Scaling a Clean Energy Business: Lessons From the BoP

While at most conferences on solar energy, people talk about the BoS (Balance of System), at the SOCAP 12 conference held last week in San Francisco, it was all about the lessons learned from the BoP (Bottom of the Pyramid)—or the world’s largest, poorest demographic. That’s not only because the many renewable energy businesses working in developing countries see the value of solar energy as a cheaper alternative to kerosene, but also because technology is only a small component of what makes these businesses successful.

Nancy Wimmer, Author of Green Energy for a Billion Poor, explains that with renewable energy businesses in most rural or emerging economies, “Having the best technology is not the starting point. Reaching the large part of the world’s population without grid connectivity is the hard part. What’s key is making the technology easy to operate and meeting the needs of local people without a college education.”

The Social Capital Markets (SOCAP) conference, focused largely on impact investing and social enterprise, had many lessons to share from renewable energy companies operating in the BoP. A few takeaways:

1)       Whereas in many developed economies, there is often a tension between utilities who invest in large scale renewable power generation infrastructure (wind farms, concentrated solar power, geothermal plants, etc.) and the businesses that promote distributed energy solutions (household photovoltaic systems, rooftop wind turbines, batteries, etc.) which can take people “off the grid” or decrease the size of the utility’s customer base, this is not the case in emerging markets. The mainstream power producers are not trying to serve rural, remote, poor customers and therefore the businesses operating in these markets perceive no hostility or pushback from the large, mostly government-owned electric companies. This is despite the fact that the global poor represent a large potential customer base: an estimated 1.3 billion people have no access to electricity, and many more have only limited electric access (a few hours/day).

2)       Subsidies for renewable energy, penalties for carbon emissions, or other policies that promote (or mandate) a certain percentage of power coming from renewables) are not the key drivers for market expansion and business growth. Instead, the main reasons fueling customer demand are lower costs and the expectation of increased economic opportunities.  Katherine Lucey of Solar Sister explains, “In Uganda, the average household spends $2 per week on kerosene for their lighting needs. Switching to a solar lantern with a one-time cost of $10 or $20 makes obvious economic sense.” Donn Tice, the CEO of d.light, which expects to reach 100 million people by 2020 with a “clean, safe, and bright alternative to kerosene lamps” further elaborates: “Poor people want the same things we do—good health, education. Demand for our product grows as people get a taste of what energy can do for their life.”

3)       No technological breakthroughs are required. Instead, in the BoP marketplace, companies are innovating to increase energy access and the funders are most interested in business model innovation. The innovations in this space comes in the form of new distribution networks and sales channels (door-to-door, woman-to-woman), product packaging/ design (Tice says it needs to be “rugged as hell, extremely durable”), and unique financing systems (Pay-as-you-go, MobileMoney). Thin film or higher efficiency PV might be the aim of researchers in Western universities and labs, but simple seems to be the name of the game for companies operating in BoP markets. As for investors, Megan Beck, a Business Development Manager for the Acumen Fund, one of the world’s oldest and most influential investors in social enterprises in emerging markets, explains, “Our investment philosophy is not about complicated technology. It’s about what shows to work on the ground.” Alan Feldbaum, Director of the Low Carbon Enterprise Fund, concurs: “We are not wishing to take technological risk, but rather look to apply existing technologies in new ways or in new geographies.”

Also surprising is that those operating in this space don’t perceive the tradeoff between clean energy and cost as we do in developed economies where rooftop solar, hybrid cars, and environmentally friendly technologies are signs of being in the upper middle class (or a recipient of government aid). Instead, in BoP markets, clean energy is not marketed because of its environmental benefits, but rather because it provides a cheaper (and healthier) alternative to traditional fuel sources (e.g. kerosene, wood, or charcoal).  The challenge for pricing is less about lowering unit costs and more about finding ways to reach customers and bill them at times when they have disposable income. While first world advances in renewable energy technologies will ultimately have an impact on energy delivery in the world’s poorest regions, in the meantime, the businesses operating in the BoP  might teach us a thing or two about scaling a renewable energy business.

Elizabeth Redman is a Senior Consultant at IHS Global Inc. and the Founder of Cross Sector Strategies, specializing in collaborative economic development and policies to promote sustainable business growth.

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