Second STEPs Network Meeting – KwaMbonambi, South Africa, 28-30 October 2014

The second STEPs network meeting was held in KwaMbonambi, South Africa from the 28^th – 30^th October 2014. The purpose of the meeting was to address the current status of the project and determine next steps, as well as take the opportunity to both meet local representatives from South African electricity and thermal off-grid concessionaires, and visit the operations of local concessionaires for fieldwork, which will be described in a later post on this blog.

The first day of the meeting saw a great deal of discussion among project partners as to the way forward for the STEPs project. Primary discussion focused around the construction of the STEPs model, focusing on five main aspects: institutional arrangements, business/enterprise models, financing, technology options, and policy/regulation. The project will look to test a number underlying assumptions for the sustainability of thermal energy service businesses, for example operating margins (in the 50-70% range), and the importance of using public sector clients as anchor consumers in a thermal energy business customer base.

Discussions were had on the most relevant technologies to target with STEPs. Key technologies are improved cookstoves, LPG for cooking/refrigeration, and household biogas installations, primarily for the successes seen in previous projects using these technologies. These include the Ghanaian experience in LPG stove dissemination via the government, and the vast scale of the Chinese domestic biomass gasifier program. However, challenges exist to the uptake of all these, including cultural contexts for cooking (meaning stove design needs to take social factors into account), as well as the difficulty in acquiring biomass feedstocks in some country contexts, for example Sub-Saharan/Southern Africa.

Discussion was also had about the most relevant financial and management models to target under the STEPs model, as well as which technologies these models applied best to. For example, outright/financed purchase models under a concession contract are most relevant for improved cookstoves, whereas fee-for-service and progressive purchase models are more relevant for LPG and biogas systems.

Binu Parthan presenting to the STEPs team – 2^nd Steps meeting network – KwaMbonambi, South Africa – 28th – 30th October 2014.

The second day saw representatives from local utility concessions in KwaZulu-Natal attend the STEPs meeting. The concessions represented were KES, with their CEO Vicky Basson attending, active in the Durban and central KwaZulu-Natal region, and Nuon-RAPS (NuRa), with MD Sifiso Dlamini, active in Northern KwaZulu-Natal up to the Mozambican border. The KES utility was founded in 1997, and currently services over 28,000 customers with solar home systems on a fee-for-service basis in and around the Durban area. Tariffs are set at 96ZAR/month for a solar home system, with six lights (2 outdoor, 4 indoor), and a 9V and 12V DC connection point. The company has provided LPG services, both in LPG bottles and integrated stove systems (notably the Shesha stoves from Totalgaz). Their concession is granted via a bidding process by the KZN state government and local municipalities on a yearly basis.

Questions were answered by the concessionaires that added context to the construction and future work of STEPs. These included revisions of assumptions for sustainable operating margins, insight into the regulatory framework in South Africa for LPG financing, and particularly the barriers to the use of mobile money in South Africa, due to transaction regulations in the financial sector and a lack of culture for mobile payments. Subsidy positioning from the government was also identified as a key barrier in South Africa to thermal energy use, with subsidies moving between thermal energy sources frequently.

Both concession representatives stated a desire to expand their thermal energy services business, and stated the criticality of tailored solutions to national and local contexts for technologies, an aspect of the thermal energy market that is core to the development of the STEPs model.

Discussion between the STEPs team and Vicky Basson (KES, far left) and Sifiso Dlamini (NuRa), middle – 2nd Steps meeting network – KwaMbonambi, South Africa – 28th – 30th October 2014.

A number of conclusions were drawn from the meeting. Given the ongoing political difficulties in Lesotho, a reorientation of project objectives was proposed to take into account the changing landscape in which the project operates. Current goals are to construct the STEPs model as a resource across all sectors, being relevant to governments and policy-makers, as well as the private sector and SMEs/entrepreneurs wishing to enter the thermal energy services market.

– 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