What is the best value-creation strategy that work at the base of the pyramid? Let’s look at the E+Co investment strategy.
In the world, the United Nations estimates that 1.5 billion people across the global sill live without electricity, and 2.5 billion people use wood fuels for cooking. The poor spend roughly $20 billion per year for ad-hoc solutions, such as candles, batteries, charcoal, wood and kerosene, just to meet basic energy needs. These sources of energy are carbon intensive and inefficient, and on a per-kilowatt basis, they cost from 5 to 100 times more than modern fuels and electricity. The paradox is that the poor are spending a high share of their income on a product that richer people can get cheaper with a better quality of supply.
Overview at night time: Favela Morro Da Providencia, Rio de Janeiro – August 2008. (via JR-Art.net: Projects: Women) © JR – credits: BasilicStudio // aKkY
In contrast to the top-down structured plans of the multilateral institutions and aid agencies, E+Co proposes to seek out and invest in entrepreneurs in developing markets who would develop new products and services to meet the energy needs in their communities. E+Co has been working for sixteen years to support and finance clean energy enterprises that provide renewable energy products and services to consumers far off the grid.
For example, E+ Co invested in Tecnosol in Nicaragua and its business model has proven very solid since 2003. Tecnosol’s business model is to seek renewable energy systems to customers primarily on a cash basis. In addition to complete packages for solar, wind and hydroelectric systems, the company also sells accessories, including lighting systems, electric fencing, refrigerators, fans, water pumps, and water purification devices.
In Africa, some experts were very surprised to see the recent emergence of a real market for home-scale renewable energy and for energy efficient appliances. The explosion of cellphone use in rural Africa has been an enormous motivating factor.
When you cross the line into the base of the economic pyramid in emerging markets, you enter in an uncharted territory. E+ Co has proven successful, and we can emphasize the following pitfalls avoided by the company:
- Not embarking on an initiative that focuses solely on commercial gains because civil society and governments are likely to oppose it intensely. In recent years, large banks and finance firms have gotten into the business of microfinancing and the social progress component has often been diminished by the focus on profit. This has lead to a credit market that actually traps people in a cycle of loans as they are forced to pay interest rates very high. Despite these concerns, the World Bank is announcing that these systems represents a “phenomenon that’s sweeping the world”
- Not focusing only on social impact and consider profits secondary in order not to be relegated to companies’ corporate social responsibility departments. There are many small islands of success, but these programs need to go to scale. Off-grid could be an answer for the poor, but people who control funding need to be sure that this is a viable option. A 300million€ solar project is much easier to finance and monitor than 10 million home-scale solar systems spread across a developing country.
