Scaling Green Energy Access from Millions to Billions

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.


Ideas on Energy Wants Your Ideas for an Energy Access Challenge!

Competitions and prizes have become an increasing popular way to spur innovation in finding solutions to the world’s most complicated challenges.  Many of the companies doing great work to address energy poverty have benefitted substantially from winning these types of events.  Solar Sister was able to take their enterprise to the next level as a result of investments made when they were identified as a leading contender in the Women, Tools, Technology ChallengeNuru Light earned startup capital when it won the 2010 Tulane Business Plan CompetitionE + Co recently received US$350,000 from the Zayed Future Energy Prize.  These organizations are touching the lives of the tens of thousands and in some cases hundreds of thousands of people.  However, energy poverty is a problem whose scale is measured in billions of people.  If we are to make a significant dent in addressing this issue we need solutions that can rapidly scale.

One of the ideas I have been kicking around is an off-grid energy challenge for significantly scalable solutions in developing countries/frontier economies.  Energy poverty is a multifaceted problem where issues ranging from technology, access to credit and capital, consumer awareness of solutions, regulatory obstacles, and poverty all interact in ways that prevent people from meeting their energy needs.  I am looking for ideas from readers of this blog on how to best frame a competition and what element(s) of this challenge to try and address through the contest.

One possibility is to have a technology oriented competition.  Many companies don’t believe that people living in slums or more remote areas have enough money to be worth design solutions for, leading to underinvestment in relevant technologies for them.  Current tech competitions tend to focus on high end engineering regardless of price such as the Automotive X Prize which sought cars that could get 100 mpg, an important goal but not focused on the needs of those in poorer countries.  Would a technology oriented competition that sought prototypes for village or household level energy solutions that produce the most electricity at the lowest cost be the contest that would have the biggest impact?  Perhaps you think the biggest problem isn’t the lack of technical solutions but the lack of consumer education about existing technologies and good business models for distributing those items.  If that’s the case then a business plan competition focused on energy for places unlikely to be connected to a central grid anytime soon might be the best use of resources.  Or maybe you think the issue is something else entirely.

Please send me your ideas for the competition.  Use the comments section for this post so we can turn it into a discussion.  Which parts of the challenge of energy poverty should this competition focus on?  What criteria should be used to evaluate entries?  What should the prizes be?  I am hoping to shop this concept around to my contacts at foundations and private sector companies as well as multilateral and bilateral aid agencies once it is more developed.  I look forward to using this community’s energy to generate great ideas!

Solving Energy Poverty: What it Takes to Make it onto Investor Radar

A man loads solar panels on to a donkey. This is the "last mile" for energy distribution in many parts of the world and part of the solution for energy poverty.

Ideas on Energy is thrilled to have E+Co Co-Founder and CEO Christine Eibs Singer as a guest blogger this week. She recently traveled to Abu Dhabi to attend the World Future Energy Summit and accept an award on behalf of her organization for the great work they have done to address the global challenges of energy poverty and climate change. Christine noted on E+Co’s blog that there were not many other organizations at the event “focused on small scale clean energy solutions for the developing world.”  In the entry below she reflects on why that was and how to address the challenge of energy poverty globally.

When one thinks about investing US$100 billion dollars in clean energy, visions of large wind turbines and hectares of solar panels dance through the mind.  It is rare to find an investor whose dreams meander outside this box, to the rural communities and households that comprise the gaps in the grid, to the enterprises that can provide an answer to global energy poverty through the production and distribution of small scale solar systems, mini-hydro plants, household biogas units and fuel efficient cook stoves.  It’s even rarer to find those who have actually pursued those investments.

This was the challenge I faced as a participant in the World Future Energy Summit in Abu Dhabi last month.  The exhibit space was packed with large scale technologies.  Deals were in the making, almost all of which were $500 million and up.  So, when the UN Secretary General opened this summit with an address that set forth a vision of universal access to modern energy services, at a price tag of US$35 billion per year, I recognized the sharp disconnect to the equipment on display and the transactions being negotiated.  This disconnect was further emphasized when  Ditlev Engelhead of Vestas accepted the Zayed Future Energy Prize on behalf of their 22,000 staff, and I accepted on behalf of E+Co’s 48 staff.

Of course, the equipment on display and those deals being made are critical to meeting climate and energy challenges.  But there’s more that has to happen.  There are more than two billion people who live in energy poverty who have yet to benefit from the commercial and grid installations that filled the floors of the forum.

Energy poverty is a disease.  Like malaria, polio and dengue it innately affects a person’s ability to live fully.  But like these diseases, it can be treated.  The equivalent of cures and vaccines exist, and the path to providing diagnosis, prescription and treatment has been paved over the last decade by battalion of companies, including small “powerhouses” such as E+Co, SELCO-India, Tecnosol, SELF, Toyola, AIDG, Winrock International, Barefoot Power, PowerSource Micro-Grid and D-Light.

The challenge to administering these treatments is the very scale of the disease: more than 400,000,000 households are infected; one-fifth of the world’s population endures the symptoms of energy poverty.  As is often the case with widespread diseases, the cures for energy poverty are known.  It is their dissemination and distribution, combined with the scale of the disease that makes the situation seem intractable.

E+Co’s 16 years of experience has shown that curing energy poverty requires that each infected household have access to just a few things: basic electricity for light and low-power appliances such as a cell phone; modern fuel and a stove for cooking; and small amounts of motor power for water pumping, sewing, grinding, husking, or other income improvements.  Amazingly, the “cure” costs as little as $250 per household.

But to capture the interest of many of the investors I met in Abu Dhabi, one would need to package the cure for at least 2 million households in one fell swoop.  But for E+Co and a few others, this bundling has not been attacked and few are willing to take on the high transaction costs that result from packaging tens of thousands of households, despite the financial, social, and environmental impacts that result.  That is why I walked the exhibit aisles at WFES alone.

When E+Co began its work in the underdeveloped clean energy enterprise finance sector in 1994, no one else was focused on enterprises as a vehicle of delivering clean energy to combat poverty and climate change.  While still relatively unique in our singular focus, we are now joined by others who see the market and impact opportunities for small and growing clean energy businesses in the developing world. They enter from the technology window; or focus on the productive uses and income that will result.  Some are driven to create more equitable payment schemes for the energy poor or to reduce the health and deforestation impacts.  Still others are here because they know the social equity possibilities that can result from energy access.   But when the bottom line is drawn, all are here because they know the market and business possibilities exist.  We know this because households at the base of the pyramid now spend $38 billion a year on dirty, fuel based lighting[1].

Our challenge is to bundle the energy access needs – to “scale” to 2 million households in a single transaction, while unbundling the capacity building and large scale finance to replicable efficient interventions.  Those that have the experience to make this happen are out there, but like the cures to energy poverty, we too are decentralized.

Our most recent “back of the envelope” estimate is that we need 80,000 enterprises to meet the energy needs of 400 million households (or 2 billion people).  I often tell the good news/bad news story about E+Co’s investment history:  The good news is that we have invested in 268 clean energy businesses.  The bad news is that’s more than anyone else in the world.

The movement suffers from lack of access to capital, just like the enterprises it will serve.  While challenging and filled with risks, with the blending of public and private capital, we CAN pursue that first launch of enterprise development in order to reach the 80,000 enterprise mark over the next 20 years.  E+Co and others know the risks, the opportunity, and core components of the solutions.  There’s no need to re-invent the wheel.  The growth of this movement will stimulate investment in the organizations and systems that can deliver the energy cure: the learning platforms, the catalytic seed capital, the market development.  Just as health professionals and volunteers, community organizations and governments all reach out with public health programs, vaccinations and treatments, the same coordinated approach to distributing energy improvements can be pursued.

The successful outcome is a well financed and effectively implemented local energy enterprise, built on strong business fundamentals.  But, rather than visions of large scale wind turbines and transmission and distribution lines, we also have to see visions of local entrepreneurs and their distribution channels.  Part of the cure for the disease of energy poverty may look something like the picture above, the transport necessary for the “last mile” distribution.

[1] Figure excludes firewood, charcoal, etc.

Mills, Evan. 2005. “The Specter of Fuel-Based Lighting.” LBNL-57550. Science, 308(5726):1263-1264

Energy Efficiency and Affordable Housing in South Africa

Ideas on Energy is excited to welcome its first guest blogger, Elizabeth Ngoye.  Elizabeth works with E+Co, a fantastic organization that for the last 15 years has been investing in companies in the developing world that are finding innovative ways to provide clean and affordable energy.   E+Co’s outstanding work has been internationally recognized and recently they were declared a finalist for the Zayed Future Energy Prize.  Elizabeth brings us a great success story from Africa about how one company that E+Co works with is helping make affordable housing more affordable by addressing energy efficiency.

The South African government has recently made affordable housing a priority. City governments are each building between 10,000 and 20,000 new low cost houses per year but few of these housing programs address the energy challenges that residents of these new homes will face. Energy use (mostly cooking and water heating) represents up to 35% of monthly household expenditures.

Solar water heating is a well-established technology in the Republic of South Africa that has the potential to address some of these challenges. Historically, solar water heaters (SWHs) in the country were mainly promoted to middle and upper income households because, due to lack of capital, low income households could not afford the high initial cost of SWHs. As a result, their main means to heat water were electric kettles and gas cookers. These technologies are not only inefficient but also expensive and environmentally unfriendly.

Atlantic Solar (Pty) Limited, a South African enterprise and E+Co investee, manufactures, retails, and installs a range of SWHs. This enterprise operates throughout South Africa through its network of dealers. Established in 1990, E+Co first invested in Atlantic Solar in May, 2007 to support the implementation of their growth strategy developed by CEO Mr. Helmut Hertzog, which is helping them to improve manufacturing and installation processes and secure qualified personnel.

The Western Cape Province of South Africa realized the need for provision of efficient heating systems for its Low Cost Housing Project in order to ensure household savings. In 2007, Atlantic Solar won a contract to supply and install 1,000 solar water heaters in several low cost housing areas in the Western Cape Province. The project was implemented jointly with the local communities who were required to assign the systems to beneficiaries with a focus on the elderly, people with medical challenges, and single mothers.

In February 2010, I had an opportunity to visit the Atlantic Solar installation in my capacity as E+Co East and Southern Africa Monitoring and Evaluation Officer. I conducted a site visit along with Mr. Helmut and Atlantic Solar’s Head of Installations to low cost houses in Nyanga community, Cape Town. We met with the Ward Councilor for Ward 37, who was very grateful for the project’s positive impact on the people of his district. “The project has improved lives through improved water heating systems and shelter. The major impact has been reduced electricity bills in households, and hence income savings.” The Councilor informed our team that he would like a scale-up of the pilot phase to ensure increased impact. “Those who live in the Nyanga community are among the poorest of the poor, and hence need more support from the government to increase access to clean and low cost energy technologies,” he added.

A household survey by Kakaza Trade Company within the Nyanga community revealed that the project has significantly changed the lifestyles of the beneficiaries. Boniswe Mhlanga (91) is an elderly woman heading a family of five people. Boniswe says she is very happy with the system as she no longer spends much on electricity for water heating. Due to the installation of an 80L solar water system on the roof, her electricity bill has gone down to 50 Rands from 150 Rands per month (equivalent to US $ 6.77 from US $ 20.33). Other community members shared similar stories about the installation of SWH in their homes.

In addition to the benefits that have been realized by end users, Mr. Hertzog indicated that Atlantic Solar has been able to use the profits from the project to expand their operations and develop new capabilities. The company has been able to acquire additional factory space and enough new installation tool sets to send five installation teams on the road. They have also bought two 5kVa generators, enabling them to work in remote areas with no access to electricity.

Africa, Energy, and Me

I finally landed in Nairobi last night after about 20 hours of travel. I am mostly here for a family vacation but am hoping to be able to do some general observation and research about how people use energy here, especially off the grid. I’ve already had the opportunity to talk to one Kenyan today about how people in the slums, where about 70% of Nairobi’s population live, get access to electricity.

This man told me that the most common thing was for people to install solar panels on the top of their houses. He comes from the north of the country and was planning on doing the same thing for his family home there. It was going to cost him about 20,000 Kenyan shilling (about $250 U.S.) for the panels and an additional 15,000 shilling ($190 U.S.) for wiring in his home, a battery to store the energy, and the labor to install it all. People get loans for this from their employers, who automatically deduct it from wages or occasionally from banks if you can prove you have the steady income to pay it back. From this setup you can power a TV, radio, some lights, and charge your cell phone but you can’t run a fridge or stove. For those items you need a stronger more steady current. A few people in these areas are able to run diesel generators but those are considered pretty expensive and beyond the means of most individuals.

Tomorrow I head off on a safari so I may not be able to get reliable enough internet to post on a regular basis for the next few weeks.  I’m coming back through Nairobi on January 14 before heading home.   Does anybody have suggestions for organizations in the city addressing energy poverty that I should check out?