Fantastic New Report by IFC
This is a fantastic report from IFC (in partnership with Austria) entitled:
From Gap to Opportunity: Business Models for Scaling Up Energy Access
It’s well worth the read. The report asserts that energy access is not just a development gap, but also a real market opportunity for the private sector. It identifies a $37 billion opportunity for the private sector to improve energy services for people who live in relative poverty.
- Solar lights are highlighted as a better option than kerosene.
- The report urges people not to destroy markets by giving solar lights away for free.
- It cites the take off of mobile phones as proof that the market for solar lights in Africa is a viable prospect
- It calls for governments to remove discriminatory import tariffs across energy access products
Here are some extracts: (You can download the full report here)
While there is broad recognition that lack of access to modern energy has major implications for development, the energy access gap is increasingly being seen as a market. Given the vital role it plays in socioeconomic development, providing improved access to energy has typically been the role of state owned power utilities, rural energy agencies, international development and nongovernmental organizations, and other public entities. However, with growing recognition of the potential for “base of the pyramid” (BOP) customers to become fast-growing markets for goods and services on the one hand, and the emergence of novel models for serving them on the other, the energy access gap is increasingly being recognized as a commercial opportunity, too. The nature of that market, and the segments within it, is the focus of this report.
The report posits, that an estimated 90 percent of (poor) people already spend so much on kerosene lamps, candles,and disposable batteries to meet their lighting needs that they could afford to purchase better options, such as solar lamps.Even more people could afford efficient cookstoves because of the fuel cost savings they offer. Those who are skeptical about the prospect should consider the spectacular takeoff of mobile phone devices. In Africa, the number of subscribers using devices that cost as little as $20—which is at the low end of the cost of many modern energy access devices—has been increasing at a rate of 30 percent annually for the past 10 years. On a continent of 1 billion people, of which some 73 percent live on less than $2 a day, there are currently 620 million cell phone subscriptions, and the user base is expected to hit 735 million in 2012.
Companies thrive in an ecosystem where the playing field is level. That is, when there is sufficient technology awareness, product standards exist, and tax and duty regimes do not discriminate against them. When these factors are combined with training and support of entrepreneurs, finance for growth, and in some instances carbon credits to help bring down the cost (of cookstoves in particular), successful device firms emerge and grow rapidly.
Policymakers should consider removing discriminatory import tariffs across energy access products and..
Policymakers would do well to resist giveaway programs and unrealistic promises where markets exist:
First, smart subsidies can be an invaluable tool for providing services to the poor. But, carelessly thought through “giveaways” can distort the market and limit the success of otherwise commercially viable offerings. Customers who are willing and able to pay the full price for a product or service will of course hesitate to do so if they know that others received a giveaway and that they may be next to enjoy this benefit.
Second, if they favor certain types of products, giveaway programs risk stunting innovation and encouraging companies to manufacture according to specifications that are not always optimal for the market.
Finally, free products also deter businesses from investing by creating risk that they will have to compete with giveaways.