The Energizing Bottom of the Pyramid Markets

How to provide scalable clean technologies where they are needed most

 

By Konstantin Mehl

Energy access is the basis for economic development and helps poor countries to tackle the most pressing problems in agriculture, health care and education. And yet 1.3 billion people still lack access to electricity. The United Nations included energy access for all in its Millennium Development Goals framework and declared 2012 the International Year for Sustainable Energy for All. To make energy accessible and to reach these ambitious goals, politicians and entrepreneurs have to pull in the same direction. Collaborative action is needed to introduce scalable clean technologies to the Bottom of the Pyramid (BoP) markets.

If you were to share dinner with a South Somali family tonight, you would sit in a rather dark, smoky room. The widespread usage of kerosene lamps and wood-fired cooking stoves means that Somalis suffer from diseases caused by their homes’ poor air quality and pay too much for the energy in the first place. To solve this conundrum, Azuri, a British energy firm, installs small solar panels on the roof that are connected with two LED lamps inside the huts. Azuri’s goal is to help Africa leapfrog traditional carbon-intensive power grids by directly implementing off-grid renewable energy solutions. This is exactly the kind of innovation that is needed to supply the 1.3 billion people who still lack electricity with energy access by 2030. Assuming that the $34 billion necessary to achieve this goal is available, how should it be invested?

E&Co, an investment firm, has taken a pragmatic approach to identify the best technologies in its efforts to support energy entrepreneurs in Africa. Large investors, however, think of these technologies as high-risks and low-return. Cross-sector networks like the Aspen Network of Development Entrepreneurs are needed to resolve information asymmetries, by making all stakeholders sit around the same table. The network also identifies local businesses that serve the BoP and helps them grow, thereby spreading technology and creating jobs.

Nevertheless, local companies cannot do the job alone. A combination of the large companies’ expertise with the start-ups’ innovative spirit is needed to deliver clean energy solutions to the poor. Technology giants like Siemens have just begun tailoring their products to BoP markets and are surprised by their profitability. Intra-entrepreneurs, i.e. innovators within big companies, adapted high-end Siemens products to local Indian markets, without the approval of C-suite managers. There, these products were successfully marketed, and executives are now beginning to consider BoP regions more as an opportunity than a risk.

Similarly, the venture firm Eight19 disrupts the African energy market by offering a pay-as-you-go solar system. Clients buy scratch cards to access electricity for several days. This business model solves the problem of high initial investment necessary to buy solar. This “prepaid-energy” model is the product of a creative idea and no prohibitive R&D investments. But it exerts a disruptive effect on the market, as it allows new business models and motivates small and large copycats.

The combination of the adaption of existing high-end products developed by multinationals and the disruption of business models by small companies makes the energy Millennium Development Goals more realistic, if smart policies are implemented.

To further encourage entrepreneurial growth, governments should provide incentives to high-tech businesses to adapt their products to poor countries. Entrepreneurs are often wary of markets that seem difficult to access or that lack a basic corporate legal structure. A stable policy framework lowers the risk for investors and makes it easier for entrepreneurs to access the markets. Innovations such as solar and micro-grids need high upfront investments and are thus difficult to implement in poor countries where financing is difficult. Public investments, tax incentives and subsidies for renewables would complement private sector entrepreneurs to increase the speed of technology diffusion.

Cross-linking smart policies and entrepreneurial solutions is most important to scale clean technologies to the BoP markets. This co-operation seems more likely than ever, as clean technology can change the lives of billions of poor people who are eager to study, improve their conditions, and seize business opportunities. A growing number of policy and business decision makers understand that if we don’t make sustainable energy accessible, poverty will increase geopolitical tensions and regional uprisings alike. Given the enormous opportunities currently available for exploitation, this would be an unnecessary fate.

 

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