We believe that a significant proportion of the estimated 1.3bn people (about 300mm households) around the world presently living without access to basic levels of modern energy services can be reached by 2030. And we estimate that it would require much less capital than previously assumed to achieve this goal, with a very significant share of financing potentially coming from investors who recognize the commercial opportunity that is presently emerging.
Without suggesting that there is a one‐size‐fits‐all solution, our aim is to focus attention on a particular, market‐driven approach to rapidly scaling‐up energy access – the distributed energy service company, or DESCO, model – that we believe, with the right conditions, could provide high‐quality services to more than 100mm households (500mm people) over the coming decade, profitably.
Identity of the DESCO business model
In contrast to the product sales and distribution business model, the DESCO builds a customer relationship by installing assets – such as a solar home system or connection to a mini‐grid – at or near dwellings and small businesses, collecting an on‐going payment for energy (or recurring fees) from the customer. Hence, the DESCO is comparable to a commercial utility company. However, in contrast to typical utilities13 – national or private – the DESCO does not focus on delivering “free-flow kWhs”. Rather, it provides its market segment with desired energy services14. This may be sufficient electricity for lighting and cellphone charging; the ability to use a fan, TV, radio, computer; or power for a retail business.
DESCOs can complement non-market based initiatives. But the advantage is that this market‐driven approach can serve a portion of the population that does not actually require subsidies, thereby freeing finite concessionary resources to serve the poorest, most remote households. Similarly, the DESCO model can co-exist with commercial product sales. However, for a large portion of the consumer segment, we believe that DESCOs simply offer a more attractive deal. For instance, where this is an issue for households, DESCOs eliminate upfront payments and spread costs over time, thereby addressing the issue of affordability. Depending on the specific variation, DESCOs also reduce risk by eliminating end-user ownership. And households may also be hesitant to invest in a system (especially rooftop ones) if the utility or politicians are making parallel promises of “the grid coming very soon”, however futile the hope or unreliable any eventual ensuing networked service.
This text is an excerpt of: How a New Breed of Distributed Energy Services Companies can reach 500mm energy-‐poor customers within a decade. A commercial solution to the energy access challenge, by Pepukaye Bardouille & Dirk Muench, June 2014. Download the full document here.
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