August 13th, 2020
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 failure in doing so. In Selling Solar, all the profiled entrepreneurs had insufficient capital to realize their objectives, and solar diffusion suffered as a result. There was initially no ‘investor fit’, as most investors were unfamiliar with rural solar markets and the risks were perceived to be too high relative to the returns.
However, at some point investors’ perceptions changed. We saw in Sri Lanka for example, that the entrepreneur was able to use World Bank policies to attract a sizeable investment by Shell Solar. Once he had put this investment to work in the market, it encouraged further investment by competing firms, and an unprecedented expansion in the market infrastructure and finance channels for solar.
Overall, Selling Solar showed that capital, in line with the theories in Chapter 2, is critical to an entrepreneur’s ability to influence the diffusion process, and any analysis of renewable energy in emerging markets will fall short without considering the factors affecting its flow. The challenge for the analyst is to ‘get inside’ the mind of potential investors, and understand what determines the decision to invest, or not to invest, in the entrepreneurial ventures in question.
In a final step, the analyst needs to turn from considering the entrepreneurs to considering the more structural features of the environment in which they are working. In the case of energy (an essential commodity for life), the entrepreneur’s environment tends to be heavily regulated. This in turn gives policy a prominent role to play when considering the diffusion of renewables and energy-efficient technologies.
Here the analyst needs to examine the specific policies that facilitate or impede the entrepreneur from selling more of the innovation in question. Again, the policy of concern will depend on the barriers to diffusion the analyst has identified earlier. If the main barrier is the absence of a market infrastructure, then perhaps the main policy hindrances are taxes (import duties and sales taxes) that are squeezing the entrepreneurs’ margins and limiting the extent to which they can raise further capital to profitably expand. We saw in the case of solar that the entrepreneurs in India faced high import duties and high taxes, both of which limited their margins and made expansion difficult. On a more positive note, the policy of putting in place lines of credit for solar, which banks and microfinance agencies could on-lend to solar customers, proved critical to the acceleration in solar diffusion.