Making it pay
Even when new technology and models are available, the logistics of rolling them out can be daunting. The two big challenges are providing the upfront investment for energy schemes, and building and maintaining the necessary distribution systems to enable them to reach sufficient scale. At the moment, most schemes are funded by angel investors, foundations and social venture-capital funds. There is a vigorous debate about whether the private sector on its own can make these models work as technology improves, or whether non-profit groups are needed to fill the gaps in funding and distribution.
Microfinance institutions may seem the natural financial partners to help the poor pay for energy systems, since they are the only organisations with millions of poor customers. But teething problems are formidable and success stories are few, says Patrick Maloney of the Lemelson Foundation, which invests in clean-energy technologies for the poor. A telephone lady could buy a mobile phone for a relatively small sum, and would immediately have a source of income with which to repay the loan. Although a household that buys a solar lamp saves money on kerosene, the investment takes several months to pay for itself, and there is no actual income from the lamp. For bigger energy projects, such as micro-generators, the loan required is much larger, and therefore riskier, than the loan for a mobile phone.
Moreover, microfinance institutions may lack the funds to identify reliable energy suppliers, educate loan officers about clean-energy technologies and build a support network for energy schemes. One way to solve this problem, being pursued by MicroEnergy Credits, a social enterprise, is to plug microfinance institutions into carbon markets. Projects can then be funded by selling carbon credits when a microfinance customer switches from kerosene to solar lighting, for example.
Distribution is also a problem, particularly in Africa and South Asia, where the majority of the world's energy-poor live. Infrastructure and supply chains are poor or non-existent, particularly in rural areas. Recruiting and training a sales force, and educating consumers of the benefits of switching away from wood or kerosene, must be paid for somehow. Social enterprises are innovating in this area, too. Solar Aid, a non-profit group, specialises in setting up microfranchises to identify and train entrepreneurs. The organisation works with local authorities to identify potential entrepreneurs, who must gather signatures from their local community&mdashroviding both the endorsement of their neighbours and a future customer base. They then undergo five days of training with an exam at the end. Solar Aid is also testing a kiosk-based system to help entrepreneurs distribute LED lighting in the Kibera district of the Kenyan capital, Nairobi.
Some hurdles to bottom-up energy projects are more easily addressed. In particular, high import duties on clean-energy products in many developing countries, notably in Africa, hamper their adoption by the poor. Ethiopia, for example, imposes a 100% duty on imports of solar products, while Malawi charges a 47.5% tax on LED lighting systems. Such taxes are sometimes defended on the basis that only the rich can afford fancy technology. But the same was said about mobile phones a decade ago—and look at them now.