Wednesday, April 9, 2014
Green Energy for a Billion Poor
_Green Energy for a Billion Poor_ by Nancy Wimmer
MCRE Verlag, 2012
Foreward by Mohammed Yunis: We are looking forward to a breakthrough in expanding the outreach of renewable energy in the rural areas of Bangladesh. We are exploring the possibility of creating a simple vehicle, which will carry these heavy electric car batteries around, powered by the batteries themselves. With this, we will get _mobile batteries_ which can be driven to the spots where energy is needed at the specific time of the day or night. It can irrigate agricultural fields, or run machines in a rural factory during daytime, provide electricity at home or marketplace during night, carry the agricultural produce from the field to the marketplace, and provide mobility to the owner of the mobile battery.
(18) In June 1996, Grameen Shakti, which means _village energy_, was founded as the first renewable energy service company in Bangladesh. As a rural business, it had to create a market for solar systems through improving the quality of village life. Solar technology was expensive; therefore its benefit to the rural population had to be substantial.
(20) Grameen Shakti grew its solar business to such an extent that by 2010, it had reached more than half a million customers straight from these experiences and learned from scratch in the villages of Bangladesh.
(21) In 1995, only 9 percent of its rural households were connected to the grid.
(39) From the beginning, Shakti built its business to last. The company started as a business, not a project, which makes a significant difference. Projects tend to have a limited lifetime and eventually vanish. They tend to pursue short-term objectives and sometimes last only as long as their funding….
Starting small has advantages for an innovative company exploring new terrain: Shakti could begin operations quickly, learn from its mistakes, change direction, and steadily improve…
Shakti has the advantage of the trusted brand name Grameen, which is well known in all of Bangladesh…
An unknown entrepreneur would thus be well advised to look for a partner organization with a trusted brand name. And to take great care never to disappoint a trusting rural clientele….
Its business strategy chose a narrow focus and a clear target. It concentrated on one technology only and on bringing down its price as much as possible
(40) Although the company’s long-term objective was to serve millions of villagers, it expanded village operations slowly with a minimum of staff and low overhead until it better understood the rural energy market. Shakti initially focused on reaching scale only in the solar market and would not introduce biogas technology for almost a decade.
Shakti engineers are not in a hurry when setting up a branch office. Instead, they take time to understand their customers and gain the trust of the community.
(45) By 2001, every solar system Shakti installed was equipped with a mobile phone charger. “We have customers who buy solar systems just to charge mobile phones,” branch engineers told the head office. “Income comes first. The lamps are secondary.”
(46-47) Shakti began experimenting with a micro-utility model in village bazaars whereby one shopkeeper buys a solar system and then shares the electricity it produces which neighboring shops on a fee-for-service basis. This gives the owner of the solar system the advantage of added income and provides his neighbors cheap access to solar electricity. But although Shakti’s management considered this a promising model to make solar power available to low-income customers, it had yet to work out a special financing and service model for micro-utility owners and to test it at different branches.
(60) Shakti thus introduced deep cycle batteries with a five-year warranty in 1999.
(65) No matter how refined the financing scheme, no matter how well it is adapted to village pocketbooks, branch staff would have to reckon with the highly refined art among villagers to find ways to pay less than is due. Artful customers missed paying the last installment and apparently thought branch staff would not go after them for such a small amount of money. Shakti responded by arranging a special ceremony to acknowledge those customers who had paid all their monthly installments.
Community officials and the school principal were invited to attend the celebration, and applauded when customers were presented with the Grameen Shakti certificate of solar home system ownership. As a token of the company’s appreciation, senior managers presented the new solar owners with a large umbrella bearing the Grameen Shakti company logo. The entire celebration ended with a group photo of the new solar owners under their Shakti umbrellas for the company calendar and brochures.
(70) By 2000, Shakti reached the financial break-even a year ahead of schedule. From the year 2000 onward, Shakti achieved a modest yearly profit.
(71) What’s more, the price of kerosene and diesel has increased threefold since Shakti began operations in 1996… A salient example is mobile telephony, which became available in all of Bangladesh’s 80,000 villages in only six years.
(78) Why then is a revolving fund not more popular with donors? “Because most donors still have the same idea: we give to you and you give it away”, explains Prof. Yunus. “Shakti received the revolving fund as a grant, but replenished it in a business way and got the money back again. But many donors say ‘you can’t do this. If we give you funding for solar systems, you have to give it away. You can’t charge fees.’ But if you can sell your product to people like Shakti did, you can earn. Then you have leverage and can do the same thing over and over again. This is difficult for donors to understand, because their thinking is not market-oriented. You have to demonstrate how a revolving fund can promote the growth of sustainable business."
(79-80) On the contrary, they were learning the bedrock of rural business: Village people know more than you think they do. Take them seriously. Teach them if needed. And never displease a disgruntled customer.
(80) Shakti never lost money. It understood that if managed well, the revolving fund could finance thousands of systems, since the company does not have to pay interest and has no cost of funds.
(85) Within a decade after reaching break-even (2010), Shakti had evolved into a complex organization serving half the villages in Bangladesh….
Company Characteristics as of December 2010
Branch Offices 991
Regional and Divisional Offices 145
Villages served ca.40,000
Solar Home Systems Installed since inception 539,504
(110) ”In a rural service company like Shakti, you have to train everyone,” explains a senior manager, “the engineers, the technicians, the customers. In a sense, we’re a training company.”
(113) Divisional managers’ pick-up trucks, which are highly visible when driving through thousands of villages, bear Shakti’s motto in large letters on the side of the truck: _Solar Power - Better Life - Better Income….
Shakti’s employees also enjoy _gratuity_ which is generous by Bangladeshi standards. After having served the company for five years, staff members are eligible for voluntary retirement and entitled to a gratuity worth five times the amount of their last month’s (basic) salary. Another popular option among employees is _earned leave_, the trading of time for money. An employee receives three days earned leave for every month of service. After a minimum of three years, an employee can cash in one month’s earned leave and get one month’s salary in return.
_Group life insurance_ was introduced in 2007, whereby Shakti pays a monthly premium for each staff member to an insurance company. In case of death, the employee’s family receives prompt financial assistance according to salary and organizational status. The _Staff Welfare Fund_ to provide financial assistance in case of accident or illness was established in 2008.
(114) In 2007, Shakti was scaling up operations to install one million solar systems by 2015… The following sections describe how Shakti developed into the largest off-grid rural solar energy provider in the world.
(123) A solar home system package normally consists of a photovoltaic (PV) module, also called a solar panel, which generates electricity from sunlight; a battery to store the electricity during the day; and a charge controller to regulate the charging and discharging of the battery. It feeds loads like lamps, TV, raids, mobile phone chargers, fans, and appliances.
(124) Shakti waited almost a decade before introducing biogas technology.
(126) In 2007, Shakti launched a program to market bio slurry under the brand name Grameen Shakti Jaibo Shar, Grameen Shakti Organic Fertilizer.
(128) Of the three product types Shakti markets, Improved Cooking Stoves (ICS) are the most recent, but well on their way to becoming a flourishing business. Though the technology is simple, the benefits for the rural population seem immense.
(130) Business in rural areas seems straightforward. Solar home systems, small biogas plants, and simple cooking stoves seem to teach a lesson: practical low-tech products plus good service and customer financing are a sure recipe for good business. Adapting technology to village life teaches a different lesson.
(138) As a learning organization, Shakti cultivates teamwork, open discussion, and a spirit of inquiry.
(142) One example is the solution found for the hundreds of defective solar panels that were accumulating at brach offices. The panels couldn’t be resold, and storage was becoming a serious problem. Audit teams wanted to know if they couldn’t be repaired and took up the matter with the technology department at the head office. Combined action by audit teams, engineers, and battery specialists generated valuable synergetic effects that the company then used to benefit its customers. Shakti launched a new project to set up battery charging stations with repaired solar panels at each of its branches and made the service free of charge for all its customers.
(149) Mobile phones fundamentally changed and improved Shakti’s business. All branch offices were equipped with mobile phones, and their numbers were published in the company’s brochures and product information leaflets.
(154) He [Mr. Gazi who runs a small shop at a village market] can afford the solar system because he earns money using it. In addition to selling groceries at the market, he is a small-scale energy service provider, a micro-utility, serving a clientele of three. His solar system powers four lamps, but he uses only one to light his shop. He rents the other three lamps to his neighbors, shop owners like himself. All four benefit from solar electricity: Mr. Gazi from the monthly rental fees and Shakti’s easy credit terms.
Shakti’s financial model for micro-utilities is simple and adaptable. Micro-utility entrepreneurs need pay only 10 percent down, pay no service charge, and enjoy an extended repayment period of three and a half years. In the case of Mr. Gazi, a branch engineer first calculated if the shop owner could make a profit after paying his monthly installment. Shakti then provided one lamp for half price to help get him started. He paid full price for the remaining three lamps and backed the expense by renting them to neighboring shop owners. Branch staff provided training and maintenance free of cost and were close at hand when Mr. Gazi had problems. Today, he has repaid his loan, owns the solar system, and enjoys additional income…. their [shop owners who are micro-utilities] monthly income from renting out lamps exceeds the amount of their monthly installments.
(157) In 2005, Shakti launched the pilot phase of its biogas program for small farms and private households. It hired civil engineers, trained masons, developed training programs, and constructed 450 biogas plants. Shakti’s branches were challenged with creating a market for a new and expensive technology. And what better way to raise the interest of potential biogas customers than with the prospects of earning money as owners of a micro-utility.
(158) Hazera’s business [collecting chicken and cow dung from neighbors for her 6 m3 biogas plant that supplies nine small gas lines to local houses] depends on Shakti’s micro-utility model, which is fine-tuned to small scale entrepreneurs. Financing is exactly tailored to Hazera’s business needs. She can handle the technology because it is not too complicated. Shakti engineers back her up with all services she needs: installing gas lines, training, maintenance, and repair. It’s the clever combination of all these components that gives Shakti its edge.
(159) As a farmer, Khaledur understood the benefits of bio slurry for his land. But as a businessman, he recognized a growing market for fertilizer that is not imported, which is key to Shakti’s marketing strategy for Jaibo Shar. Shakti counts on entrepreneurial farmers like Khaledur to market its organic fertilizer. If marketed successfully, farmers profit from increased corp yield and an abundant supply of bio slurry at local markets and biogas owners benefit form a new source of income. The fertilizer business further adds to the village economy, because the production, collection, and refinement of bio slurry create local jobs.
Whatever the product Shakti introduces, generating income for villagers is part of the package to spur economic growth. Since introducing solar home systems in 1996, Shakti has trained and employed thousands of solar technicians and field assistants. Shakti’s biogas program increased incomes for micro-utility entrepreneurs and created jobs for local masons.
(160-161) The problems escalated as Shakti expanded; during the six-month warranty period, the company was responsible for all repairs and had to replace the stove if it was defect[ive]. Shakti went back to the drawing board and came up with a stove made of concrete. It could be prefabricated, mass produced, and quickly and easily installed - even by village women. A branch manager explains how business with the new stove created new opportunities for village entrepreneurs.
“First we encourage women to apply for a job as a stove technician. If accepted, they receive training and a tool-set, and start working for a basic monthly salary of 3,000 Taka as Shakti certified technicians. Their starting salary is low to encourage them to become part-time entrepreneurs who find and serve new customers on their own. They receive 50 Taka for each of the first ten cooking stoves they install per month, but 150 Taka for every additional stove. That’s around 5,000 Taka a month for only twenty new customers. This is the heart of Shakti’s new marketing strategy. Women earn more if working on their own. Shakti’s role is to help women technicians get started as stove entrepreneurs."
(164) In 2005, Shakti launched its boldest project yet. It began decentralizing all production from its central factory in Dhaka to rural communities. In future, all solar system accessories will be manufactured and repaired in village production units near Shakti’s branch offices. the production units will also function as training centers for village technicians and thus advance energy entrepreneurship far beyond the micro-utility approach.
(171) Five years after launching the technology centers, they had turned into solar manufacturing hubs. All production had been decentralized from the head office to forty-six technology centers. They supplied solar system accessories to one thousand branches throughout rural Bangladesh. Local production was vital to Shakti’s business, because by 2010, branches were installing 20,000 solar systems a month. The demanding task of coordinating the logistics also had shifted from the head office to the field - more precisely to the divisional offices.
A divisional manager gives an example: “If all sixty-one branches in my division set their monthly quota for a total of 2,000 systems, the technology centers have to supply them with 3,000 charge controllers and 7,500 lamps. I calculate 1,000 of these charge controllers for replacement and repair; solar home systems normally require from three to five lamps. We also keep the branches supplied with 3,000 extra circuits for immediate replacement in addition to around 500 mobile phone chargers and 200 DC-DC converters a month. All of this is coordinated from my office. The rest is up to the GTC engineers."
(177) The numbers speak for themselves: forty-six technology centers and 3,000 women technicians trained within five years; 1,000 branches served with a continuous supply of solar accessories.
(178) “Our young people leave the village for education and a job, but you bring knowledge and jobs to us,” the villagers tell the engineers. Grameen Technology Centers have become part of the village not only by virtue of their name. People see them as benefitting village life.
(184) A World Bank study in Bangladesh found that having access to electricity impacted rural households significantly. It increased household incomes by as much as 20 percent, resulting in a corresponding drop of the poverty rate of about 15 percent. Findings also showed that study time for schoolchildren was up to 33 percent higher for those whose homes have electricity. As in the rest of the developing world, many problems in rural Bangladesh are rooted in an energy problem. Providing villagers with even modest amounts of electricity is impacting most every facet of village life.
(189) Planned Product Installations in 2015 [cumulative]
Solar Home Systems 5 million
Improved Cooking Stoves 5 million
Biogas Plants 205,000
(193) Mohammed Yunis: A social business is thus defined as a non-loss, non-dividend company for solving a social problem. And it must be sustainable; otherwise it will have to shut down. This was my problem when Shakti got so big. A non-profit doesn’t have to be sustainable. It can lose money and still continue. So I solved the problem by creating a social business, Grameen Shakti Social Business, to be owned by Grameen Shakti. So now we have an owner.
(194) Mohammed Yunis: So the legal form should be of a non-profit company, except owners cannot take profit. The profit stays with the company. Whoever is investing in this company cannot get any return on the investment. This is a new concept. As a social business, you don’t have to please your shareholders by generating a personal return on investment. You want to focus completely on your social impact. Social business devotes 100 percent of its profits to solving social problems. This leads to long-term solutions.
NB: Gandhi’s idea of trusteeship
(216) Objectives of Grameen Shakti Social Business
Listed below is a selection of objectives taken from the Memorandum of Association of Grameen Shakti Social Business:
To acquire, develop, transfer and upgrade technologies in the alternate and renewable energy, energy management, environment and climate changes; energy for health and education; alternative fuels for transport, rural energy, water supply, women in development and related industrial an business spheres through appropriate means including importation.
To maximize benefit of the society rather than profit maximization.
To overcome poverty, or one of more problems (such as education, health, technology access, and environment) which threaten people and society; not profit maximization with special emphasis on environment.
To carry on business with financial and economic sustainability being fully conscious of the environment.
Investors get back their investment amount only. No dividend is given beyond investment money