Eco Ltd 55 Chislehurst Road Chislehurst, BR7 5NP, UK
grant at ecoltdgroup.com
Dr Grant Ballard-Tremeer is founder and director of the consultant company Eco that specialises in the formulation of projects to create markets in the sustainable energy sector. He completed his PhD in 1997 on the emissions and efficiency of cooking stoves, and has been active in the sector for over 20 years. He is a trustee of the HEDON Household Energy Network. Grant works in numerous developing countries in Central Asis, Africa and Asia for a wide range of international, government and private sector clients. He specializes in market assessments, barrier analysis, and the development of strategies to create markets.
A commentary on the Shell Foundation’s Theory of Change and lessons learnt from the report ‘Accelerating Access to Energy’ is provided in this article. The attention that the Shell Foundation has given to addressing the needs of just a few ‘pioneer’ organisations has allowed them to have a greater impact in these new commercial markets. Through this they have learnt how hard it is to create self-sustaining social businesses. How these lessons will be passed on to others that are trying to compete with the Shell Foundation’s subsidised pioneers is one of the next big challenges. The Shell Foundation has taken a holistic approach not just to the energy services addressed, but also in terms of support “across the whole energy value chain”. Too often in the past there has been an almost exclusive focus on the product itself (‘stoves’ or ‘lanterns’, etc.) and insufficient on addressing the barriers present in the entire market system. By addressing the entire value chain, and providing a range of financial instruments to enable entrepreneurs along that value chain, the market barriers have a much greater chance of being removed.
The Shell Foundation ‘theory of change’ is an interesting strategy for building markets which other similar organisations could emulate. But it remains unclear if and how the Shell Foundation will be able to facilitate the transition in role from subsidising one single pioneer to facilitating a transformation of the entire market that will be, by definition competing with the pioneer that they initially supported. Providing comparatively large subsidies to a single commercial player could create an un-level playing field and perhaps an unfair advantage for the chosen pioneer and a lack of resources for other companies. This may be inevitable given the scale of resources that appear to be needed to address technical innovation and market barriers. There are of course (local and inclusive) social enterprises that are competing with Envirofit, d.light, Husk Power Systems and M-KOPA Solar that may struggle in comparison with these partners given the Shell Foundation subsidies. However, money invested by the Foundation could spur other donor and investor support to the selected pioneers, a positive cycle of investments for these enterprises which could perhaps lead to further investment in other companies that are competing in the sector. Given the Shell Foundation’s limited resources it is understandable that they have chosen to work with just one company in each market segment. There are clearly ‘first-mover’ type costs (although these companies are arguably not the first movers in their respective markets). Going forward it will be important for the Shell Foundation to develop a clear strategy to support the broader development of a competitive self-sustaining market, after their chosen companies have established a dominant position in the markets: there are also first-mover advantages, which come into play as the pioneer starts to scale.
Shell Foundation stated in their 2010 publication ‘Enterprise Solutions to Scale’, “We find it striking that in every instance where partnerships achieved scale and measurable social impact it has been with newly created entities that we helped co-found using new business models we co-developed.” From this new report, it is clear that this strategy has since been developed, as Shell Foundation are now working with previously established partners with existing self-created business models. Encouraging similar foundations to support home bread models used by organic organisations, will hopefully create empowered enterprises that can withstand top down interventions. What is perhaps unclear is whether Shell Foundation have acknowledged that the selected ‘pioneers’ are not the only players in the market that are showing promising results and if they have, how the Foundation plan to create a ripple effect that creates entire market growth.
To address this, additional thought is needed into what constitutes ‘inclusive markets’ or ‘inclusive businesses’. The report implies that this is about selling products to poor people, even if those products are holistic energy services. Selling an improved stove or solar light, or even providing a range of energy services, while clearly beneficial, does not itself create an inclusive energy market, especially bearing in mind the report’s Lesson Two that early adopters are not the poorest of the poor. Inclusive markets are usually defined as those that engage and benefit a wide range of disenfranchised or marginalised groups who are often excluded or exploited by traditional market systems. This means, for instance, poor or marginalised people (frequently women) being involved in and benefiting from the value chain, not just as an end user. It is unclear from the Shell Foundation’s publications to what extent the markets that they are helping to create are inclusive in this sense. Are they not just creating a traditional market? Perhaps in the future Shell Foundation may wish to report on this aspect too of their work too.
Shell Foundation writes that “solutions such as mini-grids, affordable solar lights and clean cookstoves have now been available in the market for more than 10 years and we are yet to see the emergence of more than a handful of globally scaling enterprises in each field”. This appears to reinforce an unstated assumption in the Foundation’s Theory of Change: that “global scale” is the right approach. I am unclear as to how “a globally scaling enterprise” is the right solution, with an assumption that the emergence of global players is a necessary condition for scale. Enterprises targeting domestic markets appear to me to be an equally valid model. Clearly the challenges of developing and manufacturing sustainable, clean and appropriate technologies at a local level exist, yet local enterprises continue to emerge that are local scale enterprises providing solutions for people at the base of the pyramid – some examples can be taken from the winners and finalists of the annual Ashden Awards, including: Sustainable Green Fuel Enterprise (SGFE), Cambodia, Off.Grid:Electric, Tanzania, and Greenway Grameen. The Chinese government stove programme in the 1980s and 90s installed 120 million stoves using market-based models. While the stove models would not meet today’s priorities and expectations in terms of indoor air emissions, the approach was arguably more successful than current global efforts.
http://endev.info/) will do in the mid-to-long-term. The stated objective of the EnDev Results Based Finance strategy is to “Stimulate risk taking by the enterprises” where “the previous investment subsidy for households is replaced with a financial incentive (or fee for service) that will be paid to biogas enterprise after delivering a result: a functioning bio-digester that meets predetermined quality standards” (Endev Website, 2015). Clearly this strategy assumes that enterprises will have access to the up-front capital needed for the initial investment, and that this access to capital is not a barrier. In our experience this is frequently not the case, with smaller companies living ‘on the edge’ and cash flow highly constrained. We have seen this barrier to growth in donor projects in Africa and Asia. Companies may have access to capital in some cases, and entrepreneurs may be able to use potential future revenue from a Results Based Finance fund to raise working capital, but this is unlikely in a market already fraught with risk at every level - as the Shell Foundation has discovered, the risks for entrepreneurs in the energy access sectors are already “staggering”.
It is assumed that prices will drop significantly as the market grows. This assumption appears to be fairly sound, especially considering the subsidy per product figures given in the Shell Foundation report, Appendix A.
While companies and social enterprises attempt to build markets by selling to the less poor or the poor, this gradually might benefit the poorest of the poor. It is to be hoped that the actions by NGOs that try to serve the poorest are not undermined by those attempting to create commercial markets.
Lesson 3: Tackling energy poverty will require urgent innovation across the whole energy value chainWorking across the value chain is essential, and the Shell Foundation’s experience resonates with the experiences of others, for example, the SEEP Network. Market creation requires working with systems, and the heart of market systems, are value chains (see: https://www.microlinks.org/sites/default/files/resource/files/Market_Systems_Framework.pdf).
The three business models that are outlined are interesting, and potentially could be emulated: a) Integrated Business Models where energy solutions are introduced into an existing business (in another sector), b) paired with another established product; b) National B2B Partnerships where marketing, sales and distribution are handled by established national businesses; and c) Supply Chain ‘Intermediary’ Models where the Shell Foundation supports organisations that themselves aim to support the work of entrepreneurs along the value chain.
The Shell Foundation report states a need to develop a range of products and cites benefits in being able to “upsell products”, and in creating “a range of aspirational products that help customers move up the energy latter, and incentivise poorer customers to adopt the product in the first place”, and gives the example of the Envirofit product range. This appears to me to be an interesting concept, and it would be useful to understand it in more detail. Usually, for small emerging product companies, there is a need to focus, and not try to do everything. New products are not introduced simultaneously, and entrepreneurs are urged to do “one thing and do it brilliantly”. More information on the Shell Foundation’s experience would be valuable and help us understand why Envirofit choose to launch their products in multiple countries, and with multiple products, rather than focus all resources in one or two markets, and then build the product and diversify to other countries on the foundations of a solid, profitable market. In many cases, the reason to become global and try to dominate multiple markets simultaneously is in anticipation of competition. I guess this is unlikely to be the motivation, but it would be helpful to receive more information on this, perhaps in a future issue of Boiling Point.
Lesson 5: Early focus on talent development is crucial to the long-term viability of energy enterprisesIn our experience the shortage of knowledge and experience is one of the main causes of entrepreneurial failure. I personally hesitate to call it ‘talent’ since that seems to imply that it is something you have or don’t have, but I do strongly agree about the need. In my view this doesn’t just apply in social enterprises. At least in technically oriented companies, in my experience attracting first class staff at all levels – junior, middle management, and senior is one of the biggest challenges.
The first of the Shell Foundation’s sub-lessons – the need for the CEO to devote more attention to HR than any other function, and treat it as their top priority – is especially important in my view. Growth in my experience is closely related to the ability of the company to build an effective and motivated team. I understand the logic behind the second sub-lesson – that you get what you pay for – but I am less convinced by this. In my experience there is no automatic correlation between salary level and ‘talent’. At least it is dangerous to assume that highly paid individuals are competent, and the best investment for a company. While an experienced and highly competent CEO, for instance, will have a very positive effect on a company it could be wrong to attribute sales and profit growth, especially for an enterprise in the solar PV sector between 2010 and 2014 (when economies where recovering and solar PV prices falling), to the hiring of a CEO.
It is extremely encouraging to see Shell Foundation acting upon their successes and failures from past experiences, though the sums invested are a drop in the ocean compared to both what is needed and to what they could do. The report has again demonstrated that Shell Foundation are in it for the long term, a refreshing perspective compared to the too often used approach of "I'll give you money for two years and I expect you to have changed the world at the end of that".