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.

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

Energy for Development Case Study – Replication of Rural Decentralised Off-grid Electricity Generation through Technology and Business Innovation

Prof. AbuBakr Bahaj and Rucha Amin from Southampton University write on the University’s Energy for Development (E4D) project, providing renewable and reliable power to rural Kenyan communities.

Reliable and affordable sources of energy are fundamental not only for wellbeing, but also for economic growth and poverty reduction. Rural communities that do not have access to the national electricity network are also deprived of the associated benefits in health and quality of life provided by electrical services such as lighting and refrigeration. Fulfilling the energy needs of developing countries without compromising the environment is a challenge requiring imaginative policies and methods.

The approach adopted by E4D in Kitonyoni, Kenya focussed on a replicable, community based solar mini-grid electrification system aimed at invigorating village trading centres and promoting business innovation. The core of the project is based on a 13.5 kWp solar photovoltaic (PV) array with integrated rainwater harvesting system coupled to a mini-grid. The latter provides power to all trading centre buildings (shops, cafes, schools, health centres, churches etc.) and local businesses that in turn are able to provide charging facilities for electrical appliances, such as LED lanterns and mobile phones, to customers.

A major focus of this project has been to establish an economically sustainable system whereby the community contributes to the project and is responsible for the operation and maintenance of the plant. Income is generated for the cooperative which is also set up as an energy supply company (ESCO) through membership fees, local sales of electricity and share ownership. This income covers the running costs of the project, provides finances to the community as well as contributing to the recovery of the capital cost of the project.

The E4D project solar installation in Kitonyoni, Kenya. All images Sustainable Energy Research Group, University of Southampton

Since the installation in September 2012, there are clear indications that the trading centre in Kitonyoni is being transformed with land prices increasing, a number of new buildings constructed, new businesses opening and existing business owners reporting profit increases.  There has also been a marked improvement in healthcare provisions with a newly donated, fully electrified maternity clinic in operation. Furthermore, one replication project has already been carried out in Bambouti, Cameroon with a third installation in Oloika, Kenya planned for later this year.

For more information: http://www.energyfordevelopment.net/

– AbuBakr Bahaj and Rucha Amin, Southampton University

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

How to Evaluate the Impact of Research Projects?

Xavier Lemaire and Daniel Kerr from University College London attended the first annual workshop of the Understanding Sustainable Energy Solutions (USES) Network, held at the Wellcome Trust, London, UK on the 8^th July 2014. The workshop was designed to give insights into how best to achieve impact and engagement with beneficiaries in the USES Network projects, which cover a wide variety of aspects of low carbon energy research in developing countries, from institutional networking assistance and business support, to technology dissemination for thermal and electrical energy, to institutional and residential energy efficiency. A number of sessions took place, with an aim to convey insights into how funders and research users engage with academic institutions and organisations conducting research; theories of change and the impacts, both potential and real, that past projects have achieved/failed to achieve; and how best to plan for and assess the impact of the USES projects, and what shared experiences could be brought to bear for the good of all involved projects.

The day began with three presentations on impact, engagement and theories of change. Ed Brown from Loughborough University, in conjunction with Alison Mohr from the University of Nottingham, led off with an introduction to the Participatory Impact Assessment (PIPA) methodology. Adrian Ely from the STEPs Centre at the University of Sussex, and Duncan Green from Oxfam also contributed via video presentations.

Of particular interest was the PIPA methodology for assessing impact, which seeks to identify the inter-linkages in the goals and priorities of all actors in research projects, for example funding agencies, research institutions, local and national governments, community organisations, NGOs and the wider population. Through identifying the synergies in these groups’ priorities and needs, the methodology hopes to provide a clearer insight into the potential impacts of research projects, and the methods needed to achieve them.

The following session saw a number of representatives from the Department for International Development and the Department for Energy and Climate Change, as well as the UKCDS and the Knowledge Transfer Network, conduct a roundtable discussion on the experiences of funding agencies and other organisations in engaging with research and researchers. Broad themes included the importance of quantitative measures of impact and results in the view of the funders and their objectives, as well as highlighting the divergence on timescales for results between public sector projects and research projects.

The whole-room discussions sessions that followed, as well as in the case study presentations, brought forward a number of recurring points. The importance of stakeholder engagement from the very beginning of a project  in achieving impact in research projects, particularly in developing country contexts, was consistently highlighted as a key factor. In-depth knowledge of local country contexts, as well as sectoral expertise in key project members, was identified as a useful factor in achieving project impacts. These factors, along with the targeting of invitations to actors based on their expertise, were also identified to be critical in the creation, funding and initial engagement of projects.

The final session focused on the proposed framework for reporting project impacts to DFID, and how shared experiences within the USES project could help to facilitate greater impacts for all involved projects. Finally, the day concluded with contributions from participants on how the USES network can support the involved projects, predominantly focusing around networking via social media and web networking spaces provided through the USES portal on the LCEDN website.

Roundtable discussion at LCEDN USES Network Meeting, July 2014

– Xavier Lemaire & Daniel Kerr, UCL Energy Institute

South Africa’s Renewable Energy Procurement Program

Robert Aitken from Restio Energy offers his thoughts on South Africa’s renewable energy procurement program to date.

South Africa has undertaken a very ambitious renewable energy programme which has the world watching with great interest. It has been said that the current programme to secure 3720MW of renewable energy is the largest in the world at this point in time. The approach used by the government is a competitive bid scheme (IPP Procurement Programme) where the private sector is invited to submit proposals against a stipulated amount of renewable energy required. Each of the identified renewable energy technologies has an associated tariff cap beneath which the bid must sit. The renewable energy technologies involved include; on-shore wind, solar PV, concentrated solar as well as a small amount of biomass, biogas and small-hydro.

It is an innovative and effective scheme which has thus far has been heavily over-subscribed in each of the three rounds assessed. It represents an important step for South Africa for a number of reasons;

• This is the first large scale utility based renewable energy project in the country.
• It will provide security of supply by diversifying the generational mix (previously predominantly coal) of electricity in the country
• It has an increasingly demanding ‘local content’ or localisation component which is intended to stimulate the local renewable energy technology industry
• It also has a strong community component aimed at ensuring local communities in and around these utilities benefit in a meaningful way.

It is these sorts of parallel requirements that will contribute towards the long-term operations and imbedding of renewable energy in the country. However, one of the service gaps this initiative will not address is access to electricity. The REIPPPP is a powerful grid security initiative which demonstrates the country’s willingness to engage with the private sector, promote renewables etc. Despite this 3.4 million households within the country remain without a grid connection and many households that are electrified cannot afford to use electricity particularly for thermal applications. While security of supply is crucial, the South African government needs to ensure a mixed approach (grid/off-grid, rural energy service delivery, small scale distributed initiatives, etc.) if access for all is to be achieved.

– Robert Aitken, Restio Energy

Global Tracking Framework Report

Released in May 2013 under the Sustainable Energy for All (SE4ALL) initiative, the report is the result of an analytical study conducted by a team of energy experts from fifteen (15) agencies under the leadership of the World Bank and the International Energy Agency. The report providesna comprehensive picture of more than 170 countries with respect to the three SE4ALL objectives (universal access to modern energy services, and doubling of both the global rate of improvement in energy efficiency and the share of renewable energy in the global energy mix). It also describes how to measure progress towards achieving the three objectives.

From the perspective of the Sustainable Thermal Energy Service Partnerships (STEPs) project, the report also provides a reliable source of baseline data on access to primary non-solid cooking fuels as they were at the start point of the SE4ALL initiative (2010) for each of the 170 countries under study. However, the report does not provide any data on energy for heating, as none were available. According to the report, the measurement of access to heating represents several challenges. The SE4ALL initiative envisions the development of a framework to adequately measure access to heating.

– Luc Tossou, Econoler

Follow this link for more information on the Global Tracking Framework report: http://documents.worldbank.org/curated/en/2013/05/17765643/global-tracking-framework-vol-3-3-main-report.