So the batteries must be protected with special boxes and numbered locks. And the plugs all have to be designed to fit one-way - because inadvertent reversal of polarity will damage the system. And finally, in an inspired touch, you may even decide to attach a miniature sculpture of a saint to the battery box to serve as a daily reminder to the customer that the battery -- the energy store -- must be treated as sacred.
Two billion people, about 30 percent of the world's population, lack access to electricity. And it is estimated that about one billion of them can afford solar energy today at commercial rates -- given their current energy expenditures and provided that they are given the option to rent it or pay it off in installments over several years. Bringing solar energy to a billion people would stimulate economic activity, improve education and health, reduce carbon emissions and relieve stress on the world's overcrowded cities.
Given the scope of the need and the size of the market, one might ask: What is stopping the world's energy companies from doing it? The short answer is that energy companies have little experience with this market. Simply put, they don't know how to reach these clients cost-effectively. They don't know how to sell to them, or manage them, or service them.
But Brazilian social entrepreneur Fabio Rosa does. Rosa is no stranger to delivering electricity to low-income people. Seventeen years ago, in Brazil's southernmost state, Rio Grande do Sul, he and his colleague Ricardo Mello pioneered an electrical distribution system capable of extending the electrical grid to millions of rural Brazilians. (Twenty-five million Brazilians remain without electricity.)
Adapted from essays by Fabio Rosa: Utilizing the Market for Environmental Changes
Using inexpensive materials and simplified construction methods, Rosa's "mono-phase" system -- it uses one wire instead of three -- reduced electrical distribution costs from $7,000 to $400 per household. Rosa spread his system to more than 27,000 people during the late 1980s and early 1990s, shortly after he was elected as an Ashoka Fellow, demonstrating its widespread applicability.
Rosa's distribution system gained national recognition. And, throughout the mid-1990s, Rosa worked with state electrical companies to spread his system, which is called the "025 Norm", to hundreds of thousands of low-income people across rural Brazil.
Renting, Not Buying Electricity
For a while, the future looked bright. But then, in the late 1990s, Brazil's electric utilities were hastily privatized. The new utility owners had no interest in pursuing low-cost rural electrification. It wasn't as profitable as serving cities.
So, in recent years, rural electrification has slowed to a trickle. And, no surprise, Brazil's ranks of urban squatters and landless have continued to swell.
But through a rental system, Rosa saw that he would be able to reach more customers more quickly. Additionally, customers would be spared Brazil's oppressive sales taxes (which drive up prices by more than 50 percent). Moreover, the idea made intuitive sense. "What does it mean to buy solar panels?" asks Rosa. "It means to buy energy for the next 25 years. Who buys food for the next 25 years? You buy food for the next week or month. It should be the same with electricity."
Rosa began by conducting a market study. He received an initial investment of $60,000 in grants and a combination of soft and commercial loans from the Washington, D.C.-based Solar Development Group, with commitments for an additional $50,000 of financing. STA invested $45,000 of its own research and development funds.
Rosa's team began by spending eight months surveying 77 families in six rural municipalities in Rio Grande do Sul. The responses encouraged them. Almost 70 percent of the families interviewed spent at least $11 per month on non-renewable energy sources -- kerosene, candles, batteries and liquid petroleum gas -- about the same amount they would need to spend each month to rent a basic photovoltaic solar home system equipped with lights and outlets, all the necessary wiring, plus the boxes, locks and saints.
Rosa began hammering out a business model. He dubbed the venture "The Sun Shines For All." With assistance from the Ashoka-McKinsey Center for Social Entrepreneurship, he spent two years developing a business plan, analyzing the market, risks and competition, conducting a sensitivity analysis and sketching out pro forma cash flow and income projections for ten years.
In Phase I, during the first four years, the business is slated to reach 6,100 rural properties in Rio Grande do Sul. Following that, in Phase II, it will expand to another 6,100 properties in Bahia. After those initial targets, expansion will continue in Rio Grande do Sul and Bahia, where Rosa has identified more than 775,000 properties without electricity.
In each state, Rosa has been doing business for years. He has already made contact with local distributors who will install and service the home systems for fees.
Success is in the Details
Rosa has incorporated an internal rate of return of 29 to 30 percent into his pricing calculations to entice foreign investors. The break-even point for Phase I will come at the end of the fourth year, after the initial 6,100 properties have been installed. From that point on, the rental income (minus variable expenses) will contribute to profit. (The solar panels last for 25 years.)
The business calls for $2 million in equity or debt investment. The first 70 households, financed with the Solar Energy Group investment, will be installed by August 2003.
Although Rosa's business remains in its early stages, it is, nevertheless, worth taking a close look at the model because of its inherent importance, because of Rosa's proven track record, and because of the degree of thought and preparation that has gone into the idea. Rosa has worked with solar energy and low-income clients for 12 years.
He has studied the problems of solar projects around the world, which is why he is so obsessive about the details. (The details are everything, he says. For example, when batteries are not well protected, they end up being misused. That leads to drops in system performance. And then the customers stop paying. Thus: the boxes, locks and saints.)
Rosa intends to avoid these and other pitfalls. His plan is to focus on the human challenges first and the technological challenges second. In such a fashion, he is optimistic that, in a few years' time, he will have demonstrated a scalable, for-profit model that will help carry the world out of today's dark ages.
A Different Way of Doing Business
Rosa is currently focusing his efforts in a poor municipality two hours south of Porto Alegre called Encruzilhada do Sul, where 25 percent of the population, or about 1,000 households (all rural) currently lack electricity. Years before, Rosa had learned that the key to working with low-income communities was to identify champions within those communities.
So he began in Encruzilhada by teaming up with Rodrigo Quadros, a well-respected and high-minded local farmer, whom Rosa assigned the job of managing the local communications and development strategy. Then he forged a relationship with the mayor, Conceio Deromar Krusser, who offered to smooth over potential political obstacles and identify all the families in the municipality that were without electricity. "It's important to understand how the municipality and community works and who really has influence," says Rosa.
Then he pulled in Maria Inez Azevedo, a social psychologist with years of experience working in rural areas as a community motivator. And, after interviewing all the electricians in town, he formed a partnership with Dariel Ferras Soares, a small businessman who had founded his own electrical shop six years before.
"It presented a good opportunity to do business," Ferras says. "And it's a great satisfaction to bring electricity to people who don't have it." Ferras earns about $R 90-100 for each installation, for about 2-3 hours work, and receives income from periodic maintenance calls. He is looking forward to as much new business as he can handle. Rosa intends to form business partnerships with dozens of local business people like Dariel Ferras -- offering them new market opportunities.
Initially, when Rosa began marketing the Solar Home System to the villagers in Encruzilhada, the acceptance rate was less than 10 percent. There were many obstacles. People were skeptical. They had been falsely promised electricity many times before. Others had been told by political leaders to "wait for the grids." And many didn't believe that electricity could really come from sunlight.
So Rodrigo Quadros and Inez Azevedo spent a year in Encruzilhada talking to locals and encouraging them to try it out. "We have to think differently," Quadros told his fellow villagers. "Your lives will be easier." He reassured them: "It's not dangerous to work with solar energy. It's also very reliable. It doesn't have to be sunny every day. It does work in the winter..."
"I would visit people at night," Quadros recalled, "and say, 'Look at your walls. They're completely black from burning kerosene. Look, you've been breathing this smoke. Your children are breathing it'."
Building Trust and Confidence
After a year, the sales rate jumped to 30 percent. Rosa expects it to jump considerably higher after more of the pilot sites are installed.
"We needed to build trust and confidence," Inez Azevedo explained. "It takes time to establish credibility. It's all a matter of how you talk to people. You have to ask a lot of questions. It's important to understand why people change or why they don't change. If you understand that, then you can deliver things to people in the way they would like to receive them.
One such leader is Otila Maria Rosa dos Santos, an elementary school teacher who lives in a brick house at the end of a red-dirt road three kilometers from the electric grid. Dos Santos would have had to pay at least $3,000 to have her house hooked up to the grid - a sum greater than her annual income. In a Saturday morning meeting in February 2002, after Rosa presented his products and prices, dos Santos came forward and said to him: "I want it. Can you install it tomorrow?" ("In the meetings," Rosa says, "it is usually women who are the first to speak about the need for electricity.")
Rosa's Solar Home System comes in three standard sizes: Kit Number 1 rents for $10 per month. It comes complete with a 60-watt photovoltaic solar panel, high-performance battery, all the wiring, plus a number of 12-volt fluorescent lights and electrical outlets for appliances.
The system provides, on average per day, 6-7 hours of lights and a few hours of radio, TV and water pump usage. Kits 2 and 3 rent for, respectively, $16 and $24 per month and come with more lights, outlets and wattage. The installation cost for Kit Number 1 - about $150 - can be paid off over the first 12 months. Dos Santos opted for Kit Number 2. Previously, she said, she used to spend $24 per month on gas lamps, candles and batteries.
Bringing Good Things to Light
She says her house is brighter and cleaner than before. After the electricity, she decided to repaint some of the walls. The house no longer smells of kerosene. Next summer, dos Santos is looking forward to cooler nights -- not having to burn lamps inside the house.
But the greatest benefit of electricity is the effect on her son. "My son had told me he didn't want to continue living in the dark," dos Santos told me on a recent visit to Brazil. "He was going to leave home." She added, with a smile: "Now he will stay." I peeked into her son, Emerson's room, and noticed a neat bookshelf with a CD player and a small music collection.
"I don't believe I lived my entire life without the grid, and now I have electricity," she added. Dos Santos has become a self-appointed ambassador of solar energy, speaking to many locals in her understated but persuasive manner about the benefits of electric lights.
As of this writing, Rosa is in the field, installing his pilot Solar Home Systems. When I visited him in April 2003, we traveled to Encruzilhada, where Rosa and Quadros were meeting with clients and partners, and testing out the speed and reliability of a new Internet-based bill payment system that had recently been installed in kiosks in three shops, one pharmacy and one bank in the municipality.
Cash flow, especially the reliability of future payment streams, remains the greatest risk element in Rosa's business plan. Other than non-payment, there are other risk elements that Rosa must contend with. One big one is currency risk.
When Rosa began planning "The Sun Shines for All," the Brazilian currency was trading at 1.8 Real to the U.S. dollar. (The solar panels that Rosa uses are manufactured in the United States.) At one point in the past year, the Real plummeted to 3.9 to the dollar. All this has caused huge headaches for Fernando Sehn, a former Bank of Boston analyst who is head of finance for STA. However, one bright spot is that, in the past few years, solar panels have also dropped in price, from $5.50 to $3.50 per watt.
Rosa's plan for Phase I of his business plan calls for the installation of 1,500 Solar Home Systems per year, for each of the next four years, across five municipalities. Rosa has already met all the mayors and begun cultivating a network of service partners like Dariel Ferras. "First, we have to finish the market test," he says. "Then refine the business plan and create an independent business subsidy to move from a limited partnership to independent company." Rosa is currently in discussions with potential investors. Stay tuned.
STA is also developing new products - in anticipation of the demand that will come with electricity. These include 12-volt refrigerators, power saws, power drills and a thermal solar water heater. The fridge will rent for $20 per month; the thermal water heater (good for nine months of the year) will rent for $2.50 per month.
"At this moment," says Rosa, "we have millions of people without energy, just like we did 10 years ago, just like we did 20 years ago. Brazil has this problem. India has this problem. China has this problem. Bangladesh has this problem. Two billion people have this problem.
"At the moment we have a mature technology, but technology is only one part of the business. So what are we doing? Instead of focusing on commerce first, we are focusing on service. Commerce will come - but not in the way that people are thinking.
"First, we will demonstrate results on a small scale, then on a regional scale, then all over Brazil, and then the world - but first, Encruzilhada."
Contributed by Contributed by David Bornstein. David Bornstein is the author of How to Change the World: Social Entrepreneurs and the Power of New Ideas. which will be published by Oxford University Press in January 2004. His first book, The Price of a Dream: The Story of Grameen Bank.was selected as a finalist for the New York Public Library Book Award for Excellence in Journalism. His articles have appeared in the Atlantic Monthly and the New York Times, and he co-wrote the PBS documentary "To Our Credit." He lives in New York City.. Reprinted with permission from ChangeMakers.
To read another Global Envision article about solar power, see AuroRE: Creating 'Solar' Entrepreneurs.
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