Refining the Business Case for Off-Grid Energy in India: Illuminating the Models with the Greatest Potential

By Gaurav Gupta

Tdalberg.offgrid.reporthe success of solar-based products and services to bring electrical energy to many at the base of the pyramid who lack access to even basic lighting has rightly received significant acclaim. Much of this stems from the role the private sector has played in developing new solutions such as solar portable lanterns, solar home systems, and solar mini-grids. However, despite strong projected growth rates, less than 5 percent of the market is penetrated; there is significant room for further accelerating the market with the right interventions.

For example, over 80 million households – roughly 50 percent of India’s rural population – have little or no access to grid-based electricity and the light that comes with it. Most of these households continue to rely instead on kerosene lamps, which provide only dim lighting, produce damaging carbon emissions, and can lead to chronic illnesses from indoor air pollution.

The challenge is in determining what solar models present real potential for scale. While there is significant private sector activity in off-grid energy solutions, it’s been difficult to unwind which models are actually sustainable and which are effectively relying on ongoing subsidies. There is a huge amount of interest in off-grid energy from philanthropists, donors, impact investors, and even mainstream investors, all proclaiming a private sector approach. But the aggregate of all these different forms of funding have shown that few models out there today are functioning without a subsidy of some form or another.

 “The Business Case for Off-Grid Energy in India,” a new report by Dalberg (where the author is employed) on behalf of the Climate Group, highlights the business models with the greatest potential. Through a focus on these investable opportunities, the report makes recommendations for financiers and organizations looking to promote private sector investment in the off-grid space. Below are some of our findings:

The elusive off-grid business model

Solar lanterns are a much-publicized corner of the market demonstrating commercial success, even though they are relatively new to the market. But to date, there haven’t been any real clear signs of successful models beyond solar lanterns in areas like solar home systems and mini grids. We see potential in a few to begin to serve the base-of-the-pyramid client segment profitably.

Growing space for solar, micro-grids and anchor load models

solarmaintenanceThe solar home systems market is definitely going to grow – but it’s hard for businesses to distinguish themselves, given the ease of product procurement and assembly. The Chinese supplier market is also very competitive and that translates to the downstream players who are doing the assembling and distributing. Companies will need to move quickly as the technology evolves. This year’s solar products are going to be obsolete in a year in terms of relative performance, so companies that are rapidly bringing new products to market and creating a brand will win. In addition, solar home system companies that are able to bundle energy efficient appliances such as fans and TVs are providing real differentiation.

Within the very nascent mini-grid market, two models are likely to show strong commercial viability in the next three to five years. The first is small size mini-grids (micro-grids) that require lower upfront capital investment. The second is mini-grids that use an “anchor load” model. In an anchor load model, a mini-grid of significant size caters to both households and a commercial large load. This commercial load ensures stability of demand and revenues. Both these models have players that are now serving customer bases of over 25,000 customers.

Beyond sound standard business practices, investable models will have a forward-looking strategy to address evolving consumer needs, invest in product innovation to ensure relevance and differentiation, invest in payment technology to increase operational efficiency, and focus on partnerships to enhance sales, distribution and consumer financing needs.

Governmental influence in the off-grid electricity market

Though progress and implementation has been slow, India’s regulatory policy has evolved to support decentralized renewable energy models (and not just large solar and renewable energy power plants). Government initiatives have made greater funds for R&D and clean energy ventures available and created subsidy and loan refinancing mechanisms.

With India Prime Minister Narendra Modi’s new government coming into place, the government is trying to put its own stamp on the electrification issue. The Modi government has promised that every non-electrified household will have access to electricity, and has identified solar energy as the way to bring that about. The government has announced that it will add 100 GW of solar capacity by 2022, and expects $100 billion of investments in renewable energy over the next five years. This moment is important because the mechanics of how they do that policy-wise is still up for grabs.

We hope the research in our report can motivate the government to promote effective mechanisms and avoid things that don’t work. Some subsidies in the past have been market distorting and we hope the government notes this and uses the market more rather than pursuing a purely subsidy-focused path.

This article originally appeared on NextBillion.

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Amplifying our Voices in 2015: A Letter from Dalberg’s Global Managing Partner

Dear friends and colleagues,

YanaDalberg was founded in 2001 on a bold hypothesis: that if global development were to advance at an accelerated pace, rigorous problem-solving skills, strategic thinking, and private sector partnerships were needed to complement traditional development approaches. Many challenged this premise and wondered whether these types of advisory services could influence real change, or indeed whether there was even a market for them.

I am very pleased to report that due to incredible efforts over the past 14 years, we have shown not only a strong need for Dalberg’s unique blend of skills, but that the demand for these skills is increasing rapidly. As a testament to this, we now have a growing staff based in 14 offices spread over 4 continents working on engagements across the public, private, and non-profit sectors.

Our success as a business is a great achievement, but we at Dalberg know that our business is merely the vehicle by which we seek to fulfil our mission: to mobilize effective responses to the world’s most pressing challenges.

Our mission remains a core and immutable part of our story. It is why we continue to do what we do. 2014 was no exception to this. We observed a number of needs and opportunities and brought our energy and insight to bear on critical issues worldwide:

  • In the face of the human disaster wrought by the Ebola virus in West Africa – which threatened to derail the region’s economic and social progress over the past decade – we helped the governments of Mali and Cote d’Ivoire set up emergency operations centers to better respond to this massive crisis.
  • In order to ensure that private and public institutions are thinking creatively about how to finance global development, we worked with a number of partners to release the landmark Innovative Financing for Development report. We are now implementing solutions recommended in the report to help unlock millions of dollars of finance for social good.
  • FAFINRecognizing that investing in small and medium sized agribusinesses in Africa’s most populous country, Nigeria, could both boost food security and fuel economic development, we brought the Honorable Minister of Agriculture and Rural Development, Dr. Akinwumi Adesina, and his team, together in partnership with the German development bank KfW, to co-seed a new fund for agriculture. FAFIN, the fund for agricultural finance in Nigeria, is a one of a kind fund, seeded by the public sector but scaled and managed by the private sector, is already delivering on its promise of creating inclusive growth, and generating both financial and social return.
  • In reaction to the threat to the Great Barrier Reef posed by climate change, water pollution, and port construction, Dalberg partnered with the World Wildlife Fund to quantify the costs and benefits of the reef to Australia and kickstart a movement to take steps to protect this important natural resource.
  • Finally, given our own questions regarding the efficacy of the global aid system, Dalberg proactively looked for opportunities to support and strengthen select public agencies – most notably advising on the design and strategy for the new Ministry for International Cooperation and Development in the United Arab Emirates – to identify how, where, and when aid can be most effectively used, as well as where it should not be deployed.

As these few examples illustrate, we delivered on our mission this past year with great energy and effectiveness. But one thing is certain: if we are to continue amplify our voices and increase our impact in the world, we cannot be complacent. We cannot rest on our laurels, and we cannot simply continue with business as usual. Central to our ability to create and influence change is continuing to find innovative ways to deliver the work that we care about.

That is why are thrilled to welcome a new human-centered design practice – the Design Impact Group (DIG) – as an additional capability that we can offer to our clients.  This sets Dalberg apart as one of the few places combining strategy consulting and design thinking under one roof. This is the type of innovation that we are going to continue to invest in going forward. We have also made investments to expand our presence in three regions – Asia (with a new office in New Delhi), West Africa (with a new office in Lagos) and our inaugural office in the Middle East, located in Abu Dhabi.

What’s Next in 2015?

cape townNoted business theorist Peter Drucker once said, “The best way to predict the future is to create it.”  I am excited to co-create Dalberg’s future, along with my colleagues on the global management team and our staff.

Our full global team gathered in Cape Town at our global retreat in September to create a collective vision for Dalberg’s evolution over the next 5 years. I walked away from that exercise knowing that we as a firm need to commit to three areas to really push ourselves to achieve our mission in 2015:

We must continue to seek out the most stubborn problems that are stalling inclusive development. It is sometimes tempting to shy away from the most difficult problems because the risk of failure is so high. At Dalberg, we need to thrive on these challenges. 2015 is slated to be a big year with a slew of major choices, including identifying how to effectively finance development, deciding on the post-2015 goals, and crafting an approach to addressing climate change. These are representative of the tough decisions that the global community must make to live up to its promise to eradicate extreme poverty. I am proud to share that Dalberg is at the center of several of these critical global initiatives, facilitating cross-sector collaboration, effective decision-making, and concrete action.

We must continue to invest in our staff as future leaders. Dalberg’s success over the past decade and a half has been driven by one thing:our people. We have a diverse and multinational staff – representing over 40 countries – and we have equal representation of women and men at all levels of the organization. Despite differences in background, we are all individually and collectively driven to change the world for the better. It is incumbent on Dalberg as a whole to find ways to continue to support each individual’s path towards achieving his or her own theory of change. One way we have done so this year is by issuing a challenge to our staff: come up with the most compelling idea for change and you will receive internal funding and resources to make your idea a reality. Initiatives like this are very important to us, because if each individual at Dalberg is achieving his or her potential, then we as a collective are achieving our mission.

We must invest in proactively identifying game-changing ideas and shaping the discussion around them. In 2015, we will be renewing our commitment to invest our own time and resources in building out solutions to three big challenges – challenges which we believe are linked to deeply entrenched development problems:

(1)    How do we make financing models for development more inclusive? We are at a unique crossroads to bring the private, public, multilateral, and non-profit sectors together to collaborate on mobilizing and distributing capital for social good. What isn’t always evident is how to do so effectively. We will be working with our partners to structure deals, design models, and develop partnerships which make it easier for private sector investors to bring their capital into important investments.  If we can do this successfully, we will not only significantly increase financing for social impact, but will also publish our lessons learned to facilitate future models and partnerships.

phone(2)    How can we truly make the digital revolution work for inclusive growth? Over the past decade there has been an explosion in digital technologies – from the emergence of the internet, to data-sharing applications on cell phones. This has revolutionized economic growth by improving access to information and basic services. However, 4.4 billion people (or two-thirds of the world’s population) still do not have regular access to these technologies. If countries could identify better pathways to achieve a truly inclusive digital economy, there is no telling how wide the ripple effects on poverty alleviation and job creation could be.  

unemployment(3)    How can we better use the informal sector to create sustainable employment opportunities? As developing countries move away from extreme poverty, their next biggest challenge is creating jobs. Combined with a growing bulge in the youth population, there are an estimated 73 million young men and women currently looking for ways to earn a livelihood – representing a huge economic challenge. The informal sector can be a potential engine for job creation, but questions remain as to how to harness this power. If jobs in the informal sector can be unlocked, we could open up opportunities for millions of unemployed youth in developing countries.

We are at the beginning of a landmark year: for the global community to come together to recommit to delivering on sustainable inclusive economic growth for all, and for Dalberg to truly achieve its mission of mobilizing effective responses to the world’s most pressing issues. Our work is just beginning, but I am very proud of what we have achieved at Dalberg to date, and have an unbridled sense of optimism about what is to come.

Yana Kakar

Global Managing Partner, Dalberg Global Development Advisors

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2015 Transformational Business Awards to Highlight Innovations in Developing Cities

The Financial Times and the International Finance Corporation (IFC) are accepting entries for the 2015 Transformational Business Awards, a major global program highlighting groundbreaking products and services that provide transformative, long-term solutions to key issues in developing economies.

Dalberg’s Henrik Skovby is on the judging panel for the awards, which this year gives special attention to innovative and commercially viable partnerships and other initiatives that substantially improve access to basic needs for urban residents. Dalberg’s Aly-Khan Jamal will be assisting him.

Bogotá, Colombia is one city known for its inclusive innovations.  Photo by Eduardo Parra Chavarro via Flickr.

Bogotá, Colombia is one city known for its inclusive innovations. Photo by Eduardo Parra Chavarro via Flickr.

According to Jeff Wagner of Financial Times Live, the organizers chose this year’s theme after realizing that urban development was at the core of so many of last year’s award applications. “Rapidly growing urban areas are key catalysts of economic growth and environmental and social development in emerging economies,” said Wagner. “A number of initiatives that have been launched in cities have had transformational impacts across the wider economy and society, and have the potential for replication.”

“Cities will continue to be at the center of growth and innovation for many decades,” notes Oren Ahoobim, head of Dalberg’s Cities Practice. “But we mustn’t assume that growth is an inherently positive force. What we need is inclusive urban growth that builds shared prosperity without compromising the natural systems that sustain healthy and resilient communities. These awards recognize the important contributions of business to building cities that work for everyone.” Continue reading

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Infographic: Why Should We Care About Gender-Based Violence?

By Sonila Cook, Thabo Matse, and Julia Rohrer

International Women’s Day offers an apt moment to look into gender-based violence: a massive global problem that knows no boundaries. It imposes tremendous costs on society – not least by limiting the potential of girls and women. While some countries are enacting legislation against gender-based violence, not enough is being done to address the root causes or to ensure that laws are enforced.

Learn more about the issue – and how you can get involved in stopping gender-based-violence – in our infographic below. Continue reading

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Creating a Market for Safe, Secure, and Convenient Moto Taxis in Uganda: A Q&A with Dalberg Alumnus Alastair Sussock

DSC_0210“Boda bodas,” or motorcycle taxis, are the main form of transit in Kampala, Uganda. There are five times more boda bodas driving around Kampala – 80,000 in total – than yellow taxis in New York City. While boda bodas are popular, they are not uniformly safe. Less than 1% of boda boda passengers wear helmets, and as a result, roughly 40% of trauma cases in Kampala hospitals are attributable to boda boda accidents.

SafeBoda, a company started by Dalberg San Francisco alumnus Alastair Sussock and three co-founders in November 2014, aims to provide Kampala residents with safe, convenient boda rides. SafeBoda drivers have two helmets – one for the driver and one for the passenger – and an easily identifiable reflective jacket with that driver’s name embossed on the back. In addition, they are trained in road safety, motorcycle maintenance, first aid, and customer service. Customers of SafeBoda can call for drivers using the SafeBoda smartphone app, similar in its functionality to the Uber and Lyft platforms. SafeBoda’s revenue currently comes from SafeBoda drivers paying a weekly fee for a package of trainings, equipment, and technology, but over time the company will look to use mobile payment technology to more efficiently capture revenue. Continue reading

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Smart Cities Don’t Work If They Don’t Work For Everyone

By Kira Intrator and Sanchali Pal

A city never sleeps. It continually works, grows, expands and evolves. As magnets for people, resources and ideas, cities drive the development of nations.

Photo by Akshay Mahaja via Flickr.

Vendors at Dadar’s Phulgalli in Mumbai. Photo by Akshay Mahaja via Flickr.

By 2030, 70% of the GDP and 70% of new jobs in India will come from cities. The Modi government’s ambitious “100 Smart Cities” plan is making urban planning sexy in a country challenged by rapid and chaotic urbanisation. Yet there is no single, universally accepted definition of a “smart city”. With massive investment expected to pour in, it is time to understand what will make India’s urban centres truly smart. With one in six city dwellers living in a slum, inclusive growth is a critical principle that India cannot ignore. Whether you argue for a liveable city or a smart city, at the core a city does not work if it does not work for everyone.

India will add over 400 million urban inhabitants by 2050, more than any other country. Managing such growth will require unprecedented levels of planning and investment in housing, infrastructure and public services. This is where “smart” can be a game-changer. Continue reading

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Great Barrier Reef Under Threat from Planned Port Expansions to Export Fossil Fuels

By Simon Allan

GBRUnderThreatThe Great Barrier Reef is the world’s largest coral reef system and the only living structure that can be seen from space with the naked eye. Located on the eastern coast of Australia, the Reef is home to thousands of species of plants and animals including turtles, rays, crustaceans and corals, and is one of the world’s most diverse habitats.

The Reef also plays a critical role in the Australian economy; it supports almost 69,000 jobs and contributes nearly US$5.8 billion to the country each year through tourism, marine research, and commercial fishing.

But the Great Barrier Reef is disappearing at an alarming rate. Over the past 30 years, more than half of the Reef’s coral cover has been lost as a result of both natural and human factors such as tropical cyclones, water pollution, and climate change.

The Reef is facing a more immediate threat from extensive industrialization. The Australian government recently approved plans to expand several ports along the coast adjacent to the Great Barrier Reef, in order to boost their coal and natural gas exports. To build these ports, huge amounts of material will need to be removed, or dredged, from the ocean floor to make room for new harbors and incoming cargo ships. Continue reading

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10 Problems That Should Be On the Global Agenda For 2015

By Thabo Matse, Julia Rohrer, Mariola Panzuela, Sonila Cook, and Oren Ahoobim  

There are so many big, urgent, important problems worth solving in the world—how do you decide what to take on? We surveyed the development landscape and found 10 emerging and persisting development challenges whose time has come.

The 10 problems we present below have significant scale, affecting the lives of millions if not billions of people. They have disproportionate effects on poor and vulnerable populations. Furthermore, momentum is building in these spaces—international attention has increased and innovative solutions and approaches have emerged. But despite this growing activity, there are critical gaps in addressing these problems: nascent solutions haven’t been scaled, the initiatives of diverse stakeholders haven’t been sufficiently coordinated, and the momentum hasn’t been leveraged to catalyze widespread action.

In short, the problem spaces below represent unrealized opportunities to achieve transformative impact and should therefore be focal points of the global agenda in 2015. Continue reading

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Using Human-Centered Design to Build Financial Products Tailored for Underbanked Customers

Globally, demand for smallholder finance is estimated at $450 billion. To meet this demand, it will be critical for financial services and providers to truly understand their smallholder customers, and design financial products to suit their specific needs.

Mobile solutions can help smallholders access finance.

Mobile solutions can help smallholders access finance.

An integrated team from Dalberg Global Development Advisors and Dalberg’s Design Impact Group (DIG) recently kicked off a project with CGAP and Rwanda’s Urwego Opportunity Bank to help develop innovative digital products tailored for smallholder farming households. These households are challenged by seasonal income flows, unpredictable agricultural shocks, and a remote rural presence far from traditional financial service providers’ infrastructure, so the hope is that mobile approaches can be a core component of the solution. The project is part of a larger CGAP initiative seeking to improve digital financial services for smallholder households through human-centered design, and UOB was selected as one of four financial service providers that will participate in the program.

The team will help UOB complement its existing agricultural finance and mobile offerings with new solutions that meet the specific needs of smallholder farmers. These solutions may incorporate new products, services, experiences, training approaches, marketing campaigns, or distribution models.

This latest project builds upon Dalberg’s past work on design for financial inclusion, including a 2014 collaboration with CGAP and frog Design to help BTPN Bank in Indonesia improve its mobile wallet product for the unbanked poor.

Dalberg's past work with CGAP involved gathering perspectives from unbanked customers in Indonesia to better understand how a mobile wallet could suit their needs.

Dalberg’s past work with CGAP involved gathering perspectives from unbanked customers in Indonesia to understand how a mobile wallet could suit their needs.

Through that engagement, known as the Bertumbuh Project, the team looked at behaviors, needs, and motivations of unbanked and underbanked customers in Indonesia by conducting field research around the mobile user experience at every step along the customer journey. The team observed:

[C]onstrained means in Indonesia result in limited dreams. Canned dreams, unspecific goals, and lack of planning for the future are endemic. People dream within what they feel is possible; but also only make possible what they dream, making it difficult to create much positive change.

People who are unbanked also have mental blocks against being banked. Past experience with banks – hidden fees, losing access, accounts being closed due to low balance – discourage people from trying again. In addition, individuals with no money to save don’t think banks are for them.

By the end of the four-month project, the team had developed five concepts and prototypes, including a service to help customers define a dream and a product to help achieve it. These prototypes are now being market tested and implemented. To read more about each step of the project and similar projects around the world, check out the new interactive publication from CGAP, titled, Insights into Action: What Human-Centered Design Means for Financial Inclusion (see pages 98-107).

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Two Months Later, the $320 Million Ebola Giving Gap Remains

By Sylvia Warren

While private and corporate giving toward the Ebola crisis was very slow to get started, by the end of 2014, many creative fundraising initiatives had emerged to unlock private giving to the Ebola response. In November, for example, Facebook added a prominent donation link to profiles of its 1.2 billion users. Google quickly followed suit, matching every dollar contributed by $2.

The Facebook donation link displayed at the top of every user homepage in November.

The Facebook donation link displayed at the top of every user homepage in November.

Beyond the Internet, a group of international soccer stars made a TV commercial to ask for donations to UNICEF. The commercial aired during the England vs. Scotland match, and the British government matched all contributions up to five million pounds. Doctors of the World, a smaller NGO, asked people to purchase health worker protection gear through the Halloweeen-themed “More than a costume” campaign. The ONE Campaign released a celebrity-studded #endEbola video.

In addition to high-profile asks and catchy hashtags, actors have used nontraditional financial instruments to increase funding. For example, The International Finance Facility for Immunisation issued a $500 million Sukuk, or issuance of Islamic bonds, to the Global Alliance for Vaccines and Immunizations. This is the largest debt issue to date from a global non-profit organization. Meanwhile, Hollard Insurance and Dalberg Global Development Advisors are working to expedite fund dispersion through HUGInsure, a social impact insurance entity.

The creativity in lending support to fight Ebola extends far beyond financial contributions. Through the World Community Grid, IBM is helping people donate computing power from idle devices to the Ebola response. Bitcoin, the electronic currency provider, is helping compile relevant scientific papers for researchers.

Yet a key question remains: how effectively have these initiatives mobilized private giving?

Continue reading

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