Parth Vaishnav

Innovating For Emerging MarketsNovel business models to supply energy to the rural poor

Globally, 1.5 billion people do not have access to electricity• Investmentsof$30-40billionperyearareneededto

provideuniversalgridaccessby2030(TheEconomist2010)

• Traditionalalternativesareexpensive,hazardousandpolluting(Adkins etal.2010;Mills2005;Schultzetal.2008;Pecketal.2007)

• Moresustainablealternativescanbeeconomicallyviable• e.g.,cheaperthankerosene,dieselorgridextension

(Chakrabarti &Chakrabarti 2002;Miller2010)

Can entrepreneurs implement such alternative solutions? How?

How do organizations seek to deliver - in an environmentally and economically sustainable way - energy services to the poor, rural populations that do not have access to the electric grid?

Methods and Theory

• Casestudies (Yin1981;Yin2003)• Whenboundarybetween phenomenon andcontext isblurred• Multiple casestudies: analytical generalization• Centralquestions oftheresearch identified beforehand

• Marketingandmanagement strategyliterature(Prahalad2009)• MarketingtotheBoP:Product,Place,Price,Promotionà Product,

Accessibility, AffordabilityandAwareness• Socialandinstitutional entrepreneurship

• Creationofsocial andeconomicvalue:Sustainability (Dacin etal.2011)

• Collaboration (Spear2006;SánchezandRicart 2010;Seelos andMair2007)

• Multi-level institutional work:Macro,Meso,Micro(Traceyetal.2011)

The central questions

Forty seven organizations were studied…

…and their business models analysed

Over 500 news articles, 25 previous case studies, 4 interviews with founders

Marketing innovations

Product Affordability Accessibility Awareness Sustainability

Enabletheuseofmultipleenergy

sources(12of47)

Reduceupfrontcost:through

productmodularityand

CDM(29of47)

Createnetworkoflocal

entrepreneur-franchisees(16of 47)

Engage,anddemonstrateproductto,

communitiesandcustomers(4of47)

Ensurepayments(bypeerpressureorpre-payment)

(9of 13)

Ruggedize(8of47)

EnableaccesstofinancethoughMFIorotherloansorbychannellingsubsidies(whetherloansmakeproductsaffordableormerelyaccessible canbedebated)

(32of47)

Usecelebrities,sportand

entertainment(4of47)

Teach localstomanagetechnical&commercialaspectsofenterprise(7of47)

Tailorproducttospecifictasks(4of47)

Promoteincomegeneration(7of47)

Piggybackonexistingnetworks

(MFIs,postoffice,NGOs)(7of47)

Engageconsultants(3of 47)

Facilitatereplicationofthe

model(2of47)

Collaborations

Macro Meso Micro

Channeltocustomers,orcollect,subsidiesandfunding

fromgovernmentsandinternationalorganizations

(14of47)

Partnerwithorganizationstofinance(throughloansor

subsidies)customerpurchases(24of47)

Engagemicroentrepreneurstoproduce,promote,distributeormaintain

products.(10of47)

EarncreditsundertheCDMmechanism(11of47)

Partnerwithorganizationstopromoteordistribute

products(10of47)

Organizecustomerstogenerateincomefrom,or

operateproduct.(7of47)

Lobbyfor,identify,andexploitbeneficial

governmentregulationsorinternationalprogrammes

(8of47)

Partnerwithfirmsoruniversitiestogainaccessto

keytechnologies(10of47)

Buybiomassfuel,labourorproducefromcustomers.

(5of47)

How much do customers pay? • Allalternatives cheaper

thankerosene• TheSunKing solar

lanterncosts$17,andhasalifeof3years:families spend$2-4onkerosene permonth

• Previousresearch inothermarketshasshownthatthepoorpaymore• Caplovitz 1965• ChungandMeyers1999• Prahalad&Hammond

2002

Product WattsHoursperDay

LifeinYears

Totaloutpu

t(kWh)

Price($) $/kWh

TERI'sLightUpaBillionLives,India Solarlantern 3 6 0.02 0.1 3.69

SunKingsolarlantern Solarlantern 1.4 4 3 6.1 17 2.71NobleEnergy,AndhraPradeshandMaharashtra,India

Solarlanterns 3 6 5 26 35 1.18

ProkaushaliSangsad,Bangladesh

Solarhomesystem 20 6 10 438 280 0.75

Sunlabobmonthlyrental,Laos

Solarhomesystem 20 6 3.7 2.8 0.76

Unmeteredtariffforruralareasforsupplyupto1kW,Bihar,India

Gridpowertovillages 30 7 6.5 2 0.31

HuskPowerSystemsmonthlycharge,Bihar,India Powerfrom

biomass

30 7 6.5 1.8 0.27

SaranRenewableEnergy,Bihar,India

0.18-0.27

KutirJyotiScheme, Bihar,India

Gridpowertovillages 30 7 6.5 0.8 0.13

Meteredtariffinurbanareas,Bihar,India

Gridpowerincities 0.08

Contribution

• Intensedebateaboutdoingbusiness atthebaseofthepyramid(BoP)• Fortune (Prahalad 2004;Christensen etal2001)vs.mirage

(Karnani 2007;Warnholz 2007)• Munir etal.2010

• Datasupport the‘mirage’hypothesis• Noteadditionality requirement forCDM

Withoutthecontributionofcarboncredits,d.Light won’tbeabletosubstantiallypenetratetheverylargemarketopportunityforprovidinglightingtofamiliesearninglessthan$2perdaybecausethecostofmakinganddeliveringlightingtothosemarketsisjusttoohighotherwise.Withoutaccesstothatmarket,wecouldnotprojectareturnthatwouldmeetourthreshold.(d.Light Design2006)

• Notealsothatthese investorswouldbe“comfortablewith…returns of6-8%”(Karunakaran 2009).

Further research

• Whatdothelowestrungsoftheenergyladderlooklike?Howisenergyconsumed?“InourBlueprintsscenario,themostoptimistic scenariowepublishedin2007,wesawChina’scarbonintensity fallingbyover14%between2005and2020.Amorerecentassessment suggeststhatChinaisontracktoreacha32%reductionforthatperiod,despitestrongerGDPgrowthandhigheroverallenergy-usethanwehadassumed.”(Voser 2010)

• Impactonincomegenerationanddevelopment• Peoplecanworklongerà theyshouldearnmore(?)• Replicateethnographicworkdoneinmicrofinance