solaraid hult global case challenge ixl 2012 v1.0

SolarAid:

Revolutionizing the

way to make energy

affordable for everyone Going beyond the status quo - creating bigger, better, bolder, faster, and cheaper solutionsBy Charles Howe, Joanne Lawrence and Hitendra Patel

“!e way to make a big di"erence in 2020 is to build a new kind of enterprise, one that can

make an major social impact while also making a pro#t.”

- Jeremy Leggett, Founder

SolarAid and SunnyMoney

January 2012

Executive Summary /Table of Contents

Revolutionizing the way to make energy affordable for

everyone

Going beyond the status quo - to create bigger, better, bolder, faster, and cheaper solutions

SunnyMoney wants to transform lighting in Africa 3

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Light increases productivity and enriches life

Adequate light sources are widely available in Africa, but millions of people rely on

expensive off-grid lighting

Access to light also means access to energy

SunnyMoney is working to bring affordable off-grid solutions to Africa 8

SunnyMoney is a social enterprise that evolved out of SolarAid

SunnyMoney offers micro-lighting solutions

SunnyMoney has had a hard time building scale

SunnyMoney needs to address many challenges to achieve their goal 11

The market isn’t aware of the product, and potential customers are hard to reach

� 3RWHQWLDO�FXVWRPHUV�GRQ¶W�TXLFNO\�VHH�WKH�EHQH¿WV� Many customers can’t pay up front, or over time

The supply chain can’t respond quickly, and SunnyMoney’s batteries have an

expiration date

SunnyMoney needs new and better solutions to achieve wide-scale,

transformative impact 12

Are there new customers and experiences to target?

Are there new ways to deliver SunnyMoney’s solutions?

Are there new offerings that SunnyMoney can bring to the market?

Are there new ways to produce SunnyMoney’s solutions?

Are there new business models?

Are there new partners to collaborate with?

Can SunnyMoney get off-grid solar power and light to one million

households by the end of 2013? 15

3

At night, the plains of western Tanzania are not just quiet; they’re dark, too. The light of the stars and the moon faintly illuminates a vast grassland that is home to almost one million people.1 By day, they work in fields and villages as farmers, laborers, traders, and professionals. They study in schools, raise children, manage small businesses, and tend livestock. After sunset, however, the lively activities that occupy these rural communities wind down quickly. For most people here, beyond the reach of Tanzania’s sparse and unreliable electric grid, evening activities are lit by kerosene lamps, candles, or fire. Every household likely has access to these lights, but because of the high cost of fuel most families extinguish them early or leave them unlit. At night, few people are working and even fewer students are studying.

With the successful model of mobile phone penetration as an inspiration, Jeremy Leggett and the management team of SunnyMoney, a social enterprise, are convinced they can bring better and less expensive light to rural Tanzania and other communities across Africa. Their business is distributing stand-alone solar lamps.

Leggett and his team are confident that a

relatively sophisticated product can reach even the world’s most remote corners. Mobile phones, for example, became nearly universal in little more than a decade, in many regions leapfrogging the step of installing copper wire, the traditional telecommunications infrastructure, and are now more numerous than toilets in some of the world’s poorest countries.2

Bringing cheap, safe and sustainable solar light to communities throughout Africa is a huge challenge, and SunnyMoney has committed itself to the bold goal of eliminating kerosene lamps from Africa by 2020. But SunnyMoney neither expects nor intends to be able to reach every potential consumer itself. Instead, it sees itself as the catalyst for change, expanding its impact by educating consumers and creating distribution channels so that other solar lighting enterprises might scale and prosper at the same time.

How can SunnyMoney get affordable, renewable sources of artificial power and light to everyone in Africa by the end of the decade? Can access to light scale up as quickly as access to mobile phones has? What can be learned from approaches taken by would-be competitors, other industries and other organizations?

Revolutionizing the way to make energy affordable for everyone

SunnyMoney wants to transform lighting

in Africa

0LOOLRQV�RI�SHRSOH�LQ�$IULFD�FRXOG�EHQH¿W�from better lighting solutions

Lighting is fundamental. Any community with fuel for a fire has the power to light the night and has access to the social, educational, and economic benefits of an extended day.

But an open fire is a poor source of light. To maximize the benefits of lighting, a light source needs to be safe, reliable, convenient, bright enough for the task at hand, easy to acquire and to fuel, and—most importantly—inexpensive to operate.

Light bulbs powered by the electrical grid meet these standards for billions of people around the world. Reliable access to the grid, kerosene lanterns, candles, battery-powered flashlights and other stand-alone sources of light perform well on one or more of those dimensions, but leave room for improvement in others.

In Africa, where the reach of the electrical grid is still very limited, the opportunity for better lighting solutions is particularly great. Bringing better sources of light to Africa could be an important part of building a better life for millions of people.

Light increases productivity and enriches life

Extending the useful hours of the day is essential for productivity, prosperity, quality of life, and learning. Good lighting makes learning possible by bringing students and teachers together, and by enabling reading and research by making the words on a printed page visible after dark. It makes new opportunities for work possible by illuminating tools and tasks, and can make relationships stronger by enabling more face-to-face time between friends and family members.

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check for how mobile how it got distributed

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Good lighting gives adults a chance to work more and earn more incomeBy extending the workday, adequate lighting can have a significant positive impact on the productivity and prosperity of individuals, households and communities.

In places where opportunities to earn a cash income are relatively scarce, many individuals pursue crafts and operate cottage industries in their homes in the evening. While the materials required for activities like preparing food products, mending clothes or weaving baskets are relatively inexpensive, light can be a major cost for at-home work in the evenings.

In the last several decades, projects around the world have demonstrated that access to inexpensive lighting can dramatically improve the profitability of this informal work. For example, a World Bank project in India that tracked the impact over several years of improved lighting

solutions in rural communities showed that inexpensive solar lighting improved the income of some households by 15 to 30 percent because of increased home industry output.4

Good lighting leads to more learning The benefits of good lighting are particularly pronounced for students.

Schools with quality lighting in communities where good lighting is scarce often have an easier time attracting people, both young and old, to classes and group study sessions after dark. One study in Malawi, for example, showed that improving the lighting in schools can lead to dramatic increases in time spent reading and studying, as well as improved after-hour school usage for additional learning and adult literacy.3

Schools with quality lighting have increased attendance, better teacher retention, and significant improvements in exam scores.

Figure 1. Reliability of the African Power Grid

Average blackouts per month

Guinea

Nigeria

Congo, Rep.

Gambia, the

Chad

Niger

Congo. Dem.

Rep.

Sierra Leone

Benin

Madagascar

Rwanda

Burundi

Tanzania

Senegal

Togo

Uganda

Burkina Faso

Cameroon

Ghana

Guinea-Bissau

Angola

Gabon

Kenya

Lesotho

Liberia

Ethiopia

Cape Verde

Algeria

Mali

Cote d’lvoire

Mauritania

Zambia

Mauritius

Mozambique

Entrea

Swaziland

South Africa

Botswana

Namibia

Malawi

34

26

25

24

23

20

17

16

9

8

1

14

14

14

12

12

12

11

11

11

7

7

7

3

3

3

5

5

5

5

4

4

4

4

2

2

2

2

10

10

10

Source:WB/IFC Enterprise Analysis Unit (2006-2008)


Mean =

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Good lighting enriches lifeGood lighting creates new opportunities for social interaction and personal experience. It makes it possible for individuals, parents and children, siblings, friends, neighbors and guests to have intensive conversation and to engage in creative and recreational activities.

Lighting that is more convenient, less expensive, and safer to operate creates the opportunity to enjoy these social and personal activities more frequently and with greater ease. It also creates a feeling of safety and security from intruders and potential harm.

Adequate light sources are widely available in

Africa, but millions of people rely on expensive

off-grid lighting

Grid electricity is cheap for users, but coverage is expanding slowly and unevenlyIn Africa, the grid provides cheap electricity to users, but its reach is limited. In urban and peri-urban areas, over 30 percent of people have access to grid electricity; however, this number drops to under 2 percent in rural areas of the continent.5 Altogether, the electrical power grid reaches only about 400 million of Africa’s 1 billion people, leaving 600 million without a reliable source of power.

Light bulbs powered by electricity from the grid are less expensive to operate than many other types of lighting in part because the power is frequently subsidized, either directly by the government or indirectly by industrial users who consume large quantities of power.6 Costs vary geographically, but powering a single light bulb typically costs less than a few cents a day.7

Brownouts are common in areas where demand for power frequently exceeds supply, or where the generation and distribution infrastructure is poorly managed and maintained. Households who can afford them and commercial users, such as upscale restaurants and some offices for whom a steady supply of power is mission-critical, rely on gasoline-powered generators to cope with interruptions in electrical service.

The electrical power grid is expanding slowly and unevenly across Africa. Governments and private corporations are working to reach further into the continent, but financial, political and logistical barriers have proven difficult to overcome.

Because the cost to reach each user is higher where population is sparse, and because the commercial and industrial users whose high-volume consumption subsidizes household use tend to be located near cities, extending the grid into rural areas is a lower priority than improving its coverage in more densely populated communities. Remote mines and other resource-

extraction sites are exceptions, but these typically have their own dedicated sources of power.

In peri-urban areas, grid coverage is typically sparse because it is difficult for grid operators to service users and collect payment where property ownership is poorly defined. In these areas, black-market entrepreneurs often attach wires to the grid illegally and either sell the power to neighbors or use it themselves without payment. This practice creates a high risk of accidental electrocution and electrical fires. It also reduces the reliability of the grid both for legitimate and black market users, and it raises the cost per kWh of grid power for paying users.

The centralized nature of conventional electrical power grids serves as a natural cap on the rate at which they can expand. Even in the few places where the financial case for expanding the grid’s reach is clear and where the political will, financial means, fuel sources and technical capacity for expansion are in place, the rate at which the grids can expand is limited by cumbersome government bureaucracy and the length of time they take to complete.

Even in the best scenario, the reach of the electrical power grid in Africa will expand steadily, but will still not meet the lighting and power needs of millions of Africans anytime soon.8 The population is growing at a rate faster than the most ambitious expansion plans of African governments.

Current off-grid solutions are generally well adapted to user needs, but expensiveNearly 600 million people in Africa lack access to the electric grid9 and rely on stand-alone sources of light.

For decades, kerosene lanterns have been the best source of light available to these people. Kerosene lamps produce a steady light and a single lamp can adequately light a small room.

Some of these lamps are built locally from scrap metal by semi-skilled craftsmen, and amount to little more than a small fuel tank and a wick. These lamps produce open flames that create a significant fire hazard if placed near flammable materials or if accidently knocked over. In overcrowded and dim homes, schools, and workplaces – and especially when young children are present – knocking over a lamp can have catastrophic consequences.

More expensive, mass-produced lanterns include a sturdy metal frame, a handle, and a glass housing which surrounds the flame. The glass reduces the risk of accidental fires and protects the flame from the wind, creating a brighter, more efficient light while producing less smoke. These lamps are sometimes called hurricane


Death by Candlelight

On August 22, 2009 at the Idodi Secondary School in the Iringa Province of Tanzania, many of the 460 girls at the boarding school had been studying in their dormitories, using candles as their only source of reliable light.

One student accidentally knocked over the candle by her bedside. The flames quickly engulfed her mattress and the mosquito net surrounding it, and rapidly spread throughout the entire dormitory block. As the young women scrambled for their lives, some became trapped. Twelve died and 20 others were seriously injured. The dormitory itself burned to the ground.

Many children die each year as a result of fires that are started by candles or unchecked kerosene lanterns, despite having readily available alternatives, such as solar powered lanterns. In fact, SolarAid had just installed solar panels on the Idodi school itself the June before.

As Idodi started to rebuild, SolarAid donated its micro-lantern kits to the school so students would no longer need candles.

6

lamps, because they will continue to burn even in the strongest winds.

The amount of smoke produced by kerosene lamps depends on the quality of the lamp and of the fuel. While lamp smoke stings eyes and contributes to air pollution and respiratory diseases, the quantity of smoke produced is relatively minor when compared to that emitted by the stoves and open fires used by many households for cooking.

Kerosene lamps, whether improvised or mass-produced, are widely available in markets across Africa, as is the liquid kerosene fuel that they use. (The fuel is also called ‘paraffin’ in the U.K. and in areas where British English is spoken.) Kerosene lamps are also commonly used with diesel fuel or gasoline when these fuels are more readily available or less expensive than kerosene. Both these fuels, however, are smokier than kerosene, and gasoline especially poses a significant fire

risk because it is volatile and highly flammable.

Candles and battery-powered lamps and flashlights (torches) are also widely used and widely available. Because these typically produce a smaller quantity of light than kerosene lanterns, they are used more often for personal purposes, such as following a path outdoors in the dark, or doing an individual task indoors at night.

Consumers typically use a mix of light sources. Households often will have several separate lighting devices: one for interior lighting, one for working outside, and one as a back-up when a specific type of fuel is not available or is too expensive.10

The relative rates at which these light sources are used vary significantly by geography and by the proximity of a user to a market where fuel sources are available.

SOURCE: IXL Center Analysis

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7

For example, in Malawi, a SolarAid survey showed that 62 percent of households use kerosene lighting: 41 percent use hurricane lanterns and 21 percent use homemade lanterns. The same survey also showed that 41 percent of locals were using battery-powered lanterns or flashlights, and 21 percent use candles.11 Nine percent reported using firewood as a lighting source, presumably both as a secondary output from a fire used for cooking, and by burning sticks for short-term lighting. People with access to a mobile phone also sometimes use the phone’s screen for temporary illumination.

Fuel and batteries for light are a major drain on the household budgets of potential customers. A typical household in Malawi, for example, spends more than a third of its monthly income—about MK5320/month or US$3012 —on lighting and power. Half of that is spent on kerosene for lighting. For the head of a typical household, an hour’s work pays for 1.4 days of light with a homemade kerosene lantern and 3.5 days with a hurricane lantern. In the U.K., by comparison, an hour’s work pays for 458 days of light from the electrical grid.13

As demand for hydrocarbons and energy continues to increase around the world and in Africa, the price of kerosene is expected to rise.14

Higher prices will require African households with no access to the electrical power grid to allocate more of their income to lighting, reduce their use of lighting, or seek alternative sources of illumination.

Solar-powered lighting is not widespread in Africa. Large macrosolar installations, with rooftop-sized panels that generate enough power to light several rooms or small appliances, can cost over US$5,000,15 and are therefore used primarily to power offices or staff housing of governments, international non-governmental organizations (NGOs), and multinational corporations. Single, micro-solar lamps, powered by a panel no larger than a piece of paper, are generally not available in retail markets, and despite some efforts to raise awareness, most Africans remain oblivious to their existence or value.

Access to light also means access to energy

Every source of light relies on a source of energy that has been collected, concentrated, stored, and delivered to the user. Such energy is useful for a variety of purposes beyond the generation of light—but the use depends on the form in which the energy is stored.

Energy stored in the form of kerosene fuel is used for cooking and heating in addition to its use in lamps. Gasoline and diesel fuel are widely available as well, and can easily be siphoned from automobile or truck gas tanks when needed. Demand for these uses contributes to the wide availability of kerosene, gasoline and diesel in African villages, towns and cities.

In rural and peri-urban communities in Africa, one of the most prominent uses of electrical energy is charging mobile phones. Phones have become nearly universal in Africa, but the reach of service coverage greatly exceeds the area where individuals have easy access to the electrical grid.

This need is being met in many places by using batteries. Large batteries can be charged in areas with grid connections and then transported by car or bicycle to remote locations where entrepreneurs charge for the opportunity to recharge phones, lights, and other devices.

EGG-energy, an independent power distributor, for example, is running a pilot in Tanzania in which power from the grid is packaged into portable, rechargeable 12V batteries that can power lights, radios, and mobile phones for a household for about three nights. The batteries are rented in exchange for a subscription fee and once depleted, can be exchanged for a fully charged battery by paying a small swapping fee at a nearby EGG energy charging depot. To make access easy, EGG-energy has partnered with local convenience stores (“dukas”) and delivery companies to provide pick-up and drop-off services.16 Many independent entrepreneurs use a similar business model with re-purposed car batteries. Conventional consumer batteries (e.g. AA or D size batteries) are used to power small portable radios that many households use for entertainment and information, even in remote villages with little access to technology.


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SunnyMoney is a social enterprise that evolved

out of SolarAid SolarAid, a U.K.-registered charity, was created by British solar energy entrepreneur Jeremy Leggett, who founded the U.K.’s largest independent solar company, SolarCentury, in 1998.

From the start, Leggett believed that business could solve the problems of climate change in both the developed and developing world by offering solar energy commercially. He established the SolarCentury Global Community Trust (precursor to SolarAid and SunnyMoney) as part of SolarCentury’s charter, stipulating that 5 percent of the company’s profits would go to fund the charity each year and that SolarCentury employees could serve as volunteers. He fulfilled that promise in 2006, the year SolarCentury turned its first profit, and SolarAid was officially launched. SunnyMoney wants to address this issue as a self-sustaining social enterpriseWhereas SolarAid funded large scale installations of solar panels for buildings such as schools and hospitals through major donations from groups such as USAID, Vodafone and others, the charity created SunnyMoney as a separate, stand-alone social enterprise meant to bring solar lighting solutions to the broader populations in Africa. From the start, the intention was that SunnyMoney would in time earn enough from the sale of solar lamps and related lighting solutions, either directly or through partners, to operate as a self-sustaining entity, no longer reliant on donor funds.

Taken all together, Leggett had created a hybrid operating model, with the potential for multiple sources of revenues to sustain it.

Leggett put a leadership team in place to run SunnyMoney as a social enterpriseIn 2010, consistent with the goal of making SunnyMoney truly self-sustaining, Leggett appointed a new CEO, Steve Andrews. Drawing on his experience as an executive in the advertising and marketing industry, Andrews has spent time building a like-minded management team. He has focused his attention on transitioning SunnyMoney’s culture from a charity-based mindset into a dynamic, passionate one with a strong, market-based approach to spreading light throughout Africa.

The team has set themselves an ambitious goal:

to eradicate the use of kerosene lamps throughout Africa by the end of the decade.

SunnyMoney offers micro-lighting solutions

The solutions SolarAid offered were primarily macrosolar installations. Since 2006 SolarAid has successfully installed macrosolar projects in 108 schools, 19 clinics and 8 community centers. But their high cost meant that installation was heavily dependent upon aid. Donor funds were rapidly being consumed, and there weren’t enough revenues being generated by the social enterprise to sustain both operations.

Andrews, determined to find a new sustainable and cost effective approach for SunnyMoney, observed that with enough higher-powered lamps, schools could be lit for a cost of US$300-$400. SunnyMoney decided to focus on micro solar solutions, and offer a wider range of products, including lamps that could work in larger installations.

“Here we were saying we were a social enterprise that believes in a market-based approach, yet 50 percent of our business was aid-driven. I had a big question around the sustainability of these systems. Africa was covered with solar panels that weren’t delivering value: a classic case of bad aid,” he said.

The stand-alone lighting products that SunnyMoney offers are composed of a solar panel with a battery and an LED. They range from the entry-level S1 that costs less than US$8 and is geared to students, to the mid-range Firefly Mobile that may cost US$20 and targets low-income households who own a mobile phone. The higher end Sun King costs between US$28-$50 and targets the better-off rural households. The largest of the lamps, the macro-range, which cost between US$225 and US$325, are primarily intended for rural offices, classrooms, and clinics. The lamps range from 1.5 watts to 15 watts.

SunnyMoney stocks lamps from a range of companies and keeps the stock range under constant review. At present, stock is manufactured in China where manufacturing costs are much lower than in Africa. SunnyMoney works with distributors to bring the lights to its markets. In Kenya, for example, one of SunnyMoney’s suppliers is Smart Solar, who in turn is a local distributor for Barefoot Power, a social enterprise that makes its products available through an extensive network of social enterprises in Uganda, Kenya, Tanzania, India and other parts of the world.

“We are at peace.”

There are just over 200 children between the ages of 3 and 12 years old at the orphanage in Nairobi, Kenya which also operates as a school. While the majority are in foster care programs, a little more than a third of them live full time in Cheryl’s Children’s Home.

The orphanage needs to pay for food, water, fuel and electricity to keep operating. It is often strapped for cash, and has trouble keeping up with the bills. When they fail to pay, the electricity company cuts off the electricity, usually without warning, by simply cutting a cable. The orphanage, located in a dangerous area of Nairobi, is plunged into darkness, spreading fear among its young inhabitants.

At the end of 2010, SolarAid, with the help of donors, installed solar panels at the school. When Rose Shiga, the Home’s manager, was asked what difference solar power made, SolarAid’s management was surprised by the answer. Expecting to hear that children were now able to read in the evenings, or that they now could better afford food, water and medicines since they no longer needed to buy electricity or purchase kerosene, Rose stated, “We are at peace….there is no fear because whatever happens we have light.”

When SolarAid’s Director of Fundraising and Marketing, Richard Turner then asked his young friends what they wanted to be when they grew up, the responses he received made him smile: a newsreader, a journalist and a pilot. SolarAid had not just brought them light for the present: it had taken away fear, and given them hope and dreams for the future.


SunnyMoney is working to bring affordable

off-grid solutions to Africa

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Category

Entry Level

Mid Range (Low)

Mid Range (High)

Upper Range

Macro Range

Product

S1

S10

FireFly Mobile Lamp

(formerly FireFly 12

mobile)

Sun King Pro

S250

Powapack Jnr (1.5 & 2.5

Watt)

PowaPack 5 Watt

PowaPack 15 Watt

Phone Charger?

N

N

Y

Y

Y

Y

Y

Y

Supplier

D.Light

D.Light

Barefoot

Power

Greenlight

Planet

D.Light

Barefoot

Power

Barefoot

Power

Barefoot

Power

RRP

$7.43

$10

$20.25

$28.13

$50

$36.75

$57.75

$95.25

$222.30

$322.50

Target Market

Students

Low income house-

holds

Low income house-

holds who own a

mobile phone

Rural households

with mobile phones

(prosperous farm-

ers, teachers, etc.)

Rural households,

UXUDO�RI¿FHV��UXUDO�dormitories

Rural households,

UXUDO�RI¿FHV��UXUDO�dormitories, rural

classrooms and

clinics


Table 2. SunnyMoney Product Range and Pricing

10

SunnyMoney has had a hard time building

scale

SunnyMoney currently sell lights in four countriesAt present SunnyMoney operates in four African countries: Tanzania (43 million people) Kenya (41 milllion people), Malawi (16 milllion people), and Zambia (14 milllion people), which have a combined population of close to 114 million people.17

Between 2006 and 2011, SunnyMoney reached a total of 215,000 households and sold 46,000 lamps. In 2010/11, it generated $400,000 in revenues, of which the sales of solar lamps accounted for 79 percent.

To build sales, SunnyMoney has been experimenting with a number of different sales, marketing and distribution models but with limited success.

In Tanzania SunnyMoney has trained and developed door-to-door local entrepreneurs. They hired teams to drive from village to village in off-road vehicles to demonstrate how the lights work: it took five teams seven months to reach 80 percent of Tanzania, but along the way SunnyMoney lost time and money to equipment breakdowns and personnel changes, adding significantly to the expense.

SunnyMoney has also sold lights through various wholesalers and other social enterprises and organizations, including foundations. In one instance, for example, they sold lamps to the Anne K. Taylor Fund, which in turn sold the SunnyMoney lamps to the Maasai in Kenya and northern Tanzania in order to raise revenues to fund their community programs.

SunnyMoney has also used more traditional fast-moving consumer goods retail channels, but with little success. Shopkeepers have little incentive to keep the lamps on hand since there is little to no demand for them from their customers.

In Malawi, SunnyMoney has been working with Concern Universal (CU), an international development organization that enables community-led development primarily in Africa.18

In an effort to promote entrepreneurship in sustainable energy products as a way to combat deforestation and climate change, CU sponsors entrepreneurs who produce and sell energy-efficient clay stoves. In July 2009, SunnyMoney started supplying CU with their micro-solar products which are then distributed through the existing network of clay stove entrepreneurs. More than 600 lamps have been sold this way.

SunnyMoney is also starting to work with CU’s microfinance organization (CUMO) to nominate and capitalize these potential entrepreneurs.

In another instance of partnering, at the Satemwa Fair Trade Tea Estate in Malawi, the Joint Body of the Workers Council, representing workers’ interests and having budget authorization, sought advice on providing micro-solar products to tea workers in the estate. By the end of Q1 2010, SunnyMoney had supplied all 1,800 permanent tea workers with micro-solar products. With a constant in-flow of seasonal workers, SunnyMoney is discussing the prospect of providing products to new entrants, or additional products to the local community. In Kenya, SunnyMoney works with Smart Solar, who in turn is a local distributor for Barefoot Power, a for-profit enterprise with an extensive distribution network that makes its products available within Uganda through a network of solar entrepreneurs and works with other social enterprises in Kenya, Tanzania and India to help distribute its products. Barefoot Power provides SunnyMoney with the majority of its product range, including its popular Firefly Mobile and Powapack models. It works with other suppliers such as d.light to provide the smaller S1 models and Greenlight Planet for the larger models.

SunnyMoney has had success distributing through local schoolsOf all the channels tried, only one has demonstrated the promise of providing the scale needed to reach SunnyMoney’s ambitious goal.

Mafia Island, Tanzania is 30km long and 15km wide and lies just off the mouth of the Rufiji River in Southern Tanzania. Most of its 45,000 residents make their income fishing from the sea. Roads are rugged with few vehicles; everyone walks or rides bicycles.

Very few residents living outside the district capital have access to electricity or running water. Work stops at sundown, and children lucky enough to go to school sit beside flickering candles or smoking kerosene lamps to do their homework in the evenings.

It was here, in what has been described as “one of the least developed parts of an undeveloped country” that SunnyMoney witnessed one of its most surprising successes.19 Battery powered LED lights were SunnyMoney’s biggest competitor for Mafia Island customers, although product quality and battery capacity are low. The entry price point for an LED battery light in the Mafia Island market was TSH2,000 (approximately US$1.25), with very poor quality batteries selling for 10 cents to 20 cents each.


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door to door and thru charity funds did not work effectively

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SunnyMoney approached school authorities on the remote island with a proposal for a short term sales promotion: head teachers could offer students the opportunity to buy a solar lamp at a discount if they were willing to place their orders within the next three days.

With trusted teachers demonstrating the solar lights’ value and eager students immediately experiencing their benefits, concerned parents were only too happy to make the purchase to help their children towards a better life. At a time when SunnyMoney was lucky to sell 1,500 lights a month elsewhere in Africa, they sold 3,500 in just 3.5 days on Mafia Island.

When initially asked what their preferred lighting option would be (taking into account initial cost, quality of light, ongoing cost, etc.,) 57 percent of Mafia Island customers stated that a microsolar system was their preferred energy option, followed by 22 percent battery-powered lights, 7 percent kerosene lights, 7 percent candles and 7 percent the Tanzanian power company (those living within reach of the grid).20

Following the school promotion, 100 percent of those interviewed said that, if they could, they would replace all of their lights with solar lamps. In the end, first-hand experience with the lamps was the best marketing tool of all.


SunnyMoney needs to address many

challenges to achieve their goal

The market isn’t aware of the product, and

potential customers are hard to reach

Awareness of solar lamps is very low among the consumers that SunnyMoney intends to serve. These consumers are generally aware of products that are available in local markets, that are advertised on billboards or on the radio, or that they observe other people using in their communities.

Each method of building awareness requires substantial scale in order to become self-sustaining. SunnyMoney has found that vendors and distributors will stock and promote products only if they have already seen evidence of significant demand. SunnyMoney has been reluctant to invest in wide-scale advertising because of the significant cash out-lay required. SunnyMoney will not be able to enjoy the benefits of potential customers observing their neighbors using the lamps until they’ve sold a large quantity of lamps in the first place. Potential customers don’t quickly see the

DGPGſVUBefore making a purchase, consumers must both understand the value of SunnyMoney lights and trust the quality of the product. Communicating the business case for a solar lamp is a critical first step in driving demand and establishing credibility.

To justify the initial higher price of the solar lamp for a household that already owns a kerosene lantern, the lower cost of owning a solar lamp as compared to buying kerosene needs to be explained and understood in context. How long will it take for the household to break-even between their initial outlay of cash and the

savings they will realize over time from spending less on kerosene or paraffin? How much more will they be able to earn as a result of having longer hours to work?

A typical SunnyMoney customer in Malawi might earn US$50 in a month. If that family began saving US$5 per month that was previously being spent on kerosene, a solar lamp could pay for itself within six months — and the resulting 10 percent increase in disposable income doesn’t take into account the added income from their increased productivity. For this business case to be compelling, the customer needs to have an understanding of household budgeting and a willingness to spend more on lighting in the present, deferring their current consumption of other goods in order to enjoy the promise of more income in the future. Investing for tomorrow rather than consuming today is as hard for households in Africa as it is in any other part of the world.

Customers must also be convinced of the lamp’s durability and performance, know how long it takes to charge, understand the amount of time the light has before the battery is depleted, and know how to recharge or replace the battery when necessary. They must know how to prepare for days when there is no sun, and be prepared for diminished performance during rainy seasons.

Many customers can’t pay up front, or over

time

Even for customers who want to purchase a lamp, inability to pay upfront is a common challenge. Many customers are unable to pay for a lamp all at once, even if it will save them money in fuel

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costs over time. Many rural customers only have significant quantities of cash on hand during the harvest season. Credit is not easily accessible, and microfinance is often only available for first-degree revenue generating activities such as entrepreneurship or crop investment.

SunnyMoney also lacks an ability to easily collect payments from customers over an extended period of time. Collecting payments is a challenge because many customers lack official identification that would make them formally accountable for a payment liability, and because sending money remotely is logistically challenging and expensive for people who use cash exclusively.

The supply chain can’t respond quickly, and

SunnyMoney’s batteries have an expiration

date

Delivering millions of products to meet rapidly growing demand would be a severe stress on any supply chain; the nature of the solar lamp business in Africa makes the strain particularly acute.

SunnyMoney’s products are provided via suppliers that manufacture the lamps in China. From the day that SunnyMoney places an order, however, it can be as long as six months before the products are available in Africa. Part of that time is consumed in shipping, but a significant portion, sometimes six weeks or more, is spent waiting for the lamps to clear customs in Dar es Salaam, Mombasa, or elsewhere. Once the

lamps are in Africa, it is very time consuming and expensive to get them from coastal ports to customers in the countryside: roads are poor and trucking services erratic.

In some instances, SunnyMoney may not even know the shipment has been delayed. “When we ask for reasons why,” states country manager Linda Waume, “We are told products didn’t pass the quality test, or the batteries didn’t arrive in time. Information does not flow easily or readily from suppliers.”

Further compounding the challenge is the limited shelf-life of the nickel-metal hydride (NiMH) batteries that SunnyMoney uses in its lamps. Six months in a storage container, without being charged or discharged, can significantly reduce the lifespan of a battery.

The consequence of this long supply chain is that meeting demand while managing inventory efficiently is very difficult. SunnyMoney wants to have lamps available on the spot when a customer makes the decision to buy, but can’t afford to stock and store huge volumes of inventory while the lifespan of critical battery components steadily ticks away.

SunnyMoney is now focusing on the challenge of getting off-grid solar power and light to one million households in 2013 so that it can create significant momentum towards its goal of eradicating kerosene by 2020.

How to sell solar lights?

“How to sell these products in Africa at scale is the nut to crack. No one has succeeded as of yet: the question is why? What can we do differently? There is no doubt that solar will replace oil, but the question is when, and what can we do to accelerate the process? How do we make more people aware? The more we sell, the more aware they become. Volume drives more volume.”

- David Battley, Director of Business Development, SunnyMoney

SunnyMoney needs new and better solutions

to achieve wide-scale, transformative impact

In order to find solutions to help SunnyMoney scale, we must consider each piece of the innovation value chain (see figure on page 13).

What does SunnyMoney need to do to create a wealth-generating ecosystem that results in a sustainable solution to provide solar lights over the long-term in Africa?

Andrews and his team will have to consider new combinations of the elements of the value chain—new markets, new offerings, new distribution channels, new partnerships and new business models to meet their ambitious goal. Are there new customers and experiences to

target?

While building its product portfolio and experimenting with distribution models, SunnyMoney has created opportunities to pitch

solar lighting to a wide variety of customers, from individual households to community hospitals. For the most part, SunnyMoney effectively targeted the customers and markets with which it was able to establish a special point of access, but not necessarily those with whom they might establish a special value proposition. Can SunnyMoney learn from Apple Computer and UnderArmour? Across multiple generations of Apple products, selling directly to public school systems has been a core element of the company’s marketing strategy. Apple products have consistently won the support of teachers, administrators and students because they are intuitive to use and make learning easy. Schools are valuable early adopters for Apple because students and teachers who use Apple products often become passionate advocates for

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their family’s household computer purchase. By rapidly expanding the population of users, school sales help to catalyze the development of third-party software that increases the appeal of Apple’s hardware platforms for all customers.

UnderArmour, the athletic clothing manufacturer which has enjoyed years of very rapid growth, had a similar strategy. UnderArmour initially targeted its high-performance apparel at university-level athletic teams who were willing to pay a premium price for any competitive edge. Because sales to these university teams positioned UnderArmour as an exclusive, high-value product, the brand has been able to retain its premium pricing even as it has entered the mass market for athletic apparel.

SunnyMoney can learn from these examples of enterprises that have achieved mass-market presence by building on the early support of a core customer segment. Success with a valuable segment of passionate early adopters could provide SunnyMoney with revenue to fund growth and market presence to catalyze awareness and adoption. Are there new ways to deliver SunnyMoney’s

solutions?

SunnyMoney is optimistic about the potential to partner with teachers, headmasters, community leaders and other trusted figures in part because of the success of the Mafia Island school-based promotion program. SunnyMoney needs to find similar and new channels that increase the sales conversion rate and provide access to target customer segments. Can SunnyMoney learn from Grameen Phone, Natura and Carphone Warehouse?

In 1997, GrameenPhone (a for-profit affiliate of Grameen Bank) piloted an innovative concept called the Village Phone Program. GrameenPhone lent money to village women in India to buy a cell phone and airtime from GrameenPhone. These “phone ladies” could start

a service business renting out their phone and airtime to other villagers, making a healthy profit for themselves while expanding GrameenPhone’s access to new customers.

Natura, Brazil’s largest manufacturer and seller of cosmetics, relies on a direct sales model. Natura’s 1.5 million “consultants” in Brazil build on existing social relationships to sell cosmetics. The system works because all Natura employees, including the sales consultants, are strong believers in the company’s motto: “Well being well,” meaning one has to have a good relationship with oneself and one has to have a good relationship with others and with the environment in order to be “well.” The sales consultants have excellent relationships with their clients that go beyond just the sale of beauty products. Natura reaches its customers without fancy stores or attractive ads, relying instead on people who build relationships and communicate what Natura is.

Carphone Warehouse (CPW), a U.K.-based discount electronics reseller, has a different approach. While GrameenPhone and Natura build on existing relationships to win the trust of new customers, CPW gradually built a strong reputation as a no-nonsense, reliable reseller by selling quality products with no-frills service and low prices. CPW is able to compete with manufacturer’s direct channels because its customers trust that CPW will always have a great value product available somewhere in its very broad selection.

SunnyMoney needs to think of new ways to deliver its offering. What other channels are available to reach potential customers? Does the channel create value as well as providing access?

Are there new offerings that SunnyMoney can

bring to the market?

For many of SunnyMoney’s customers, a solar lamp is not just a functional appliance—it is a major investment and a sign of household


Figure 2. Innovation Value Chain

14

wealth. Changing the product design so that the lamp evokes other aspirational products, such as a luxury car or a sleek smartphone, could help increase its appeal.

There are a variety of other ways that SunnyMoney could increase the appeal of a solar lamp—at least for some customers—by making changes to the product.

Making a lamp modular by selling batteries, light and panels that can operate independently and interchangeably would encourage customers to adapt and integrate product elements for their own unique needs and in connection with locally appropriate technologies. SunnyMoney can support and learn from these adaptations to identify new growth opportunities.

SunnyMoney could also bundle its lamps with other products and services, such as basic cell phones or popular reading material, in order to capture the attention of more potential customers, or change the of nature what it sells, for example by selling access as a service rather than as a product. Can SunnyMoney learn from the launch of the Microsoft Kinect and Ecotact toilets?

Kinect is a motion sensing input device produced by Microsoft for its Xbox 360 video game console. Users can use it to control and interact with the Xbox 360 without the need to touch a game controller, through a natural user interface using gestures and spoken commands. Because Microsoft decided to leave the communication output from Kinect unencrypted, amateur and professional engineers have been able to gain access to the device for applications that go beyond the system’s intended purpose of playing games. One project, for example, combined Kinect with a small domestic robot to map a room in 3D and have the robot respond to human gestures. By empowering users to adapt the tool for their own purposes, Microsoft expanded the pool of customers beyond video games, and gained a valuable toehold in adjacent opportunities for the Kinect platform.

Ecotact has redefined personal sanitation, replacing unsanitary, unsafe toilets with brightly colored ones that can be used for a small fee and are located near shoeshine and snack locations in Nairobi. The company hires staff to operate and clean the units after each use, and offers other revenue-generating services and products such as advertising, shoe shining, soft drinks and newspapers. In this way, personal sanitation is becoming trendy and aspirational.

Are there new ways to produce SunnyMoney’s

solutions?

SunnyMoney is currently planning to continue sourcing its products from suppliers working in

China. Chinese industry produces a huge variety of batteries and silicon panels for a range of applications, while in Africa those industries currently have only a very small presence. The vast difference in scale between the Chinese and African producers is one of the reasons Chinese manufacturers can currently offer the best price for solar lamps. SunnyMoney anticipates that the price advantage will continue to outweigh costs and challenges of managing a long supply chain for the foreseeable future. Can SunnyMoney learn from “Toyota Way” of local manufacturing?

Toyota has always been a leader in the automotive industry, notwithstanding the recent issues with vehicle recalls and the earthquake in Japan. Everyone who works for Toyota or for a major Toyota supplier is trained in the firm’s production and management techniques called “Toyota Way.” This helps the company ensure that vehicles are made with the same level of quality regardless of where they were manufactured. Toyota only uses one label, “Made by Toyota,” not “Made in the USA” or “Made in Japan.”

SunnyMoney could move production in-house, or develop closer relationships with its suppliers, to ensure that quality and delivery of their offering remains consistent and timely.

SunnyMoney could also consider developing production sources in Africa in order to enhance local buy-in.

Are there new business models?

A promising option for SunnyMoney is a technology that allows a solar lamp to be de-activated remotely through the cellular network. This technology could enable SunnyMoney to rent lights or sell them on credit and disable them as needed. Can SunnyMoney learn from Simpa and Osram?

Some companies are providing lighting through small-unit pay-as-you-go pricing. The German light bulb manufacturer Osram leases solar lamps and allows customers to charge them at a centrally located O-HubTM for a fee. Simpa Networks, an energy provider in India, has introduced “Progressive Purchase” pricing for household energy systems, as well. Users pre-pay based on actual usage and each payment goes towards the total purchase price of the solar home system. Consumers can send payments using a mobile phone. Once fully paid, the solar home system unlocks and delivers free electricity for the expected 10-year life of the product. Energy expenditure is turned into an asset purchase as consumers are offered the opportunity for ownership of their energy resource and thereby break their dependence on expensive, unhealthy, and inefficient sources of light and electricity.


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Are there new partners to collaborate with?

SunnyMoney’s partnership strategy is centered on sourcing and distribution. Barefoot Power, d.light, and other social enterprises produce the products that SunnyMoney sells, and SunnyMoney participates in the benefits of cooperative initiatives by the community of solar lighting market participants, such as the Lighting Africa initiative sponsored by the International Finance Corporation. This initiative aims to create awareness and educate households and small businesses about the benefits of switching from fuel-based to solar lighting. They have targeted 13.5 million people in rural Kenya and have plans to start soon in Ghana. Can SunnyMoney learn from MicroEnsure’s partnership strategy? MicroEnsure, a microinsurance back-office service provider that


operates in India, Africa, and the Philippines, created two close partnerships in order to launch Tigo Family Care Insurance, a new mobile-phone based insurance program in Ghana. Tigo, a Ghanaian mobile carrier, manages the sales, marketing, bill collection, and claims payment through its existing mobile network and customer service infrastructure. MicroEnsure manages product design, pricing and processing, and an American insurance company carries the insurance risk. These partnerships are an essential part of the product design and value proposition for Tigo Family Care Insurance, and enable MicroEnsure to reach and serve a larger number of customers than its competitors.

SunnyMoney can explore new ways to use such partnerships not to only reach customers, but also to move farther and faster to create new value.

Can SunnyMoney get off-grid solar power

and light to one million households by the

end of 2013?

SunnyMoney wants to transform lighting in Africa by replacing increasingly-expensive fossil fuels with affordable, renewable sources of power and light, but their journey is just beginning. To accelerate that transformation, SunnyMoney needs solutions that will allow them to scale rapidly and that will bring the African off-grid

solar energy market to a critical tipping point in terms of awareness, affordability, distribution, and supply.

The question now becomes: can we help SunnyMoney get off-grid solar power and light to 1 million households by the end 2013?

16

Endnotes

1��7DQ]DQLD�3RSXODWLRQ�5HOLHI�:HE��KWWS��UHOLHIZHE�LQW�VLWHV�UHOLHIZHE�LQW�¿OHV�UHVRXUFHV��&%(��$�'%��(�(��&��)�'��W]SRS�H�JLI�DFFHVVHG�November 30, 2011.

2 Ravi, Nessman, “India: Land of many cell phones, fewer toilets,” Bloomberg BusinessWeek, October 31, 2010, http://www.businessweek.com/ap/

¿QDQFLDOQHZV�'�-�(.5*��KWP��DFFHVVHG�1RYHPEHU��3 Malawai Customer Baseline, “Who are SunnyMoney users?” SolarAid survey data collected January 2010—March 2011, http://solar-aid.org/projects/

Malawi%20Customer%20Baseline%20Analysis.pdf, accessed October 30, 2011.

4�*OREDO�(QYLURQPHQW�)DFLOLW\��³,QYHVWLQJ�LQ�5HQHZDEOH�(QHUJ\�´�KWWS��ZZZ�WKHJHI�RUJ�JHI�VLWHV�WKHJHI�RUJ�¿OHV�SXEOLFDWLRQ�JHIBUHQHZHQHUJ\B&5$BUHY�pdf, accessed December 23, 2011

5 Itai Madamombe, “Electricity, Energy key to Africa’s prosperity,” Africa Renewal, Vol. 8, No. 4, January 2005, p. 6, http://www.un.org/ecosocdev/

geninfo/afrec/vol18no4/184electric.htm, accessed DATE.

6 Resource Center for Energy Economics and Regulation (University of Ghana), “Guide to Electric Power in Ghana,” July 2005, http://www.beg.utexas.edu/

� HQHUJ\HFRQ�,'$�86$,'�5&�*XLGHBWRB(OHFWULF��3RZHUBLQB*KDQD�SGI��DFFHVVHG�1RYHPEHU��7 Viven Foster and Cecilia Briceño-Garmendia, editors, “Africa’s Infrastructure: A Time for Transformation,” 2010, http://www.infrastructureafrica.org/

V\VWHP�¿OHV�$,$77B&RQVROLGDWHGBVPDOOHU�SGI��DFFHVVHG�'HFHPEHU��8��$IULFD�(QHUJ\�6XPPDU\��KWWS��ZZZ�JHQL�RUJ�JOREDOHQHUJ\�OLEUDU\�QDWLRQDOBHQHUJ\BJULG�DIULFD�DIULFDQHOHFWULFLW\JULG�VKWPO��DFFHVVHG�1RYHPEHU��9 Lighting Africa, About Us In Numbers, http://www.lightingafrica.org/about-us/in-numbers.html, accessed December 23, 2011

10 Malawai Customer Baseline, Who are SunnyMoney users? SolarAid survey data collected January 2010—March 2011, http://solar-aid.org/projects/

Malawi%20Customer%20Baseline%20Analysis.pdf

11 Malawai Customer Baseline, Who are SunnyMoney users? (SolarAid survey data collected January 2010 – March 2011), http://solar-aid.org/projects/


12 Malawai Customer Baseline, Who are SunnyMoney users? SolarAid survey data collected January 2010—March 2011, http://solar-aid.org/projects/

Malawi%2013 Customer%20Baseline%20Analysis.pdf, accessed October 25, 2011.

13 Malawai Customer Baseline, Who are SunnyMoney users? SolarAid survey data collected January 2010 – March 2011, http://solar-aid.org/projects/


14�:RUOG�%DQN�³*RYHUQPHQW�5HVSRQVH�WR�2LO�3ULFH�9RODWLOLW\�´�KWWS��VLWHUHVRXUFHV�ZRUOGEDQN�RUJ�,172*0&�5HVRXUFHV��JRYWBUHVSRQVH�K\SHUOLQNHG�SGI��accessed December 23, 2011.

15 Interview with Steve Andrews, CEO of SolarAid, October 29, 2011

16 http://egg-energy.com/, accessed October 20, 2011.

17 http://www.indexmundi.com, accessed October 11, 2011.

18 www.concern-universal.org/malawi, accessed November 5, 2011

19�KWWS��ZZZ�PD¿DLVODQG�FRP��DFFHVVHG�'HFHPEHU��20 Interview with Steve Andrews, CEO of SolarAid, October 29, 2011


AUTHORS

Charles Howe Associate Professor, Hult International Business School; Associate Director and Partner, IXL Center &KDUOHV�LV�UHVSRQVLEOH�IRU�SURMHFW�LQWHJUDWLRQ��DGYLVRU\��DQG�FOLHQW�PDQDJHPHQW�DW�,;/��+H�DOVR�VHUYHV�DV�DQ�an instructor and facilitator of IXL’s Innovation and Growth courses and workshops. Prior to joining IXL,

KH�VHUYHG�DV�D�FRQVXOWDQW�WR�/LEHUW\�0XWXDO�DQG�DV�D�6HQLRU�/HDGHU�DW�WKH�0RQLWRU�*URXS��+H�DOVR�VHUYHV�DV�D�VHQLRU�DGYLVRU�WR�&RPPXQLW\�:DWHU�6ROXWLRQV��D�QRW�IRU�SUR¿W�VRFLDO�HQWHUSULVH�RUJDQL]DWLRQ��

Joanne LawrenceGlobal Professor, Corporate Responsibility/Social Innovation, Hult International Business SchoolSenior Associate, IXL CenterWith extensive international corporate, consulting and academic experience, Joanne focuses on the

transformative role of business and developing the ethical , holistic thinking leaders and organizational

FXOWXUHV�WKDW�FUHDWH�ODVWLQJ�VRFLHWDO�DQG�HFRQRPLF�YDOXH��+HU�ODWHVW�ERRN��*OREDOO\�5HVSRQVLEOH�/HDGHUVKLS��Business According to UN Global Compact, will be published by Sage in Spring, 2012.

Dr. Hitendra Patel Hult Professor of Innovation and Growth; Managing Director, IXL Center $W�,;/�&HQWHU��+LWHQGUD�ZRUNV�ZLWK�¿UPV�DQG�WKHLU�H[HFXWLYHV�WR�GHYHORS�WKH�LQVWLWXWLRQDO�FDSDELOLWLHV�DQG�FXOWXUH�WKDW�IRVWHU�JURZWK�WKURXJK�LQQRYDWLRQ��+H�KDV�JLYHQ�VSHHFKHV�JOREDOO\�RQ�,QQRYDWLRQ�DQG�*URZWK�DQG�LV�WKH�DXWKRU�RI�D�UDQJH�RI�ERRNV�RQ�,QQRYDWLRQ��$W�+XOW��KH�LV�WKH�*OREDO�'LUHFWRU�RI�,QQRYDWLRQ��Management Consulting and Action Learning Programs.

ACKNOWLEDGEMENTS

The authors would like to thank Jeremy Leggett, Steve Andrews, David Battley, Gerrard Graf, John Keane,

Pepijn Steemers, Richard Turner, Linda Waume and the staff of SolarAid for their extensive support,

responsiveness, and encouragement. Special thanks to Kerry Herman, Howard McNally, Ahmad Ashkar,

and Stephen Hodges, President of Hult International Business School.

The Center for Innovation, Excellence and Leadership vision is to Make Innovation Man-

agement a critical business discipline in corporations and business schools around the

world. Its mission is to help corporations and individuals develop world-class innovation

PDQDJHPHQW�FDSDELOLW\�ZKLOH�GULYLQJ�VLJQL¿FDQW�EXVLQHVV�LPSDFW��,;/�&HQWHU�GHOLYHUV�this through Training, Coaching and Advisory services to create innovation breakthroughs

and to build the innovation capabilities of individuals, teams and organizations. Clients

achieve bigger, bolder, better results more quickly and cost effectively though blended

OHDUQLQJ�DQG�DFWLRQ�OHDUQLQJ�SURJUDPV��LWV�&HUWL¿HG�,QQRYDWLRQ�0DQDJHU��&,0��SURJUDP�and collaborative research projects. IXL Center is a global community of innovation

WKRXJKW�OHDGHUV�DQG�SUDFWLWLRQHUV�ZLWK�RI¿FHV�LQ�%RVWRQ��'XEDL��/RQGRQ��6DQ�)UDQFLVFR��Shanghai, São Paulo and Seoul.

About IXL Center


17

solaraid hult global case challenge ixl 2012 v1.0

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