Ideas on Energy is pleased to have Tom Boyd of Nokero as a guest blogger. As Nokero reaches it’s one year anniversary as a company, Tom and the rest of the team have been thinking deeply about how to scale solutions to the global challenge of energy poverty.
The internet is alive with stories of successful renewable energy projects in developing countries. Clicking from one site to the next, it’s clear there’s a groundswell of support for solar, wind, biomass, geothermal, and other solutions the off-grid regions of the world.
Crunching the numbers, however, is a jarring reality check.
More than 1.6 billion people live without electricity, and 2.4 billion lack access to modern fuels for cooking. If we take an exceedingly optimistic view, renewable energy is being used by a few million in the developed world. A more tempered calculation puts the numbers more in the hundreds of thousands range.
Either way, the reality is that only a sliver of the world’s energy poor are making the giant leap forward to a clean energy economy. Billions remain trapped in a dark era, forced to pay exorbitant prices for out-dated fuels which perpetuate their poverty by leaving them unhealthy, broke, and in constant danger.
The solutions exist – so why aren’t these solutions being adopted on a larger scale? Sure, our industry has a lot to be proud of, and many communities around the world are currently benefiting from safe, clean, renewable energy projects. But how do we go big? How do we go from helping a million or so, to helping billions? How do we take half the planet’s population and leap-frog them forward, past the industrial revolution, and into a new, green energy economy that can truly and reliably sustain the needs of billions?
At Nokero, we are fast approaching the one-year anniversary of our foray into providing highly-economical solar lighting – and we feel our solar light bulbs are humanity’s best chance to end the practice of burning kerosene. We’ve also added a Power Panel which can charge phones, and have many other innovative products coming out in 2011.
A good product line is just the start. A workable business model is perhaps more important – and in some ways more of a challenge – than building good products. By way of retrospection, I outline below the four basic approaches that we are trying in our effort to make inroads to the developing world, and our analysis of each of these solutions.
Method – The Small Enterprise Approach: Hardly a day goes by at Nokero where we don’t discuss Paul Polak and his book, “Out of Poverty”. His book is one of the first to outline the benefits of Social Entrepreneurship. Polak and others (like “Philanthrocapitalism” author and Economist Bureau Chief Mathew Bishop) have inspired us to look for “Market Based Solutions” to develop micro-economies in each of the villages where our products end up.
Benefits: On the purely social level, we believe market-based microfinance solutions are an ideal way forward. Early results from projects in Columbia, Liberia, and Guatemala show that the small-business approach works very well, and demand for a reliable all-in-one solar light is high (part of this, we believe, is because Nokero’s bulb shape makes our bulb a desirable and recognizable household item). During one test project in a small town in Guatemala an entire gross of bulbs sold out in 8 hours.
Our vendors benefit financially from the sale of Nokero products, bringing wealth to their communities, and our small-business partners are in the early stages of building a growing business.
Small-businessmen also provide us valuable feedback on the product’s pros and cons, including customer reactions. They are building an economy around their work, and they are close enough to their communities to collect parts for recycling when the products lifespan is over (for the Nokero bulb, this may be 5-10 years if the product is well-cared for).
With “feets on streets,” renewable energy companies can create a healthy, lively, business network full of tremendous potential for all involved.
Challenges: Growth will be slow. Setting up and maintaining many thousands of micro-enterprises takes many years of hard work, and excellent communication across sometimes vast cultural gaps. While the parent company can incentivize the process and even set up the initial funding for investment, the initiative must, by definition, come from the vendors on the ground in each location. Also, market solutions must work – and sometimes finding a workable micro-business idea can be the greatest challenge. Not every vendor who pitches a tent will have success.
Method – The government subsidy approach: “States, as great engines, move slowly,” said Sir Francis Bacon in a quote from 1605, and the old saying holds true today. At Nokero, we are working with several “great engines” at home and abroad to make large-scale projects. While projects in Africa and Central America, in particular, show great promise, none has come to completion as of yet.
Benefits: Governments in the developing world (and often in the developed world, too) have the kind of buying power necessary to take solar power to the next level. Building infrastructure to supply grid-electric light to the people who need it can cost tens of billions of dollars. Solar and renewable solutions, by comparison, are relatively inexpensive.
One of our government partners, for example, showed that the government AND the people can save hundreds of millions simply by foregoing the process of building a traditional electrical infrastructure, and instead supplying off-grid solutions like Nokero to their people. Like choosing cell phones over land lines, the initial investment is smaller while results are essentially similar. The end result is governments can help raise their people out of poverty, supply them with the energy they desire, and help reduce carbon emissions all with a few well-run renewable projects.
Challenges: If a government buys solar power and gives it away to the people, there is a risk that the end-users won’t appreciate the value of what they’ve been given. A large government give-a-way doesn’t fit well with the ideals of Paul Polak and Mathew Bishop. Furthermore, while governments usually have the best motives in mind, the reality on the ground is that large-scale giving campaigns can often be subject to corruption. And, as Sir Francis said, the government process is sometimes – but not always – painfully slow and cumbersome in comparison to market solutions.
Method – The partial government subsidy approach: In this model, governments subsidize a portion of the cost of a solar or renewable system. This makes the product affordable to the poor, yet allows them the dignity of buying, owning, and knowing the value of the product for themselves.
Benefits: As in the above method, the benefits of working with a government are clear. They have the buying power and the desire to improve their energy economy. By only partially subsidizing a renewable project or product, a government can save money while simultaneously instilling a sense of value in the community.
In one of Nokero’s projects, our bulbs will be available in special stores only accessible by the very poor. If the project is approved sometime later this year, these customers will be able to afford Nokero products at a reduced cost. An in-depth study recently completed by the government of that country shows that the Nokero bulb pays for itself in 15 days – even without partial subsidy. With subsidy the product makes obvious economic sense.
Challenges: Subsidies are a tool for getting an industry started, but if an industry is to sustain itself in the long-term, it should learn to thrive without subsidies. Government price control can often dampen the innovation wrought by a free-market: for example, if a sub-standard product is subsidized it will have an advantage over another product which may be superior.
Method –Corporate, big-business approach: Corporations, like governments, have big-time buying power. Properly motivated companies are looking for ways to enter into developing markets, and renewable energy offers a great opportunity to do so.
Benefits: Big Corporations know how to move a lot of product, cut margins, and increase efficiency. They have the wherewithal and skill to market products well, attract media attention, and motivate the buyer. The mass buying power of a corporation is often the strongest tool in lowering factory costs. Lower margin is compensated by high-volume – and the energy poor may have their best chance at affording a product when it is mass distributed by a corporation.
Nokero is in various stages of partnering with several large, well-known companies to attempt large-scale distribution. It takes great vision for a large company to see the benefit of engaging in renewable energies in developing regions, yet some are following that path. Like Honda, which grew from a tiny company in Japan after WWII, to a household name decades later, it’s possible that companies like Nokero will start out in fringe markets and grow to become big-business themselves.
Challenges: Corporations are struggling to create efficient distribution networks into developing regions. The reasons are manifold, and well documented , in this seminal publication on emerging markets by the Monitor Group.
Social entrepreneurs are well-versed in the myriad stories of failure from markets around the world: Poor areas lack infrastructure, making distribution costly and difficult, which raises prices. Customers must also be educated as to the reasons why they should adopt a new system when they are economically and culturally adapted to an older technology. Even if the public is willing to buy, profits on inexpensive items are slim, and business can be difficult.
In the end, it’s a long, long way from the corporate board room to a village kiosk in an off-grid, rural region, and the cultural chasm can be vast. For many corporations, the journey into emerging markets simply isn’t worth it. Big-business doesn’t always mean big happiness. For small companies the game usually isn’t just about growing into a massive multinational. As Jennifer James points out, success is the quality of the journey.
At Nokero, we are open-minded to all of the above solutions, and we are trying each of the various approaches above to see what works best and where. No matter which method wins out, we are confident that the coming years will see a vast increase in renewable energy market solutions globally. In the end, it’s not terribly important what methods prove most resilient, which companies succeed and which fail. What matter is that the world’s energy poor make the giant leap forward to a green economy – and if we can succeed in this goal, all of us will reap the benefits.