Our survey results: Understanding the challenges energy enterprises face in emerging economies

Invested Development and GVEP International recently conducted a survey in collaboration with Power Africa and UN Foundation’s Energy Access Practitioner Network to investigate the challenges that energy enterprises experience in emerging markets. Of course, company financing is a big issue, but we wanted to dig deeper into manufacturing, human resources, consumer financing, and sales. The goal was to identify the types of support products and services that the industry can provide to move the needle further on energy access.

To get the best results, it was important to survey the industry’s most active energy access practitioners. We worked across our organizations to reach 131 respondents. Each respondent represented an energy enterprise in an emerging market, 80% of which are SMEs with 25 or fewer employees. Not surprisingly, 90% of the companies operate primarily in Africa and more than half are focused on developing renewable energy solutions (33% focused on solar energy and another 20% split between hydro power and micro grids).

To better understand and digest the results, our partners at GVEP International created an infographic. In this post, we will dive into the key challenges highlighted by the survey and identify projects, enterprises, and initiatives providing solutions to some of the specific problems identified.

Manufacturing and Product Development

Half of respondents reported manufacturing less than 10% of their products locally in emerging markets. Reasons for low levels of local production were high prices, limited availability, and low quality of materials as the main barrier. Relatedly, over 30% of companies said they do not have access to critical prototyping resources, such as 3D printers and laser cutters. Groups like Gearbox in Kenya, backed by Ushahidi, BRCK, iHub, MIT, and more, are attempting to solve this problem by creating hardware-focused co-working spaces where entrepreneurs can access tools that are normally prohibitively expensive.

Consumer Financing

The majority of enterprises collect cash payments hand-to-hand. Of the very few that utilize credit sales, 33% require large down payments of between 26% and 50%. The 15% of enterprises who reported using mobile money operate primary in East Africa. The challenges with creating good financial models and handling accounting were largely attributed to difficulties recruiting capable people and building internal tools. We are seeing companies like EGG-energy, SolarNow, and Simpa Networks break this barrier by utilizing pay-as-you go technologies and working with innovative forms of working capital and alternative financing.

Sales and After-Sales Service

Most last-mile distribution, installation, and after-sales activities are done in person. Less than 10% of enterprises are leveraging information and communication technologies (ICTs) for these activities. As a result, information sharing within the value chain is a major problem. Half of the respondents cited poor transportation as the greatest bottleneck to product delivery and installation, understandably so, as most enterprises operate in areas with underdeveloped transportation infrastructure. In response to this issue, many enterprise resource planning (ERP) systems and management information systems (MIS) are available for offline and contexts where field agents collect information and operate remotely. This means sales agents can operate without needing to return to the office as frequently.

When products are delivered, enterprises face major impediments to after-sales services, the greatest being lack of capable technicians and customer service representatives. This, in turn, relates to the human resources challenge as these roles are the most difficult to recruit for or train. This remains a difficult challenge, but we are seeing an increasing interest from universities with institutionalized social enterprise programs raising awareness among talented students about the opportunities to work abroad. We frequently hear about our portfolio companies working with fellows from universities, exposing them to the opportunity to work on technology in a new context.

Working Capital – The Holy Grail

This survey not only highlighted a lot of the challenges we had anticipated, but confirmed them directly from some of the world’s most active energy access practitioners. Despite the variety of operational challenges, working capital continues to be the biggest challenge for energy enterprises. Enterprises in emerging economies do not have the ability to leverage the necessary technologies to aid product development, maintain inventory, provide consumer financing, or integrate ICT solutions to optimize HR and sales activities without greater cash flows.

With limited track records, limited cash flow, and a lack of access to capital providers, this continues to be a challenge, but not one that is unaddressed. Loans from groups like OPIC and loan guarantee facilities such as those from African Guarantee Fund and GVEP are examples of ways to alleviate these financial challenges. By providing innovative forms of working capital for young energy enterprises, they can afford to invest in solutions and gain efficiencies in the other operational areas mentioned above.

What other solutions are out there to address these individual challenges, or the greater working capital challenge?

energy access practitioner challenges

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Renewable Energy Developments: Weekly Review 8/25 – 8/29

Renewable energy solutions continue to contribute to solving the world’s energy crisis. Below are recent articles highlighting recent news and developments in the space.

Renewable Energy Capacity Grows at Fastest Ever Pace Terry Macalister on The Guardian

A recent report by the International Energy Agency revealed that renewable power capacity grew at its strongest ever pace last year and now produces 22% of the world’s electricity. More than $250 billion was invested in “green” generating systems in 2013 yet the speed of growth is expected to slow due to politician’s concerns over the costs of deploying renewables. Maria van der Hoeven, executive director of the IEA, said: “Renewables are a necessary part of energy security.” She advised: “Governments must distinguish more clearly between the past, present and future, as costs are falling over time.”

The level of investment in renewable is lower today than it was at its peak of $280 billion in 2011. It is expected to average only $230 billion annually going forward unless governments make increasing policy commitments to increase spending. The growth rate will need to improve to meet climate change targets.

Powering the World’s Poorer Economies: A Response to Bill Gates and Jigar Shah Carl Pope on Green Tech Media

There is an ongoing debate between Bill Gates and Jigar Shaw over the best way to provide energy access to the world’s poor. Gates is an advocate for centralized, fossil-fuel-based electrification while Shah calls for prioritizing distributed renewable solutions yet neither can provide evidence to support which is the cheapest, most reliable solution to reach the 3.2 billion people living in energy poverty. Carl Pope, former executive director of Sierra Club, weighs in with the facts.

New fossil-fuel electricity can reach the poor cheaply, quickly and reliably, if:

  • The households or businesses have already been wired to the grid
  • The coal (or natural gas) is local, easily extracted and doesn’t require massive disruption of existing communities.
  • The population to be served is small enough that plants don’t need pollution-control equipment
  • The region has a sufficient water surplus

Fossil fuels won’t work in most energy deprived regions because the costs of grid extensions, fuel importation, pollution clean-up and water shortages are too high to hope to provide affordable and reliable electricity.

The idea that renewable electricity costs more than fossil fuel power is simply no longer true. Renewables are increasingly cheaper than fossil alternatives for both on-grid and off-grid customers.

Let’s Stop Just Consuming and Become Part of the Internet of Energy on CleanTechies

When Ryan Wartena started our portfolio company GELI, his ultimate goal was the boost the use of energy storage so that “we can run the world on renewable energy,” he said. To achieve this, he created an “operating system” for decentralized energy. With this energy storage platform, companies that are generating more power than they need using renewable energy (i.e. achieving energy decentralization) are able to generate and store power, track energy price changes, and ultimately sell it back to the grid.

The company’s business model focuses on getting energy storage out there as quickly as possible. GELI provides integration software and allows its customers to go to their OEMs to get components, saving them money. The system can control electric vehicles, solar, storage, diesel backups and mechanical systems and there are many opportunities for to better integrate resources and focus on the “Internet of Energy”. “We need to focus on being producers, rather than consumers,” said Wartena.

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Power Africa Initiative Energy Developments: Weekly Review 8/4 – 8/8

Momentum gathers in Power Africa initiative on BiztechAfrica

Standard Bank Group has renewed its commitment to the Power Africa Initiative, a multi-stakeholder project driven by US President Barack Obama. The Initiative aims to double power access in Africa by accelerating investments in the sector over the next five years.

The six initial partner countries are Ethiopia, Ghana, Kenya, Liberia, Nigeria and Tanzania. Each have set ambitious goals to boost their power generating capacity to enhance energy security, decrease poverty and foster economic growth. According to Sim Tshabalala, Chief Executive of Standard Bank Group, funding for power projects has increased from $150 million to over $400 million since 2013, and the pipeline for these projects is growing.

Besides helping finance projects under the Power Africa initiative, Standard Bank is actively leading the policy reform process required to facilitate increased private investment in Africa’s power sector.

Africa’s growing energy needs test climate change policies by Zack Colman on Washington Examiner

Businesses, lawmakers, heads of state and policy experts all have different solutions to Africa’s energy needs, but they all boil down to the idea that Africa needs a little bit of everything. “We have to invest in energy. Cheap energy,” stated Amara Konneh, Liberia Finance Minister at the United States-Africa Business Forum on Tuesday. In order to meet energy needs, some of the electricity will come from fossil fuels, such as natural gas. Some could also be generated through renewable sources such as hydropower, biomass and solar.

Energy efficiency will also need to play a key role. As African nations continue to grow and demand more electricity, the “all of the above” approach to energy will make it harder to reduce carbon emissions that contribute to climate change.

The IEA predicts that Africa will invest $176 billion in fossil fuel-fired power through 2035 ($114 billion of which will be coal-based) compared to the $28 billion of investment between 2000 and 2013. Renewable energy investment will attract even greater investment, predicted to hit $264 billion in investment over the same period.

Doug McMillion, president of Walmart, said that African nations could be where new technologies leap frog older ones, stating, “In Africa, it just seems that there’s a place for investments to accelerate this process, to do some generation skipping.” This means that rather than starting nascent infrastructure projects with the same varieties industrial and post-industrial nations began with, the continent could start from a different point.

Obama announces more investment in Africa by U.S. firms during leaders’ summit by Juliet Eilperin and Katie Zezime on Washington Post

President Obama announced Tuesday that private companies are providing an additional $12 billion in aid to the administration’s electrification program for Africa, raising total commitments to the Power Africa Initiative to $26 billion. The Initiative is aiming to add 30,000 Mw of capacity and expand electricity to 60 million households and businesses.

The continent has seen significant economic growth and business opportunities are growing yet adequate power supply remains the biggest obstacle to furthering economic development. More than 70 percent of Africans lack reliable electricity supply and power outages cost more than 5 percent of GDP in Malawi, Uganda and South Africa.

The administration has earmarked $1 billion of the program’s funds for off-grid and small-scale energy solutions over the next five years, which are overwhelmingly renewable.  In a little more than a year since Obama launched Power Africa, the initiative has purred signed agreements that will generate 2,800 Mw of electricity with deals for an additional 5,000 Mw in negotiation. On the subject of the recent substantial commitments to the initiative, Obama said, “Today we’re raising the bar.”

Power Africa – A Successful Year But Only a Beginning by Paul Hinks on AllAfrica

Just over a year ago, Power Africa was announced and President Obama promised to bring electricity to 20 million new homes and businesses and to double access to electricity in Africa.  At the time he said, “in order for this to work, then we all have to feel a sense of urgency…if we are going to electrify Africa, we’ve got to do it with more speed”. According to Hinks, CEO of Symbion Power LLC, this is what will define the future of Power Africa. It is important to reduce timelines so that more generation capacity is available and more transmission and distribution lines are constructed. The demand for energy in Africa won’t be easily satisfied because as power becomes available, the demand for it will continue to grow each year. The time has come for African governments to create new power infrastructure and to embrace the private sector to boost energy investment.

The time has also come for the U.S. government agency involved in the Power Africa initiative to match their processes and systems to President Obama’s call for urgency. Despite early Power Africa successes, much remains to be done. The six Power Africa governments must make the necessary policy and systematic changes to accelerate the availability of power. The United States must also push to pass the Electrify Africa and Energize Africa Acts to deliver on the Power Africa promises made a year ago.

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