Solar Entrepreneurs’ New Sales Pitch
Having seen well-intentioned but unsuccessful attempts to bring alternative energy to the developing world, several NGO founders suggest a more collaborative approach.
Solar power has taken root — not in the U.S. where it supplies but 1 percent of the power generated only from renewable sources — but in energy-deprived villages of the developing world.
Because costs for electricity in the U.S. are already low, unlike in rural India and Africa, the incentive to turn over to solar is lower for American households. But in poor areas around the world, some communities have skipped an entire generation of coal-powered electricity.
Despite the attractiveness of solar cells and solar concentrators lighting up and heating poor villages, solar brings its own problems. If not implemented right, a technology touted as clean and green can become an unnecessary burden for technologically unsophisticated communities. But the size of the need, and of the market, has led some groups — having learned from earlier initiatives — to push on in bringing solar to undeveloped areas.
In fact, investments in developing countries came to $72 billion on renewable energy in 2010, according to the United Nations Environmental Programme — $2 billion more than in developed countries. The Middle East and Africa witnessed a 104 percent growth, amounting to $5 billion in renewable energy and India saw a 25 percent increase with $3.8 billion of investments in the green space.
Nonprofits and social enterprises are building a new solar industry, one that caters specifically to the needs of the 4 billion people who live in relative poverty. That two-thirds of the world’s population, which economists often refer to as the “base of the pyramid,” or BOP, has an aggregate buying power estimated at $5 trillion a year. With a typical BOP household setting aside 9 percent of expenditure for energy alone, that represents a lucrative total market for entrepreneurs. (Miller-McCune‘s Vince Beiser examined this marketing effort earlier this year.)
Take Africa, where 600 million people live off-the-grid. LightingAfrica.org, an initiative sponsored by the International Financial Corporation to help commercial enterprises enter that market with solar products, estimates that annual sales in Africa will grow 40 to 50 percent.
Powering that is a convergence of declining costs for manufacturing, improving technology and the increasing cost of kerosene.
Kerosene is widely used in the developing world for cooking and lighting, even though its use is often accompanied by tragic accidents and disease-causing heavy smoke. Some countries, such as India, nonetheless subsidized kerosene since the poor would otherwise turn to forests for fuel, creating a devastating environmental mess. Thanks to subsidies, kerosene sells at 97 cents per gallon in India, compared to $5 a gallon in the United States.
Meanwhile, almost two-thirds of Indians have little or no access to electricity. The Indian government recently announced an 11-year plan to introduce alternative energy sources, aspiring to have solar technology produce 20 gigawatts by 2022 (compared to today’s 6 megawatts a day). To achieve this, the government is providing consumer subsidies and industry tax breaks. This year, SunBorne Energy and Suntech Power Holdings, backed by Silicon Valley venture capitalist Vinod Khosla, agreed to supply 100 MW solar panels for solar projects throughout India, starting with a 10 MW project in the eastern state of Gujarat.
While this government-led initiative may help India’s urban community, its benefits for India’s rural population are unknown. Harish Hande, founder of Solar Electric Light Company, or SELCO, one of the oldest rural solar enterprises, criticized the government for producing an “anti-poor, anti-innovation” plan that negates the benefits of small and medium solar enterprises working in this space.
But even smaller-scale solar hasn’t always delivered on its good intentions, which is to deliver a sustainable energy source to the energy-deficient.
Providence, R.I.-based entrepreneur Katherine Lucey witnessed this firsthand. After working for two decades on macro-level energy projects in Africa, Lucey wanted to turn to small-scale programs serving rural populations. She began working with nonprofits providing solar to the BOP in Africa. The emphasis was on completing a project, without considering its sustainability, she noted. While these nonprofits delivered the technology, they often didn’t have a supply chain in place to handle maintenance, repair or replacement of broken parts.
“Solar panels are a simple technology, but when the walls are made of mud, you have to adapt. What are you going to plant that panel against? And what if something goes wrong?”
Even if the panels were put in right, the families, especially the women, were left with a technology they had little experience with before and little understanding of how to maintain. As a result, Lucey said she saw that almost half the equipment was left broken and wasted.
So she established her own company, Solar Sister, which utilizes the Avon sales model to market solar products, employing a number of women to go door-to-door and sell a range of solar lanterns with marketing that is homegrown.
“We just had to bring the technology closer to the women, making it easy for them to connect solar with light, much like they would connect kerosene with it. Then, they end up pitching it better than we do to others in the village.”
Her company assists with maintenance, linking customers to their local office in Uganda, which can determine if the product is faulty or, if as in many cases, the local isn’t using the technology correctly.
But even with the supply chain in place and the gender gap bridged, critics argue that the up-front cost of the solar device can be beyond the reach of the BOP citizenry. One solution is to take out a loan from a local microfinance institution to pay for upfront costs.
That bothers Vancouver-based entrepreneur Paul Needham, who chose a different route for his solar enterprise. “People are already spending,” he said. “But they’re spending on kerosene and D-cell batteries, which are very expensive to run. In the U.S. and Canada, we purchase grid electricity for 8 cents kw/hour to 15 cents kw/hour. But, in India, if you get your electricity from D-cell batteries the cost is around $50 kw/hour to $90 kw/hour. So, it’s much more cost effective for them to go to solar.” Solar starts saving them money as soon as the device cost is covered.
So he co-founded Simpa Networks, which develops and markets solar devices and tackles the price dilemma with a pay-as-you-use model, forgoing the initial purchase of a solar device and thereby eliminating the need for loans. (The “progressive purchase” payments are made over a mobile phone.)
Simpa doesn’t manufacture or sell its own solar products. They partner with solar social enterprises, such as Bangalore-based SELCO, which has been supplying solar powered electricity for the past 15 years in India. Interestingly, SELCO was founded to rebut three assumptions about the base of the pyramid: that the poor cannot afford sustainable technology, they can’t maintain it, and that any social venture serving them can’t make money.
Ultimately, though, these solar companies are driven by a principle that business, not charity or the government, can diminish energy poverty.
“Giving away solar, much like giving away anything else, is patronizing and doesn’t solve the problem in the long run. That’s why two, three years later, you find that they’re not using it or it doesn’t work,” Needham clarified. With businesses like Simpa, he sees the solar market become more efficient, inventive and responsive to the customer, not the donor.