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Building an African Market: Solar Energy Entrepreneurs on the Rise

Charities' early efforts to distribute clean energy technologies in Africa met with little success. Their use of donor funding to heavily subsidise products such as solar lighting kits would generally fulfil a programme's short-term targets, but in the long run the expertise and equipment needed to maintain the systems failed to be adequately developed or provided. Crucially, no new systems beyond a programme's target would appear in the area. But a new wave of investors and social enterprises has sprung up in the last decade, and they are increasing the availability of products tailored to off-grid domestic energy customers in Africa.

One estimate for the total base of the pyramid energy market in Africa alone is a potential value of US$27 billion; another for the market opportunity for improved energy services in under-served areas of the world is $37 billion.

While increasing numbers of products are being developed for these potential customers, this in itself will not catalyse a market. Effective and sustainable sales channels are also needed, along with associated services such as development of appropriate quality standards. In the case of a lack of early sales of solar products, the absence of both a market infrastructure to make the technology more available and consumer finance to make it more affordable have been two hurdles to overcome.

Addressing the first, there may still be a role for donor-based programmes alongside the new socially oriented businesses. Development organisations have recently recognised the co-benefits of supporting small businesses specifically to achieve new service delivery.

Business Training

Taking this approach is Global Village Energy Partnership (GVEP) International and its five year Developing Energy Enterprises Project (DEEP), operating in Kenya, Uganda and Tanzania. It provides services such as business and technology training plus a loan guarantee scheme to energy entrepreneurs. Each entrepreneur receives intense technology and business training and regular visits from a mentor, whose help includes the setting of realistic production or sales targets and who may refer them for the loan scheme.

For the micro-solar market in Africa, most of the social enterprises involved in developing products have also established country offices to set up distribution networks. The recruitment of solar entrepreneurs who can use existing social networks to help sales is becoming a popular approach. Yet many new entrepreneurs need support in developing the business capabilities to drive their new business forward. This is where a donor-based programme such as DEEP can help. A crucial point is that GVEP as an NGO is providing services that, when withdrawn at the end of the funding period, will hopefully leave enhanced market infrastructure rather than a gap.

SolarAid is an NGO operating in Kenya, Malawi, Tanzania and Zambia that aims to catalyse the micro-solar market in Africa. Its ambitious goal is to eradicate the use of kerosene lamps by 2020. SolarAid has recently shifted its strategy from dependence on grant and donor funding, forming a new social enterprise called SunnyMoney which ultimately intends to be a distribution channel for high quality micro-solar products in Africa that is financially self-sustainable. This would mean not subsidising the products it imports, a move which can cause confusion as consumers may have come to routinely expect subsidised or free products.

Another aspect of the strategy shift is the increased efficiency needed to push sales and reduce operational costs. For example, a successful market awareness campaign launched in schools recently offered a low-cost non-subsidised solar lamp for students to study by. Sales were subsequently broadened to teachers and parents, who may be interested in higher capacity systems, at retail price. Dealers of a larger variety of products are then established in the area to serve all. Parents are motivated to buy their first solar light to help their children study, the use of which leads to increased trust in and awareness of solar products.

Both GVEP and SolarAid have the primary aim of making clean energy services available to people without access to it. Supporting local people to run related businesses is seen as a way to stimulate the supply chain and serve end users. SolarAid had already moved away from its initial NGO model of training organised community groups to assemble small solar kits. GVEP monitors the progress of DEEP entrepreneurs and only focuses on those that are showing adequate motivation and progress.

Recruitment of entrepreneurs is another vital process that varies according to an organisation's capacities and aims. For SolarAid its shift to a social enterprise means another change in recruitment of micro-solar dealers. Previously people who would not normally have the means to establish a solar business could become 'entrepreneurs', with SolarAid training them and providing their initial consignment on credit, but the entrepreneurs often struggled to sell beyond their immediate community. Now only commercially minded people who already have the means to purchase their initial consignment up front are recruited directly. The money saved in entrepreneur debt lets SunnyMoney focus on running marketing initiatives, catalysing demand and attracting new sub-dealers.

As well as straightforward product sales, small renewable energy systems offer the potential to deliver specific energy-related services as a business. One example that GVEP is supporting is solar phone charging for the now huge numbers of rural mobile phone owners. The same businesses can also extend to services such as battery charging and barbering. An event in Kenya to raise awareness of this business model and recruit new entrepreneurs to DEEP saw the GVEP team partner an existing supplier of solar panels in Mombasa so that the prospective entrepreneurs were immediately linked with a technology provider and were able to gain a small discount.

Coming to the question of an absence of consumer finance, this is still a problem but offering phone and battery charging at central locations is one way around it. At the same time, the large mobile phone uptake in Africa suggests that there is more willingness and ability to pay for products that meet lifestyle needs and desires than is sometimes estimated. Micro-solar lanterns have been specifically designed to make solar more widely affordable and sales strategies such as targeting an area just after its seasonal crop sales can further help overcome financial barriers.

Where such barriers remain, microfinance is possibly a solution but pay-as-you-go solar using SIM card technology may be a better one. Here again there could be an opportunity for donor and business-based hybrid approaches. As with any R&D, the up-front investment costs, high risks and long pay-back periods are less attractive to private companies, yet there is huge market potential.

Setting Standards

There are many other important considerations for building sustainable market infrastructure. One is quality. News of the inadequacy of a products quickly spreads to damage demand, and solar technology is already distrusted for this reason in some rural areas of Africa.

A lack of consumer understanding can be mitigated with simple measures such as providing instructions in local languages. Warranties can address technical issues, although they still provide complications for organisations such as SunnyMoney who need to honour those provided by manufacturers that are often outside the country.

In the longer term, products such as solar lanterns or home systems eventually need maintenance. Manufacturers need to make replacement parts and these should move down the distribution channels in the same way as the main products. For larger solar and other renewable energy systems, qualified installers and technicians are needed. This then creates another group of entrepreneurs who may benefit from enterprise development services.

SolarAid has now sold over 150,000 solar lights, with a rapid increase in sales figures since it established SunnyMoney. Demand for well designed energy products is truly apparent. Serving that demand does not have to rely on subsidies although NGOs can play a useful role in strengthening market infrastructure. As one example, GVEP International has witnessed significant sales growth amongst its 700 DEEP entrepreneurs, allowing an estimated 2.2 million additional people to benefit from energy products and services.

Formerly a consultant, Gillian Davies is now a PhD student at the Centre of African Studies, University of Edinburgh.

SolarAid is an NGO aiming to catalyse the micro-solar market in Africa. It aims to eradicate the use of kerosene lamps by 2020. SOLARAID Supporting local people to run solar businesses brings benefits such as job creation but is more importantly seen as a way to stimulate the supply chain and serve end-users. SOLARAID

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