Tag Archives: Ghana

What Business Model is Best for LPG Dissemination?

In the previous two posts of this series on LPG in developing countries, we have examined the concepts of fuel-switching to LPG from other, less sustainable fuels, and some ways of promoting LPG access in developing countries through government interventions. However, the development of LPG markets with private and public-private participants in developing countries has been slow, and few interventions attempted by governments and third-sector actors have had success in developing these markets.

Developing a private market for LPG in developing countries requires the existence of business models that are relevant to the technology and fuel source, as well as adaptable to changing consumer and market conditions.

Is fee for service a good model for LPG?

Fee-for-service business models, where consumers pay a monthly fee to an energy service company for their energy services, whilst the company maintains ownership of the system and maintenance/operations responsibility, have been used to great effect in other renewable technology sectors in allowing users to access energy services at a significantly reduced up-front cost, removing one of the primary barriers to business success and market development for renewable technologies.

Applying a fee-for-service business model to LPG equipment and fuels could help to promote the development of an LPG services business in developing countries. The high up-front cost of converting from other fuels to LPG can be mitigated through a monthly payments scheme, allowing the user to access the technology where otherwise they could not. This can be applied to LPG fuels as well as LPG-utilising equipment, such as water heaters or cooking equipment. However, there are disadvantages to the fee-for-service approach as a transaction model for LPG also. Equipment costs for LPG are generally low, particularly for cooking use, with the majority of the cost coming in fuels. Fuel costs are generally very high compared to other renewable thermal technologies. As such, direct purchasing of LPG equipment is within reach of a large proportion of consumers, mitigating the usefulness of a fee-for-service approach to spread out high equipment costs. Applying a fee-for-service transaction model is an approach that has been tested in rare cases: LPG fuel financing is used by some companies, for example VidaGas in Mozambique, where users can pay off cylinder purchases over a period of 2-3 months.

LPG business model table

Appropriateness of the most common thermal energy fuel types for common renewable energy business transaction models. Source: Robert Aitken, 2016. [1]

Other models for LPG dissemination

Some countries, for example Ghana, South Africa and Nigeria, have started implementing a cylinder exchange model for LPG fuels, as opposed to previous models where cylinders were bought as a unit for a much higher price. These cylinder exchange models have been used in the domestic LPG sector in Europe for many years, and involve exchanging empty cylinders at central locations for full cylinders, with the user only paying for the fuel in the new cylinder. This involves the energy service company retaining ownership of the cylinders in circulation, allowing the user to access fuel at a lower cost.

kenya lpg cylinders

A vendor inspects cooking gas cylinders at a cylinder exchange site in Kenya. Source: http://empoweredweb.blogspot.co.uk/2011/07/opportunities-in-gas-business.html

Whilst this model benefits the users greatly, from a company perspective it is challenging, requiring a large up-front investment in terms of cylinders and filling equipment for LPG, as well as bulk purchases of the fuel itself, and the need for safe and secure storage of the fuel. However, with policies to promote business development in place, for example start-up grants or low-interest credit underwritten by governments/NGOs, this model has the potential to greatly increase access to LPG in developing countries.

– Xavier Lemaire and Daniel Kerr, UCL, February 2016

[1] Aitken  Robert (2016), Technology and Business models for thermal energy services, STEPs toolkit, Under print.

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Promoting LPG Uptake in Developing Countries

Increasing the use of LPG fuels as a means of achieving greater sustainability has been a targeted policy for a number of developing countries in recent years. However, projects to promote LPG access have met with mixed success. The barriers to increasing the use of LPG in developing countries, particularly for poorer communities or those in rural areas, are numerous, including issues of price of fuel, access considerations and the reliability of supply, and the price of LPG-using equipment, for example stoves..

A number of projects have endeavoured to mitigate these barriers and improve the state of LPG markets in their respective countries and regions. The Ghanaian LPG sector is often cited as an example of a successful government-level intervention to develop LPG markets.

The case of LPG in Ghana

The earliest government programs in the sector began in 1989, and recent government policy on energy has put access to LPG for households and institutions and security of LPG supply as high priorities in the national energy strategy. Government strategy has addressed two key themes: increasing indigenous production, storage and equipment production capacity for LPG, and removing barriers to access for both the urban and rural populations of the country. Results of these interventions have included improving the production and storage capacity of the Tema oil refinery, re-capitalising the Ghana Cylinder Manufacturing Company to indigenously produce LPG cylinders, and price-levelling the cost of LPG fuel across the country to promote rural market growth.

However, direct subsidies such as those used in Ghana for levelling the price of LPG fuel can have unintended consequences and distort markets. There has been seen in the rise of LPG conversions for taxis and minibuses in the country, taking advantage of the newly-subsidised LPG fuel for transport use. The rise in LPG use in road vehicles was also due to increased government taxes on transport fuels in 2012 and 2013, which do not include LPG in their remit. The combined effect of being able to avoid taxation on petrol or diesel, as well as take advantage of subsidised domestic LPG, has led to increased LPG use in the automotive sector. More recently, from 2013 onwards, supplementary imports to the Tema Oil Refinery’s LPG output, as well as the government’s scaling back of price controls and subsidies, have reduced automotive LPG use. [3]

Other countries, such as Indonesia and India, have also implemented direct subsidy models, such as the Indonesian kerosene conversion megaproject from 2007-2009, and the Indian LPG sector, which as of 2015 was offering direct subsidies to consumers for the purchase of LPG fuels and equipment through the government’s Direct Benefit Transfer system. Both of these projects have seen a huge shift from the use of kerosene for cooking and heating to the use of LPG, and both projects have achieved this through re-targeting government subsidies towards LPG, and away from other fuel sources. In the case of Indonesia, LPG use following the conversion project rose to over 80% of rural and 90% of peri-urban and urban households by 2013. The Indonesian program also intervened in the equipment sector, distributing 44 million LPG conversion kits to 15 provinces in the country, enabling consumers to convert to LPG fuel without the high initial investment in LPG-using equipment. [1] [2]

pertamina-graph

Increase in LPG usage before and after the kerosene-LPG conversion project in Indonesia. Source: Pertamina, 2013, http://www.pertamina.com/en/

However, experience with developing a functional private market for LPG in some developing countries is limited, particularly in Sub-Saharan Africa. The persistent issues of access to the LPG fuel and reliability of supply, as well as transport considerations for rural areas and a lack of a distribution network, can hamper the development of markets. The next post in this series will investigate business models for use in the LPG sector by private or public-private participants.

– Xavier Lemaire and Daniel Kerr, UCL Energy Institute, February 2016

[1] Budya & Arofat (2010) Providing cleaner energy access in Indonesia through the megaproject of kerosene conversion to LPG. Energy Policy, Vol. 39, pp. 7575 – 7586.

[2] Andadari et al. (2014) Energy poverty reduction by fuel switching. Impact evaluation of the LPG conversion program in Indonesia. Energy Policy, Vol. 66, pp. 436 – 449.

[3] Biscoff et al. (2012) Scenario of the emerging shift from gasoline to LPG fuelled cars in Ghana: A case study in Ho Municipality, Volta Region. Energy Policy, Vol. 44, pp 354 – 361.

What Could the Energy Transition Be for Thermal Energy Services in the Global South

The STEPs project (Sustainable Thermal Energy Service Partnerships) funded by Dfid-DECC-EPSRC is about the design of public private partnerships for the provision of thermal energy services targeting the poorest in developing countries.  The STEPs research focuses on thermal energy services for households and small producers.  The following posts describe what the main needs are in terms of thermal energy services, and with which technologies they could be provided.

Households and small producers in developing countries have needs in terms of cooking, heating/cooling, refrigeration and drying which vary according to the geographical, socio-economic and cultural conditions found in their locations, and can be satisfied in a very different manner than in industrial countries.  Not only can the technologies used be different, but the entrepreneurial model which can help to disseminate these technologies is particular to the Global South: social entrepreneurs, cooperatives, informal groups or established small rural companies acting like utilities have to be involved.

The sustainability of their business models implies the need to find the right mix between different technologies and services provision adapted to the context they evolve in.

Cooking

Currently cooking in developing countries is mainly done using non-efficient cook stoves using traditional biomass (wood, charcoal) or fuels like coal or paraffin. More infrequently efficient cook stoves, bio-digesters or more rarely LPG (Liquefied Petroleum Gas) are used for cooking in rural areas.

Improved cook stoves have been tried to be disseminated for several decades now with mixed results. It seems cook stoves of all kind of shapes and made of all kind of materials have been conceived without being able to reach their intended market. Improved cook stoves fall broadly into two categories – cook stoves that use traditional wood fuels more efficiently, or cook stoves that use improved fuels such as unprocessed charcoal, briquettes or pelletised fuelwood.

600px-GIZ_Diversity_of_improved_cook_stoves_2011

A small selection of the diverse design options for clean cookstoves. Image credit: GIZ 

One of the aims of the STEPs project is to understand if public-private partnerships similar to the ones established for rural electrification could facilitate the dissemination on a very large scale of improved cook stoves. This is done by reviewing the (few) successful experiences of large-scale dissemination of improved cook stoves, for example the National Biogas Cookstoves Program (NBCP) in India (http://www.mnre.gov.in/schemes/decentralized-systems/national-biomass-cookstoves-initiative/), and determining how private business can take charge of the distribution and the marketing of improved cook stoves.

Another way of facilitating the energy transition in terms of cooking facilities is to encourage the use of LPG (Liquefied Petroleum Gas). LPG may not be a very low-carbon energy but it is considered a lot cleaner/less damaging for the environment and efficient than the use of traditional fuels. Unfortunately, the logistics of distribution in remote places makes it unaffordable for the poorest unless a program of subsidies is also implemented, which experiences show are difficult to target. For example, the Ghanaian LPG distribution and promotion program started in the 1990s, and continuing today, has experienced difficulties through cross-subsidising LPG, intended for cooking, through gasoline sales. This led to a rise in LPG transport use and conversions, particularly in urban taxis, skewing sales towards transport use and not rural cooking use as intended by the government program.

Bio-digesters can produce methane for cooking. This technology is widely disseminated in few countries like China or India, but not so much in sub-Saharan African countries. Various reasons have been invoked to explain this situation – low density of population/small size of holdings notably. It seems nevertheless than even if conditions may be less favourable in African countries than Asian countries, there could be specific services organised around collective use of bio-digesters (e.g. cooking in a school by collecting waste from a community).

There are two main approaches to household biodigester construction. The traditional technology is a dome-type biodigester, with the digesting chamber constructed from compacted earth or brick. These are cheap and easy to construct, but are prone to failure and require significant maintenance for good efficiencies. Modern household biodigesters are made from prefabricated plastic digesting chambers, which only require maintenance to maintain the digestion process, and are significantly more durable than the traditional type.

biodigester in cantonment

Biogas construction in cantonment (4971874669)” by SuSanA Secretariat – https://www.flickr.com/photos/gtzecosan/4971874669/. Licensed under CC BY 2.0 via Wikimedia Commons

africa biodigester

Prefabricated biodigester being installed in South Africa. Image: popularmechanics.co.za

agama biogas

Prefabricated biogas digester being constructed by AGAMA Bioenergy worker in South Africa. Image: Agama Biogas PRO via Youtube

Solar cooking and solar ovens are another technology that can be used for cooking in rural areas of developing countries. The Global South, and Sub-Saharan Africa in particular, generally has a good level of insolation for the use of solar technologies. Solar cooking technology however has struggled to find a foothold in Sub-Saharan African markets, and is at a low level of dissemination despite the maturity of the technology. A number of factors could be behind this, most notably the lack of convenience associated with solar cooking and the long cooking times and forward planning associated with using the technology.

ikiwaner solar oven 2008

A solar oven being demonstrated in Ghana. Credit: Ikiwaner / Licensed under CC BY 2.0 by Wikimedia Commons

– Xavier Lemaire & Daniel Kerr – UCL

A Man and an Island Called Pediatorkope

Dr Binu Parthan from Sustainable Energy Associates writes on his recent visit to Pediatorkope in Ghana.

The man was old and frail but had a commanding presence and a strong voice despite needing a walking stick to move around. I suspect that he was in his late 80s or early 90s but looked a lot younger, was strategic and spoke intelligently. His name was Chief Nene Pediatorkope IV – the supreme chief of the island of Pediatorkope in Ghana whom I met last week.

Pediatorkope is an island in the Volta River inhabited by agricultural and riparian fishing communities. After the Akosombo dam was built in 1966, water levels downstream decreased significantly and with it the fish catch also dropped just like the water level. Many of the men left the village moving upstream to continue fishing or migrated to nearby cities to find other jobs. There is still limited amounts of agriculture and fishing in the Island but more at a subsistence level. The island now has a government supported school and a health centre but the houses do not have electricity or water supply. Once darkness sets in, the village life literally comes to an end. Some of the wealthier households have either a solar home system or a battery power pack, primarily for lighting, phone charging and for powering radios or televisions. Those with the battery power pack recharge their batteries periodically at the village solar kiosk operated by an NGO – Empower Playgrounds. Income from agriculture and fishing has also dwindled over time due lack of irrigation and absence of a cold storage.

The situation in Pediatorkope where absence of energy constrains social and economic development is very similar to the situation in remote communities I have seen. Availability of modern energy allows such villages to irrigate fields which are not cultivated, have cold rooms and freezers to store poultry, milk and fish and also find other productive uses for energy. This also allows children to read and study in the evenings and have shops and markets open into late evening. The Chief was very sure that the Pediatorkope island community will grow from strength to strength once there was energy supply.

The village also had some feedback on the way rural energy programmes should be implemented. Rather than government institutions installing solar home systems or street lights which fail in a matter of time, their preference was for the energy to be delivered as a service to them for which they will pay. What the villagers were willing to pay was the avoided cost of what they were already paying for dry cell batteries for torches. They also did not want the community themselves to manage the energy systems as they thought the social compulsions would result in inadequate revenue generation and eventual failure. They wanted the systems to be managed by professional enterprises and that people in Pediatorkope were available to be employed by such companies.

For me it was interesting to hear people preferring paid energy service over hardware donations, like I have heard in the Sunderbans villages in India few years ago. It was also interesting to hear that they also wanted an external enterprise to manage the service arrangements like I have found out in Mokhotlong in Lesotho last year. I can see an increasing desire in remote rural village communities to received energy services than products and pay for these. This will be one of the issues that the STEPs project will seek to understand better and provide new approaches and solutions.

Once back in Accra, I spoke to my friend Wisdom who is the Director at the Ministry of Energy about the island and its electricity needs. Wisdom thought that it should be possible to get grid electricity to the village through overhead cables or a mini-grid system to meet the household and productive needs in the village.  Either way, I do hope that Pediatorkope will be electrified soon as part of the government’s rural electrification efforts. Next time someone visits Pediatorkope, I hope they will be able to see a more prosperous island, where men stay on in the village, children doing better academically and agriculture and commerce prospering.

– Binu Parthan, SEA

CIMG3672Chief Nene Pediatorkope IV on Pediatorkope Island – Image: Sustainable Energy Associates