Reaching Scale in Access to Energy

Importance for businesses

• Market potential in creating access to energy
• Barriers to scale and their solutions, scaling in low-income markets
• Experience from 26 entrepreneurs

Importance for policymakers

• Access to energy is an important issue for policy makers to tackle the issues in their communities

Importance for the IB ecosystem

• The energy gap is a present issue for large portions of civil society
• Access to energy can improve quality of life

The Hystra report Reaching Scale in Access to Energy (co-financed by IBAN) is based on in depth performance reviews of 26 inclusive business entrepreneurs in clean energy.

The report focusses on access to clean electricity, in forms of solar lanterns, solar home systems (SHS), micro-grids, and solar irrigation pumps. The market opportunities in these areas are significant, with 440 million off- and poor-grid households with a purchasing power of US$ 20 billion a year. The report also discusses access to improved cook stoves (ICS); if 250 – 270 million of the current 600 million fuel purchasing households are considered potential buyers, ICS has a market potential of $US 1.4 billion.

Besides quantifying market opportunities in access to energy, the report describes business models and the challenges they face, and gives recommendations for tackling these difficulties. Solar lanterns, for example, have a reach of 130 – 150 million households. The main challenge in this area is the lack of distribution channels in rural areas. The report recommends multi-brand aftersales utility and central buying platforms for local distributors. SHS have a reach of 90 – 110 million households, the report focussing on pay-as-you-go (PAYG) models. While this field has huge potential, entrepreneurs who prioritise quick costumer acquisition over portfolio quality face high risks. The report recommends for entrepreneurs to review their growth strategies, for more sustainable commercial approaches. Clean energy micro grids have a reach of 50 – 60 million households. A big challenge again, is the risks associated with making long-term investments in highly uncertain low-income environments. Here, too, entrepreneurs should be careful not to focus too much on short-term outcomes, but work towards long-term goals. As financing is not easy to secure, firms can work in clusters and subsidies may be needed. Policy makers also play a significant role, as a holistic regulatory approach is necessary.

In ICS, while around 250 million households are using improved cook stoves, only a small percentage of devices are sold through market-based approaches. Most firms rely on subsidies of various forms. The report recommends for the sector to replicate successful existing models.

The report also looks at the social impact of these businesses, and while quantifying social impact is difficult, the report estimates that if the full market potential in this area were achieved, energy access solutions would save 200 – 230 million tons of CO₂ and 500 – 570 thousand lives a year. Further social impact includes increased development opportunities, educational benefits, saved time, and financial inclusion.

The solutions offered in the report are specific to different segments and needs. There are many dimensions to achieving scale; in general, investors should focus on long-term profitability, rather than expansion. Customer care also remains key in achieving and maintaining scale. Lastly, hundreds of millions of households in rural low-income communities remain underserved, even with current market approaches (130 – 170 million households in access to electricity and 350 – 360 million in ICS); the report calls large corporates, donors, and governments to action.