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Delivering Solar to a Distribution-cursed Market

Rural populations in developing regions such as Africa enjoy some of the world's sunniest days - but they also experience the darkest nights. Lacking electricity, over a billion people in these regions are forced to rely on kerosene lamps that emit no more light than a cigarette lighter, or on batteries that can supply power to a hut but require frequent refilling journeys to diesel-powered charging stations.

Today, however, there is another option: solar solutions. A solar lantern containing a small fluorescent or LED light with a rechargeable battery is an energy upgrade for kerosene lamp users. A solar home system that can power light bulbs and basic electrical appliances such as radios, cell phones and small televisions may be seen in the huts of villagers higher on the energy ladder.

Unlike the past decade, which saw solar solutions purchased mainly by international donors, it is now the locals who are increasingly opening their wallets to make the switch from their traditional energy means. That is because solar products prices in recent years have declined to become cheaper than kerosene and batteries.

In Cambodia, for example, villagers can buy a solar lantern at US$25 and use it for two years without any extra costs, where their previous spending on kerosene for lighting was about $2.5 per month, or $30 per year. In Kenya a solar kit that provides bright light or powers a radio or cell phone costs under $30 at retail stores. By switching to this kit Kenyans can save $120 per year on kerosene lighting, radio batteries and cell phone recharging fees.

With similar conditions throughout the developing world, and with payment solutions, such as small loans, becoming available to help defray the costs of up-front investment, this off-grid market is viewed as a new business opportunity. More and more solar companies are bringing energy to this underserved population while gaining a slice of a pie worth billions of dollars. The annual spending on lighting kerosene in Africa alone is estimated at over $10 billion, according to a 2010 report from Lighting Africa, a solar portable lighting program run by the International Finance Corporation and the World Bank.

FACING THE DISTRIBUTION BARRIERS

However, there are numerous roadblocks on the way to delivering solar products to low-income rural regions. For one, gender issues can cloud technology outreach. Katherine Lucey, founder of Solar Sister, which trains African women to be direct sellers of solar lanterns, said that in these regions women are largely responsible for procuring energy for their families, but cultural and educational bias may keep them away from accessing new technologies. Thus many simply follow traditional practice and continue to buy kerosene.

Moreover, most villagers have few chances to discover solar technology. Unlike cell phones, which barely existed in rural areas a few years ago but may now be found in many farmers' pockets, solar products for low-income villagers miss a crucial element that helps speed distribution. "Typically new technologies start in the urban areas and spread out into the rural areas. But in this case you really have a product that is designed for people who are off-grid, living in the rural areas, and they may not have a chance to see it first in the cities," explains Ned Tozun, president of solar lantern company d.light.

Even if villagers do happen to encounter solar lanterns or solar home systems, they are unlikely to risk their small savings without fully understanding the product. A well-trained distributor is required to communicate the relevant information.

In addition to the problem of low awareness, many solar companies note that the process of growing a distribution network must include setting up payment options for low-income customers. Otherwise, even when villagers learn that they will see returns on their initial investment in as little as a few months, many still stick with kerosene or batteries because they are unable to pay for the solar product up front.

Herath Dissanayake, founder of Wisdom Solar, which sells and installs solar home systems in rural Sri Lanka, said that his company has been forced to slow its distribution expansion for this reason. Since war-torn northern Sri Lanka is a vacuum in terms of small loans providers, the company must provide payment credit to customers out of its own funds - but the size of these funds lags behind demand.

"Every month we sell 200 systems [in the north]. We could go further, but with the finance limit we can't. Some people are fighting with us, [saying] 'Sir, why you are not giving to us [the loan]?'" said Dissanayake. And when a lucky person obtains a loan and orders a solar system, it is just the beginning of another challenge.

Due to poor transport infrastructure in rural Sri Lanka, Dissanayake described a typical delivery trip as "half way through three wheelers and thereafter carried by our employees where there is no motorable roadway." As well as dealing with this tiresome journey, distributors of solar home systems must be able to return to their customers on short notice if the system malfunctions. These solar systems are not used as backup, but constitute the sole energy source for many rural families. If the system breaks down, and isn't repaired within hours, villagers' confidence in the technology fades.

PARTNERING WITH LOCALS TO NAVIGATE THE JUNGLE OF CHALLENGES

Still, there are solutions to these distribution setbacks. In addition to raising awareness levels with radio advertisements and promotion booths in busy village spots, solar companies are using what is already there to get their products into the hands of villagers.

Solar Sister, for instance, has built up a distribution network of 107 direct sellers across three African countries since launching its operations two years ago. Its strategy is to cooperate with local non-governmental organisations that the rural community already trusts. Under the wing of the women-oriented organisations Solar Sister approaches, trains and provides selected women with stocks of solar lanterns. The direct sellers can then take the lanterns to their communities, and return the money once the products are sold.

"If I approached these women by myself, it would take years to just win their trust. But by doing it through a group they already know, things happen much faster," said founder Lucey. By now, the once inexperienced sellers have brought solar light to over 4000 African villagers.

Solar Sister isn't the only company to benefit from partnering with existing local groups. Roger Hattem, global business director at solar lantern company ToughStuff, said that sales in rural developing regions hit 200,000 units last year, even though the company's employees do not take its products all the way to the villagers. Instead, ToughStuff sends its team to find partners that already have a wide connection network, and adds its solar lanterns to their offerings. For example, in Kenya ToughStuff has only 20 employees, but its solar lanterns may be bought through 700 retail stores, as well as from about 200 direct sellers recruited and trained by a few local organisations with which ToughStuff partnered.

Itotia Njagi, programme manager with Lighting Africa, views partnerships with distributors of consumer goods as a cost-effective way to enter the market. Njagi noted that if solar lantern companies appoint local distributors with a nationwide distribution infrastructure, they reap the additional benefit of a free ride on channels already in place, resulting in little extra cost. Without this advantage the solar company has to bear the high costs of distribution on its own, and these costs are passed along to consumers, further driving up product prices.

CREATING DISTRIBUTION NETWORKS FROM SCRATCH

Rather than distributing their solar solutions through allies, some companies still prefer to use their own teams. They believe that selling solar products is too tricky to be scaled up unless distributors are devoted to only one task: selling their solar products.

To this end, a solar lantern company called Greenlight Planet is building up its own distribution force from scratch. The company is training farmers, housewives and teachers to sell its lanterns in rural communities. Sellers who perform well may be promoted to regional leadership and receive overseas training, said Anish Thakkar, Greenlight Planet co-founder.

These practices greatly expand the company's presence. Currently, Greenlight Planet has 35 distribution leaders who recruit, train and support a network of over 200 direct distributors in two Indian states. It now enjoys average sales of 2,500 solar lanterns each month. And, with its distribution arm stretching all the way to the end user, the company is able to monitor how each of its solar lanterns is used, and can tap into an additional source of revenue. Armed with the ability to measure the carbon emissions reduced by replacing kerosene lamps with its solar lanterns, Greenlight Planet is now working with JP Morgan to develop a carbon credit project that will allow it to turn the invisible emission reduction into cash, disclosed Thakkar.

Meanwhile, on another continent, a company called SolarNow, which offers solar home systems in five African countries, created its own distribution network by building up an attractive brand model. SolarNow recruits retail shops which sell other goods to begin selling solar home systems. Besides allowing the shops to use the SolarNow signpost, the company also provides technical training, free promotional materials and even stock credits. But there is one condition: retailers operating under the SolarNow brand must maintain its good reputation. To ensure this SolarNow has designated staff who visit every installation, perform routine checks and listen to feedback from villagers. If a retailer is found to have delivered a substandard system or bad service, the company bans that shop from using the “SolarNow” signpost.

In addition, SolarNow works to gain widespread brand recognition. Through hundreds of nationwide radio campaigns, rural Africans became familiar with the brand and trust the shops which carry it, making retailers' sales easier, said Willem Nolens, SolarNow's managing director. While only one in five retailers, on average, can maintain SolarNow's standards for over a year, the survivors witnessed soaring sales. "It went from nothing to [the situation that] last year we sold 42,000 solar home systems in the range of 20 to 100 watts," said Nolens.

SEEDING SOLAR WITH SPECIFIC GROUPS TO REACH WHOLE COMMUNITIES

Another innovative way that solar companies have discovered to distribute more product with less effort is to target specific groups.

Last October, on Mafia Island in Tanzania where a majority of the 50,000 residents live without electricity, d.light partnered with an organisation called SolarAid to launch a programme allowing some 11,000 local students to purchase a solar powered task light at a subsidised price. With positive feedback from these students and their families, the entire island community soon became aware of the benefits of solar lighting, and d.light sold over 3,000 solar lanterns in less than a week. The high demand came not only from students, but also from teachers who bought solar lanterns at full retail price.

On the other side of the world, in Cambodia, solar company Kamworks is expanding its distribution network through a powerful group: microfinance providers. Like many in the developing world, Cambodia's villagers are familiar with microfinance services that allow them to buy goods with a small loan and then slowly pay it back with interest.

The cooperation between local microfinance providers and the solar company has enabled Cambodians to add solar products to their shopping lists. Villagers who want to use solar energy visit the nearby microfinance office, have their applications approved, call Kamworks to deliver solar lanterns or install solar home systems, and then return the loan to the microfinance office over the agreed-on period. Besides helping Kamworks' customers to afford the upfront investment, this cooperation gives the company a wider presence since it can reach villagers who live far from a Kamworks branch but near an office of its microfinance partner.

The company is currently running this type of cooperation in five provinces of Cambodia. Jeroen Verschelling, Kamworks' director, said that it is in talks with more microfinance providers and aims to expand to 12 provinces by the end of the year.

As solar companies scramble for ways to overcome their distribution challenges, international organisations are stepping in to help. Lighting Africa, for instance, facilitates B2B linkages by providing a list of potential distributors to solar companies which have passed certain quality standards and aim to serve rural Kenya and Ghana, where the Lighting Africa program operates. In India the Institute for Financial Management and Research, one of the nation’s more prestigious academic institutions, published a free research report last month which specifically addressed distribution models for poor-oriented energy products in rural India.

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