Category Selling Solar

Lesson 5: Don’t wait for R&D; develop the markets now

Where the electricity grid is either not present or extremely unreliable, solar is competitive now. Indeed, it has been competitive for at least one, getting close to two decades. But, as with any technology, there is a period of time when the issue is not so much the competitiveness of the product as the success of entre­preneurs in making it relevant to customers and selling it.

Most people like to conclude that when an innovation is economically competitive with the substitute technologies, it will just diffuse – that the economic benefits of the innovation will mean that it just sells itself. And so the inverse is also concluded – for as long as there is not more R&D, followed by a breakthrough that leads to lower costs, diffusion will remain limited:

For all the enthusiasm about harv...

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Lesson 4: Re-energize the World Bank

The case of solar in emerging markets has clearly shown how effective the World Bank can be in helping to accelerate the diffusion of renewable energy.

As we saw, when the World Bank entered the solar sector, it had very little prior knowledge it could draw on. Like the profiled entrepreneurs, it was a question of learning by doing. This, however, it did to quite some effect: learn­ing the lessons in India, it developed a strong project in Indonesia that, although thwarted by the Asian economic crisis, was replicated in Sri Lanka. Here it took hold and led to the diffusion of 125,000 solar systems by mid 2008 (representing 7 per cent of unelectrified households). Then the World Bank replicated again in Bangladesh (211,000 systems by mid 2008) and China (500,000 systems by mid 2008)...

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Lesson 3: Focus on finance

In Selling Solar, we have seen that there were two critical forms of finance necessary for diffusion: consumer finance for customers who wanted to buy solar systems and venture finance for entrepreneurs who were selling them. Both kinds of finance will be critical to the diffusion of renewable energy in emerging markets.

When customers buy a solar system, they are essentially buying at least 20 years of power, up-front, on day one. So the up-front costs tend to be high relative to the running costs. The running costs are of course relatively low because the fuel, sunlight, is free...

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Lesson 2: Big business is not the panacea

A movement of academics and activists is urging businesses to target the ‘bottom of the pyramid’ as a way of addressing chronic poverty:3 not to write off the poorer 3 billion people in emerging markets, but to treat them as a huge untapped source of future growth. This applies to energy just as much as to mobile phones, computing and so on. But within this movement there tends to be a preoccupation with larger corporations, rather than the entrepreneurial start-ups. Is it right that we should be more preoccupied with attracting big business when it comes to accelerating renewable energy diffusion in emerging markets?

If we look at solar diffusion in emerging markets, we can see that it was actually the entrepreneur, the consummate ‘outsider’ that pioneered the market...

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Accelerating a Renewable Energy Future

As promised at the outset, the story of Selling Solar offers some ‘big picture’ lessons. Specifically, five lessons can be distilled to accelerate a renewable energy future. These lessons are primarily intended for policymakers with an interest in renewable energy in emerging markets. But it would not hurt for policymakers in industrialized countries to absorb these lessons as well.

Lesson 1: Entrepreneurs are central to diffusion, so support them

Entrepreneurial ventures are never easy. But entrepreneurs in the renewable energy sector of emerging markets are operating in a particularly challenging environment. Policy needs to start from this premise.

Some parts of emerging markets lack the essentials that many entrepreneurs in industrialized countries take for granted: easy access to ...

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Conclusions

By now the framework will have helped the analyst draw three sets of conclu­sions:

1 It will have helped isolate the key barriers to diffusion of the innovation in question.

2 It will have shed light on how and why entrepreneurs are able, or not able, to effectively surmount these barriers.

3 It will have identified which policies facilitate or hinder entrepreneurs in the overall diffusion process.

Finally, while the diffusion framework is good at explaining diffusion that has already accelerated, it can also be applied to innovations that have not yet taken off. Applying it in such instances can help to understand precisely why entrepreneurs in the marketplace are not yet able to effect change. Moreover, applying it in this context can also have some predictive value...

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Resources

By ‘resources’ we mean capital. Without capital, even the most effective entre­preneur is unlikely to affect diffusion. Of course, the amount of capital that needs to be raised will depend on the barriers identified and the entrepreneurs’ strategies for surmounting them. If the innovation is not yet competitive, then the entrepreneur’s capital requirements are likely to be higher – to finance R&D, for example. And if the innovation is already competitive but it is not yet widely available, the capital required may be less, albeit still sufficient to enable an entrepreneur to build a market infrastructure.

In addition to the amount of capital required, analysts need to explore the avenues through which entrepreneurs have been trying to access capital and the reasons for success or ...

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Capacities

By ‘capacities’ we mean the prior experience entrepreneurs bring to their busi­nesses, and the key lessons they have learned along the way. Both of these inform business strategy, and influence the entrepreneur’s effectiveness in overcoming barriers to diffusion. In the case of solar, we identified the core barriers to diffusion as the lack of consumer finance and the lack of a market infrastructure. Entrepreneurs had to learn the hard way how to tackle these barriers, and each brought different sets of capacities to the task. In India and Sri Lanka, for example, both entrepreneurs tried to finance customers them­selves, but neither of them had experience in this activity, and learned that this was difficult to do...

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