Renewable Energy Innovations for the Base of the Pyramid
This blog draws on the findings from research conducted on innovative social enterprise models at the Base of the Pyramid for the World Bank Social Enterprise Innovations team by Endeva and Ashley Insight. The research and corresponding case studies are available on the World Bank and OECD's Innovation Policy Platform. Read the energy findings here.
According to the World Bank, at global scale 1.2 billion people lack access to electricity, which limits their opportunities to improve their livelihoods.[i] Without access to electricity, people rely on traditional energy sources like kerosene or paraffin for lighting that is more costly then electricity and often jeopardizes their health. In addition, it significantly limits their productivity, be it as shop owners that have to close down after dark or as smallholder farmers that have to rely on rainfall for irrigation or can’t sell their produce to the nearby market because it spoiled on the way there.
Several business model innovations have emerged to tackle the lack of decentralized electricity provision, two of which are outlined in this blog in more detail:
- Solar home systems are affordable, easy-to-use and environmentally friendly systems that provide rural off-grid populations with electricity that can have a catalytic effect on improving their lives.
- Energy solutions for sustainable agriculture are innovative, stand-alone, renewable energy solutions that are customized for the Base of the Pyramid (BoP) market and can multiply productivity and profits of micro, small and medium-sized enterprises.
Solar home systems (SHS) have existed for over 20 years. During the last 5-10 years, the model has successfully scaled in all regions of the world with many companies reaching between 100,000 and one million people. Recent business model innovations in SHS can be clustered around three main areas:
1) Technology: Mobile technology and remote controlling of SHS are key drivers for the development of new
finance models and better customer service. Clients can pay off the monthly installments using their mobile phones and relatives from other locations can help to finance it. Customers of Mobisol, Simpa and others can unlock their SHS by using scratch cards or mobile payment services. The SHS automatically blocks remotely once the credit is used and cannot be used again until new credit has been purchased. M-KOPA has installed a service hotline that users can call seven days a week – free of charge - in case they have any problem with their SHS.
2) Affordability: Innovative financing models like the pay-as-you-go model allow low income customers to purchase high-quality technology. Customers can pay via their mobile phones and do not require a bank account. Social enterprises like K-Kopa in Kenya or Mobisol in Rwanda and Tanzania operate with rent-to-own model, where customers can acquire the SHS typically after 1-2 years because a share of every Kilo Watt that is bought pays into the customer’s account. Companies like Off-grid Electric in Tanzania or Simpa in India chose fee-for-service model, where customers only pay a small installation fee and for the power generated by the systems, but not for the system itself. In case of Kingo Energy in Guatemala and Cambodia, users do not even need to cover installation cost and only pay for the electricity they actually use. Customers save up to 25% costs compared to the use of candles or kerosene and can purchase daily usage “credits” for US$ 0.45 or less.
3) Acceptance: High quality after-sales services ensure customer satisfaction and continued payback of loans. Companies like SELCO in India guarantee service provision at the customer’s doorstep within 24 hours and offer consumer friendly practices such as buy-back systems and removal of dead batteries. Other companies like Mobisol offer free maintenance for the first three years which is priced into the product cost. More and more businesses also offer ancillary and complementary goods to their customers. Companies like Fosera and Mobisol, for example, offer energy efficient domestic appliances like TVs or fans that run on direct current.
Energy solutions for sustainable agriculture are applied across the agriculture value chain from production and harvesting to post-harvest, storage and processing and can lead to increased agricultural productivity and access to markets for smallholders. Over the last 10 years, especially in East Africa, social entrepreneurs have developed and adopted diverse low-cost renewable energy solutions such as solar pumping, heating, drying, cooling and chilling, biogas production and biomass powered milling, pressing and grinding for smallholders with existing capital or small enterprises.
Despite the huge potential for these innovative business models, most companies are still in the pilot or early growth phase and struggle with relatively high costs of technology development. High per unit costs of products limits demand and many smallholders are not aware of the variety of applications and how they can improve their lives and pay-off over the medium and long run.
How can energy solutions for sustainable agriculture reach scale? Social enterprises can learn from the experiences and good practices of SHS producers. They were facing similar challenges 10 years ago and only managed to scale their products because they leapfrogged new technology, made products more affordable and offered high quality services to their customers. Some pioneers in East Africa are already going that way: The social enterprise SunCulture in Kenya sells irrigation kits that combine cost-efficient solar pumping technology with high-efficiency drip irrigation systems achieving yield increases of up to 300% and water savings of up to 80%. Currently, SunCulture pilots a pay-as-you-go system to make technology more affordable for smallholders.
[i] World Bank. 2013. Global Tracking Framework for Sustainable Energy for All. Washington, D.C: World Bank
This blog is part of the October 2016 series on Exploring the social enterprise landscape, in partnership with the World Bank Group and endeva. Read the whole series for insight and opinion on policy, business models and definitions from social entrepreneurs, policy makers and facilitators around the world.