Rural areas: the forgotten segment

This blog is written by Simon Brossard, François Lepicard, and Adrien Darodes

 “From a business model viability perspective lower density areas are still beyond reach.” 

A large solar lantern distributor

In a recent article on the India Energy Access Summit, The Climate Group commented: “Decentralized Renewable Energy is yet […] to reach rural communities in sufficient numbers, and much more needs to be done to achieve this crucial goal.”

What we call the “green ocean” i.e. the hundreds of millions of low-income rural families who are not reached by cleaner energies, remains largely untapped by market-based approaches and calls for more action from companies, donors and governments. Across energy access solutions, the overwhelming majority of initiatives are focused on urban, peri-urban, and dense rural areas:

• 350-360 million solid fuel collector households remain without access to efficient cooking equipment. Except for the lucky ones who benefitted from give-away programs, these households send women or girls for 30-90 minutes per day on collection duty. (Source WHO 2006)
• 130-170 million un-electrified households (strong overlap with fuel collectors) cannot buy solar systems in good conditions or cannot afford them. Distributors of lanterns are reluctant to enter remote areas; it is too costly for the time of an itinerant sales person, and lack of cash means that the likely sales volume on the first visits will be small. In parallel, these households—because of their isolation—cannot rely on swift repairs on replacement if any equipment breakdown unexpectedly.

If you are part of the rural poor, you suffer a significant health penalty, and there is little likelihood that a company will come knocking at your door. Innovative distribution models targeting rural areas specifically are emerging (e.g. partnerships with rural cooperatives, direct distribution models with tactical pricing, nanogrids) but haven’t proven their ability to replicate at a significant scale yet. It is unlikely that individual companies will be able to overcome these obstacles in the near future without support. And it is also unlikely (and would be uneconomical) that these areas would be targeted by the grid anytime soon.

So, while there is a clear need to continue fostering market-based approaches and consolidating business models for the ‘easiest’ customer segments, the rural poor should not be forgotten. For them, donors, governments, and large companies have a large role to play:

• The few large companies which have extended their network into the most remote areas (e.g. FMCG companies, or agro companies buying from smallholder farmers) are in a unique position to leverage their reach to build distribution and aftersales logistics networks, and possibly turn the unattractive customer segments into addressable markets.
• Donors and governments could help address these underserved population segments. Ongoing subsidies may be required, while one-off grants should be preferred in the easiest markets where commercial viability has been demonstrated):
• At the micro-level, donors could for instance support local rural distributors with smart funding and technical assistance, and promote pilots of innovative models (e.g. nanogrids)
• At the meso-level, donors and governments could set up result-based financing programs targeting remote areas, build public-private partnerships, or collaborate with other development programs e.g. to free up time for rural children and mothers and increase the opportunity cost of fuel collection, i.e., monetizing the time spent by women and children collecting wood or biomass fuel
• At the macro-level, government could build regulations and policies that encourage the development of off-grid and microgrid solutions in remote areas, e.g. Uttar Pradesh’s microgrid policy which provides subsidies to government-selected sites only.

Want to know more? Check out the full report on energy here (not longer available)

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.