The new report of Shell Foundation – an independent charity – outlines a 14-year journey to create and scale new decentralised energy solutions that provide safe, reliable and affordable power to low-income consumers in under-served areas. During this time, Shell Foundation (SF) has worked with over 100 entrepreneurs and organisations – deploying nearly $74 million – in an effort to develop new disruptive technologies and business solutions with the potential to deliver socio-economic, health and environmental benefits at scale.
The six main lessons learned:
Lesson 1: Pioneers require significant early-stage support to test, adapt and validate new models.
Pioneers providing new products or services to BOP markets face disproportionate costs to serve a risk-averse consumer base, especially when they lack prior market data to draw on. These businesses are inherently fragile and considered too high-risk for investors.
Our experience working with a range of partners has shown it can take 6 to 10 years and anywhere between $5 million and $20 million for a breakthrough innovator to build a sufficiently strong customer base to achieve a net positive cashflow.
Lesson 2: Don’t expect early adopters of modern energy solutions to be the poorest of the poor.
Consumers are particularly sensitive to risk, cost and value – and this means initial demand for new products in these markets is almost always low. Simply put, if a product is unknown, offered by a company they haven’t heard of, rarely stocked in local shops and comes without a warranty, don’t expect BOP consumers to buy it.
Existing retail channels are typically unviable due to dispersed demand, low margins and high marketing costs required to ‘push’ products to reluctant consumers. Between 2007 and 2010, with our partners struggling to grow, we invested heavily in new ways to increase the uptake of their energy products and services through a variety of new retail, microfinance and NGO channels without significant success. We discovered four principle ‘barriers to purchase’ for BOP consumers: Awareness, Accessibility, Affordability and Availability (the Four As).
Lesson 3: Tackling energy poverty will require urgent innovation across the whole energy value chain.
No matter how great their products or services, early-stage energy enterprises will struggle to serve low-income markets unless they can successfully tackle a wide range of demand- and supply-side constraints that prevent the creation of sustainable value chains. Chief among these are three interrelated challenges: demand activation, consumer finance and last mile distribution.
Lesson 4: A new range of financial solutions will be required for inclusive markets to grow.
Looking back across our portfolio and range of work, we realise that each and every one of our partners has been constrained by a lack of appropriate finance at every stage of their validation and scale-up. We see three prime opportunities for financial innovation to unlock appropriate capital from public and private sources to drive far greater collective impact:
- New ‘Incubation’ Vehicles to Accelerate Transformative Innovation.
- Flexible Debt Finance for High Potential Energy Enterprises.
- New Models to Unlock Private and Public Capital.
Lesson 5: Early focus on talent development is crucial to the long-term viability of energy enterprises.
The idea of a social enterprise investing heavily in human capital as a prerequisite for growth is not controversial or even new. Despite this, we still encounter examples of grant-makers that neither provide unrestricted funds of the level to enable the enterprises they support to attract and retain top talent at market-related rates, and impact investors that are reluctant to meet such costs as they believe it will delay financial returns.
Lesson 6: Systemic change will rely on the creation of global institutions and industry networks.
When SF was established back in 2000, we believed that a combination of private sector actors (philanthropists, social investors, big business and commercial funders) would be able to catalyse and scale market-based solutions to global challenges such as energy access. The intervening years have shown that while social enterprises are needed to tackle these problems at scale, they alone will be insufficient to solve entrenched problems of this size.
Excerpt of: Accelerating Access to Energy. Lessons learned from efforts to build inclusive energy markets in developing countries, Shell Foundation 2016
Download the full study here.