It’s not surprising that a company liked Greenhouse Holdings, which builds eco-friendly infrastructure, would have a thriving California-based operation. But as John Galt, the company’s executive chairman and founder, told Renewable Energy World magazine, the company is not just focusing on wealthy enclaves to grow its business. Greenhouse Holdings sees opportunity in poor countries, where little energy infrastructure exists, and is entering these markets ahead of the competition. “We’ve found a niche,” he said.
A recent paper by Clean Energy Group shows that nations like Africa and India serve not only as strong niche markets, but also as incubators to drive down technology costs. Once the prices come down, the technologies can expand into the developed world, opening the way for green energy to at last be fully cost competitive against the entrenched energy infrastructure.
Clean Energy Group explains that this is “reverse innovation,” a term coined by Jeffrey Immelt, General Electric’s CEO and Tuck Business School at Dartmouth in a Harvard Business Review article. It describes the path of not only energy technologies, but other advanced products as well.
“This trend is far removed from purely academic theory. Rather, it is an operating strategy for major global corporations doing business in the developing world, with implications for how climate technology could develop. Put simply, reverse innovation means designing, creating, and manufacturing a product in a developing country. The product may initially be designed to meet developing world demands for lower cost, but global companies now use this ‘bottom of the pyramid’ market strategy to create products that are later exported to the developed world,” said the CEG paper, Moving Climate Innovation into the 21st Century: Emerging Lessons from other Sectors and Options for a New Climate Innovation Initiative.
GE’s cheap ($15,000) PC-based ultrasound machine is cited as an example. The company developed the medical device for use in China’s rural outposts where there was no conventional hospital ultrasound. Now the cheaper alternative has made its way to the developed world.
It may seem counter-intuitive but the conditions are often better for scaling up new technologies in poor countries than in rich nations, says the paper. Here’s why: there is no competition. Clean tech innovators in the third world are not, for example, trying to make inroads against cheap coal-fired electricity. They are simply providing electricity where there is none; they are filling a market need.
This fits in with the way disruptive technologies often emerge, according to Harvard Business School Professor Clayton Christensen. In the paper, Winning and Losing Bets on Green Technologies, he and co-authors say: “In contrast to wealthy nations where consumption of electricity and gasoline is ubiquitous, developing nations are an ideal place to commercialize green energy technologies. In these countries, there is so much non-consumption that green technologies need only be better than the alternative: nothing.”
In emerging economies, clean energy helps people better accomplish a job they are trying to do. For example, in Africa it’s better to charge your cell phone from a solar panel in your village than be forced to travel hours to the nearest city. In the West, this convenience is readily available through a vast, cheap and easily accessible grid, which is why government intervention is needed to integrate green energy into wealthy countries, the paper says.
The Obama administration is increasing support to US companies that want to export into these emerging niche markets.
Elisa Wood is a long-time energy writer whose work appears in many of the industry’s top magazines and newsletters. She is publisher of the Energy Efficiency Markets podcast and newsletter.