The 2014 Ashden International Award Winners: Bringing Clean Energy Access and Finance to Billions through Innovation and Vision

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The Ashden Conference and Awards gives organizations in the renewable energy space a chance to showcase and share innovations in sustainability with practitioners, investors, academics and the press. As in previous summers, Arc Finance participated in this year’s conference, alongside current and potential partners working on ways to bring affordable, clean energy to the BoP.

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The 2014 Ashden International Award finalists were winners in five categories: Financial Innovation; Avoided Deforestation; Clean Energy for Women and Girls; Energy for Agriculture; and Sustainable Buildings. Each of the winning organizations is working on a solution to the problems that are part of Arc Finance’s core mission, which includes helping scale the clean energy finance sector by shining a light on enterprises that are leading the way through innovation.

Infosys wins the Sustainable Buildings Award

One of India’s largest IT companies, with campuses at ten locations across the country and offices around the world, Infosys has been designing new, low-energy buildings and retrofitting existing buildings with the technology applied in new construction – decreasing electricity consumption per staff member by 44% across its Indian business campuses in the last five years.

Infosys has realized annual savings of US$200 per employee, and 39 percent of the company’s electricity is now generated or purchased from renewable sources. GHG emissions have been cut by 57 percent (or 210,000 tons per year), three quarters of which is from efficiency measures alone.

For true sustainability, improved efficiency has to make a “single bottom line” case – it can’t be just for environmental and social reasons. To this end, Infosys invested with the goal that the cost of retrofits would be paid back in energy savings within three years.

The company seizes every opportunity to reduce energy consumption, from reducing the size of chiller plants for air conditioning, to painting roofs white to reflect the heat. Cutting-edge design for new buildings also helps keep offices cooler and maximizes natural light. With US$80 million cut from its energy bills and targets of halving electricity use per employee and all electricity coming from renewables by 2018, Infosys has made the bottom-line case for large companies to invest in energy efficiency.

The Financial Innovation Award goes to Off.Grid:Electric

Off.Grid:Electric is a Tanzanian company that has emerged as a leader in the field of using mobile money to sell affordable pay-as-you-go solar power – of particular interest to Arc Finance, which works with different partners with various approaches to the affordability challenges of solar.

East Africa – countries like Kenya, Tanzania and Uganda (where Arc’s partner SolarNow is based, and is using a hire-purchase credit facility to provide a different affordability mechanism) – is an exciting “petri dish” of experiments in clean energy innovation. Mobile Money, through M-PESA, first reached scale in Kenya, and the model is now being replicated across several sub-Saharan countries. Leveraging mobile money infrastructure to allow poor customers to pay for clean energy in regular, small amounts is an opportunity that Off.Grid:Electric (among others) is capitalizing upon.

Off.Grid:Electric considers itself a service, more than a solar, company. The founders wanted to make solar electricity a mass-market option by focusing on exceptional customer service, including an all-day customer-care telephone line and ongoing support from a local agent. With more than 15,000 homes taking up Off.Grid’s service so far, benefitting 70,000 people, customers are being connected as fast as systems can be manufactured and distributed, thanks in part to a cloud-based customer registration process and product-tracking system app.

Off.Grid:Electric provides an agreed-upon level of electricity service through a five or ten Wp Solar Home System (SHS), including mobile phone charging, which is rented by the customer and installed after payment of a deposit of US$6 or $9. The entry-level model costs roughly US$0.20 per day (the top-end system costs about 63 cents per day) paid over a mobile money platform – with a minimum of one day’s purchase per transaction.

A network of local agents is used to find customers, install systems, and provide ongoing after-sales support. Custom smartphone apps keep customer data, usage, system and payment information integrated and accessible to agents. For the very few customers without a mobile phone, agents can take cash payments.

Crucially, the company prioritizes flexibility of payment for the customer, recognizing the cash-flow limitations typical of poor customers. Service level can be changed, and payment history builds a credit rating for the customer that can be used for other purchases. Off.Grid:Electric currently has about 90 staff – half of which are female – and a network of several hundred local agents. It is financed mainly through equity investment, supplemented by debt and grant funding.

Sustainable Green Fuel Enterprise wins Ashden’s Avoided Deforestation Award

Deforestation and its dire environmental consequences – air pollution, soil erosion and desertification – remain a critical problem in certain countries. Sustainable Green Fuel Enterprise, a Cambodian business turning leftover coconut shells and other bio waste into clean-burning char-briquettes for use as cooking fuel, was the winner of Ashden’s Avoided Deforestation Award.

Most Cambodians cook on wood charcoal, resulting in the world’s worst case of deforestation: the country lost 2.9 million hectares (14 percent of its total land area) in two decades (1990-2010). In addition, the negative health effects of burning wood charcoal, particularly indoors, are well known, and include eye and respiratory disease.

To reduce wood charcoal use, French NGO GERES had already introduced efficient charcoal stoves to the markets, and wanted to expand to tackle charcoal supply as well. In 2009, it partnered with a children’s charity to launch Sustainable Green Fuel Enterprise (SGFE).

Led by Carlo Figa Talamanca, SGFE can scarcely keep up with demand. SGFE produces the char from waste coconut shells (widely discarded and accessible) using low-emission TLUD kilns, and it also buys wood-char from electricity generators. The char is mixed with water and a binder and extruded into briquettes, which are then dried using the waste heat from the kilns.

To date, over 650 tons of char-briquettes have been produced, and production is accelerating. The 47 tons produced in March 2014 alone equals the cooking needs of 1,250 households. Each ton saves ten mature trees, so the equivalent of over 6,500 mature trees have been saved to date. GHG emissions have been cut on the order of 4,500 tons equivalent in 2013, all while introducing a superior product to the market at a cost – 34c/kg – similar to wood charcoal, and cheaper to use due to its reduced waste and uniformity of heating.

A more expensive product – the “diamond briquette,” made from 100 percent coconut shell char – costs double the regular briquette, but its slow and sustained burn has made it particularly popular with food vendors.

Production will double in 2014 thanks to a recent grant from the Global Alliance for Clean Cookstoves (GACC), and further private investment will allow yet another doubling of production, according to SGFE’s team.

Greenway Grameen: winner of the Clean Energy for Women and Girls Award

The Clean Energy for Women and Girls Award was won by Indian cookstoves business 
Greenway Grameen, co-founded by two Indian women two years after completing their MBAs. Greenway’s mission is to provide an affordable, desirable cookstove to improve quality of life for Indian women – who along with their daughters in a male-dominated nation typically bear the lion’s share of household duties, with crippling repercussions on the health and education of the next generation of girls. Despite this, most rural households in India have mobile phones and televisions – so aspiration for consumer goods is alive and well; it’s just a man’s preserve. “The biggest women’s issue in India is men,” argued CEO Neha Juneja, to wide applause.

Collecting and cooking with wood and dung, as hundreds of millions of women are still forced to do, is time-consuming and horrifyingly harmful – indoor air pollution kills more people than diarrhea, malaria and HIV combined – and the majority of victims are women.

To address this, Greenway Grameen’s simple and stylish stoves dramatically reduce kitchen smoke, cook more quickly, and stay cleaner longer. Perhaps most significantly, their design was demand-led from the start; extensive market testing led to an iterative design process focused on women’s needs and aspirations. Marketed as the essential part of a modern kitchen, more than 120,000 stoves have been sold so far, benefitting over 600,000 people in Karnataka, Kerala and Maharashtra states. Two-thirds of the stoves, which retail for US$23, are financed through partnerships with MFIs.

Besides the obvious health benefits of reducing indoor air pollution and the reduction of GHG emissions (over 200,000 tons/year CO2e), considerable time is saved (on average, more than 30 minutes per meal), improving the lives of women and allowing daughters more time to study. But the economic argument is the “clincher”: a stove can pay itself back in 14 weeks through reduced expenditure on wood.

Greenway plans to continue its rapid expansion into other Indian states and then beyond into other markets, as well as introducing a broader range of products.

Proximity Designs wins the Energy for Agriculture Award

Finally, the Energy for Agriculture Award went to a fascinating and inspiring company in Myanmar, Proximity Designs, which is introducing
treadle pumps, solar irrigation systems and other sustainable agriculture technologies to this recently-opened nation for the first time.

For rural farmers, lifting water from wells and carrying it across fields is backbreaking and time-consuming work. Until the 1990s, farmers in Myanmar had no access to energy for irrigation in the 20,000 villages that need 3,000 liters per day per small plot. To address this, Debbie Aung Din and husband Jim Taylor traveled to the country in 2004 to head the national program for international NGO iDE. In 2008, their program to introduce access to energy for irrigation morphed into Proximity Designs. Proximity Designs has introduced foot-operated treadle pumps that draw up water from wells and combined them with water-saving drip irrigation technology. Together, these can dramatically increase agricultural yields and incomes.

The results have been transformative. As of this year, 90,000 treadle pumps are in use in 5,000 villages, benefitting almost half a million people. The pumps were designed and manufactured locally, supporting the burgeoning economy, and two further models were introduced, capable of lifting water to raised storage units. The drip irrigation kits were also locally developed and manufactured, and their introduction allows the cultivation of higher-value crops such as eggplant, which require more water. These products are marketed and sold by a growing network of agents, as well as agro-dealers. Pumps range from $25-38, drip irrigation kits are $38, and tanks $25. Some customers pay cash, but many have availed themselves of the low-cash credit facility Proximity has offered in the absence of a mature microfinance market.

The return on these investments by farmers is considerable – with farm incomes increasing by an average of $250 per year. And Proximity Designs – which the Ashden panel described as “the first to bring energy to agriculture in Myanmar…adapting fast to the needs of the rapidly changing country,” is already working on a solar-powered pump, to be introduced in the near future.

Each of the Ashden International Award finalists addresses key challenges to bringing affordable clean energy to the mass market in poor countries. From leveraging technology such as mobile money, to helping farmers increase their yield, to working towards making tragic indoor air pollution deaths a thing of the past, or demonstrating that a global company with a vision can dramatically cut its energy costs and greenhouse gas emissions with some effort and investment, these companies are true pioneers. Arc Finance is proud to know them, and looks forward to continued partnerships with trailblazers in the sector.

SolarNow Using Franchise Model to Solve Distribution Challenges in East Africa

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Ugandan solar enterprise SolarNow uses a franchise distribution model for Solar Home Systems combined with an in-house credit facility to reach rural customers.

SolarNow is an energy enterprise in Uganda, and an Arc Finance partner under the USAID-funded Renewable Energy Microfinance & Microenterprise Program (REMMP). Established as a social enterprise in May 2011, SolarNow grew out of the Rural Energy Foundation, a Dutch NGO providing distribution and training support for the use of Solar Home Systems (SHS) with market experience across Africa. SolarNow uses asset finance to provide electricity to off-grid rural communities through modular, expandable SHSs, and distributes an increasing range of energy-efficient appliances through a network of franchises around the country.

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If Product is King, Distribution is God

The challenges of distributing to so-called “last mile” customers in remote communities, particularly in Africa and Asia, are well understood, and various business models seek to address them. SolarNow’s distribution model includes independent franchises that facilitate sales and system installation. SolarNow oversees and supports these franchises through dedicated head office teams to ensure consistent quality across the network. Head office teams supervise sales, marketing, service and credit, provide ongoing support and training, and review and approve credit assessments.

The Merits and Drawbacks of a Franchise Model

A franchise model has distinct pros and cons. Advantages include speedy replication due to standardization; adaptability to local circumstances; quality assurance; reduced risk of branch dilution; likely alignment of incentives between franchisor and franchisee; and cost-effective setup and economies of scale. Disadvantages include a significant up-front investment; challenges in finding suitable entrepreneurs in low-income markets; difficulties encountered in monitoring franchisee activities in remote areas and low-income markets; and – for social-driven organizations – a potential risk of mission drift.

SolarNow’s model addresses these challenges and opportunities by training franchises to consistently install to standard, building strong customer relationships with high quality service support, and driving referral-led sales opportunities. Franchisees are selected for their local contacts and technical skills, as referrals from satisfied, local customers are a key sales driver in a market damaged by a history of poor quality and fraud. In addition, franchisees conduct initial credit assessments, which, if approved, are referred to the head office in Kampala.

Currently, SolarNow has 43 branded branches and authorized franchisees across Uganda with 64 forecast for the end of 2014, and will open its first branch in Tanzania in January 2015. Branches are distributed across the country and target higher-density rural communities.

Selecting the Right Person

As in any agent model, the skills and qualities of the franchisees are indispensable to the business. SolarNow’s sales and marketing team therefore recruits franchisees carefully, and targets the communities in which SolarNow’s current and potential branches are located. SolarNow thereby ensures candidates with knowledge of local networks, language and culture – all of which are important in building strong customer relationships. A premium is placed on particular criteria such as a franchisee’s communication skills, ability to invest time in building a long-term business, interest in working with rural communities, experience in developing customer relationships, commitment to client satisfaction and proven ability to run a business and lead a team.

Training and Professional Development

The creation of a franchise entails an assessment process that includes franchisee interviews with various team heads within the head office, followed by six weeks of training, both in the office and the field. This includes education on sales and marketing, service and logistics, credit processes and IT systems, followed by onsite training with existing franchisees to walk through everything they need to do in the field. Recruits are initially deployed as part of the central marketing team before being assigned a franchisee role.

The recruits who demonstrate the best potential for success are typically entrepreneurs with at least five years work experience. Most candidates have a Bachelor’s Degree and either a technical, microfinance or sales background, for example having worked for or with a bank, MFI, or another solar business, or as an account manager for a retail business.

Ongoing professional development allows new recruits to learn from others and keep up-to-date on products, marketing strategies, targets, customer service and special offers. Most franchisees attend at least four supplementary training sessions a year. Training needs are monitored by the sales and marketing, credit and finance or IT teams, and are led by head office team members. Ongoing coaching is also provided in the form of regular branch visits by the head office teams. Quarterly franchisee group meetings, which include all franchisees from across the country together with head office staff, include workshops and presentations from “star” franchisees sharing best practices.

Incentives for Franchisees

Any organization that uses agents or franchisees (as opposed to salaried employees) for sales has to think carefully about incentives and commission structures. If incentives are too low, there is insufficient motivation for sales and customer service; too high, and overly-aggressive sales/credit practices can be a risk – particularly in MFIs where loan officers can only make a decent living from commission on loans – and there is no dedicated credit team to make the final evaluation.

SolarNow’s asset finance-based affordability model puts an independent credit assessment team at the center of the organization, but takes advantage of the franchisee’s on-the-ground position and relationship with a potential client to provide initial income and asset information – along with the more subjective evaluation of whether the customer is going to be a “credit-worthy” one. Combining this centralized credit process with a commission structure for franchisees encourages franchisees’ natural entrepreneurship (for which they’re selected in the first place) and fosters healthy sales competition while mitigating bad credit decisions.

In SolarNow’s case, franchisees are compensated a commission of about ten percent on each sale. Reward schemes are periodically reviewed, as management feels it is important to adapt to changing circumstances and get regular feedback from franchisees. Current reward schemes include use of a branded truck, new marketing and premises assets, and increasing allowances for each sales target threshold achieved. Franchisees also maintain a security account with the company, accrued as a percentage of their earned commission, which provides collateral for fixed assets provided to them and any losses due to service or credit issues.

Naturally, incentives are based on carefully designed and achievable performance targets, including not just sales but portfolio management (proportion of on-time payments or delinquencies) and quality of installations and customer support.

Profile: A Star Franchisee

During the last quarter, SolarNow’s top performing franchisee was David Kiramiriki, from Kamuli branch. With 76 sales in three months, he won the first branded truck, and the management has recognized his “honest and reliable approach” and “strong commitment to customer satisfaction; a constant focus on understanding his customer’s needs and putting himself in their shoes to develop trust and strong relationships, maintaining consistently high quality in installation and service.” His success is such that he spends proportionately less time on general marketing, as his current clients have transpired to be his strongest promoters – doing some of his job for him, and illustrating the advantage that good customer relationships can have on a franchise’s and an organization’s bottom line.

A Day in the Life

Running a SolarNow franchise is a demanding job, which requires personnel with drive, imagination and stamina. The franchisees drive both the sales process and after-sales services to their customers – building strong customer relationships and positive brand awareness in their local communities. Each franchise has a catchment zone of potentially 40,000 off-grid households within a 50km radius. They also have responsibility for chasing delinquent payments, assisting with repossessions when relevant, as well as uploading (and monitoring) data to SolarNow’s Arc Finance-funded OpenERP Management Information System. A typical franchisee is up early and out in the field with their new and potential customers, performing site inspections and working with clients on their applications. Afternoons are spent working on installations, completing paperwork and uploading data to the system for head office review. Franchisees also typically spend around a quarter of their work time liaising with clients and the head office to deal with delinquent payments and credit issues.

A Franchisee’s Role in the Credit Process

Franchisees are the face of the business to the customer and are key to SolarNow’s success. They explain the contract and repayment process, gather information for initial credit assessments and follow up in cases of delinquency. They’re responsible for monitoring customer repayment performance and ensuring customers understand their obligations. But in cases of serious delinquencies or potential repossession, franchisees are supported on site by the head office credit team. Where necessary and appropriate, the security fund reserve for each franchisee provides coverage for 50% of credit losses.

When Franchisees Fail…

SolarNow’s franchisees have minimum performance targets to meet. Not all do so. Those who fail to follow procedures or fail to meet targets are let go. Some take the skills and experience they have acquired at SolarNow elsewhere – an ineradicable risk in any industry. Franchisee turnover (“churn”) is typically around 25 percent per year and mainly due to failure to meet performance targets.

Learning Lessons for the Future

Nobody achieves perfection the first time, and this is particularly true in remote rural areas of Africa, trying to introduce new products to a new and undeveloped market, while providing asset finance at the same time. It’s a complex and challenging task. For SolarNow, building the network of franchises has been a learning experience. It has meant discovering what customers are looking for, what doesn’t work and what motivates entrepreneurs. It has required a focus on being demand-driven.

SolarNow’s management team concedes there are things it might have done differently in retrospect. Initial targets to scale may have been optimistic, and didn’t allow for adaptation or tweaking of the basic model with a core group of branches before rapid expansion. Maintaining simplicity and standardization of the model took a while to achieve, and the importance of constant communication with franchisees and customers – including regular follow-up – has dramatically improved. Modification of its rewards and incentive schemes has meant a focus on short-term economic benefits while using a structure that fosters peer group motivation. And engaging franchisees in better understanding the performance of the business and having a say in significant organizational change decisions has improved performance and morale alike.

Finally, the credit process is the most difficult part of an enterprise providing products beyond the cash-only reach of customers. Getting the right balance of franchisee involvement in the credit process improves accountability and ownership without impairing the ability to grow strong customer relationships. Developing a process that builds trust and fosters collaboration with the franchisee network, finding the right people and training them with a long-term vision, incentivizing them to perform well, all while balancing the roles and responsibilities of the credit process is a complex challenge indeed. With its continued expansion and burgeoning reputation, SolarNow is showing that it is a challenge that can be met.