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Building a competitive Market for Micro-Scale Renewable Energy technologies

Source: www.greentechmedia.com
Source of picture: http://www.greentechmedia.com

Developing a competitive supply and distribution chain for deployment of off grid solutions such as solar Pico PV is always a challenge. This challenge is further aggravated with socio-economic, human induced problems as well as through market distortions, caused by sub-standard products. How can we overcome this challenge?

Indeed, several remedies can be applicable to these problems; however, a systemic cure can be achieved by creating a competitive business environment for deployment of micro-scale renewable energy solutions like solar lantern, which would be promoted by providing ex post financial incentive to manufacturing companies and entrepreneurs through result based finance fund (RBF).

It is expected that RBF can be linked to manufacturing companies and eventually to retailers and distributors. These retailers and distributors will have access to the financial incentive system of RBF fund, which could be received by them on completing pre-determined sales targets of stoves/solar lanterns. It is expected that these retailers and distributors will also facilitate post installation care and support the end-users (customers) for ensuring timely repair and maintenance of solar lanterns.

In this whole supply chain, one shall ensure a healthy competition amongst the companies, manufacturers, distributors and retailers which will eventually ensure long term sustainability of micro-scale renewable energy technologies such as lighting solutions.

There is an urgent need to breakdown the currently prevailing ‘subsidy driven, grant or aid linked inertia’ of project developers in the renewable energy sector and will eventually yield a truly commercial lighting sub-sector, which attracts private investment and debt or credit from financial institutions after the completion of this RBF funding.

For this blog posting, an indicative, generic design on RBF incentive and its effect on market is proposed. It is visualized that the RBF funds can be used to carry out key activities and to establish a business model that is: (a) profitable: at each level, the margins and incentives are clear and sufficient; (b) commercially viable: self-sustaining without requiring continuous external support or  subsidy; (c) environmentally sensitive: recycling of batteries will be developed and addressed in partnership with the solar PV central distributors, and; (d). scalable: the model can be expanded to new areas and the product range can grow as new products and product innovations and improvements become available.

The RBF design shall lead to the creation of commercial partnerships between manufacturers, local wholesalers, distributors, retailers and financial institutions. (a). private sector funding to manufacturers and central distributors is key, which can be disbursed as ex-post based on achieving pre-determined sales targets. Private sector actors invest their own funds upfront for manufacturing, market development and promotional activities; (b). an ex post premium to project promoters (e.g., PicoPV distributors and retailers) on completing pre-determined volume of sales of solar lanterns (maximum up to 20 % of the monetary value of the stoves and Solar Lanterns sold, which exceeds the pre-determined target. The sales target will be determined based on actual baseline and market study in the project areas.). This premium will be paid at two levels of the supply chain, viz., (i). at the central distributor level This fund will cover as ex-post payment to distributors, for establishing a working capital system for pre-financing the retailers with its own funds. and; (ii), at the last-mile entrepreneur retailers level ( which will enhance their demand and ability to buy higher volume of solar lanterns) upon meeting sales target and creating more demands. Most individual retailers cannot shoulder first move costs and risks associated with penetrating undeveloped lighting markets. The RBF progarmme will work to significantly reduce these risks and build industry confidence. , Lastly, (c). a ‘voucher’ finance mechanism, which will be provided to households upon fulfilling pre-agreed conditions like taking responsibility for maintenance of their solar lantern (battery recovery) as well as completing a successful operational lifetime of the appliance and to be used for either replacement of the existing lantern or for the purchase of an extra lantern. The monetary value of the redeemed vouchers would be transferred to the bank accounts of the retailers and distributors.

The theory of change of this proposed business model is built upon five key inputs: mobilize private sector funding with RBF as an incentive instrument; catalyze the RE sector and broker partnerships between private sector, development agencies, retailers, distributors and government; promote quality solar lanterns; develop an enabling business environment for private sector actors at national and sub-national level and create/share knowledge in the region and globally. By means of this approach, the RBF business model will promote market-based learning amongst micro-scale RETs manufactures, distributors, retailers and local NGOs in the supply chain as their participation in the program will require for (i) formalizing business to business relations amongst manufacturers, distributors and retailers (contracting, record based billing), (ii) initiating sales strategies based on higher turnover and attaining premium (iii), ensuring better use of solar and other micro-scale RETs at domestic level by users and redeeming the voucher, and (iv) profit management for investment amongst retailers and distributors. This way, RBF contributes to building up distribution lines for both products, reducing transaction costs and bringing structural change in the local market by paving the way for the private sector to further penetrate the household cooking and lighting market.

Keshav C Das

August 24, 2015

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keshavcdas organisational development

A conversation with my CEO: Why Strategies Fail

March.Blog

This is always a pleasure to get an opportunity to work with a CEO, who is accessible, responds to your questions and feedbacks in impressive time and drives an organisation with exemplary motivation and zeal, because of which, his employees feel ‘free to innovate and deliver results’.  We are lucky to have such a CEO in SNV Netherlands Development Organisation, with whom; all the employees get opportunity to have an open chat in a month. In one of such chat sessions, I was asking my CEO about SNV’s strategic focus for next five years; mainly to understand, where do we [SNV] want to go and what do we want achieve and how quickly and efficiently we can do it together!

Response of my CEO for that question was built on his pragmatic understanding of the subject, which was evolved based on his long term engagement in planning and strategy development for government of Indonesia as well as his works with other development organisation and bi-lateral agencies. The answer was short and simple: ‘to survive in a competitive market, we need constantly evolving strategies and success is possible, even in a hostile environment. Long term planning may not work all the times although we can do a planning for plan sake’.

I believe the above mentioned statement reflects that understanding the value of and need for a strategic plan is a great place to start, but just wanting something, isn’t enough. Developing a strategic plan takes discipline, foresight, and a lot of honesty. Regardless how well we prepare, we are bound to encounter challenges along the way. I could find out six key points[1], which should be considered to introduce effective planning in organisation and translating it into real actions, which will bring us, closer to our goal of implementing a strategic plan that actually achieves results and improves our business.

  1. Understanding the environment or focusing on results. Planning teams must pay attention to changes in the business environment, set meaningful priorities, and understand the need to pursue results.
  2. Full commitment.Organisational leaders like CEOs, Managing Director, Country officers must be fully committed and fully understand how a strategic plan can improve their enterprise. Without this knowledge, it’s tough to stay committed to the process.
  3. Having the right people involved.Those charged with executing the plan should be involved from the onset. Those involved in creating the plan will be committed to seeing it through execution.
  4. Willingness to change. Organisation and our strategic plan must be nimble and able to adapt as market conditions change.
  5. Having the right people in leadership positions.Management must be willing to make the tough decisions to ensure the right individuals are in the right leadership positions. The “right” individuals include those who will advocate for and champion the strategic plan and keep the company on track. However, we must avoid micro-managers, which is very evident in many instance and I have witnessed such ‘management killers’’.
  6. Unrealistic goals or lack of focus and resources.Strategic plans must be focused and include a manageable number of goals, objectives, and programs. Fewer and focused is better than numerous and nebulous. Also be prepared to assign adequate resources to accomplish those goals and objectives outlined in the plan.

By adhering to these success factors, we can create an effective planning process, build a realistic business direction for the future, and greatly improve the chances for successful implementation of our strategy.

Keshav C Das, Senior Advisor, SNV Netherlands Development Organisation

New Delhi, March 01, 2015

[1] http://www.forbes.com/sites/aileron/2011/11/30/10-reasons-why-strategic-plans-fail/

keshavcdas Uncategorized

Transforming SDGs into realities

Blog.Feb
Development Landscape of Vietnam- Photo Credit:Anna-Selina Kager

Global leaders, think tanks and development practitioners are working tirelessly to agree “a truly transformative agenda” in a new set of development goals that will improve the lives of all people. These new global targets will replace the millennium development goals (MDGs), which reach their deadline at the end of this year. But, how are we moving in achieving a grossly agreed [consensus based] development agendas?  Will the new sustainable development goals [SDGs] have the strategic focus and necessary strengths, which could benefit almost 1 billion people, still living in abject poverty; would the hundreds of thousands of women, dying each year during pregnancy and childbirth be able to overcome this? Could it be able to provide clean cooking and lighting to 3 billion people, who have been still relying on traditional biomass for cooking and heating and 1.2 billion have no access to clean lighting? Similar questions also go for the global health, sanitation, education and human rights. Indeed, a draft set of 17 sustainable development goals (SDGs), with 169 targets have been developed. The proposed goals cover the broad themes of the MDGs – ending poverty and hunger, and improving health, education and gender equality – but also include specific goals to reduce inequality, make cities safe, address climate change and promote peaceful societies. It is hoped that the goals will encourage a more holistic approach to development at national and international level, and offer a chance for more partnerships and collaboration. However, unfortunately, we have not yet seen a universal buy-in of the SDGs by national governments as well as international donor’s communities. There is a general perception that the goals are too many and ‘having too many targets means no targets’. Hence, there is an urgent need to develop a consensus on the targets and goals. Crucially, the next set of goals should be universal, which means all countries would be required to consider them when crafting their national policies.  Indeed, this will be a major challenge. We will also need endorsement of bilateral donors, philanthropists and private sectors on the proposed SDGs and perhaps, private sectors will also be interested to see a focus on market externalities, resources and/or capital. We must not forget that the real test of UNs, global leaders, think tanks, donors and governments’ commitment isn’t the loftiness of the goals; but, it is what they are prepared to do to reach them!

Keshav C Das Senior Advisor SNV Netherlands Development Organisation Kathmandu, February 03, 2015

keshavcdas Uncategorized

Financing Innovatively: What can we do in Renewable Energy Sector?

There is widespread recognition that renewable finance needs to be scaled up from its current levels. However, there is no clear view on how developing countries like Nepal can efficiently and effectively mobilise further finance to meet the needs of its increasing energy economics from new and innovative sources of financing. Jan.

While the demand for renewable energy technologies keeps growing, the cost of such devices remains an important barrier for a majority of households and small businesses, slowing down their potential dissemination in developing countries.

The International Energy Agency (IEA) has reported in its recent Global Energy Demand Report that the world requires $48 trillion investment till 2035 in order to meet the growing need for energy. To meet this increasing energy demand, countries need to diversify sources of energy production and means of energy distribution and countries must invest $40 trillion in energy supplies over the next 21 years, according to the same report of IEA. Economic growth and rising living standards have been fuelling the global energy demand, forcing governments to find ways and money to increase supplies. The world has invested $1.6 trillion in 2013 for energy supply, more than double the amount in 2000. Until 2035, the annual investment figure is expected to reach $2 trillion, report says.

In the recently published Global Status Report on Renewable 2014 it is stated that that total investment in renewable power and fuels (excluding large hydro-electric projects) fell for the second year running in 2013, reaching $214 billion worldwide, some 14% lower than in 2012 and 23% below the 2011 record. That means, there is a significant gap between financing need and the existing financing, which is more than $50 billion investment gap (23% of the $214 billion).

In this context, the key question is- where from such a big investment can be generated to meet the growing needs of financing, while the global economy is affected with financial crisis? Indeed, this difficult situation has stimulated increased interest in innovative financing to help deliver more and better aid.

Seeking to overcome this barrier, we need further works and demonstrations on innovative finance for designing a range of innovative financing mechanisms for the renewable energy sector with a particular focus on the domestic cooking and lighting markets.  Key activities under this work could be conducting field based assessments to understand renewable energy users’ perceptions and preparedness for new financing methods, and evaluating the applicability and readiness of various result based finance instruments in the domestic cooking and lighting markets.  On this front, I will welcome inputs and partnership for this important works!

Keshav C Das

New Delhi, January 03, 2015

keshavcdas Uncategorized

Why does ‘not for profit’ pathetically fail in business development?

October.BlogThere is a paradigm shift in accepting ‘business development’ as one of the core activities in not for profit organisations in recent days. This ‘shift’ is mainly triggered due to the reasons that funders and donors are demanding more accountability, traditional forms of funding are becoming smaller and less reliable, donors are focusing for an increasing engagement with private sector instead of not for profit entities and hence, for-profit businesses are competing with non-profits (not for profits) to serve community needs and lastly needs of community are growing in size and diversity!

In the face of this new reality, an increasing number of forward-looking non-profits are beginning to appreciate the increased revenue, focus and effectiveness that can come from adopting “for profit” business approaches. Increasingly, they are reinventing themselves as social entrepreneurs, combining “the passion of a social mission with an image of business-like discipline, innovation, and determination.”[1]

For many not for profit organisations, this new reality is still a surprise and struggling in a confusing state of operations to survive; taking up quick-fix based remedies like reducing size of human resources, cutting cost, merging with other organisations or merging it multi-country operations into a regional operations. Will this change bring brighter days to them? Answer is clearly NO!

To survive in the present competitive development market, not-for profit companies really need to look for a systemic change in its overall process of business model, orientation and strategies. Non-profit organisations now need to carry out a serious self–reflection and identify its key strengths and services (offerings), which are unique, competitive, affordable and having a ‘brand ’ of these offerings in market. To formulate its services, accurate understanding of community and development needs to be ensured so that organisation can offer higher quality of services by focusing on what it does best, which will eventually enhance credibility with clients and funders. Needless to say that such transformation will happen in organisation only through a continuous learning and improvement.

We have several myths on pursing business development activities; such a business development is a team work, funding can be mobilised with a smart and innovative business proposal or even for many non-profit workers; business development can also be done over an informal beer meeting. These beliefs are relative and its success is also isolated, but it can’t be considered as organisational business development strategy.

In the contemporary competitive environment, non-profit business development should be built upon five key principles:

  • Identifying a set of best mission-related earned income opportunities, where fund raising will be smooth and there is a better chance of winning (it could be water, health, energy or agriculture and any other opportunities). A continuous researching on feasibility of these opportunities is crucial, based on which organisation can select the most appropriate ones to develop realistic business plans
  • Identifying the major assets and capabilities that organisation has to invest in its business development. These asset could be a team of experienced ‘warrior’ for business development or internal fund to invest for business development
  • Recognising that organisation’s vision, mission and strategic goals represent the purpose and context for business development.
  • Gaining a better understanding of the motivations and support for doing business development, both within the organisation and in peers, and, at the last
  • Leadership in the organisation, to drive business development with proven knowledge and skills. We must remember business development is a specialised job.

Sad part is that most organisations do not consider these principles, instead take up business development activities without a clear strategy and plan of actions. Outcome of such initiatives is ‘A Bad Dream’.

Keshav C Das

Senior Advisor

SNV Netherlands Development Organisation

[1] “The Meaning of Social Entrepreneurship” by J. Gregory Dees.