Innovation in Off-Grid Solar for Rural Areas
What does innovating business models in off-grid solar really mean?
Pay-as-you-go (PAYG) off-grid solar solution provider in Tanzania and a member of the Alliance for Rural Electrification, Mobisol, has announced one of the largest funding deals in the PAYG industry. Money follows innovation in the off-grid power market and that is why it is important to focus our resources there.
What are possible paths for business model innovation in off-grid solar for rural areas?
Business model innovation involves bringing about key changes in some key business decisions. Here are some of the questions that need to be answered to trigger innovation: What is the offering? When are business decisions made? Who makes them and why?
Looking at off-grid power projects in rural areas, several innovation strategies are already in motion. The offerings of innovative off-grid energy companies are different from traditional utilities. Off-grid solutions providers are not selling kWh but sell services instead - keeping the lights on, phone charging or solar power for irrigation. More innovation projects can be set in motion by changing when decisions are made and who makes them. For example, the pricing point for power supply should be based on actual costs following the execution of off-grid systems instead of committing to electricity tariffs beforehand. One of the biggest blocks to innovation is that decision makers are remote from the actual projects because this is the case for large scale power generation projects. Off-grid projects in rural areas require that decisions are made by those with close links to the community, understanding of the local revenue generating opportunities and the user’s willingness to pay.
What are the enablers of innovation for off-grid solar in remote areas?
Innovation cannot be forced because it largely depends on serendipity. As a sector, we can only create an environment which fosters innovation. Industry associations such as the Alliance for Rural Electrification come handy because they complement the work by private sector players. The associations are driven by their strategic objective to grow the market, while commercial players focus on their core business. The ecosystem has a few enablers that encourage more business model innovation in the off-grid sector, policies and regulations being one of them. A simple set of rules can create the minimum conditions which are required for off-grid projects to become viable in terms of economics and attractiveness for investors. The list includes the following:
- Phasing out of subsidies for fossil fuels to create level playing field across different energy sources
- Tariff structures which allows reflecting the actual costs of power generation, transmission and distribution
- Clear identification of areas for off-grid electrification and timeline for future connection to the main grid
- Clarification of rules on what happens when the grid arrives
Another key enabler is working with companies outside of the energy sector to scale off-grid business models. Economic actors that create local revenue generating activities help to drive innovative business models. Farming, food processing and garment manufacturing are some of the sectors that can be leveraged in South-East Asia. A number of international players are committing to 100% renewable energy supply. Some of them have assets in off-grid situations and are close to communities with energy access needs. Collaborations with these companies can be the basis for accelerating innovation. Gathering information and reporting on the latest trends in the market can increase understanding of the market, especially for investors. Gogla is already doing an amazing job reporting on the developments in the stand-alone systems segment. The Alliance for Rural Electrification is currently exploring few potential partnerships to set out a clearer picture on market trends for the mini-grid sector.
What are some examples of companies with innovative business models?
We already have a number of examples of innovative business models which are being implemented by the industry. As a conclusion, the following are few examples among the members of the Alliance for Rural Electrification:
Microgrids combined with productive uses:
- Mlinda (India, http://www.mlinda.org/projects/democratising-energy-supply/): Mlinda's business model combines development, execution and operation of a hybrid mini-grids. They also lend money to local women for purchasing rice milling machines. The machines provide an anchor load for the mini-grid and ensures revenue generation the village. Mlinda gets paid from power supply and loan payments. Local woman receive support in the form of loans and training to operate these machines and to market the processed rice.
Multi-service/product distribution channel:
- Rahimafrooz (Bangladesh, http://www.rahimafrooz-solar.com/index.php/3e-smart-platform): Rahimafrooz uses an ERP platform to track the installation of solar home systems for its customers. This connection is leveraged for distribution of additional services, including telco top-ups, banking services and home appliances distribution.
Service as a product:
- Solarkiosk (across Africa + Vietnam/Cambodia, http://solarkiosk.eu): Solarkiosk turns electricity supply into a product, which adapts to the individual situation of each location. Solarkiosk can become a school, a shop or a cinema, equipped with solar PV panels, batteries and a smart management system.
This article is based on Katarina Uherova Hasbani's contribution at the Unlocking Solar Capital Asia conference on 28 September 2017 in Singapore. https://asia.unlockingsolarcapital.com/