Scaling sustainable energy for all: Business models and private sector involvement in small scale, decentralized renewable electricity in developing countries
Problem: Approximately 1.5 billion people in the world lack basic access to electricity to light their homes, facilitate communication, and conduct business. While progress is being made, without a significant change 900 million people will still be without electricity by 2030. This lack of access prevents progress towards agreed international development goals, including the Millennium Development Goals, as modern energy is critical to development. Responding to this situation, the UN has declared 2012 as the International Year of Sustainable Energy for All.
Solution: The use of small scale, decentralized renewable energy technologies to supply off-grid electricity satisfies the twin goals of universal access and low carbon renewable energy use, providing both a development and climate change benefit. While there are various models to deliver off-grid electricity, the private sector is playing an increasingly significant role, and doing so in a way that treats the gap in energy access as a business opportunity, not charity. The most immediate business opportunity is lighting: the off-grid poor spend an estimated $37 billion on kerosene for lighting, while renewable energy can provide better lighting that is cheaper, safer and cleaner. There truly is a fortune to be made at the “bottom of the pyramid” , as long as the challenges of affordability, distribution and finance can be overcome.
Question: This research focuses on the involvement of private sector actors in the sector of providing small scale, decentralized renewable energy to the “bottom of the pyramid” market, and the variety of models those actors are using to overcome the key challenges of delivering profitably and at scale. Key business models are identified, and significant market actors are mapped to those different business models. This research then focuses on the sustainability of those different business models, and how the models could be modified to enhance sustainability.
Answer: A wide variety different scale of technologies and different business models are being used in this relatively new market, and one model has not come to dominate. The technologies scale from small solar lanterns through solar kits and household solar systems to mini-grids, while ownership and user financing models vary from cash purchase and micro-finance models (where the user owns the product) to rental franchise and long term fee-for-service models (where the company/franchisee owns the product), and a hybrid pay-as-you-go model (where the user owns the product after some time). A variety of distribution models are used, including pre-existing distribution channels, partnering with NGOs or micro-financing institutions, and building out new distribution channels. As this market is nascent but poised to expand rapidly, there is the opportunity to modify business models to enhance sustainability before private sector investment in this sector truly scales. This research reviews the sustainability challenges, and proposes some options for consideration by private sector and policy makers alike.