Has the off-grid energy market been cracked?
By Caroline Ashley and Markus Dietrich
Just how well is the off-grid energy market doing? Has it been ‘cracked’? Where can we see progress and pitfalls? This month’s theme takes an in-depth look at the sector, the trends in business models, market penetration and understanding of impact. In terms of products we cover solar lanterns and systems, nano and microgrids, and improved cookstoves. But the excellent blogs focus on the key issues not the products: what is stopping even the most successful products penetrating wider markets, are poor and rural households neglected, why are improved cookstoves progressing so much more slowly than solar products, and what do we know about impact on households’ wellbeing?
If you want an overview in a few hundred words of the progress and prospects of the off-grid energy market, this blog is what you need. With high level findings about market trends based on in-depth research from our partners on this theme Hystra, four key issues surface: scale given the size of unmet needs, depth down the pyramid to rural and poor households, insufficient intensity for productive use, and questions on sustainability of the business models. For all the information on their latest research in the sector read their recently released report here.
We hear about new research from UNCDF’s CleanStart Programme in partnership with SolarAid/Acumen, looking to ascertain if customers “graduate” linearly from small solar energy products (e.g., solar lamps) to higher levels of energy service. The first blog in a series from the researchers shows that in Uganda there is a high willingness to pay for reliable electricity services- an unmet demand that could be met by solar products. How can businesses take advantage of this opportunity? Different perspectives, encompassing personal touch, technology and sophisticated market segmentation, on improving marketing of solar systems to increase market penetration are shared by businesses with years or decades of experience.
Willem Nolens’ four lessons, after six years of providing solar systems to the BoP, sound obvious to any business however, are difficult to apply as a pioneering solar company. Investment in staff and clients as well as a focus on solutions rather than products, combined with personal marketing and cost control have brought Solarnow close to break-even.
While Solar Now is adopting a highly personal approach to marketing, Lumos is relying on technology to reach scale. An innovative pay-as-you-go model, combined with last mile distribution and air time payment capabilities through a partnership with a mobile phone operator, have already benefitted 100,000 people and attracted $90million investment in 2016.
Simpa suggests that the solution rather than product approach to marketing, requires a much deeper understanding of customer behaviour and demographics. Solar companies still mostly rely on simplistic income segmentation. The success of FMCG companies in achieving scale at the BoP market by applying very sophisticated market segmentation for its product development and marketing should serve as encouragement to the solar industry to invest in targeted market research. For more on marketing to the BOP rewatch our webinar series with Hystra.
While awareness of solar products in Sub-Saharan countries is high, consumer trust is astonishingly low not only due to low quality products reaching the market but also because of lack of after sales service. So, in addition to improved marketing, Hystra lays down a challenge to enterprises, investors and donors, on how to tackle a lack of customer care and quality assurance in solar lanterns to ensure prolonged product use.
Which grid to choose: National, mini, micro or nano?
A recurring theme is that the expanding solar industry is not reaching rural and poorest households. While national grid expansion and support for mini grids is happening, micro and nano grid solutions are neglected. Nikhil Jaisinghani provides a detailed market segmentation analysis and argues that microgrids should be considered as a sustainable solution for the poorest communities, based on experience from rural India.
Also, nanogrids should not be disregarded as a transitory segment, but explored as a real option for niche markets in remote areas or areas with low power quality. The low cost, no frills model helps to achieve the right price point while the community driven approach ensures service delivery and customer payment.
Both types of grid however have to overcome serious business model challenges, which are closely connected to their opportunity of serving the poorest market segment, to be feasible on a large scale.
Why are cookstoves lagging?
Less than a decade ago, improved cookstoves and solar lanterns were emerging sectors at similar stages. Hystra addresses a great question: why has the cookstove sector developed so much more slowly than the solar lantern sector? Diverse cooking habits, marketing challenges and taxes take the blame. Three organizations explain how to overcome some of those barriers:
- Groupe Energies Renouvables Environment et Solidarites (GERES) utilizes the concept of “cooking signature” as a market segmentation approach. For last mile distribution, Geres relies on existing local value chains, which it supports with technical assistance and access to working capital. Those top 3 tips have helped GERES to provide more than 3 million cook stoves to the market, albeit as an NGO.
- SEED encourages copying and adapting. It finds that its replication services prove successful in expanding the markets for cook stoves in Africa. SEED’s comprehensive replication program includes the identification of proven business models, Replicator Connect workshops and an online matching platform.
- Envirofit is addressing the challenges through a gender lens and is encouraged that its Women’s Empowerment Program in Kenya is helping women outsell men in cookstoves 3 to 1.
Is the impact of access to energy on poverty all that we like to assume?
Two recent pieces of research on impact, one in Africa, one in India, shed light on the issue of the social impact of access to energy. Tom Adams was surprised that the decline in kerosene usage, an indicator universally found in African social impact assessment did not materialize in a recent study of the impact of biomass mini grids from 3000 households in India. It serves as a stark reminder that context is essential in understanding- not assuming- impact.
Kat Harrison shows that lamps are used whether they are sold or given for free, suggesting that there is a role for subsidy in reaching the very poorest with lighting from a survey of 1000 low-income households in rural Kenya, reinforcing ideas from the Hystra team on how to combine donor input with market based approaches for increased market expansion.
Overall, the study and the blogs shine new and encouraging light on the development and social impact of access to energy inclusive business models. The sector is maturing and becoming more sophisticated in its technology usage, marketing and product development, distribution strategies and impact measurement.
For all the information on their latest research in the sector read their recently released report here (no longer available). For the chance to talk to the Hystra research team and practitioners don’t miss our upcoming webinar, details to be released soon.
This blog is a part of the July 2017 series on energy access in partnership with Hystra.
Read the full series for more lessons from practitioners, trends in business models, market penetration and understanding and measuring impact in the energy sector.