In the developing world, when reliable power sources are not available, the poor may use relatively archaic, expensive and dangerous methods of cooking and illuminating their homes, like burning coal or kerosene. According to the World Health Organization, these practices kill up to 2 million people per year. Providing basic energy services to the poor is both a developmental and public health goal. It is also a huge, untapped market that requires a creative combination of financial innovation, social enterprise and old-fashioned legwork in the form of solar energy.
In India, up to 400 million people lack access to reliable electricity. Selling solar energy in India would help alleviate this problem but would be a huge leap forward in terms of economic development. In 2009, then-prime minister Manmohan Singh proposed a plan to increase Indian solar energy capacity to 20 gigawatts by 2020, where almost none had existed before.
While the plan was somewhat overly ambitious, it brought attention to the idea that international support is necessary to help develop the energy sector in low-income countries. The idea is that already-developed nations had the advantage of polluting, using coal and oil during their growth, and should now subsidize the clean energy projects of the developing world to help them keep pace with clean energy requirements, such as those set forth in the Kyoto Protocol.
International backing (in the form of foreign aid) would thus be a huge boom to India to escape what has been a developmental catch-22 for some of the poorest countries: assuaging accusations that it is not doing enough to curb emissions, while still providing critical infrastructure and basic energy services to its poorest citizens.
The first draft of the aforementioned solar energy plan involved a $20 billion subsidy by the Indian government, which Prime Minister Singh envisioned would be at least partially financed by international donors. Leena Srivastava of the New Delhi-based TERI energy research institute pointed out that the “Indian government expects international financing as well as technology at an affordable cost.”
International financing is relatively cut-and-dry; funding solar energy projects in India and elsewhere might take the form of traditional developmental aid. The U.S. might pursue such a strategy with the Electrify Africa Act of 2015, which is currently being discussed in the House. This plan directs the president to develop a strategy to increase the energy capacity of sub-Saharan Africa in order to drive economic growth and lift people out of poverty.
So, if aid is one pathway to providing basic energy needs to relieve poverty, what would a commercial solution look like? The answer might just be businesses like Ajaita Shah’s Frontier Markets. Frontier Markets, established in 2011, aims to sell solar energy products to rural, impoverished Indians who lack basic power services; it has moved about 20,000 solar units since its inception. The challenge is providing solar panels and lighting systems at price points that the poor can afford, as well as convincing them of the usefulness of clean energy and the health risks of traditional forms of energy. Shah points out that many other poverty reduction efforts are not possible without basic energy services, saying that “you cannot study at night without a light, you cannot run a shop without power, you cannot run a clinic with power [and] you cannot use innovative tools.”
The market potential for selling to those at the base of the economic pyramid is substantial, and so are its challenges. Bringing solar power to the estimated 114 million poorest customers in India is no easy task, and requires some socially conscious business practices. Traditionally, selling to the rural poor involved employing itinerant salespeople, which Shah argues isn’t sustainable or scalable. Rather, Shah distributes products to local retailers on credit and also employs microfinance techniques to make her products affordable for her customers.
If broad international poverty reduction efforts and socially conscious businesses such as Shah’s can find a way to reach the poorest in the developing world, they might turn them into the next largest emerging market for clean energy products.
– Derek Marion