Q&A with Nick Sireau, CEO SolarAid, and Jeremy Leggett, Chairman Solarcentury and SolarAid

By Alejandro Litovsky, Volans

Although SolarAid was officially started in 2006, the thinking behind it goes back much further, to the founding of Solarcentury eight years ago by Dr Jeremy Leggett, who had worked in the oil industry in the 1980s and then became Chief Scientist at Greenpeace in the late 1980s when he became aware of the threat of climate change. Solarcentury was set up with the vision that business could help find a solution to climate change through solar energy, so its founders wrote into its constitution that it would donate 5% of its net profit with no commercial strings attached in order to set up a charity to help the poorest communities in developing countries access solar power. Solarcentury made profit in 2006 and SolarAid was set up as an independent charity, gathering support from a wide-range of companies, foundations and individuals.

SolarAid aim to bring together enterpreneurship approaches to poverty reduction with solar technology, promoting both micro and macro solar applications. In microsolar, they identify entrepreneurs in developing countries, who we then train in business planning, market research and solar skills. SolarAid helps them set up their solar microbusinesses so that they can build and sell solar lanterns and solar chargers for radios and mobile phones. Their ‘solar entrepreneurs’ convert kerosene lamps into solar lanterns using light emitting diodes (LEDs, which are cheaper, robust and use little energy) and build solar chargers from local materials and imported solar glass. These solar products can then fulfill much of the average household’s energy needs, leading to a substantial increase in their income because they no longer need to buy kerosene or batteries. The solar entrepreneurs make money too - a win-win proposition.

Its macrosolar effort provides power for communities and involves installing larger solar systems on schools, community centres and health clinics. Barely 2% of rural populations in most African countries have access to the grid, forcing them to rely on kerosene, candles, car batteries and firewood for fuel. Schools cannot teach in the evenings; community centres cannot offer services such as educational videos or vocational training; and health clinics cannot power basic medical equipment such as vaccine fridges.

“SolarAid’s mission is to bring solar lanterns and battery chargers to a million homes by 2012. Our first projects involving solar lanterns are massively scaleable in principle, almost in a fractal way, if we get the model right on the ground. The trainers can train more trainers to train the junior entrepreneurs making and selling the lanterns; and if channels of distribution and credit can be established and maintained in enough volume, then there is no reason why the project cannot enjoy a tipping point on a large-scale international basis.” [SolarAid’s Vision, internal draft July 2008]

Q: How do you think about scaling your impact?

A: [Nick Sireau] We think in terms of turning the base of the pyramid into producers, not just consumers. We are working in the context of a lack of infrastructure, where there are no markets created, and there is very poor entrepreneurial capital. We are trying to create distribution channels. The vision for Africa is to convert and replace all kerosene lamps, using an entrepreneurial model. It is also about reforming the way the development sector works through enterprise models. In scaling up this nascent solar industry at the base of the pyramid we need to generate a movement that works, it’s not only about SolarAid’s growth. We aim to have a continent-wide increase of “solar lanterning” that shows people that development can happen from the ground up.

A: [Jeremy Leggett] We would like to see a new generation of enterprises in the developing world that would be the “banking and infrastructure of choice” for entrepreneurs and their solar solutions. We need to build on existing movements and platforms as much as we can. The name of game is to help networks of entrepreneurs make money by becoming an enabler of design and manufacturing of solar solutions.

Q: Was there a turning point for you on thinking about the scale of your impact?

A: Last year we were setting up operations in Malawi when we came across a country official from the UK’s Department for International Development (DFID). He saw what we were doing and challenged us to think in terms of the whole African continent. We came across a frustrated official and his frustration changed the way we were thinking about the scale of our impact.

Q: Would SolarAid need to expand in order to scale its impact?

A: First we need to grow towards a tipping point, and then diffuse our model to others. Building a franchising model is essential for our range of products, and when we know it works it will be easier for people to implement and diffuse. Once the franchising model is right we don’t need to set up an infrastructure. Second, we need to tap into supporting markets for our model, such as existing carbon/offsetting markets or web-based investment platforms that put individual investors in contact with small and medium enterprises. Third, we need to develop financial solutions so that entrepreneurs can have an enabling environment for their initiatives. An enabling environment would also contemplate lowering prices, by working on issues such as customs and duty tariffs on equipment. For that you need effective lobbying capacities with governments and policy-makers at the national level who can see the opportunity to reactivate their economies. Finally, in the longer term there is the issue of ensuring the quality of providers of technology, perhaps through a quality standard as a result of the best providers coming together to determine it.

Q: Who do you see as models of success for your work (from any field) — and why?

A: One of those models is Grameen Shakti, which has developed grass-roots energy solutions building on Grameen Bank’s microfinance model. The other is Kiva.org for its investment interface and similar peer-to peer investment platforms, such as MyC4. Finally, there are a number of organizations such as Vision Spring, KickStart, HealthStore Foundation, and more specifically Dlight, which have in different ways developed a successful franchising models as a way to scale their impact. There are also several initiatives with the financial sector such as UNEP’s Solar Loan Programme and UNEP’s Sustainable Energy Finance Initiative.

Q: Has your strategy evolved significantly since it was adopted?

A: The vision goes back to the beginning. The mission and strategy are in flux. We need to come up with new targets and a timetable. We are now talking of going beyond our current countries to “solar lanternize” the whole of Africa, but by when? How? That’s why we are interested in this P2S process. We did the original strategic plan 2 years ago, which is coming to an end. One year ago we did a business plan with PWC with all the figures. What we need now is a strategy paper, which says what we are going to do in the next 3 to 10 years.

Q: Where would SolarAid fit on the 5-stage model?

A: We see SolarAid somewhere between Stage 2 and Stage 3. As we continue to experiment and prove that the model works, we are putting in place the business model.

Q: Would SolarAid “be around” in Stage 5?

A: As you get closer to reaching the tipping point, what is the new role for an organization like SolarAid? In theory we wouldn’t be here in Stage 5, or perhaps we’d be doing something different –Stage 5 is difficult to imagine.

Q: Where would you plan to be against the 5 stages of our model by 2015?

A: We should be in Stage 4, but we need a crisp mission and strategy to reflect this thinking. We would have proven our solutions and business model in stage 3, and in Stage 4 we would see in place a global quality standard for solar products, a robust franchise model that can be replicated by others, and networks that advocate successfully for solar policies and regulations.

Q: What are the key barriers that SolarAid faces in scaling its impact?

A: There are several types of barriers:

• Internal: Building a good sales focus for the organization. We see success as linked to how many resources we put to selling. In Kenya we hired a person with sales talent and entrepreneurial who is focusing on the sales before having a manufacturing facility. Second is working capital: we don’t have the amount of money we need to stock materials in order to sell.
• Operating environment: These are HUGE barriers. At the policy-level: African countries where we work there’s only lip service paid to renewable energy enterprise. At the regulatory level, there is corruption to take products out of customs, as well as massive custom duties for products entering the country – e.g. Solar panels imported to Malawi have 50% duty tariffs. In Malawi we had to cut imports by half because of the custom duties. There is also very little patent protection, and large taxes for hiring staff. Politically, there is a lack of lobbying capacity in most African countries, there are no “solar associations” lobbying to improve the policies and taxes. There are cultural challenges as there is little entrepreneurial culture, which is further killed by Aid NGOs. On the ground we don’t use “SolarAid” for the bad connotation of Aid, but rather a new concept that we call “sunny money”. Financially, the funding industry gives us mostly restricted grant funding which is tied up to fixed projects and therefore makes it very difficult to experiment. Socially there is a skills shortage; it is very difficult to find good local staff. Finally, there is a massive lack of physical infrastructure: even couriers such as DHL are unreliable and loose packages. Two months ago we sent a package of solar panels from South Africa to Kenya, and we still haven’t received it, no one knows where the package is.
• Stakeholders: Because of the above, we tend to see competitors as part of the enabling environment – when companies like D.light work where we work, they create market demand and show viable solutions. The market is so huge and the penetration is so little that this is not a problem. The problem is when competitors use low quality products. Then they create a bad reputation for the industry as a whole, and we start to see the need for quality standards. Another barrier comes from suppliers. They are unreliable because the volumes are too low. We currently source from Croatia, China, and Wales. Improving reliability of suppliers would have a very positive impact. Governments in African countries pose a massive bureaucratic burden, but also public agencies, like USAID who approached us to fund in Tanzania, and still haven’t provided the funding. Form customers and users there is a huge demand, but also a barrier to people being able to afford the products.

Q: Overall, what are your priorities for overcoming barriers and how will that happen?

A: Achieving a more regular flow of unrestricted working capital that is not tied up. This is partly linked to how the aid industry works, which is project-based funding. We’ve got the design, the products and experiments in micro-solar and macro-solar (i.e. solarizing schools and health centres), the issue is the capital. We are not yet getting to where we will really make a difference, which is on micro economic activity. The second priority is markets. There is just not much money for people to grow the new economy. While we link to venture philanthropy and trying to find loans to access working capital, we think markets could provide an additional supporting function. For example, once we show that we can generate carbon credits, we can link to actors interested in this market, but its not easy.

Q: To what extent is your organization lobbying politicians, working with investor groups, business federations and so on to overcome these barriers?

A: Not very much, there’s not enough time or attention to build those relationships.

Q: What type of partnerships should you prioritize?

A: Venture philanthropy and more corporate relationships that recognize that we need less tied money to pursue our mission. We haven’t started approaching the public in a systematic way, mobilize significant the general public support could then feedback loop with corporates interested in visibility.

Q: Is there an organization you would like to find a way to work with over the next 2-3 years?

A: On one hand there are investment platforms such as Kiva,org for connecting to entrepreneurs, people in the west directly in touch with entrepreneur to lend the money, and other similar marketplaces like MyC4. On the other hand there’s the need to work with new franchising models along with some of the organizations we mentioned earlier.

Q: Are you currently pursuing such partnerships?

A: Not yet, we need to get the model working on a more solid base, and then get the micro-finance working for entrepreneurs and the sales of franchisees working. We need to time these alliances well.

Q: Where do you look for market research to help you understand market opportunities?

A: We’ve done it ourselves working with consultancies like ACG in Malawi and University of Zambia. The World Bank has done research as part of the Lighting Africa Programme –a gold mine of information. But there is one bit of data that is essential for us, which they didn’t do: the average household kerosene consumption, with which we could think about tapping into carbon offsetting markets, but we don’t have that data yet, which prevents us from moving forward quickly.

Q: If you could have a market research firm work for you, who would that be, and what questions would you ask?

A: Perhaps Research International working on household kerosene consumption.

Q: How much attention do your current investors pay to the growth of your impact?

A: Very variable

Q: Do they have specific demands and requirements (or pre-set ideas) on scaling-up?

A: Lots of pre-set ideas: corporate ones will emphasis market solutions to scale up the impact, which NGO types advocate for community development aspects.

Q: What could your investors do better to support your work?

A: Provide us better access to their networks to work through some of our critical issues such as franchising models, unrestricted forms of funding and financial forms of support for entrepreneurs.

Q: Are funding requirements likely to become easier or harder with scaling?

A: Hopefully easier because of a virtuous circle, with carbon markets and working capital investments kicking in as you develop the business model further.

Q: Is there a Board director who you ideally like to attract to your organization?

A: Someone who has done micro-franchising models, although we have a preference for a small Board.

Q: Are there other stakeholders that should be engaged more closely in critical decisions about strategy and development?

A: Yes, potential corporate donors and high net worth individuals that can be persuaded that we need core funding to experiment with the mass market.

Conclusions and Recommendations:

Following on from this conversation and the insights that emerged, a few reflections and recommendations on Pathways to Scale that were offered back to SolarAid included:

• Building a Market Alliance: Bring together public and private organizations that have a stake in the success of solar businesses at the base of the pyramid, including alternative energy business units within mainstream energy companies, investors and international agencies. Use the alliance to lobby governments to create conducive policies – e.g. reducing import tariffs and improving customs procedures – as well as promoting a more visionary political leadership in the countries where SolarAid operates. Among other things, consider forming a pool of buyers to work with suppliers of solar technology on ways to lower prices and improve reliability.

• Market Research on Kerosene Consumption and Carbon Markets: (potentially through the alliance) Engage the World Bank’s Lighting Africa Program to extent research to household Kerosene consumption, and explore the links to carbon markets as source of revenue as part of the portfolio of carbon finance intermediaries.

• Financial platforms: Exploring links to new financial models: such as peer-to-peer finance platforms (e.g. Kiva and MyC4) as a means to expand the capital available to small solar entrepreneurs. As part of the market alliance piece, engage public and private financial institutions (including corporate citizenship programs in banks aimed at new markets e.g. Standard Charter Bank) to develop local financial products targeted to solar entrepreneurs. Build on the existing experience and leverage of initiatives such as UNEP’s Solar Loan Programme in India and the Sustainable Energy Finance Initiative.

• Franchising model: Engage with and learn from leading organizations that have developed franchising models to spread their enterprise approaches to development.

• Capital: Based on a clear vision of scale and market creation, define priority areas of investing untied capital as part of the proposition to investors.