Pay-As-You-Go (PAYG) Models for Cooking Fuels – Innovation for the Poorest Consumers

Daniel Kerr from UCL writes on innovative pay-as-you-go models in use for cooking energy service provision.

In the last 2-3 years, a handful of thermal energy services companies in the developing world, specifically in Sub-Saharan African countries, have begun to take advantage of pay-as-you-go (PAYG) consumer financing models in their energy businesses. These models have significant advantages in comparison to direct purchase, hire-purchase or micro-credit models when dealing with the poorest consumers in societies, for example those living in informal settlements in urban or rural areas. Some companies are taking advantage of these models for selling clean cooking products, such as stoves themselves, whereas others are using this payment structure for cooking fuels.

One company in Kenya taking advantage of these innovations is KOKO Networks. This organisation seeks to offer an integrated neighbourhood-level clean cooking solution with smart technology, via their KOKO points, cloud-connected commerce hubs where consumers and vendors can come to refill the products on sale or make purchases. Currently the company is offering the SmartCook product at these sales points, which is a two-burner clean cookstove with an integrated fuel canister. The fuel used is marketed as Mafuta smart, which is an ethanol fuel derived from molasses manufacture.

What is particularly innovative about this system is that the sales hubs for the company have in the automated purchasing stations for the fuel for the cookstove system. These dispensers refill the provided fuel canister (known as a kibuya smart canister) with the cookstove system, and customers can refill their canister from as little as KHS30 (US$0.29) at a time, offering significant flexibility for the consumer, without the “poor people’s premium” (higher per-unit prices charged for small amounts of consumable products) seen in other commodities. The company operates on a concession business model, with interested parties either setting up their own fuel supply arrangements for the fuel to service their settlement, or purchasing equipment and fuels from KOKO themselves.

KOKO Networks KOKOPoint in store in Nairobi. Customers can purchase a stove or replacement fuel from the kiosk. Image: http://www.globalhearthworks.org/koko/

Other companies in Kenya are taking advantage of PAYG models to enable greater access to their products and services as well. In Nairobi, PayGo Energy is a distribution service for LPG fuels that is using pay-as-you-go services to bring LPG fuel access to a greater number of consumers. The service begins with the installation of an LPG stove, cylinder and smart fuel meter in the home. This smart meter is at the core of the service the company offers, as it automatically communicates to the company when the fuel level is running low, whereupon the company arranges delivery of a replacement, full cylinder to the household. In addition, the system support mobile payments and ordering of fuel replacements, allowing customers to purchase as little as a day’s worth of LPG (around US$0.50) at a time. This logistics system has been adapted to informal settlements, allowing uninterrupted supply to households in informal settlements via motorcycle.

PayGo Energy stove and fuel canister in a house in Kenya. Image: https://blog.catalyst-fund.org/delivering-modern-energy-in-kenya-building-on-mobile-money-eb0eba1960da

Other organisations are beginning to see the benefits of integrating mobile payment technology with a pay-as-you-go fuel payments model for energy services. KopaGas in Tanzania are another company using smart LPG metering to minimize the challenges posed by last-mile distribution which are typical in providing thermal energy services to communities. This smart gas meter system allows the company to deliver cylinder filling services or replacement full cylinders to communities efficiently, minimising distribution costs. In addition, the company offers a pay-as-you-go service for LPG fuel, as well as offering pay-over-time services for both fuels and cooking equipment. KopaGas has been partnering with EnviroFit, an established LPG equipment and fuel distributor in East and West Africa, in order to scale their service reach.

Through these cases, the market opportunity for offering clean cooking fuels and technologies as an energy service, using innovative fuel and equipment payment models to enable access for the widest range of consumers, can be clearly demonstrated. KOKO Services and KopaGas/PayGo Energy may be using different technology options, but the commonalities in approach exist: offering consumers the ability to purchase small amounts of fuel at a time, via a convenient payment method (either via mobile, at a central filling station, or both), and in the case of the LPG companies, offering consumers the option of household delivery. Through this combination of factors, these companies are breaking the traditional barriers to household thermal energy service delivery, allowing consumers who previously would not have had the financial capacity to afford modern cooking fuels the ability to access these technologies.

– Daniel Kerr, UCL Energy Institute

References

Global Alliance of Clean Cookstoves (2017) “Pay-as-you-go” technology to boost access to cooking fuel. Available at: http://cleancookstoves.org/about/news/05-30-2017–pay-as-you-go-technology-to-boost-access-to-cooking-fuel.html

KOKO Networks Home: http://kokonetworks.com/

PayGo Energy Home: https://www.paygoenergy.org/

KopaGas Home: https://www.kopagas.com/

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.

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.

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.

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]

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.

“Fuel Switching” To LPG: Substituting More Sustainable Fuels

‘Fuel switching’ has achieved some prominence in the sustainable energy for development discourse. Fuel switching is usually used to define situations where end-users transition from less-sustainable traditional fuels, such as fossil fuels like kerosene or paraffin, or traditional woodfuels, to more sustainable sources of fuel used for the same purpose. For example, kerosene for lighting may be substituted for electric lighting from a solar home system, or woodfuels used for cooking or heating may be substituted for LPG.

Fuel switching has been particularly put forward when relating to LPG uptake in developing countries, as LPG fuel has significant benefits over other modes of fuel used for similar purposes. These can include superior combustion properties, producing less indoor air pollution with the attendant co-benefits in terms of public health. Fuel switching can lead to a reduced burden on the end-user for energy resource acquisition, such as alleviating the time burden of collecting woodfuels or purchasing charcoal/kerosene.

Time spent collecting wood fuels per day by women in different African countries, 1990-2003, World Bank 2006. Source: http://ourworldindata.org/data/environmental-change/indoor-air-pollution/

Fuel switching (combined with the use of efficient cookstoves) can also lead to improved performance resulting from the use of a more energy-dense fuel, such as reduced cooking times.

A comparison of different types of clean cookstoves and their relative energy consumptions and times to boil water. Source: http://www.lowtechmagazine.com/2014/06/thermal-efficiency-cooking-stoves.html

But fuel switching is not a one-way process where energy users switch to modern fuels and never come back to traditional fuels. Energy stacking is defined as when end-users in developing countries engage in multi-modal fuel usage depending on a variety of factors (e.g. variances in household income seasonally or over time), or utilising certain fuels for specific purposes (e.g. using kerosene for lighting and woodfuels for cooking).

Creating the incentive for a household, commercial enterprise or industry to engage in fuel switching can be challenging. The barriers to increased uptake of sustainable energy sources and more-sustainable energy equipment, such as solar home systems or LPG cooking apparatus, are well-documented [1] [2]. These can include higher costs for fuels, high initial investment costs putting systems/equipment out of reach of users, and problems with fuel availability, for example in distributing LPG fuels to remote rural areas.

These issues will be addressed in the next article in this series on the STEPs Blog, “Methods of Promoting LPG Uptake in Developing Countries”.

— Xavier Lemaire & Daniel Kerr, UCL Energy Institute, February 2016

[1] Pandey & Chaubal (2011) Comprehending household cooking energy choice in rural India. Biomass & Bioenergy, Vol. 35, pp. 4724 – 4731.

[2] Rai & McDonald (2009) Cookstoves and Markets – Experiences, Successes and Opportunities. Available at: http://www.hedon.info/docs/GVEP_Markets_and_Cookstoves__.pdf#

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.

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.

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

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

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.

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

– Xavier Lemaire & Daniel Kerr – UCL

The ‘Real 5P Model’ in Cinta Mekar

Binu Parthan from SEA writes on the implementation of a pro-poor public-private partnership (5P) model for micro-hydropower in Indonesia.

I first heard about the 5P model or the Pro-Poor-Public-Private-Partnership in 2012 when I was in the mountain kingdom of Lesotho. The UN’s Economic Commission for Africa were scoping for an energy centre to be run by a cooperative as a 5P model.  I found the idea of PPPs in rural energy that focused on poverty alleviation quite compelling in the context of the rural energy work I was doing at the time. This approach was reflected in the Lesotho Energy Alternatives Programme (LEAP) that I developed for UNDP and the Sustainable Thermal Energy Partnerships (STEPs) project that Xavier Lemaire of UCL Energy Institute and I developed with during 2012-2013. Fast forward 2 years and the STEPs project is generously funded by UK Aid and on its way, and while responding to the baseline study on the STEPs project, I hear from Hongpeng Liu and Deanna Morris at the Energy Division of UN’s Economic and Social Commission for Asia-Pacific (UN-ESCAP) about the original 5P model which has been working for over 10 years in Cinta Mekar, Indonesia.

With kind support from Tri Mumpuni of People Centred Business and Economic Institute (IBEKA) (who incidentally is a recipient of Magsaysay award for her work on hydro power for rural electrification), weeks later I find my way to Cinta Mekar, a relatively remote hilly village about 3 hours drive from Jakarta. The Cooperative at Cinta Mekar – Makar Sari is headed by a diminutive Yuyun Yunegsih, a grandmother of three who was elected a few years ago by the 450 members of the cooperative. The cooperative manages the 120 kW hydro power plant which was commissioned in 2003. The investment in the hydro-mechanical and electro-mechanical equipment and the building materials were financed 50:50 by UN-ESCAP and a private company Hidropiranti. The facilitation was by IBEKA and the members of the community and cooperatives contributed labour and local materials for civil construction in a normal PPP mode. Today after 12 years the hydro power system is still working well and generating and selling electricity to the local utility – PLN at slightly over US cents 4/kWh. 40% of the $650-$1100 monthly revenues go to Hydropiranti and 40% to Mekar Sari cooperative while 20% is set aside for maintenance, repairs and replacement.

The Mekar Sari cooperative has done a number of impressive ‘pro-poor’ initiatives over the years with its share of the revenues. It has provided financial assistance to households which could not afford to obtain an electricity connection. The cooperative also provides scholarships to 360 kids from the community, provides a land fund for members who do not have land holdings, provides an allowance for women in the community to cover childbirth related expenses and also pays an allowance to older members in the community. It has plans to construct public toilets, drinking water fountains etc. all of which seems very impressive. This is an impressive ‘pro-poor’ element that I have not seen in energy projects in general. I have seen impressive pro-poor energy initiatives driven by visionary and charismatic individuals but not by organisations for such a long duration and consistent track-record.

While the social development and pro-poor schemes have been very impressive, the business side has been slightly less impressive. The cooperative has not been successful in renegotiating in higher off-take tariffs in the power purchase agreement with PLN which pays almost a three times higher tariff for similar community hydro plants. A major investment in a manufacturing facility to make gluten-free banana flour which would have employed 10 people have not been successful and lies largely unutilised as the supply chain and market prospects were not investigated properly. It’s possible that the cooperative may have benefitted from some hard-nosed business advice. However the initiative can be considered a notable success in establishing a technical and management solution at an institutional level which has worked for over 12 years and has continued to be profitable and having driven social development in the community.

From the STEPs project perspective it was interesting to see that almost all the electrified community was using LP Gas or gathering wood from the forests for cooking, thus affirming our view that the thermal energy aspect is often overlooked and left to individual households to solve. What was interesting was also that many households which could afford were using electric rice cookers for cooking the main staple food, and efficient electric cooking is something STEPs hasn’t paid much attention. For the STEPs project plans, 5P model which combines private sector quality, efficiency and investments with public and community investment and participation, with community organisations managing social benefits and which combines both electricity and gas supply could indeed be a better model economically and socially. The question whether the institutionalised community leadership in Cinta Mekar can be replicated elsewhere remains. After my visit I asked Yuyun what the cooperatives biggest challenge was and contrary to what I expected it turned out to be the efforts by the local government to take over the cooperative. So while technical, economic and social challenges can be overcome in rural energy services, political challenges often pose a greater risk to sustainability.

– Binu Parthan, SEA

Yuyun Yunegsih at the Cinta Mekar 5P Hydro Power Plant. Image: Sustainable Energy Associates

Nuon-RAPS (NuRa) Utility Field Visit – 30th October 2014

The STEPs team, following the meeting component of the network meeting, used the 30^th October as an opportunity to visit premises belonging to the Nuon-RAPS (NuRa) utility. NuRa is one of three concessionaires currently operating in KwaZulu-Natal province, providing both solar home systems and LPG to customers. The solar home systems are provided on a fee-for-service basis, with customers visiting an energy store on a monthly basis to top up their system credit, via an electronic key. LPG is provided to customers on a direct purchase basis. NuRa had 19,005 SHS customers as of September 2013, with a net customer growth of ~1,000 per year. LPG is supplied to the company on a 30-day credit by Totalgaz, and the company also offers direct sales of ethanol gel, having also previously experimented with improved cookstove provision.

The NuRa main energy store at Mkuze – 30^th October 2014 – Image: Xavier Lemaire

The STEPs project team visited two energy stores in the course of the day; the main energy store (and the centre of operations) at Mkuze, and a smaller energy store in Jozini. In Mkuze the team viewed the main operations of the organisation, from the process of credit top-up and LPG sale, to the equipment for the SHS, to the maintenance and repair division. In addition to this, the team observed the training procedure for new technicians on-site in Mkuze.

Topping-up credit for the SHS is done via an electronic token (magnetic key) which the customer brings to the energy store to add credit to. Maintenance teams also have a version of this token which collects operational data from the system at point of maintenance, for assessment by the company. Installations take place via car and motorcycle, and the company maintains its own fleet of vehicles. Technician training is also done on-site, with several demonstration rigs at the Mkuze store for this purpose.

The company also operates LPG bottle top-up facilities at each energy store, where customers bring empty bottles to be refilled, or purchase a new system in the case of the Shesha stoves.

Technician training at the Mkuze energy store – 30^th October 2014 – Image: Xavier Lemaire

Testing components at the Mkuze energy store – 30^th October 2014 – Image: Xavier Lemaire

Motorcycle fleet maintenance at the on-site workshop – Mkuze energy store – 30^th October 2014 – Image: Xavier Lemaire

In Jozini, the team visited one of the rural energy stores servicing more dispersed communities further North in KwaZulu-Natal. There they observed operations at the energy store, and also took the opportunity to have conversations with customers of the store, asking about the scale of their energy use and energy costs, as well as desires for future service (refrigeration, television). Of particular interest was the point that customers still used traditional woodfuels in addition to their LPG service, the primary driver behind this being the free availability of woodfuel to low-income consumers.

The STEPs team at the Jozini energy store – NuRA field visit 30th October 2014 – Image: Daniel Kerr

The Jozini energy store – 30^th October 2014 – Image: Xavier Lemaire

The Shesha gas cooker, offered by NuRa to customers, an integrated 5kg LPG bottle and single hob. NuRA field visit by STEPs 30^th October 2014 – Image: Daniel Kerr

The NuRa utility offers a number of useful lessons for the STEPs project. First and foremost, that it is possible to run a successful utility targeting bottom-of-pyramid consumers on a fee-for-service basis, integrating electricity and thermal energy services. The integration of product sale, installation, maintenance and service into one site and under one company (the energy store and NuRa itself) provides resilience for the business and enables the free exchange of information, as well as increasing customer satisfaction through regular maintenance from a trusted source. Finally, the on-site training of technicians through energy stores gives the utility a strength in capacity, and prevents the need for outsourcing to other technicians, reducing costs.

– Daniel Kerr, UCL Energy Institute

SMEs and Clean Energy for Emerging Markets Event – London, UK

STEPs project partners attended an event, jointly run by the DECC, Knowledge Transfer Network, Loughborough University, the LCEDN and the UKCDS, entitled “SMEs and clean energy for emerging markets: challenges and opportunities”. This event was held on the 29th September 2014 at the Wellcome Trust, London, UK. This event sought to bring together representatives from the academic, government, non-government and private sectors, to discuss the current situation, opportunities and challenges to the growth of small and medium enterprise in the clean energy sector for developing economies. Several plenary sessions were held over the course of the day, and stalls were also present from a wide range of institutions, organisations and companies, including Xavier Lemaire and Daniel Kerr from UCL, presenting the STEPs project.

The day began with an establishing session on the global opportunities for SME development in emerging markets. Presenters from Knowledge Transfer Networks Ltd, SolarCentury and SolarAid highlighted a number of challenges facing clean energy provision in markets globally, particularly in developing economies. These ranged from the challenges of replacing aging infrastructure in developed economies, to those of reaching consumers in poverty in rural areas of developing countries. Consistently highlighted were the sobering figures accepted by the international community on energy access: with over 1 billion people still lacking electricity access, and 2.6 billion projected to lack clean thermal energy access by 2020, the presenters made clear the vast potential for SMEs to bridge the gap in energy services provision to emerging markets.

Following this was a session on innovation in energy services for emerging economies. The presenters, representing X-wind, Buffalo Grid and Renovagen, were all private-sector participants in the event, being entrepreneurs involved in SMEs for clean energy development. The presentations focused on the efforts of the companies to develop products and services for emerging markets. X-wind is a company producing resilient, vertical-axis wind turbines for community-scale deployment. Buffalo Grid produces pay-as-you-go solar-powered electricity and wireless internet base stations for deployment in off-grid communities. Renovagen is a new start-up producing fast-deploying PV micro-grids for off-grid communities, as well as in disaster relief and industrial applications, based on a novel flexible PV array. These organisations shared a number of features: all were looking to expand energy services access in developing economies, and they also all identified the need to tailor the product or service to the challenges of emerging market contexts. For example, resilience was a key feature of X-wind turbines, with low maintenance requirements improving reliability. The prevalence of mobile connectivity in the developing world, particularly Sub-Saharan Africa, was also incorporated into the Buffalo Grid product design, with mobile charging being identified as a key service to offer for increased take-up of the product. This point was also discussed in more detail in the fourth session.

Participants were encouraged to network over lunch and visit the presentation booths. The STEPs project booth received a good amount of interest from researchers and entrepreneurs interested in thermal energy access, and business models for energy access more broadly.

The third plenary session focused on financing and support for SMEs, and access to finance. Representatives from the Shell Foundation, UKTI and Enclude Capital Advisory presented on available and appropriate financing routes and the challenges to financial access in emerging markets, as well as the support available for SMEs from financial, governmental and non-governmental institutions. Appropriate finance for SMEs was a key point of the presentations. In the design of financing mechanisms for small and medium enterprise in developing countries, the type of financial assistance can have a significant effect on the impact of the financing on the company, particularly in transition points between sizes of companies. For example, donor funding is most useful to start-up companies that may not be able to afford market loans for growth, whereas commercial or governmental loans/financing schemes are more useful to more established organisations.

The fourth session sought to clarify the realities of energy services for emerging economies through presentations from a number of organisations and companies with experience in emerging market projects, ranging from humanitarian and aid-sector solar lighting organisations to distributed wind generation providers. Two themes were recurrent in the presentations: the necessity of assessing the nuances of the local and regional market in designing products and services for emerging markets, and the huge potential to be found in integrating products and services in a ‘smart’ fashion, most notably through the use of mobile technology. Mobile signal access has developed significantly faster than electricity access in many emerging markets, and with the immense success of the M-PESA and M-KOPA systems, integrating financial transactions into mobile systems has been proven to be a workable business model. The design of clean energy products is also key to their success in supplanting established traditional technologies in emerging markets. This can be as simple as reducing the height of a cookstove so that it can be used more easily, but can have a significant impact on market penetration.

The final session of the day focused on the impact that academic research and evidence can have in supporting the activities of SMEs working in emerging economies. Speakers from SolarAid, Oxford University’s Power and Energy Group and DFID engaged in discussions with the room on how academic research can assist in the design of business models and market research for SMEs, as well as in simulation, social and demographic analysis and other areas. The concept of innovation synergies with academic research was also highlighted, with the academic sector being able to assist in all stages of product and service development, from needs assessment to testing and evaluation of products, to effective deployment strategies and models.

– Daniel Kerr, UCl Energy Institute

The Woman and Child in Bondo and Modern Thermal Energy Access

She was weak and frail, with her baby on her back and a large and unusually long log of wood on her head. You could sense that she was struggling to move under the weight of the log on her head and the baby on her back, but perhaps the promise of the large firewood and promise of less trips to gather wood egged her on. The water channel on her path was shallow but the fall was very steep, probably 40 m or more, she would have crossed the channel quite easily without the load. She jumped across, didn’t make it, slipped but fortunately held on to the brickwork and then pulled herself and her baby out and moved on. I had my heart in my mouth for a few seconds and was greatly relieved that she and her baby was safe. The women with her baby (see picture) could have easily slipped and dropped 40 m down with grave consequences.

This is a scene I witnessed two weeks ago at Bondo in Southern Malawi –one of African countries where over 90% of the population lack energy access. Several millions of women in Sub-saharan Africa and South Asia make such risky trips every day to gather firewood, twigs and shrubs for household thermal energy use, often putting themselves at physical risk. Such trips often expose these women to rough terrain, natural elements and attacks from animals and sometimes fellow humans.  Most of these women then cook food or boil water using inefficient traditional stoves or keep the fire burning through the night to keep themselves warm or wild animals away. These traditional thermal energy use results in major indoor air pollution which slowly kills them and their children through lower respiratory diseases. So women are exposed to health risks during the collection and use of traditional biomass for thermal energy.

Against this backdrop, last week, I was pleased to learn from the launch of the decade of SE4All from New York that the first two years of the decade will be dedicated to ‘Energy-Women-Children-Health’ nexus. This is a very welcome development and I applaud the SE4All leadership and partners for the attention to this space. However to be able to effectively address health related challenges of women and children in areas without energy access, electrification alone is not sufficient and providing modern and thermal energy to rural women is central to this issue. Providing modern thermal energy needs to go beyond a product delivery approach which often focuses only on efficient cook-stoves. While energy for cooking is important, hot water for sanitation and space heating are also quite important. While biomass – solid and liquid fuels, electricity and solar thermal could all play a role, Liquefied Petroleum Gas (LPG) can also play a supplementary role. The business of providing thermal energy as a service is likely to a low-return, long-term business and may need to be combined with electricity or agro businesses to increase viability. There are also important roles that public sector, private sector, Public-Private Partnerships (PPP) and the international community should play. Solutions will need to go beyond technology to address, financing, supply chain, institutional arrangements as well as policy and regulations. So all of us need to chip at this problem from all possible angles and the attention and support in this space in the next two years due to SE4All is very welcome.

As for the anonymous woman and her child, Peter Killick of Mulanje Energy Generation Agency, the micro-grid electricity service provider for Bondo who witnessed the scene with me, kindly offered to put a footbridge across the channel. While I am relieved that her future journeys to gather fuel will be safer, I hope to be back in Bondo in the future to see that she has access to cleaner energy technologies and fuel supply at her doorstep.

Dr. Binu Parthan, SEA

The Woman and Child in Bondo. Credit: Sustainable Energy Associates

Side-Stepping the Energy Ladder

For decades now there has been talk of a hierarchy of energy use or ‘ladder’ which defined levels of development as well personal aspirations. Occupying the bottom of this ladder were primary fuels such as biomass, dung, etc. Moving towards the middle we had kerosene and LPG which were considered ‘modern fuels’ because of their comparative convenience as well as fairly sophisticated refining process associated with hydro-carbon fuels. And of course, at the top of the ladder was electricity, the most versatile and modern energy source of them all.

There have been many articles published about the energy ladder, some supportive of its clear albeit simplistic representation of how households progress in terms of fuel use while others have been more critical altogether of its rigidity and inability to accommodate variables such as culture,  differing socio-economic and geographic contexts. How this is playing out in South Africa today is quite interesting. Looking at South Africa’s energy policy, it is highly orientated towards developing the ‘top of the ladder’ options. Policy and regulations abound when it comes to nuclear, coal, large scale renewable, LPG gas, etc. But there is little regulatory interest when it comes to wood. Perhaps its posturing (Africa’s largest and most sophisticated economy requires nuclear not biomass regulations) or perhaps that’s the reality (the energy service activities are at the top of the ladder).

Despite this there are a number of inconsistencies emerging;

• Electricity is becoming increasingly expensive (above inflation increases for over 5 years already with about the same to come) so many poorer households are having to ‘back-switch’ to LPG and paraffin.
• Many middle class households that have been electrified for decades are opting to cook on LPG gas (on stainless steel hobs for sure) and heat their houses in winter using wood (up-market fireplaces).
• Millions of households still cook with wood although they have access to electricity. The energy source is simply uneconomic to support the full range of thermal services households require.
• High oil prices (think kerosene and LPG) and increasing electricity prices are putting strain on the ability of people to use fuels which they have access to. Access and utilisation have become two different issues
• Political promises which have for decades reinforced the energy ladder now cannot be met as lower-income households cannot afford to utilise these fuels for all services required.
• Department of Rural Development and Land Affairs has put out a tender for improved cookstoves, a technology that has never appealed to the Department of Energy because of the ‘poverty’ stigma associated with wood. Or, “people did not struggle [against Apartheid] to use wood” the former Minister of Energy [Dipuo Peters] once said to this blogger [African Minister’s Meeting, Sandton Convention Centre, Johannesburg, 17th September 2011].

Without significant subsidies, the lower-income households will find ascending the so called energy ladder increasingly difficult to achieve. The progressive notion of the ladder had much to do with the assumption that it was simply a matter of time before households, given broader economic growth, would progress up the ladder. However such economic growth hasn’t quite materialised and the associated costs of using these fuels has become increasingly exorbitant. Perhaps the middle-class should be used to assist in de-stigmatising the use of biomass fuels and the like which will at least assist in addressing some of the indignity associated with being trapped at the ‘bottom of the ladder’. Third generation improved cookstoves instead of open fires should go a long way in terms of doing just that.

– Robert Aitken, Restio Energy