Saturday, December 18, 2010

field report from orissa

I am writing from the offices of Samandh, a small nonprofit in a rural village in the Cuttack region of Orissa, a state in eastern India. I spent the week visiting rural villages with solar charging stations set up through TERI's Lighting a Billion Lives (LaBL) initiative.

Until this trip, I hadn't actually seen a solar lantern in use. No matter how much I had read about solar lanterns, no matter how many times I had rattled off laundry lists of the benefits of solar lighting over kerosene lamps, I could not fully appreciated the profound impact solar lights make on people's lives until I walked into a village my first night in Orissa and joined a family eating dinner by the light of their solar lanterns.


Because there really is no way to describe with words what it's like to join an entire village doing a traditional dance around a collection of solar lanterns, I made a short (and very, very amateur) video*. These pictures and video clips comes from my interviews with solar lantern users in the Mayurhanj and Cuttack regions of Orissa.


A few more observations from my interviews:

First, solar lanterns really do increase household income. At least in the villages I visited. One of the benefits of solar lanterns that advocates -- including myself -- often tout is that a few extra hours of high-quality light enable villagers to pursue additional income-generating activities after dark. Until my visit to Orissa, I had been skeptical that such a benefit was purely hypothetical.

In one of the villages I visited, a man explain that his solar lantern enabled him to earn an extra 200 rupees per month for carpentry work he did at night after returning from his job as a day laborer. The lantern rental costs him 30 rupees a month, and he spends an additional 39 rupees on kerosene to supplement the lantern's light, amounting to 69 rupees per month spent on lighting. Before renting the lantern the man would spent between 52 and 65 rupees per month on kerosene. So even estimating conservatively, he comes out with an extra 187 rupees each month. The women in the video also make an extra 25 to 35 rupees each day weaving leaf plates and straw mats.


Weaving leaf plates in a village in Cuttack, Orissa

Of course, the numbers work out so well because TERI and its partner NGOs subsidize the capital costs for the solar charging system, so lantern users have no initial investment and can benefit from low monthly rental fees. The math changes when talking about unsubsidized lantern sales -- but it still helps to make a strong case for payback in the long run.

Second, solar lanterns really do replace kerosene use -- at least at the household level. Nearly every lantern user I interviewed told me that they had stopped buying kerosene altogether since renting the lantern. In one village, the solar lantern entrepreneur (the person in charge of running the solar charging system and renting out the lanterns daily) had set up a pretty efficient system; villagers would buy their government-subsidized allotment of kerosene, resell it to the entrepreneur for the same subsidized price, who would in turn sell the kerosene on the black market for a profit. In return, the villagers got a solar lantern each day. Part of the kerosene profit would go into a maintenance fund for the solar lanterns, and the rest served as the entrepreneur's salary for managing the charging station. Fueling the kerosene black market is certainly not among TERI's intended consequences for the LaBL initiative, but I must say it's pretty great to see kerosene literally being traded in for a solar lantern.

Third, it's clear that lantern users really value mobility of their solar lighting system. We visited a village where the government had provided fixed solar lighting systems in a number of homes after TERI had set up a solar lantern charging station. Our interviewees emphasized that they preferred the LaBL lanterns because it enable them to move around outside at night. Most of their lives take place outside of their small homes, and being able to transport light is important for maintaining congruency in their lifestyles.






*Here's the video on YouTube: http://www.youtube.com/watch?v=Lplh-28l5fc

who's who


My first couple of months in India were spent understanding "who's who" in the small-scale solar lighting market. The list of nonprofits, community groups, small entrepreneurial companies, multinational organizations and government programs working on small-scale solar lighting initiatives is nearly endless.

When I set out on this project, I thought that I would choose a few case studies of different delivery models, compare them, and come up with some brilliant conclusions about which models work the best. It turns out things are not so clear. Identifying the key players in this field has been a challenge in itself; organizing these players into distinct categories based on their varying approaches to solar lighting delivery has proved even more challenging. In short, everyone is trying out everything in terms of distribution and financing of small-scale solar lighting technology.

My advisor Akanksha Chaurey, head of the Lighting a Billion Lives program at TERI (see further description below), tried to boil it down for me with the following picture:

According to this framework, the main players in the small-scale solar lighting market in India can be categorized into three groups. Each of these organizations, which span the nonprofit, public, and private sectors, are trying to serve the same rural Base of the Pyramid consumer base, but with different motivations and approaches. Let me qualify right away that none of the organizations listed below fit perfectly into their assigned category, but the general framework is a useful overview of the market.

Academic and nonprofit institutions: TERI is clearly at the forefront of nonprofit efforts to expand access to electricity in India's rural areas through solar lighting. The Lighting a Billion Lives (LaBL) program supports and subsidizes a fee-for-service model in villages; a community member (called the "entrepreneur") is trained to run a central solar charging station in his/her village and rent out lanterns to other households in the village. I have a lot more to say about TERI and LaBL -- TERI is my host affiliation here in India, and the LaBL team has been incredibly helpful in facilitating my research project. More to come on LaBL in later posts.


SPL (solar portable lighting) entrepreneurs: I'm borrowing this term from the Lighting Africa report I mentioned in my first post. It refers to the recently emerging, expanding group of social enterprises in India selling inexpensive solar lanterns to the rural BoP market. My study will focus on five of these companies:


SHLS (solar home lighting system) entrepreneurs/financiers: This group includes social enterprises selling comprehensive solar home lighting systems. These institutions are characterized by their close linkages with finance institutions that enable them to provide customers with bundled services: both the SHLS and the consumer financing to pay for it.

Selco, founded by the renowned Harish Hande, as been at the forefront of SHLS delivery for more than 15 years.


The companies and institutions will serve as the core case studies for my research, but they by no means comprise an exhaustive list of the important players in India's small-scale solar lighting market. My research will highlight a number of other companies and nonprofits implementing innovative distribution and financing models to bring solar light to India's rural poor.



Thursday, December 2, 2010

the delivery challenges

To understand the small-scale solar lighting market in India, one needs to appreciate the fundamental challenge that SPL entrepreneurs face. How do they deliver a product to a consumer who doesn’t know they need the product?* Add to this challenge the fact that most of their consumer base is a) geographically remote, and b) very poor -- and most likely has never heard of a solar lantern. Clearly, it’s not a simple sales job. Villagers don’t head to the local kiosk for solar lanterns they way they do for soap.

I’ve heard it described a number of different ways at this point, but I think Mayank Sehksaria of Greenlight Planet presented a useful framework at the Delhi International Renewable Energy Conference for understanding the challenges in creating effective solar lighting delivery models. He explained that in order to effectively scale up the delivery of solar lighting technology to India’s rural BOP population, three key components must come together:



I will take a look at each of these three components in turn.

Affordability: Here Mayank was referring to the technological component of the challenge, or the design of high-quality yet low-cost products. A solar lantern that can produce 10 hours of bright light is great – but its use is limited if those who need it can't afford it. Or on the other side, many SPL entrepreneurs fret over market spoilage by low-cost yet low-quality lanterns that make potential customers mistrusting of the product.

While the technology piece is important, I’m not going to focus on it in my research. I’ll save that for the engineers. I also think it’s safe to say that while the technology certainly can – and will – continue to improve, the key players in India’s solar lighting market are already offering pretty decent high-quality, low-cost products.

Accessibility: This is the component of the delivery model that I have termed “distribution.” How does an organization get the solar lantern to the end consumer? I have broken this challenge down into two sub-components:

1) Logistics – what channels can the entrepreneur go through to access the rural consumers? Should they sell their products through existing channels, such as distributors and retailers who are already selling products in villages (otherwise called Fast Moving Consumer Goods, or FMCG, networks)? Should they partner with NGOs or other institutions? Should they set up their own distribution channels?

2) Education – As I mentioned earlier, most rural consumers know nothing about solar lanterns and aren’t exactly in the market to buy one. Delivering lanterns requires significant consumer education. An inherent part of establishing an effective distribution channel is tapping into communication networks to educate a broad consumer base about the benefits of solar lighting.

Liquidity: This is the component I think of as “financing.” Solar lanterns may be relatively low cost, but many of the households who most need them still don’t have the change to front the cost of a lantern. I really look forward to digging into the question of consumer financing; which models are working to provide credit for solar lantern purchases? Which aren’t?

Clearly, "accessibility" and "liquidity", or, as I see it, "distribution" and "financing", go hand in hand. Partnering with microfinance institutions (MFIs) to provide consumer financing, for example, also creates a new distribution channel through which MFI representatives -- who have already (hopefully) established a trusting relationship with their clients -- can educate consumers about solar lantern products, thus helping with distribution challenges. On the flip side, a streamlined distribution channel will reduce margins and enable retailers to offer a lower upfront lantern price to consumers.

My research will explore both the “accessibility” and “liquidity” components of the solar lighting delivery model to identify trends, best practices, and new opportunities to overcome these challenges.

*Check out this cool video about d.light, one of the solar lantern companies I'm studying. In this video they describe the challenge as "unarticulated need."

the facts

“If there is no major breakthrough, despite global growth in the economy, in 2035 there will be 1.2 billion people who will still have no access to electricity.”
-- IEA Chief Economist Fatih Birol

HERE ARE SOME FACTS:
  • 1.6 billion people in the world still lack reliable access to electricity; 25% of these people are in India alone.1
  • This amounts to roughly 400 million rural Indians – more than the entire US population – who do not have electricity.2
  • More 70 million rural households in India still rely on kerosene to light their homes, and these families spend more than one-third of their income on fuel.3,4
  • Kerosene accounts for more than 200 billion kg of soot and carbon emissions per year, and indoor air pollution from kerosene and cooking fuels contributes to approximately 500,000 deaths annually in India.2,5
HERE IS THE QUESTION:

How can India expand access to electricity for the 114 million households in its rural Base of the Pyramid (BOP) population without growing its greenhouse gas emissions?6

I will be spending nine months in India exploring one solution to this challenge...
...small-scale, decentralized solar lighting technology.

BACKROUND

In recent years, the solar lighting market in India – aimed at the country’s rural poor – has come into the spotlight. A growing number of players are seizing enormous opportunity to synergize public health, development, and climate change goals by offsetting kerosene use with solar lighting in India’s rural villages. Lagging grid expansion to India’s remote villages, combined with continuing solar lighting technological advancements – including both innovative product design and declining product prices – has driven the rapid growth of India’s off-grid lighting market.7

While early efforts in this area were dominated by NGO and government initiatives, the market has entered a new and exciting phase: the dominance of solar lighting entrepreneurs. These entrepreneurs recognize significant market opportunity to meet energy demand from India’s rural consumer population through decentralized clean energy. As the International Finance Corporation explained in its recent Lighting Africa report, Solar Lighting for the Base of the Pyramid:

While [NGO and government] donor-based models remain…the lighting market has now entered a new growth phase that is being led by SPL [solar portable light] entrepreneurs, often relying purely on market-based models, utilizing the latest technology and designing based on consumer tastes.

And here is a useful overview from Power to the People, a recent IFMR Research/Centre for Development Finance/WRI report:

Solar lanterns are portable LED lanterns that are powered by solar panels and can provide light for four to eight hours, replacing polluting and inefficient kerosene lanterns and supplying basic lighting for BoP households. Based on the most recent available data (2004/2005), we estimated the solar lantern market is worth INR 855 million (US$18.58 million) per year.

Each of these SPL entrepreneurs, as well as their nonprofit predecessors, face the same challenges and questions:

  • How can the solar lighting market be scaled up to expand Base of the Pyramid access to solar lighting products in India’s rural communities?
  • Which business models are most effective in delivering solar lighting products to rural consumers?
As I seek the answers to these questions over the next nine months, I promise that this blog will not be purely academic. I hope to relay the color that comes with traveling across India, meeting exciting and creative people, and searching for answers in one of the newest and most important fields in India. Stay tuned.



1.(International Energy Agency (IEA) (2009). Beyond the OECD- India: Energy poverty in India.
2.IFMR Research and Centre for Development Finance. Power to the People: Investing in Clean Energy for the Base of the Pyramid in India.
3.National Sample Survey Organization (NSSO), 2008. NSS Report no. 524, Household Consumer Expenditures in India. Ministry of Statistics and Programme Implementation, Government of India.
4.Greenlight Planet: www.greenlightplanet.com
5. Guay, Justin.
Sierra Club India Environment Post 11-22-10: 1.2 billion Reasons to Pursue Micro-Energy for Rural Electrification Part 2
6.IFMR Research and Centre for Development Finance, 2010. Power to the People: Investing in Clean Energy for the Base of the Pyramid in India.
6.International F
inance Corporation/Lighting Africa, 2010. Solar Lighting for the Base of the Pyramid: An Overview of the Market