What role can the private sector play in improving access to energy in Southeast Asia?
What is the fuel poverty situation in Southeast Asia?
There is no consensus on a general definition of fuel poverty. However, all definitions include two key dimensions:
- 1. Access to reliable electricity and
- 2. Access to clean and safe means of cooking. These two basic needs determine whether a household is fuel poor or not.
On the one hand, access to electricity in Southeast Asia is very heterogeneous. We can divide the 7 countries visited into 3 categories:
- the electrified countries – Thailand, Vietnam and Singapore - in which most of houses are connected to the grid and where the emerging challenge is energy efficiency;
- the archipelagos - Indonesia and the Philippines - where a large majority of the population has access to electricity but connecting the last part of the population is very challenging because of the difficulty to reach rural areas on distant islands;
- the countries lagging behind – Myanmar and Cambodia – where a most of the population is still not connected to the grid and using kerosene or car batteries to meet their needs in electricity.
On the second hand, the situation on access to safe means of cooking is quite homogeneous across Southeast Asia. A large majority of people still cook with biomass stoves using wood and charcoal whatever their level of revenues. Changing this habit, which has dramatic impacts on the health and on deforestation, is as much a social challenge as an economic one.
Who are the key actors in providing access to energy in Southeast Asia?
Access to electricity is highly correlated to the quality of public infrastructures and State’s efficiency. Today’s high electrification rates in Vietnam and Thailand are the result of the will and efforts of their respective public authorities to develop the national infrastructures (production and distribution). In Indonesia where the State is very present with high energy subsidies, there is an extended grid but it does not provide enough power to meet the demand and it does not reach the most remote areas. Political instability and weak public finances prevent Myanmar and Cambodia to invest in a reliable electric network. These countries receive support from multilateral public agencies such as the World Bank to build their infrastructures but the needed investments are so important and the implementation of these projects so complex that it will still take more than 20 years to bring electricity to everyone across these countries.
This is why private actors such as large corporations, social entrepreneurs or NGOs are playing a critical role. They provide alternative solutions to bring access to electricity on the ground to those who do not hope to be connected soon. These solutions can be classified in 4 main categories:
- 1. Off-grid projects: providing small devices like solar lamps to remote communities with no grid access.
- 2. Mini-grid projects: providing home-based devices like solar systems to one or several household.
- 3. Community grid projects: create a local grid operated and maintained by the community itself.
- 4. Clean and safe means of cooking: providing improved cook stoves.
None of the actors interviewed operates a 100% for-profit and poor people-oriented project. Most of them are operating under hybrid business models with a mix of for-profit and philanthropy. They all highlighted that the most difficult part of their job is to build the market. Different sources across the 7 countries pointed out programs – both public and private - which are giving away devices for free and are very seriously disrupting the market. These programs can result from a political campaign of the local Government just before elections or result from a CSR program form a multinational company. They of course don’t include customer services such as maintenance and the broken solar panels would soon be abandoned, undermining the trust of people in these alternative solutions as well as the value of these solutions.
What are the key success factors for actors in the private sector who want to improve access to energy in Southeast Asia?
Private actors can therefore have a great role in access to energy in emerging countries if they are willing to play with local markets’ rules. Here is the list of 5 key success factors most private actors underlined:
1. Start by listening to the market to be able to define the right offer to the right target: importing a breakthrough but very expensive cook stove in Myanmar won’t work. Why? Because people don’t feel they need to invest in a very innovative product when their families have being using a traditional stove with much success for decades. Introducing on the market a product or service that “we think poor people need” is never a good start. Listening to the communities to understand what they “want” is much more efficient. Once the target’s needs and aspirations have been identified, the second challenge is to find the right answer. Households of a rural village without electricity don’t necessarily want solar lamps. They might be more interested in solar home systems that could enable them to access new devices such as TV. Last but not least entrepreneurs need to consider poor people as customers like any other and design inspirational marketing campaigns rather than educational ones.
2. Develop an efficient distribution network by empowering existing actors: building a network in rural areas is very expensive and difficult. The most successful projects are thus those relying on existing distribution channels and upgrading them. This means identifying the more relevant existing local actors, agree on a deal with them so that they feel responsible for the success of the program and train them (accounting, sales...). Kopernik, a social enterprise based in Bali distributes innovative technologies (solar lights, cook stoves, water filter) at affordable price through the existing local network of small shops in rural Eastern Indonesian islands. They provide trainings and support to their “agents” so that they are better salespersons and they are able to manage the after-sale services (guidance and maintenance). Another great example is Geres, a NGO which supports the production and sales of efficient cook stoves in Cambodia. They first trained existing cook stoves producers on the production of improved stoves and then consolidated this community and connected them with distributors and retailers to support market access for their products.
3. Ensure legitimacy and support across the community: introducing a new service or product in a local community can challenge some existing habits or actors. Beyond the needs assessment it is critical to understand the context and to make sure that the key decision makers of the community support the project. The Indonesian social enterprise IBEKA works in partnership with communities to develop offgrid hydro schemes that are operated by the communities themselves (public ones are often abandoned because of the lack of funds to maintain them). IBEKA pointed out that the longer phase of the project is the assessment and consensus building phase, to make sure that the majority of the community is in favour of such a project as well as the local chief before starting any investment.
4. Anticipate what will happen next: the introduction of a service or a product is not a goal in itself. The impact of the use of this service or product is. It is thus critical to ensure that the customer has access to after sale services such as guidance or maintenance in order to take the best out of his/her investment in this product or service. Bad buzz can go much faster than good buzz, especially in remote communities!
5. Keep testing the business model: most private companies and social entrepreneurs dealing with BOP markets do not manage to reach profitability in the short-run. The time to build the ecosystem and set-up a stepping stone for operating profitable activities is long and costly. Keeping the business model flexible with mixed streams revenues is important to find an economic balance (donations, premium for-profit services...). As stated by the founder of One Renewable Energy Entreprise, a social business specialized in solar in the Philippines: “we use the commercial branch of our activities to ;support the social one. We soon discovered that this cross-subsidy model is necessary in our field of activities if we want to operate independently.”
Finally, time and resources on the ground are essential to reach all these success factors. They are thus the two major obstacles to the scale up of any ambitious access to energy project.
Amandine de Montvalon et Romain Joly, Advise for Change, June 2015
Find out more on the study supported by The Rexel Foundation