This blog is written by François Lepicard, Simon Brossard, and Adrien Darodes
Since Hystra’s previous report on energy access 8 years ago, the space has evolved considerably and innovative business models have flourished. However, this is not enough and we desperately need scalable solutions in four dimensions:
- Reach: over 1.2bn people do not have access to electricity, and almost 3 times as many to harmless cooking facilities
- Depth: even in countries that have seen fastest progress, the rural and lowest-income segments remain forgotten
- Intensity: current solutions offer insufficient power intensity and reliability to enable productive energy usages, which are key to income generation and development
- Sustainability: very few business models are commercially sustainable and all of those remain very vulnerable, preventing replication and scale.
In order to understand what could be done to accelerate the spread of existing solutions, Hystra reviewed the performance and work of 26 leading practitioners.
Map of Case Studies
Source: Hystra, Reaching Scale in Energy Access
We looked specifically at five market-based approaches that have seen the highest volume and innovation, three of which we will outline here:
1) Solar lanterns are a successful but highly localized industry that will need to reinvent its business models, both to strive in saturating areas and to address untapped markets:
- Solar lanterns’ players have grown successfully, reaching over 20 million cumulative sales. However, success is limited in a few densely populated areas of East Africa and India, which are now starting to saturate
- The industry is struggling to differentiate from inexpensive, low-quality competition products. Distributors of quality-verified products will need to deliver more value (particularly after-sales service) to justify price premiums, which is essential to maintaining sufficient gross margins.
Credit: ©2017 Off-Grid Electric, Ltd.
2) Solar Home Systems (SHS) is a high-potential fast-growing industry, yet the commercial viability of its business model remains uncertain:
- High fundraising and overreliance on technology have led companies to define very large growth targets. Consequently, many of them have prioritized quick customer acquisition over portfolio quality and risk exposure considerations
- Sales and marketing remains a challenge: commission-based sales agents tend to focus on easy sales, targeting ‘low-hanging fruits’ in their areas, and becoming inactive after a few months. This leads to saturation of areas at low adoption rates, with high numbers of defaulting customers unable to sustain their payment schedule and acting as a deterrent for others
- Replication will be challenging in more complex market environments (e.g. low solar awareness, absence or low penetration of mobile money, and high currency risks)
- SHS will require more patient approaches to scale, focused on customer relationships vs acquisition.
3) Clean energy microgrids are a nascent industry which could build success on small businesses and the emerging middle-class, provided it de-risks its environment and focuses on revenue over connections:
- They are a promising solution to power medium to high-load productive equipment in remote villages. The business models of operators are asset-intensive, but could have the potential to generate relatively stable revenue streams over time
- Given the limited track record of the industry, customer selection, tariff models and relationship management approaches still need to be refined while government and donors have a role to play in stabilizing the ecosystem
- Operators currently bear the risk of a long-term investment (minimum payback without subsidies would be 5 years) in a highly uncertain environment: competition with grid extension, regulation instability, technology risk, macro risks, etc.
Practitioners and investors have the opportunity to learn from the successes, innovations, and challenges of these market-based approaches. The conclusions drawn from these case studies can enable access to energy to scale more quickly and effectively moving forward.
Want to know more? Read the full report with:
- Additional insights backed up with in-depth analyses, quotes and charts
- Sections on improved cook stoves and solar pumps
- A customer survey on micropumps
- Detailed case studies on 26 practitioners
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.