New Report: Clean, Safe Energy for the Base of the Pyramid
The video that Harald Schützeichel likes to share about his Solar Energy Foundation shows how dark it gets in rural Ethiopia when the sun goes down. For those who haven’t lived in the darkness that 1.6 billion people without electricity face at night, it is perhaps surprising that energy be ranked among other pressing concerns such as health, or education, or housing. For the poorest 4 billion people of the world, the Base of the Pyramid (BOP), access to clean and safe energy is an entry into a new life.
Right now, energy means batteries, kerosene or paraffin lamps, or cooking with firewood or waste. Urban households perhaps have an unreliable and dangerous informal hookup to a grid. Women and girls in particular spend hours in collecting firewood or inhaling smoke over a dirty stove. A staggering 1.6 million people die every year due to the toxic effects of indoor air pollution from cooking fires. Despite being poorly served or even endangered, the poor are paying for energy. The BOP spends $500 billion (PPP) on energy each year – often paying more per unit than rich consumers.
Fortunately, the combination of pressing social need and stalled traditional approaches is prime territory for social entrepreneurs. The report just released by Ashoka and Hystra highlights four very promising business models for grid connections, devices, solar home systems, and rural cooperatives. I’ve talked about grid connections already, as well as financing mechanisms that show the maturation of the access to energy market.
When you put it all together, it’s fascinating to see how people in different roles can transform access to energy.
Aid agencies can play an important role extending energy solutions lower in the BOP. For example, solar home systems currently reach the BOP2000 at best. By supporting microfinance, aid agencies can reduce the upfront price burden and allow them to pay back over time. Aid agencies can also invest in bottlenecks such as the lack of skilled technicians, or support favourable regulations such as buy-back rates to utility grids. Social entrepreneurs could not overemphasize what aid agencies should not do: promise free help such as solar home systems or grid hookups. More often than not, the uncertainty about when or if this aid will arrive makes it difficult for households and entrepreneurs to plan, resulting in endless waiting and a prolongation of the dangerous and expensive status quo.
Governments can play much the same role as aid agencies, with a few unique contributions. These include designing tax incentives and duty rules to support energy enterprises. For example, Ethiopia charges 50% duties on solar home system parts. Governments can also clarify buy-back rates for energy fed into the grid by energy enterprises. This helps entrepreneurs plan their business and households make decisions. Finally, standards ratings can help high quality enterprises distinguish themselves and protect consumers.
Strategic Social Investors and Foundations are very important to access to energy enterprises. Nearly all the cases highlighted here employed grants or low-cost financing, at least at the start. These players can offer a creative range of financial instruments, examine their portfolio and reduce market distortions, take on orphan strategies and prod other natural owners, and actively build the pipeline of energy enterprises.
Citizen Sector Organizations (CSOs) are involved at some stage of a hybrid value chain in most case studies. For example, when CSOs distribute solar devices, they expand their social impact and earn unrestricted revenue. CSOs can also organize local communities for grid connections, provide microcredit, and train micro entrepreneurs. Finally, CSOs are instrumental in social marketing and awareness building especially around health and safety. CSOs have helped slum communities understand how moving to legal grid connections will enable street lighting and improve neighbourhood safety.
Energy social entrepreneurs are moving rapidly into new roles. They are expanding their range of products, promoting distinctive intellectual property, and focusing on the part of the value chain they are best suited for while letting others take on the rest.
Multinational companies play a number of roles, including working with individual social entrepreneurs, building a portfolio of social entrepreneurs, launching a project around a key installation, and building a business in a key segment. MNC resources like bulk purchasing make a big difference for energy entrepreneurs. New roles are emerging out of traditional CSR. IBEKA in Indonesia convinced a donor that $500,000 given to a rural school would run out eventually, but $500,000 invested in a hydro plant attached to the school would provide revenue in perpetuity.
We brought Harald to discuss his solar lanterns with energy business leaders in Paris. After some initial skepticism, the conversation took on a life of its own. Where can we get cheaper batteries? Is it really waterproof? What’s the next target country?
There is a palpable sense of excitement when you speak with energy entrepreneurs, people like Joseph Adelegan and his plans for turning slaughterhouse waste into affordable cooking gas. This report highlights just a slice of the many examples of business and social entrepreneurs getting together to bring clean, safe energy to the Base of the Pyramid.