduce perceived risk and unlock private sector investment – and along with it the vast potential of clean energy to serve the world’s poor. The entrepreneurs expressed their support for existing World Bank programs such as Lighting Africa, Lighting India, and Green Power for Mobile and asked for increased funding for programs like these going forward.
The market potential in serving the world’s poor is enormous. Lighting, just one of many energy requirements is a $36 billion a year industry. However, while the poorest fifth of the world currently pays one-fifth of the world’s total lighting bill it receives only 0.1 percent of the lighting benefits. Worse it comes from heavily polluting and dangerous kerosene which can cost as much as 25 to 30 percent of a family’s income. Diverting this expenditure to clean energy can reduce pollution and expenses over time.
“A continued reliance on huge coal, nuclear, and hydro plants has done little to alleviate energy poverty, forcing the poor around the world to rely on kerosene for their meager energy needs,” says Harish Hande, founder of SELCO-India, and recent recipient of the prestigious Magsaysay award. “The poor are best served by small scale, distributed clean energy which is faster, cheaper and more effective for addressing their needs and delivering on the world’s energy access goals.”
Entrepreneurs like Hande are doing so by providing, small scale solar home systems for communities and households that don’t have access to the grid. The combination of prohibitive costs of grid extension, highly innovative business and financial models, and plummeting cost of renewable energy have enabled them to demonstrate the financial viability of the sector. Now a new generation of entrepreneurs are experimenting with ‘pay-as-you go’ systems, mobile banking payments, and community power that extends clean energy from off-grid cell phone towers to surrounding communities. In essence they are laying the foundation for the developing world to leap frog the expensive, polluting, and inefficient grid that dominates the developed world.
“The opportunity this presents is just tremendous,” says Simon Trace, CEO of Practical Action. “These entrepreneurs are laying the foundation for a clean energy future by serving those who need it most. It’s high time they got the finance they need.”
“Rio +20 is an incredible opportunity for the World Bank Group,” added Jake Schmidt, International Policy Director for Natural Resources Defense Council (NRDC). “This is a global platform and the time is right to make a statement on off grid clean energy.”
Both India and Africa are experiencing an affordable-energy crisis in rural areas, however there are two significant differences in the African market that are giving rise to energy solutions not yet seen in India.
First, unlike India, an overwhelming majority of the African population lives at the very bottom of the Base of Pyramid (BoP), with family incomes in the range of a few dollars a day. Second, although both populations are concentrated in rural areas, African villages are sparsely populated with large distances between households.
As a result, affordable energy solutions in Africa require a more creative financing element and cannot be easily centralized, and channels must rely more on community networks rather than the larger mass-market players that can profitably operate in densely populated rural India. What works in Africa could apply to the lower income segments in India; community-based financial support systems are in place and consumers lack affordable alternatives.
The predominant payment model of daily use is inflated
Most BoP consumers buy basic necessities from a local kiosk or community cooperative. A local kiosk stocks basic items, such as batteries, kerosene, or soap. Many of these items are broken down into daily use portions; selling sliced up portions of a bar of soap, airtime in $0.15 increments, or kerosene in small plastic bags for 4 hours of lighting. As a result, the poorest pay the highest prices for food, household goods, telephony and energy, keeping them in a cycle of poverty difficult to break.
Micro Leasing fits cash-on-hand
In the bottom half of the BoP, families are able to save one to two dollars, however cannot hold onto the savings for more than a week.
Unless an asset can be sold cheaply enough to fit into these amounts, the BoP market will not be able to afford an outright purchase nor make upfront fees. The only viable model is to provide assets under a micro leasing model such that payments fit within the consumers’ available cash-on-hand.
Community-based financing is the norm
In the BoP, income is unpredictable. To ensure regular collections, suppliers need to customize a microlease to fit a family’s savings. Each income segment has varying abilities to save and each has a different approach to covering daily expenses. Stima defines 3 significant income segments within the BoP, characterized by their savings habits and income levels;
Those who stop consuming when they cannot afford ($1.35/day and below) Those who rely on community support to save ($2.80-$4.10) Those who can save on their own ($5.50 and above)
In the target segment ($2.80 to $4.30), a member of a family, typically the woman, forms or joins a group of 10 or more trusted individuals within the community for purposes of lending and borrowing cash amongst themselves and smoothing cash flow. Individually they may not have the cash to cover a daily expense or invest in a venture, however within a group of 10 or more, they have the means.
Suppliers can leverage these familiar community groups to ensure regular micro leasing payments, where the group can be asked to co-guarantee full group payments.
Four Core Elements to Ensure Payment from the $1.35 to $4.30 segment
In Africa, this segment accounts for 55% of the population and over half of the BoP market spending. It also pays some of the highest per unit prices for goods and services, has strong community support and is experienced with group co-guarantee practices. Risk of non-payment however is high as is the temptation to resell any equipment (that is provided for free) for quick cash.
In order to profitably serve this income segment, four payment control methods must be employed. Those payment controls include:
Micro payments that fit cash-on-hand: For this income segment, the range is a dollar to two dollars per week at the high end. Upfront fees are discouraged as they create a lengthy sales cycle.
Local oversight from 3rd party: A representative from the community must be financially aligned with payments and serving on behalf of the supplier. Because this individual is loca, she part of the same income segment, making it not possible to require any upfront payments.
Customers must participate in a co-guarantee group: Individually, the customer may not be able to reliably make regular payments due to unpredictable and spiky income, but within a group of 10 or more co-guarantees, the group can smooth cash flow and ensure payment continuity. The group also reduces any individual temptation to sell off the asset for quick cash since the group is responsible for on-going payments.
Technology must reinforce group co-guarantee: The supplier of the asset must ensure that if full group payment is not made, that no asset within the group is able to function; ensuring the group takes responsibility for replacing any individual and redistributing the asset to a new, contributing individual.
The lowest income segments can be an attractive market: Despite the fact that this income segment is a smaller percentage of the Indian population, the learnings of African micro-leasing can be adapted to benefit the lowest income tiers. The poorest rural families in Africa and India cannot purchase product upfront, make significant upfront payments, nor consistently guarantee regular micro-payments individually. However, suppliers and entrepreneurs can leverage age-old communal financing practices to ensure consistent payments by organizing customers into communal groups and designing solutions to reinforce collective payment thereby enabling a sustainable business while helping the underserved.
The off grid market continues to expand and attract innovative new business and financial models aimed at delivering energy access for the poor. One of the most recent, Eight19 Ltd., made a splash with an article in The Economist explaining their pay-as-you-go “energy escalator” business model (seen in the graphic above).
We sat down with Eight19 (which takes its catchy name from the time it takes sunlight to reach the earth – 8 minutes and 19 seconds) CEO Simon Bransfield-Garth who offered up a fascinating vision of the future of energy dubbed the “Un-Grid”. Take a minute to read his take below.
So how does eight19 work?
We provide off-grid communities (mostly in Africa) a “pay-as-you-go solar model” personal solar system called IndiGo. Local people buy scratch cards for around $1 a week which are validated over SMS using their mobile phone and add credit to the IndiGo unit. By combining solar and mobile phone technology, the IndiGo solar electricity system is inexpensive to buy and allows users to light their homes and charge mobile phones as a service.
We have similarities to other pay as you go offerings (like Simpa Networks). The main difference is we start at a smaller scale (light for 2 rooms and provide a USB for phone charging). This lowers the price point to roughly $1/ week providing an 18 month payback. We offer (like others) a progressive purchase option that enables households to own the system. But we also offer the option to upgrade to a more powerful system. This “energy escalator” business model supports a bottom up approach to electrification and allows users to pay less than half their normal spend on kerosene.
You use both scratch cards and mobile money. Which is better?
Mobile payments are the way to go because you don’t have to physically distribute scratch cards. But there are two reasons you wouldn’t use them. One, mobile payments are nascent around the developing world (except in Kenya) so many countries don’t yet support them. Two, if you are trying to take small sums of money from customers the mobile carrier may currently charge too much for small transactions. For instance a $1 transaction on M-Pesa can cost 20-30 cents. We are in ongoing discussions with carriers because we believe this should be more like 5%.
Why aren’t you in India?
In the Indian market the government is said to spend approximately 7% of GDP subsidizing fuel. This translates into large kerosene subsidies that that have the unintended consequence of making it more difficult for clean alternatives to compete. In Africa, on the other hand, kerosene can be nearly four times more expensive so the replacement with solar power makes more sense.
Why off-grid solar?
We are fundamentally a solar company that develops low cost solar cells (printed plastic). We were looking at appropriate solar markets and decided the off grid market was a new and interesting one that we could have an impact on. When you do the calculations the payback for solar in those markets is extremely good. Many developing countries don’t have ways to tap a lot of natural energy resources. One of the things that most of these countries do have is abundant sunshine. So it makes sense to put solar in places where there is lots of sun and the cost of alternatives is high.
What do you see as the future of this sector?
This sector is going to grow. Mobile phone technology is something that can be leveraged to do all sorts of useful things. Collecting cash is certainly one of them. I don’t think it’s a case of one company having one technology and that takes over the market. There are lots of complicated problems that need to be addressed including distribution, working capital, regulation, taxes and so on. So it’s not a simple market but we think there’s huge scope.
As the market develops we will end up with what I like to call “the Un-Grid” – widespread electrical usage but no grid connections. When you move to the idea of the “Un-Grid” and distributed power – you still have a problem with cost. But that’s a problem with rural electrification – it’s expensive and governments don’t have the money.
With the Un-Grid the customer ends up progressively buying infrastructure so you eliminate that problem by using the premium they spend on dirty fuels and inadvertently investing that in building personal infrastructure. The Un-Grid can therefore be largely self-funding and doesn’t require huge centralized interventions to make it happen.
Interesting stuff falls out of that. Imagine when you make a cup of coffee in the morning. You switch on the electricity to boil your water and it has to travel incredibly long distances through complicated and expensive infrastructure to reach you, with often significant losses along the way. Think of the logic of that.
When you have a distributed grid you no longer have the requirement for long distance transmission and therefore no need to switch electricity to high voltage and back down again. Our vision is to have houses with a low voltage dc grid within them and people increasingly use low voltage dc appliances. In off grid environments people will start this way and eliminate the losses that occur in the transmission grid (in India huge amounts of electricity are lost this way). Ultimately this may be incorporated back into the West as people realize our model of distributed power is more sustainable.
The traditional view of development is top-down. Governments make decisions that finally wind down to an end consumer. Our view is this should be bottom up. We are providing something that simultaneously provides better light and reduces expenditure from day one. The more we can make this develop with the dynamics and timelines of consumer electronics versus government timeframes the better.
In terms of what we as entrepreneurs need the most pressing need is short term loan finance to accelerate deployment. These can be commercially driven loans – we are very happy with that. But at the moment banks are not willing to lend in that way. Some sort of public support for loan guarantees or other mechanisms to accelerate deployment of grassroots electrification with a payback of 2 years vs. 20 years would be very helpful.
The problem is our current approach – investing in large scale centralized fossil fuel power plants and stringing power lines to far flung rural areas – is not working. In fact, according to the International Energy Agency (IEA), half of those without electricity today will never be wired to the grid. It’s clear that if energy access is going to be honestly and effectively addressed in Rio, another approach is desperately needed.
A big part of the problem is cost. The main ingredients of conventional grid power (coal and copper) – are soaring. Meanwhile, the cost of solar panels and LEDs, the ingredients of distributed renewable power, are racing down even faster. If we want to deliver on energy access goals in Rio, and we want the poor to benefit from electricity we cannot wait for the grid, and we cannot rely on fossil fuels.
That’s why over-investment in large scale centralized energy production, particularly coal plants, means relying exclusively on the wrong tool for much of the job, and as a result represent an enormous waste of scarce development resources. That leaves us with 1 billion reasons to invest in the alternative – distributed clean energy access.
Happily enough, there are literally scores of social entrepreneurs paving the way for this cheaper, faster, and more effective approach to rural electrification (see Husk Power, Frontier Markets, Simpa Systems, SELCO-India, GreenLightPlanet, and on and on…). These entrepreneurs are successful because the poor already pay for light in the form of polluting kerosene and candles… and they pay a lot.
The poorest fifth of the world pays one-fifth of the world’s lighting bill – but receives only .1 percent of the lighting benefits. Kerosene can account for 25 to 30 percent of a family’s income – globally that’s $36 billion a year. The problem is the poor do not use kerosene because it is cheap – they are kept poor in significant part because they must rely on expensive, dirty kerosene.
The problem is billions of dollars continue to be dumped into failed grid extension programs – not distributed clean energy markets. This leaves poor rural families dependent on Kerosene because they are still waiting for the grid to come. Social entrepreneurs can provide distributed clean energy alternatives but without financing they are unable to buy equipment, pay for employees, or finance purchases for their customers. All of this conspires to keep families dependent on kerosene.
As a result, what you hear over and over again from those on the ground is that there is a desperate need for finance at all levels. Solving this issue, access to finance, is job number one when it comes to delivering on the goals of the United Nations Sustainable Energy For All campaign.
While the private sector will bear a large portion of this responsibility in the long run, what are needed today are public funds that catalyze the market. Making cheap public funds available can help get financial institutions throughout the developing world comfortable with this innovative sector enabling social entrepreneurs and rural families to access the financing they desperately need.
That’s where the World Bank and the IFC come in. Both are institutions mandated with alleviating poverty and both have ample amounts of relatively cheap public money to do so. The problem is to date they have not put their money where their mouth is on energy access (though when they have the results have been quite impressive).
At the upcoming Rio +20 conference the World Bank and IFC have the opportunity to make amends. These institutions can make good on their mandate to alleviate poverty by putting their collective weight behind distributed clean energy. A strong commitment would include:
1) $500 Million from the IFC for distributed clean energy by 2015 with half of that distributed by the end of 2013.
Santosh, a local daycare worker, mother and wife living in a rural village needs a solar light that can replace her polluting kerosene lantern. She, like half the world’s population relies on cooking and lighting practices that kill over 2 million people annually. What Santosh needs is a product solution that can avoid these needless deaths, but the needed education, distribution and sales channels to provide this product do not exist.
Frontier Markets (FM) was created to do solve this problem. What makes us different is after-sales service for energy product distribution. Unlike others, we focus on building service centers to answer questions, educate, fix or replace products. We build a relationship to provide a voice for household demands. On the ground staff are trusted members of the community, not just sales agents who push products. We offer solutions to problems facing the community, providing products that are in demand based on consumer interaction, assessment, and feedback. Our presence gives us access to ongoing data collection to drive product scale in distribution.
However, we face many challenges today. Our greatest competitors are subsidized products, low-quality cheap products, and of course kerosene. In India, and most developing countries, low quality lights and government subsidies skew customer perceptions of quality and market prices. FM aims to be involved in every step of policy, sales and service to ensure customers are educated and supported properly.
Create Partnerships with Larger Companies for supply and design: Larger companies in the sector can supply base products in clean energy at a lower cost. We can then use these products to design specific services for our rural households. For example: farmers, dairy, and small retailers are currently using invertors because of unreliable lighting; the inverter is charged through the same unreliable grid. We would like to create a hybrid solution of solar and grid – the inverter is charged through a solar panel with charge controller instead of the grid. This hybrid solution will decrease the use of grid charging by 90%! Let’s reduce the price and scale this to rural consumers as an introduction to solar.
Help with Government Linkages: Many government heads and departments are interested in supporting clean energy initiatives, either for their constituents or as an efficient change for their sector. They have introduced tax exemptions for products, have our target market in mind, and can be a great partner in distribution. For example: ICAR is a part of the agriculture department that trains farmers in technology. We can leverage this to educate them about solar efficiently and scale products for farmers who have provided feedback on their needs.
Funding for Innovation and Scale: Grants help pilot and innovate models and investments help with scale; if companies like ours get access to both, we’d be unstoppable! For example: we have used grants for testing new models, bringing in technology platforms, and testing new product solutions with our households. Through investments, we have built solid infrastructure, a strong team, invested in inventory, and now, will scale.
Information Sharing: Social entrepreneurs share their learnings in very few platforms today; it is important to create more access to operations so we can learn from each other. This can happen through forums, conferences, white papers, and better circulation. Coordinating trips for us to learn from our colleagues in other countries, and other states would allow us to reform our models, and potentially create partnerships for global scale.
There are many efforts to bring clean energy to developing countries today; from manufacturers to distributors, to government initiatives – all trying to work their best to bring reliable and clean lighting to rural poor in developing countries. With more increased efforts on all of our ends, we can light lives together.
In November 2011, IYCN J&K invited Solar Punch on an exclusive tour to the state of Jammu and Kashmir. There were 5 musical performances using equipment powered only by the sun. But these performances were also meant to educate the public about renewable energy so the performances were supplemented with presentations on solar energy through demonstrations of the various eco-products the band had brought with them.
Students at Amar Sigh College
In Kashmir events were organized by the IYCN J&K team at Amar Singh College, Srinagar,Gulmarg, STC Humhama while performances in Jammu were organized at the University of Jammu in association with Department of Environmental Sciences and the Students Welfare group. This was also a unique opportunity for a cultural exchange between the Americans and the people of the state. The folk performers of the group Natrang (from the mountains of Jammu) sang their version of climate change songs known as Bhaakh for the band.
The members of Solar Punch interacted with students, academics, local people and media. The band was even able to perform for Border Security Force soldiers of STC, Humhama! But the interaction with local rock bands and cultural groups were particularly well received as they were able to inspire local groups with their message of melding art with sustainability. Students were particularly inspired by the performances by Solar Punch, which provided a unique opportunity to interact with Americans over a topic not often addressed in the state. The students of Amar Singh College and locals in Gulmarg were ecstatic when the song “Kashmir” of Led Zeplin was sung by band member, Joe Mitch.
Yes the sun had indeed risen in a new way over the state of J&K with the arrival of eco-rock band, Solar Punch. This is the 4th time the band has been in the country since their debut with the Climate Solutions Road Tour in 2009. Their message remains consistent: the solutions are real, and they exist today and India has the power to show the world that it is capable of leading the charge on the search for climate solutions.
Solar Punch with artists from Natrang
Their arrival in the a state with as fragile an ecology as J&K could not be more timely. While the state has been in the media for decades for issues of injustice and geopolitical deadlock, we have failed to realize that the looming climate crisis will bind the region more closely together as people struggle to meet their needs due to the impacts of a changing climate. While there are many problems that may be affecting the state, there are also signs of hope, and visions of a sustainable future that can create a society that is happy, healthy, and safe.
“If we accept this text, we are killing ourselves.” These were the words of an ambassador from a small island nation in the final hours of the longest UN climate negotiations in history. “We may be small, but we are not dead,” he continued. With these strong statements, the ambassador sought to rally other countries like his to push back against the weak agreement the conference had produced.
