Arc Finance at the 2013 Ashden Awards: Partnerships and Innovation in Practice

Solving the “last mile” problem – or providing renewable energy and suitable finance for it to the Bottom of the Pyramid – is far more collaborative than competitive. You can see this clearly in the network of partnerships we at Arc Finance have developed for our current portfolio of projects: we link energy companies, MFIs, technology providers, remittance companies and other distribution organizations to facilitate access to finance for renewable energy for the un(der)electrified billions whose lives can be improved.

Collaboration and partnership were among the key themes of the 2013 Ashden Awards held in London last week. We are proud to be a supporting partner of Ashden and were thrilled to attend the awards, which are among the most prestigious for sustainable energy solutions. Projects awarded ranged from partnerships at the local level (UK-based initiatives such as encouraging cycling or recycling in cities, or developing green spaces) to global projects that try to leverage new technologies, financial innovations and the brightest of ideas in order to scale access to affordable renewable energy to those who need it most: the poor. The conference was a great opportunity to share ideas, contacts and build further partnerships. Collaboration might be a tedious and overused bit of management-speak, but in this space, it is the sine qua non of progress.

This year’s finalists were an especially interesting bunch. In the newly created Small Island Developing States (SIDS) category, Cabeólica has used public-private partnership in Cape Verde to harness the country’s wind to reduce diesel imports and increase energy security. In the first year of commercial operation, over 25MW of wind farms were constructed, generating over a fifth of the country’s energy.

This has saved the importation of 22,000 metric tons of diesel, reduced electrical generation costs for Electra, the Cape Verdean utility, and cut greenhouse gas emissions by 68,000 metric tons CO2e. Cape Verde has increased its target from 50% to 100% of electricity from renewable sources, and therfore needs to get maximum utilization of its wind farms. While major wind farms may be suitable in some contexts, Arc believes in the market for micro-wind too: using microfinance or other networks to finance small-scale wind turbines in areas of high and reliable wind speeds – something which our team hopes to expand to soon.

Also in the SIDS category, D&E Green Enterprises in Haiti builds and sells quick-cooking charcoal stoves. By March 2013, 33,000 stoves been had sold and, with a lifetime of about two years, an estimated 28,000 are now in use in about 9,300 households, benefitting 47,000 people. A carbon finance assessment found a 55% (0.27 metric tons/year) charcoal saving per stove, so the stoves in use are saving about 7,700 metric tons/year of charcoal.

As we have discovered through our work with our partners in India, clean cookstoves help both the local and global environment, as well as serve as a huge cost-saver for poor families. D&E’s EcoRecho costs US$12 to 14, which is recouped in less than four weeks from savings on charcoal. The target market for EcoRecho stoves are the 80% of Haitian households that take in less than US$4 per day, and therefore choose charcoal because it is the cheapest way to cook. With charcoal costing about US$0.70 per kg, each EcoRecho nets a daily savings of over US$0.50, making a real impact on available cash.

That’s not all. Crucially, reducing charcoal consumption also helps protect Haiti’s rapidly diminishing wood resources. Clearing one hectare of forest in Haiti produces only about nine tons of charcoal, because of the inefficient pit kilns that are used. The EcoRecho stoves currently in use save about 850 hectares of forest each year. D&E is currently seeking financing to build a new EcoRecho factory, which will both improve quality and greatly increase production capacity to 150,000 units per year.

At Arc, we are also working in Haiti via a widely successful IDB/MIF-supported project that channels remittances from the Haitian diaspora to provide solar lighting for their families in Haiti. With demand for clean cookstoves so strong – and the environmental, health and economic arguments for them irrefutable – remittance networks may provide an opportunity for scaling clean cookstove distribution in Haiti and around the world. (To read more about our work in Haiti, see the IDB’s blog on the project and our case study.)

Another Ashden international winner, Impact Carbon, is also working with clean cookstoves. A US-based not-for-profit company, Impact Carbon saw the potential to use carbon finance to help businesses expand their work and bring the benefits of improved technologies to more people. Currently, Impact Carbon is running five projects in Africa and Asia that promote charcoal- and wood- burning stoves, biomass gasification stoves, water filters and other water treatment systems.

In Uganda, Impact Carbon produces stoves with metal bodies and perforated ceramic liners that are made in small factories and workshops. The ceramic liner reduces heat loss, which – along with the ability to control airflow – makes this product much more efficient than traditional, all-metal stoves. Decreasing charcoal consumption reduces greenhouse gas emissions, since charcoal in Uganda is largely derived from unsustainably harvested wood.

By March 2013, Impact Carbon had supported the distribution of over 340,000 improved cookstoves. Approximately 300,000 are in use, bringing benefits to 1.5 million people. Estimated greenhouse gas savings are 800,000 metric tons/year CO2e.

At the human level, efficient technology saves money on household fuel costs. For example, using an efficient stove, households in Uganda save an average of US$125/year on the purchase of charcoal, freeing up money for food and other essentials. Our research and field projects support this conclusion, and we are keen to emphasize to new clients the cost savings associated with clean energy technologies alongside the obvious health and educational benefits.

Meanwhile, Azuri Technologies has developed a pay-as-you-go model for getting solar power into homes in East Africa, a space in which Arc is working closely as well, through our partnership with Simpa Networks in India.

The main challenge in providing Solar Home Systems is the upfront cost, which ranges from US$70 for a basic home system up to several hundred dollars for a more powerful one. Amortizing the cost, and specifically using pre-paid energy payments to pay off the system itself, is an exciting innovation. Azuri’s Indigo Duo starter home system provides two lights and phone charging. After an affordable US$10 connection fee, customers buy scratch cards from the huge and growing number of dealers, purchasing a week’s electricity in advance for about US$1.50 once a code is entered into the keypad on the unit. After 18 months, the customer can buy out the system for $5, or upgrade to a larger system – the quintessential “stepladder,” or “pathway,” out of poverty.

Arc is observing this model closely, as spreading a system’s cost over 18 months has key logistical, risk and cost benefits versus energy microfinance. This is a case where technology and distribution are factors driving access and affordability.

Also an Ashden finalist, WWF in the DRC focuses on cookstoves, but with a focus on mitigating deforestation. Rapid deforestation for charcoal in the Virunga National Park in the DRC is threatening the park’s ecosystem, as well as keeping the population locked into a dependence on charcoal for cooking. To address this, WWF is training local businesses to build and sell cheap, culturally-appropriate stoves that halve the amount of charcoal needed, while helping landowners start sustainable tree plantations for charcoal. About 25,000 metric tons/year of charcoal is already saved by Nguvu Nyeusi stoves, cutting greenhouse gas emissions by an estimated 200,000 metric tons/year CO2e. About 7,500 hectares of forest will be protected from degradation in 2013, of which 4,500 hectares are within Virunga – WWF’s main target.

As we at Arc have repeatedly seen in our own work, users like these improved stoves because they are fast, clean and save money – the stove cost of US$5 to $10 is recovered in less than two weeks from charcoal savings. With charcoal costing about US$0.60 per kg, a family can save US$400 per year. This is typically 10 to 20% of household expenditure, and savings are increasing as the price of charcoal rises.

For solar portable lighting, distribution is arguably the greatest challenge, and something we are trying to address in India and Haiti in particular. The UK-based charity SolarAid has set itself the express goal of ridding the continent of the cursed kerosene lamp by the end of the decade, and has developed an innovative way to overcome distribution challenges: SolarAid set up a trading subsidiary, SunnyMoney, to catalyze the rural market by starting with a sales campaign through school head teachers.

SunnyMoney holds local meetings with head teachers to promote the benefits of solar lights – in particular, the lights’ assistance with students’ education – and head teachers collect orders from pupils. Subsequent orders can be made through direct sales. Lights are sourced from global suppliers, and are sold, with warranties, for between US$7 and US$40, depending on size and features. (See our interview with John Keane, SunnyMoney’s Managing Director for more details.)

By the end of March 2013, SunnyMoney had sold 408,000 lights, with a staggering 108,000 additional lights sold in the past eight weeks. As a result, SolarAid is now the largest distributor of solar lighting in Africa. Like Arc, SolarAid is product-agnostic. Although it is distributing the same products as Arc, after extensive market research it has recognized, as we did, that the d.light and Greenlight Planet ranges are best suited for this particular market segment.

Importantly, SunnyMoney does not financially incentivize school head teachers to encourage their students to buy the lanterns, but instead donates free lighting for the school based on the number of orders. SunnyMoney invites groups of between 20 and 80 head teachers in a local area to a meeting at a convenient central venue (often a school), where team members demonstrate and explain the benefits of solar study lights, answer questions, and then invite head teachers to collect orders in their school. Schools receive a free study light for every 40 orders, or a larger light for 80 orders.

As we have discovered through market research for our projects in Mewat in India (through the greenfield energy company Basix Urja), and with our MFI partners in West Bengal, Manipur, and Uttar Pradesh, when asked why they want solar lighting, parents consistently report that it is to facilitate their children’s studying after dark. For these staggering growth figures, and for the scale of its impact, Solar Aid took home the overall Gold award at the end of the conference.

Ashden is a special event, and perhaps more than any other conference in this field, participants and observers come away feeling inspired and hopeful for the future. From the smallest local projects seeking to address oft-ignored problems (e.g., minimizing heating waste from trams in Belgium) to initiatives with potentially hundreds of millions of customers (such as new distribution channels for solar lighting in Africa), what the finalists share in common is innovation. Seeing the countless organizations working in this space alongside Arc is rewarding and inspiring. Far from being competitors, they’re partners on the same journey, and we look forward to expanding our work with them.