A solar-powered thatch hut. Photo: Ashden.
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Reaping the benefits of community energy
31st July 2014
Donors, NGOs and investors want to help grassroots sustainable energy enterprises grow, so they can bring the myriad benefits of clean and affordable energy to many more people, writes Emily Haves. But just what kind of support is needed?
Where financial and technical assistance is delivered well it can play a transformative role in helping sustainable energy enterprises not just survive, but thrive.
A growing number of businesses are working to solve the huge problem of energy poverty in the developing world - by delivering electricity to the 1.3 billion people who live off the main grid, for example, or by selling improved cook stoves to people cooking over smoky stoves or open fires that damage their health.
But there has been little effort to discover, in any systematic way, what approaches really work - delivering the energy goods while being cost effective or even profitable.
Until now, that is - Ashden and Christian Aid have just completed research to answer this question, based on interviews with enterprises and support providers.
Private enterprise works best - but why?
Years of experience have shown that for the provision of energy access products and services to be sustainable they have to be delivered through market-based mechanisms.
That's because when products are given away there's no feedback mechanism for the donor to understand users' priorities, so they don't evolve to be useful and desirable.
The other problem with charitable approaches is that the structures that keep the products working are less likely to exist, like guarantees or trained repair people. But clean energy enterprises face many obstacles to achieving their potential:
- Often the markets for their products are underdeveloped - people are unaware that the products exist and a lot of work must be done to build up trust in them.
- Reaching remote rural customers is expensive, as customers are dispersed.
- Most customers have little purchasing power, so financing must be made available to enable customers to buy products.
- Technical knowledge and capacity is often lacking in the countries where these enterprises work, and the people who run them sometimes come from a charitable background so lack business experience.
- Finally, commercial investors are often wary of these businesses and the markets they operate in, regarding them as high risk.
Speedier, more flexible finance
So how can donors, investors, technical assistance providers and policy makers overcome these problems and effectively support energy access enterprises?
We interviewed Ashden Award-winning enterprises - including those selling solar products, improved cook stoves, and ceramic water filters - about their experiences of receiving both financial support and technical assistance.
We asked them what worked and what didn't, what support they need but can't find, and what other challenges are holding them back. The results focused on finance and technical assistance, and some clear trends emerged.
We found that most enterprises delivering clean energy, especially small and mid-sized ones, have an urgent need for finance - particularly for working capital. Many of those we interviewed reported being "starved of working capital" and of lurching from cash flow crisis to cash flow crisis.
Compounding this problem was the fact that enterprises often had to wait a long time for finance to come through - up to two and a half years. Such delays in receiving finance can place a huge strain on enterprises, meaning that they can't take advantage of bulk discounts and may have to take bridging loans.
Sales and marketing matter
We also found that sales and marketing is an area that has been underserved and is one where good support can make a significant difference to clean energy enterprises.
While many working in organisations dedicated to serving the poor may feel uncomfortable with a focus on sales, for enterprises to work well good sales and marketing is vital.
For example Barefoot Power, a solar lantern company, credit the support they received from sales advisers Whitten and Roy as critical in achieving a tenfold increase in their order book.
What's clear from our research is that where financial and technical assistance is delivered well it can play a transformative role in helping sustainable energy enterprises not just survive, but thrive. By learning from successes, investors and technical support providers could do much more to help lift many more people out of energy poverty.
Emily Haves is International Programme Officer at the sustainable energy charity Ashden.
The report: 'Lessons on Supporting Energy Access Enterprises' is published jointly by Ashden and Christian Aid. Ashden rewards and supports sustainable energy enterprises that are transforming lives and tackling climate change in the UK and developing world.
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