Discussion » E-Discussion #5 - Exploring the Franchise Approach for Off-Grid Electrification
E-Discussion #5 - Exploring the Franchise Approach for Off-Grid Electrification
Sustainable energy powers opportunity. As noted by the SE4All initiative, 1.3 billion people—one in five globally—lack electricity to light their homes or conduct business. Engaging the private sector to define and implement financially sustainable business models could play a pivotal role in accelerating off-grid rural electrification. The IEA estimates that more than $50 billion annual investment is needed to achieve universal energy access by 2030, much of which will be mobilized from and directed toward the private sector. Yet notable barriers remain for unlocking private sector participation in energy access. As you are aware, we continue to implement a multi-year initiative to explore and support commercially viable business models for private sector engagement in providing energy services to rural, off grid customers. Reaching millions of customers is not a new challenge for the private sector. Around the world, even in rural areas with no access to electricity, industries such as telecom, consumer goods, appliances and automotive are reaching their customers using a network of retailers, distributors, local partners and agents. Despite some obvious and major differences between the energy sector and others, there is room for inspiration and there is a rural customer to be served. A confluence of factors including, recent advancements in renewable energy based generation and storage technologies, development of mobile-phone enabled metering, payment and customer management solutions, availability of high-efficiency household appliances and reduction in costs of these technologies, is creating a unique opportunity for the private sector.
What can we learn from other sectors to help design these business models for the energy sector? How can entrepreneurs who have created unique business solutions and are successfully running their companies in a few villages, scale-up or replicate? How can we engage small private enterprises that exist in most rural areas in becoming local energy service providers? Reinventing the wheel, village-by-village and country-by-country is not necessary. Can we learn and adapt the well-established practice of franchising? Can we help the development of the business method and relationships that could accelerate the pace of off-grid electrification? These are few of the questions for which we seek answers during this E-Discussion.
Focus areas: Is the Franchise approach relevant for A-B-C business models? What are the different types of franchise approaches and their respective modalities? What kind of capacities are required from potential franchisees? What are the benefits of franchise approach in terms of scaling up? What specificities should a franchise model address in order to be relevant for A-B-C business models? What are the key start-up barriers for franchisees and franchisors? How to match-make rural entrepreneurs with franchisors?
Expert Contributors:
Anil Raj,CEO and Co-Founder of OMC Power. OMC is an established micropower company in India that builds small-scale power plants with renewable sources where there is no reliable power grid. Anil is a veteran of the telecom industry with roots tracing back to the earliest days of mobile telecom. Anil was the start-up CEO of Hutchison in India and launched the country’s very first mobile network. He started his career at Ericsson where he held a number of senior management positions in Sweden and in Asia Pacific. As Head of Ericsson’s Smartphone Business Unit, he was responsible for launching the world’s first smartphone and first Bluetooth product. He also headed Ericsson’s companies in India and Indonesia establishing the company as the market leader. While at Ericsson, he also spearhead the merger of Ericsson’s and Sony’s handset businesses into Sony Ericsson and went on to forge the Symbian initiative where he also served as Chairman.
Dan Berelowitz is co-founder of the International Centre for Social Franchising, a not-for-profit that replicates proven social ventures to scale. He previously worked as first Director of Tzedek, a worldwide poverty alleviation organisation engaged in projects in Ghana and India, which more than quadrupled in size during his four years of leadership. Dan founded ICSF partly out of a sense of frustration at seeing community transforming projects reinventing the wheel and failing to scale up and replicate. At ICSF, Dan has worked on a range of projects and clients from Oxfam, GlaxoSmithKlien, Big Society Capital and Big Lottery to small charities with huge potential to replicate such as Street League and FoodCycle. Dan is a Clore Social Leadership Fellow, has a BSc in Management from Nottingham University, and is a Rothschild Fellow at the Cambridge Judge Business School.
Manoj Kumar Singh,Vice President Green Energy, Regulatory Affairs & CSR, Indus Towers Limited. Manoj Kumar Singh, is a seasoned energy professional having 22+ year experience in energy and project management. He is heading Green Energy, Regulatory Affairs & CSR for Indus Towers Ltd., India as Vice President. He is also the Chairman of industry association TAIPA’s Energy Committee. He is a coveted speaker on Green Energy in Indian Telecom space, and has represented Indus at various international forums.
In past he has successfully installed multiple projects of Thermal, Solar , Wind, Hydro, Natural Gas, Bio Gas and Bio mass. He has very successful instinct with Modis, Kanorias, Shri Ram Group & Jaipuria. He conceptualized the so called innovative energy model – FCM, which brought paradigm shift to energy management within the industry. He initiated i-CAP – Indus Carbon Abatement Program and is also leading the RESCO project in the industry on behalf of TAIPA. Manoj is actively engaged within the industry and the government while passionately driving the drafting of Green Telecom Policy.
Mary Roach, Programme Operations Manager for the MECS Programme, GSMA, is responsible for the overall management of the MECS Innovation Fund and leads the team delivering advisory services to mobile operators and support to the MECS ecosystem of organisations. Prior to joining the GSMA in 2011, she spent two years working on rural energy solutions in sub-Saharan Africa, including an early trial of pay-as-you-go access to energy using mobile money. Mary’s interest in the role that energy can play in development emerged from the combined experiences of her 5 years working with GE Power Generation in project and operations management and decade of involvement with Engineers without Borders Canada at home and abroad . She holds a MBA from Oxford University and a Bachelors in Chemical Engineering from McGill University.
Jim Walker, Co-Founder of The Climate Group, serves as the organization's Director of International Programs & Strategy, based out of the New York office. He is a member of the Executive Management Team and of The Climate Group’s Australia, Hong Kong and China boards of directors. He has worked for 16 years on green strategy and policy, formerly at Environmental Resources Management and URS Corporation in London. He has spoken at events including Climate Week NYC, the Climate Leaders Summit and TED Global and is currently focused on The Climate Group’s electric vehicles, LED lighting and smart technology programmes. He was a co-author of The Climate Group’s review of China’s 12th Five Year Plan commissioned by HSBC and spent 18 months living in Beijing in 2010-2012. He has served as a member of the final jury for the Netherlands Postcode Lottery Green Challenge since 2008, awarding US$1m to green entrepreneurs each year. He is an advisory board member at Chinese NGO Thirst4Water and a member of the UK Government's Catalyst UK business leaders' network. Jim holds a Masters degree in Environmental Technology from Imperial College London, and competed in rowing at the 1992 and 1996 Olympic Games.
Mohua Mukherjee, Senior Energy Specialist at the World Bank is a development professional with over two decades of experience at the World Bank in Washington DC. She currently works on energy projects in South Asia and Africa, both on-grid and off-grid. Her specialty is the development of off-grid business models through commercially viable public private partnerships. During her career, Mohua has managed diverse economic development projects in a variety of sectors, including water and sanitation, education, health, macroeconomics, private sector development, microenterprise and rural livelihoods, as well as energy. She has a strong background in private sector/SME development and renewable energy, and is partnering in the development of an innovative, private sector led business model in Nepal at the moment, with a grant that the Nepal government has received from the Scaling Up Renewable Energy Program (SREP). Mohua has managed development projects for the World Bank in thirty countries. She also has five years of experience in the financial sector, having served as Vice President and Head of Corporate Finance at Citibank and ABN AMRO Bank in Nairobi, Kenya, in the late-1990s. Mohua has lived on four different continents, speaks a number of languages.
Scott Weaven is an Associate Professor in the Department of Marketing, Griffith University and is Deputy Director of the Asia-Pacific Centre for Franchising Excellence. He has a PhD in franchising and has co-authored the Franchising Australia surveys since 2002. Prof Weaven is a member of the International Society of Franchising and has published his research in international academic refereed journals including the European Journal of Marketing, Academy of Marketing Science Review, International Small Business Journal, Asia Pacific Journal of Marketing and Logistics and the Journal of Business Ethics. Currently, Prof. Weaven is working on an Australian Research Council grant (with the Australian Competition and Consumer Commission) to develop strategies to manage conflict within franchise systems. In addition, he is investigating consumer perceptions towards brand extensions in franchising and the role of personality in franchisee recruitment and selection. Prof Weaven teaches marketing and entrepreneurship in the Griffith Business School.
South Asia accounts for approximately 31% of the global population without access to electricity. Of this population, approximately 400 million people are in India - a population that could eventually be connected to renewable energy sources. Clean energy technology, including solar, biomass and wind generation along with efficient LED lighting, could revitalize India’s failing energy system.
The Climate Group’s Access to Rural Energy in India project (principally funded by the Nationale Postcode Loterij of the Netherlands) aims to enhance the lives of rural inhabitants in India by deploying renewable energy technologies and improving infrastructure quality whilst reducing greenhouse gas emissions. One of the key barriers for private sector participation in energy access is the gap in identifying a commercially viable business model. To address this, we will be piloting a range of different rural electrification business models with a view to identifying one or more sustainable model/s that can be scaled up thereafter.
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Franchising is a popular and pervasive phenomenon in many developed and developing economies. On the face of it, franchising represents an efficient method of replicating proven business concepts with ongoing success reliant upon the ongoing collaboration between interdependent parties. While we most often think of franchising in terms of retailing (e.g. accounting for 53% in Australia), there are a number of distribution arrangements and it is growing rapidly in other sectors (e.g. construction, services, telecommunications). So its application in energy appears sound.
Typically, business owners (franchisors) utilise franchisee investments to rapidly expand their geographic reach (often in remote areas) and build their brand image. Franchisees gain access to the 'proven business concept' , established brand, clientele and (initial) and ongoing training and support in return for paying ongoing royalties and other contributions (e.g. to the advertising levy). However, success in franchising is not always guaranteed, but requires the (complex) delineation of roles for the principal (franchisor) and agents (franchisees) and this involves clear lines of communication, training and monitoring. In this way, trust and commitment to the brand is built within the network and the franchising concept is more sustainable.
As franchising success is predicated upon replication through standardisation (that is, adherence to standards), monitoring of franchisee units is necessary. However, franchisees have a vested interest to work hard and build their businesses as their remuneration is based upon their own efforts (i.e. residual claimants). Moreover, given the relational nature of the franchise contract, they are often permitted to have some control over local marketing initiatives. This level of autonomy afforded to franchisees may be useful in that they know their particular regions (and clientele) and they may be a valuable source of information (and innovation) in regions in which the franchisor has little 'on the ground' knowledge.
So the unique aspects of franchising which are particularly beneficial in the context of sustainable energy is that it promotes rapid replication of the business concept and business brand, employs committed semi-indepenedent business owners and ensures adherence to quality standards through instruction/training and monitoring (so as to support the system brand and further replication of the business). One other consideration when thinking about international franchising is warranted. Through utilising master franchisees who buy the rights to sell franchises in particular territories (and are most often sourced from local communities in the host country) franchises can expand internationally whilst minimising cultural barriers to entry.
Franchising could be a viable route to replicating off-grid energy models but what is first needed is a successful and sustainable business model. Since 2010, the GSM Association has been exploring the opportunity for GSM operators and mobile tower companies to contribute to improving access to energy first through the IFC funded Community Power from Mobile programme and now through the UK Government funded Mobile Enabled Community Services programme.
While the opportunity is immense there are still only a handful of ESCos who have had the opportunity to test the A-B-C model in the field and who have the scale (measured by long term energy contracts with mobile operators or tower companies) to build a replicable model
One of the main barriers to trialling these models has been the lack of patient capital to test promising ideas. The £2.4M MECS Innovation Fund was developed to fill this gap by providing grants up to £350k for service providers to trial innovative business models with the potential to scale.
South Asia presents one of the better opportunities to develop a franchise model for energy access due to the high population densities of off-grid areas but it is not without its challenges. The social dynamics of communities can greatly impact how energy access is delivered and the overall cost of running a franchise. We should not underestimate the challenges of converting an ESCO with a B2B model providing power to towers to an ESCO with a B2C approach where they provide services directly with the community.
Before we declare the franchise model to be a viable/unviable route to scaling the A-B-C model the sector needs to trial more models. The MECS Innovation fund fill some of the missing risk capital required but our experience from the 1st and 2nd round calls for Concept Notes is that we have more great ideas than there is funding.
If you would are an investor/donor and are looking for deal flow please do get in touch. Likewise if you are an ESCO and are looking for funding please do contact us; we expect the entire £2.4M to be allocated to applicants we already have in process but are actively trying to fundraise more money.
India has the second largest and fastest growing mobile telephone market in the world. In past less than two decades, the telecom industry has been able to penetrate well across the country, where even the grid has not been able to reach in more than half century. One of the biggest challenges being faced now is power deficiency in most of the areas along with lack of power infra, while the telecom focus is now more towards deep rural penetration.
As per license conditions, a telecom operator needs to maintain a network availability higher than 99.5 %. Assured power 24x7 is, therefore, a pre-requisite for any telecom tower site. This forces telecom infra companies to use Diesel to generate backup power resulting huge financial burden upon telecom players just to meet the deficit of power supply & maintain the uptime.
The challenges being faced by telecom tower industry are actually common to the local community. More than 300 million people in India do not have access to electricity and over one third of India's rural population lacks electricity. This adds to the woes of power industry, requiring huge capex inflow for capacity additions, T&D infrastructure development for rural penetration, and huge T&D losses. The practical solution to this appears to be through decentralized power generation and distribution – A need of Exploring the Franchise Approach for Off-Grid Electrification.
RESCOs are conceptualized to provide power with multiple green energy sources, but the main barrier is the absence of business models that would enable these costs to be recovered. While the overall power demand from a community may be less and fluctuating, the unique presence of telecom towers, needing 24x7 power, may prove to be a key to the sustenance of such model. Telecom tower industry may provide anchor load in widely distributed geographies with deep penetration in the country, as a single largest user of the clean energy that RESCOs / Telecom Infra providers can produce, aiming towards Grid parity. This will provide the much needed scale to RESCOs and address the cost-price deficit to a certain extent. As a result, the communities around the RESCO facilities too could receive power at an affordable cost.
The said model shall be a programme to bring Industry to village and negate rural migration to urban areas in search of lively hood.
Hello everyone, and greetings from Malawi in southern Africa, where I am currently on a short visit together with my colleague Monali Ranade. Thank you to the presenters and participants for the excellent webinar and launch of the e-discussion yesteday, Sept 9th.
In my opening statement, I just want to say a few words about why I think the concept of “franchising” is indeed very relevant to promoting the spread of private sector led off-grid energy access to un-served customers in rural areas all over the developing world.
Yes, I am consciously referring to the clients as customers rather than “rural poor” or “beneficiaries” because they are customers, even if they have very lowincomes. Today they are customers of mobile phone companies, and they are customers of kerosene suppliers, who sell them kerosene for lighting, and if they are micro-enterprise manufacturers they might be customers of diesel suppliers for their small generators.
So we are trying to switch their current expenditures on kerosene and diesel, over to spending on clean energy solutions forlighting, phone charging, running small equipment, and more. Furthermore, Anil Raj, CEO of OMC Power, has pointed out that there is also a “pyramid at the bottom of the pyramid”, i.e. not everyone living in an off-grid remote rural area has a low income. This is an important point to keep in mind.
Successful and innovative business models for private energy entrepreneurs to serve rural customers are emerging in various parts of the world, most commonly in South Asia and East Africa, with India and Kenya/Tanzania in the lead. The clean-energy technologies being used in these business models are varied: battery charging services; home delivery of small appliances which are fully charged and ready to use; delivery of several hours of DC power through a micro-grid connecting nearby houses to a limited number of roof-top panels; delivery of 24/7 AC power through a micro-grid; pay as you go systems for solar rooftop panels, removing the need to go into debt to buy a solar panel; innovative mobile technology-enabled payment systems for advance payment of energy credits, including M-PESA in East Africa; delivery of community-owned power from micro-hydro power stations operated by the community and leased to a private operator; delivery of AC power through a so-called “skinny grid” (extra thin wires buried underground); and many more.
We would like to see these business models TRANSPLANTED to new off-grid areas of the world, and adopted by new local “agents of access” who will be supported to implementwhichever of these business models is best suited to their respective market conditions.
We look forward to sharing ideas and thoughts with you on your views regarding such transplanting, what to emphasize, and what to watch out for, if we want proven business models to spread. A quick note on terminology: in my view, the original energy entrepreneur who developed the business model (franchisor), will do “scale up”. The agent (or franchisee) will do “replication”.
So here we are mainly focusing on the local “agent of access” who may be in another country orin another location of the franchisor’s home country, and trying to understand how this replication can best be undertaken. We look forward to a rich discussion. Specifically we’d like to get inputs on the following questions, to start off:
How do we define the franchisee/franchisor relationship to keep it very simple? Do you have examples? From other sectors as well? What lessons exist?
How should the local agents (franchisees) be identified? What makes a suitable "franchisee"?
What kind of technology packaging should be matched with various local conditions?
I believe that the franchising matter is part of the initial discussion E - 2 about the model and the "Policies and Regulations". we are talking about conflicts between existing concession contract and the emerging mini-grids in the same concession area. We are talking about system compatibility and potential interconnection with the main grid, and potential trade or exchange of excess of energy perhaps using a kind of Smart Meter device.
Then "Policies, Regulations and Standards" are a must, in order to assure compatibility and efficiency and leverage "Fast Implementation", "Energy Access", "Energy Security", "Universal Energy Access", "Infrastructure Adequacy" and "Commercial Efficiency"
If you do not have standards, you risk in a double cost for the Poor who is paying the bill.
Then any Franchising approach can not add additional costs (such a fee); if we analyze the mobile phone carriers and service providers. they are regulated and the regulation assures compatibility.
Then the potential mini-grid service need to be prepare to connect to a main grid on AC for any exchange, any mini-grid need to have some definitions on potential energy toll;
The idea is deploying a sustainable and affordable solution in order the Poor pay a fair rate.
I manage an Access to Renewable Energy Project in Nigeria, West Africa. The project is being supported by UNDP and implemented by Nigeria's Bank of Industry. We see the concept of Franchise as a good idea for Off-Grid Electrification especially through Renewable Sources.
Could you therefore provide a list of Companies or Products that we could seek for Franchise from them.
Kudos to the team that organized the webinar and now facilitates discussion within this group! I work with TERI and co-manage the program to support rural energy enterprises in order to strengthen clean energy value chain across India.
To begin with, I would re-emphasize on the basic premise that Mohua has put forth: the rural population already represents a group of customers who pay for unsustainable fuels and should NOT be termed beneficiaries. The issue is to facilitate sustainable technology transition, using innovative instruments such as franchising etc. However, the idea of creating rural franchisees in off-grid regions JUST to promote clean energy does not seem to be the most efficient one. Bundling could offer significant efficiency improvement.
One of the impediments that I have observed (in the context of franchising) is the trade-off between standardization and autonomy. In India specifically, standardized renewable energy products/services carry with them higher transaction costs as compared to other locally available substitutes. This owes to the techno-commercial constraints long embedded within the RE supply chain. To tackle this, TERI seeded the concept of energy entrepreneurship (EE) in certain regions and created a brand called ‘Uttam Urja’ (English: Best Energy). These franchisees (image attached herewith) are given access to a network of reputed solar lighting products and other facilities such as returnable inventory, branding, ERP and other marketing support from TERI. Upon establishment, the EEs become cognizant of the massive market demand and some of them (the more entrepreneurial ones) start procuring local but non-standard equipment for sale and also deviate from the standard processes laid down in the agreement. Unfortunately, this has become one of the prominent mechanisms that franchisees exploit to make themselves financially viable (sustainable??).
This brings me to the point that Alejandra made i.e. absence of standards can lead to double or triple costs for the poor customer. Does deviation from standards really matter if the franchisees are ready to service/replace the non-standard products under their traditional arrangement with the customer? Unfortunately, that traditional arrangement does not exist with the ‘poor’ customers because of lack of agency and bargaining power (I recall here Anil’s point on a Pyramid at the Bottom of the Pyramid). What could be the incentives (other than cash transfers) that could drive the franchisees to serve the community in a sustainable way? How can we communicate the proven benefits of franchising; long term sustainability by adhering to standards etc. vs. short term financial gains?
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Dear Dan, great post! thank you for sharing your resources.
Dear Raj,
to answer your questions:
On grants: I agree that the way certain grants are structured do not support the pursuit of viable business models, but I don't think that is the case for all grants. The Monitor/Acumen report "Blueprint to Scale" highlights the role of the Shell Foundation in providing venture philanthropy (ie grants) to support organisations in pursuit of a commercially viable model to delivering energy access. In fact several of the success stories discussed in this thread are partners of the Shell Foundation. This report and the work of the Shell Foundation have informed the design of the MECS Innovation Grants to support an enterprise-centered approach. Could we not see a grant mechanism designed that focusses purely on the "systematising" step outlined in the Step 3 of ICSF diagram shared by Dan (http://www.the-icsf.org/wp-content/uploads/2013/08/5-phases-to-social-replication.pdf)
On why the uptake of the 3rd party ESCO model is slower than expected: I think everyone involved agrees that the uptake has been slower than expected but with good reason. The mobile operators and specifically the tower companies of India have been supportive of the switch to renewable energy sources and the altogether outsourcing of power to 3rd party ESCOs but it needs to make operational sense to the mobile operator/tower company AND (most importantly) they need to find the right partner. A tower company or a mobile operator must maintain 24/7 power availability to their network to ensure that they are delivering uninterrupted services to their customers. A great example of how effective they are at maintaining a reliable network was the July 2012 blackout in India. Calls could be made without interruption. Marrying the needs of the mobile industry with the operational capabilities of ESCOs operating in off-grid areas is easier said than done: can these ESCOs deliver 99% reliable power 24/7, do they have the capacity to operate at scale (100s or 1000s of towers), do they have the financial health to take on the risks of penalties etc... As a result it takes 18 months-2 years for many ESCOs to go from first discussions to pilots to large commercial contracts.
Our views on the policy barriers: This is hard to comment on as they are different in different countries. In general we think that more can be done to remove barriers for community power models to flourish. The models present significant risks for the telecom providers (placing the reliability of their network into their partners hands) and to the ESCOs (serving a market segment that is thought to be risky and cash strapped). Enablers that we have seen which we would like to see replicated: special concessions made for ESCOs with less than 1MW of installed base, subsidies that support home connections, the government being open to either a mini-grid or energy hub approach (like OMC) to support different models emerging, discussions between the telecom and energy ministries to see how they can work together to improve access ( a mobile customer is also an energy customer) and a fee for service be accepted vs. a fee for kWh.
The good news is there is an emerging need to develop mini-grid structures inside power utilities worldwide, because not only the Rich is looking for Cleaner and Safer and Reliable supply avoiding black-outs (many problems with big utility that did not provide good service in weather problems and so); but also the Poor is looking for Energy Access and Reliable service for Economical Development.
For those reasons franchising opportunities need to be related to regulatory rules that allow the development of these mini-grid structures within the main utility with a concession contract in that area, including standards and compatibility that later allow connection and energy exchange.
Furthermore, on this discussion and the potentiality of these mini-grid structures; please find here a work from the Professor Ilic from Carnegie Mellon on her presentation on Dynamic Monitoring and Decision Systems (DYMONDS)
This topic is also under discussion on the power utility regulatory councils in USA. Adding to this dialog is “Americas power plan” which was just released yesterday and covers these ideas in more detail. http://americaspowerplan.com/ ; where Prof Ilic was one of the reviewers.
Similar approach is under development in the European Union.
Discussion » E-Discussion #5 - Exploring the Franchise Approach for Off-Grid Electrification
E-Discussion #5 - Exploring the Franchise Approach for Off-Grid Electrification
Sustainable energy powers opportunity. As noted by the SE4All initiative, 1.3 billion people—one in five globally—lack electricity to light their homes or conduct business. Engaging the private sector to define and implement financially sustainable business models could play a pivotal role in accelerating off-grid rural electrification. The IEA estimates that more than $50 billion annual investment is needed to achieve universal energy access by 2030, much of which will be mobilized from and directed toward the private sector. Yet notable barriers remain for unlocking private sector participation in energy access. As you are aware, we continue to implement a multi-year initiative to explore and support commercially viable business models for private sector engagement in providing energy services to rural, off grid customers. Reaching millions of customers is not a new challenge for the private sector. Around the world, even in rural areas with no access to electricity, industries such as telecom, consumer goods, appliances and automotive are reaching their customers using a network of retailers, distributors, local partners and agents. Despite some obvious and major differences between the energy sector and others, there is room for inspiration and there is a rural customer to be served. A confluence of factors including, recent advancements in renewable energy based generation and storage technologies, development of mobile-phone enabled metering, payment and customer management solutions, availability of high-efficiency household appliances and reduction in costs of these technologies, is creating a unique opportunity for the private sector.
What can we learn from other sectors to help design these business models for the energy sector? How can entrepreneurs who have created unique business solutions and are successfully running their companies in a few villages, scale-up or replicate? How can we engage small private enterprises that exist in most rural areas in becoming local energy service providers? Reinventing the wheel, village-by-village and country-by-country is not necessary. Can we learn and adapt the well-established practice of franchising? Can we help the development of the business method and relationships that could accelerate the pace of off-grid electrification? These are few of the questions for which we seek answers during this E-Discussion.
Focus areas: Is the Franchise approach relevant for A-B-C business models? What are the different types of franchise approaches and their respective modalities? What kind of capacities are required from potential franchisees? What are the benefits of franchise approach in terms of scaling up? What specificities should a franchise model address in order to be relevant for A-B-C business models? What are the key start-up barriers for franchisees and franchisors? How to match-make rural entrepreneurs with franchisors?
Expert Contributors:
Anil Raj, CEO and Co-Founder of OMC Power. OMC is an established micropower company in India that builds small-scale power plants with renewable sources where there is no reliable power grid. Anil is a veteran of the telecom industry with roots tracing back to the earliest days of mobile telecom. Anil was the start-up CEO of Hutchison in India and launched the country’s very first mobile network. He started his career at Ericsson where he held a number of senior management positions in Sweden and in Asia Pacific. As Head of Ericsson’s Smartphone Business Unit, he was responsible for launching the world’s first smartphone and first Bluetooth product. He also headed Ericsson’s companies in India and Indonesia establishing the company as the market leader. While at Ericsson, he also spearhead the merger of Ericsson’s and Sony’s handset businesses into Sony Ericsson and went on to forge the Symbian initiative where he also served as Chairman.
Manoj Kumar Singh,Vice President Green Energy, Regulatory Affairs & CSR, Indus Towers Limited. Manoj Kumar Singh, is a seasoned energy professional having 22+ year experience in energy and project management. He is heading Green Energy, Regulatory Affairs & CSR for Indus Towers Ltd., India as Vice President. He is also the Chairman of industry association TAIPA’s Energy Committee. He is a coveted speaker on Green Energy in Indian Telecom space, and has represented Indus at various international forums.
In past he has successfully installed multiple projects of Thermal, Solar , Wind, Hydro, Natural Gas, Bio Gas and Bio mass. He has very successful instinct with Modis, Kanorias, Shri Ram Group & Jaipuria. He conceptualized the so called innovative energy model – FCM, which brought paradigm shift to energy management within the industry. He initiated i-CAP – Indus Carbon Abatement Program and is also leading the RESCO project in the industry on behalf of TAIPA. Manoj is actively engaged within the industry and the government while passionately driving the drafting of Green Telecom Policy.
South Asia accounts for approximately 31% of the global population without access to electricity. Of this population, approximately 400 million people are in India - a population that could eventually be connected to renewable energy sources. Clean energy technology, including solar, biomass and wind generation along with efficient LED lighting, could revitalize India’s failing energy system.
The Climate Group’s Access to Rural Energy in India project (principally funded by the Nationale Postcode Loterij of the Netherlands) aims to enhance the lives of rural inhabitants in India by deploying renewable energy technologies and improving infrastructure quality whilst reducing greenhouse gas emissions. One of the key barriers for private sector participation in energy access is the gap in identifying a commercially viable business model. To address this, we will be piloting a range of different rural electrification business models with a view to identifying one or more sustainable model/s that can be scaled up thereafter.
Franchising is a popular and pervasive phenomenon in many developed and developing economies. On the face of it, franchising represents an efficient method of replicating proven business concepts with ongoing success reliant upon the ongoing collaboration between interdependent parties. While we most often think of franchising in terms of retailing (e.g. accounting for 53% in Australia), there are a number of distribution arrangements and it is growing rapidly in other sectors (e.g. construction, services, telecommunications). So its application in energy appears sound.
Typically, business owners (franchisors) utilise franchisee investments to rapidly expand their geographic reach (often in remote areas) and build their brand image. Franchisees gain access to the 'proven business concept' , established brand, clientele and (initial) and ongoing training and support in return for paying ongoing royalties and other contributions (e.g. to the advertising levy). However, success in franchising is not always guaranteed, but requires the (complex) delineation of roles for the principal (franchisor) and agents (franchisees) and this involves clear lines of communication, training and monitoring. In this way, trust and commitment to the brand is built within the network and the franchising concept is more sustainable.
As franchising success is predicated upon replication through standardisation (that is, adherence to standards), monitoring of franchisee units is necessary. However, franchisees have a vested interest to work hard and build their businesses as their remuneration is based upon their own efforts (i.e. residual claimants). Moreover, given the relational nature of the franchise contract, they are often permitted to have some control over local marketing initiatives. This level of autonomy afforded to franchisees may be useful in that they know their particular regions (and clientele) and they may be a valuable source of information (and innovation) in regions in which the franchisor has little 'on the ground' knowledge.
So the unique aspects of franchising which are particularly beneficial in the context of sustainable energy is that it promotes rapid replication of the business concept and business brand, employs committed semi-indepenedent business owners and ensures adherence to quality standards through instruction/training and monitoring (so as to support the system brand and further replication of the business). One other consideration when thinking about international franchising is warranted. Through utilising master franchisees who buy the rights to sell franchises in particular territories (and are most often sourced from local communities in the host country) franchises can expand internationally whilst minimising cultural barriers to entry.
We need to walk before we can run…
Franchising could be a viable route to replicating off-grid energy models but what is first needed is a successful and sustainable business model. Since 2010, the GSM Association has been exploring the opportunity for GSM operators and mobile tower companies to contribute to improving access to energy first through the IFC funded Community Power from Mobile programme and now through the UK Government funded Mobile Enabled Community Services programme.
While the opportunity is immense there are still only a handful of ESCos who have had the opportunity to test the A-B-C model in the field and who have the scale (measured by long term energy contracts with mobile operators or tower companies) to build a replicable model
One of the main barriers to trialling these models has been the lack of patient capital to test promising ideas. The £2.4M MECS Innovation Fund was developed to fill this gap by providing grants up to £350k for service providers to trial innovative business models with the potential to scale.
South Asia presents one of the better opportunities to develop a franchise model for energy access due to the high population densities of off-grid areas but it is not without its challenges. The social dynamics of communities can greatly impact how energy access is delivered and the overall cost of running a franchise. We should not underestimate the challenges of converting an ESCO with a B2B model providing power to towers to an ESCO with a B2C approach where they provide services directly with the community.
Before we declare the franchise model to be a viable/unviable route to scaling the A-B-C model the sector needs to trial more models. The MECS Innovation fund fill some of the missing risk capital required but our experience from the 1st and 2nd round calls for Concept Notes is that we have more great ideas than there is funding.
If you would are an investor/donor and are looking for deal flow please do get in touch. Likewise if you are an ESCO and are looking for funding please do contact us; we expect the entire £2.4M to be allocated to applicants we already have in process but are actively trying to fundraise more money.
India has the second largest and fastest growing mobile telephone market in the world. In past less than two decades, the telecom industry has been able to penetrate well across the country, where even the grid has not been able to reach in more than half century. One of the biggest challenges being faced now is power deficiency in most of the areas along with lack of power infra, while the telecom focus is now more towards deep rural penetration.
As per license conditions, a telecom operator needs to maintain a network availability higher than 99.5 %. Assured power 24x7 is, therefore, a pre-requisite for any telecom tower site. This forces telecom infra companies to use Diesel to generate backup power resulting huge financial burden upon telecom players just to meet the deficit of power supply & maintain the uptime.
The challenges being faced by telecom tower industry are actually common to the local community. More than 300 million people in India do not have access to electricity and over one third of India's rural population lacks electricity. This adds to the woes of power industry, requiring huge capex inflow for capacity additions, T&D infrastructure development for rural penetration, and huge T&D losses. The practical solution to this appears to be through decentralized power generation and distribution – A need of Exploring the Franchise Approach for Off-Grid Electrification.
RESCOs are conceptualized to provide power with multiple green energy sources, but the main barrier is the absence of business models that would enable these costs to be recovered. While the overall power demand from a community may be less and fluctuating, the unique presence of telecom towers, needing 24x7 power, may prove to be a key to the sustenance of such model. Telecom tower industry may provide anchor load in widely distributed geographies with deep penetration in the country, as a single largest user of the clean energy that RESCOs / Telecom Infra providers can produce, aiming towards Grid parity. This will provide the much needed scale to RESCOs and address the cost-price deficit to a certain extent. As a result, the communities around the RESCO facilities too could receive power at an affordable cost.
The said model shall be a programme to bring Industry to village and negate rural migration to urban areas in search of lively hood.
Hello everyone, and greetings from Malawi in southern Africa, where I am currently on a short visit together with my colleague Monali
Ranade. Thank you to the presenters and participants for the excellent webinar and launch of the e-discussion yesteday, Sept 9th.
In my opening statement, I just want to say a few words about why I think the concept of “franchising” is indeed very relevant to promoting the
spread of private sector led off-grid energy access to un-served customers in rural areas all over the developing world.
Yes, I am consciously referring to the clients as customers rather than “rural poor” or “beneficiaries” because they are customers, even if they have very lowincomes. Today they are customers of mobile phone companies, and they are customers of kerosene suppliers, who sell them kerosene for lighting, and if they are micro-enterprise manufacturers they might be customers of diesel suppliers for their small generators.
So we are trying to switch their current expenditures on kerosene and diesel, over to spending on clean energy solutions forlighting, phone charging, running small equipment, and more. Furthermore, Anil Raj, CEO of OMC Power, has pointed out that there is also a “pyramid at the bottom of the pyramid”, i.e. not everyone living in an off-grid remote rural area has a low income. This is an important point to keep in mind.
Successful and innovative business models for private energy entrepreneurs to serve rural customers are emerging in various parts of the
world, most commonly in South Asia and East Africa, with India and Kenya/Tanzania in the lead. The clean-energy technologies being used in these business models are varied: battery charging services; home delivery of small appliances which are fully charged and ready to use; delivery of several hours of DC power through a micro-grid connecting nearby houses to a limited number of roof-top panels; delivery of 24/7 AC power through a micro-grid; pay as you go systems for solar rooftop panels, removing the need to go into debt to buy a solar panel; innovative mobile technology-enabled payment systems for advance payment of energy credits, including M-PESA in East Africa; delivery of community-owned power from micro-hydro power stations operated by the community and leased to a private operator; delivery of AC power through a so-called “skinny grid” (extra thin wires buried underground); and many more.
We would like to see these business models TRANSPLANTED to new off-grid areas of the world, and adopted by new local “agents of access” who will be supported to implementwhichever of these business models is best suited to their respective market conditions.
We look forward to sharing ideas and thoughts with you on your views regarding such transplanting, what to emphasize, and what to watch out
for, if we want proven business models to spread. A quick note on terminology: in my view, the original energy entrepreneur who developed the business model (franchisor), will do “scale up”. The agent (or franchisee) will do “replication”.
So here we are mainly focusing on the local “agent of access” who may be in another country orin another location of the franchisor’s home country, and trying to understand how this replication can best be undertaken. We look forward to a rich discussion. Specifically we’d like to get inputs on the following questions, to start off:
Hello All,
I believe that the franchising matter is part of the initial discussion E - 2 about the model and the "Policies and Regulations". we are talking about conflicts between existing concession contract and the emerging mini-grids in the same concession area. We are talking about system compatibility and potential interconnection with the main grid, and potential trade or exchange of excess of energy perhaps using a kind of Smart Meter device.
Do not forget that also the EU regulation is moving to mini-grids and their interconnection and exchanges with the main grid, such as a reccent news - Vestas wins 42 MW order for one of the largest citizen-owned wind power plants in Germany
Then "Policies, Regulations and Standards" are a must, in order to assure compatibility and efficiency and leverage "Fast Implementation", "Energy Access", "Energy Security", "Universal Energy Access", "Infrastructure Adequacy" and "Commercial Efficiency"
If you do not have standards, you risk in a double cost for the Poor who is paying the bill.
Then any Franchising approach can not add additional costs (such a fee); if we analyze the mobile phone carriers and service providers. they are regulated and the regulation assures compatibility.
Then the potential mini-grid service need to be prepare to connect to a main grid on AC for any exchange, any mini-grid need to have some definitions on potential energy toll;
The idea is deploying a sustainable and affordable solution in order the Poor pay a fair rate.
Regards
Alejandro
I manage an Access to Renewable Energy Project in Nigeria, West Africa. The project is being supported by UNDP and implemented by Nigeria's Bank of Industry. We see the concept of Franchise as a good idea for Off-Grid Electrification especially through Renewable Sources.
Could you therefore provide a list of Companies or Products that we could seek for Franchise from them.
Please reply to Lgada@boinigeria.com
Hi everyone,
Kudos to the team that organized the webinar and now facilitates discussion within this group! I work with TERI and co-manage the program to support rural energy enterprises in order to strengthen clean energy value chain across India.
To begin with, I would re-emphasize on the basic premise that Mohua has put forth: the rural population already represents a group of customers who pay for unsustainable fuels and should NOT be termed beneficiaries. The issue is to facilitate sustainable technology transition, using innovative instruments such as franchising etc. However, the idea of creating rural franchisees in off-grid regions JUST to promote clean energy does not seem to be the most efficient one. Bundling could offer significant efficiency improvement.
One of the impediments that I have observed (in the context of franchising) is the trade-off between standardization and autonomy. In India specifically, standardized renewable energy products/services carry with them higher transaction costs as compared to other locally available substitutes. This owes to the techno-commercial constraints long embedded within the RE supply chain. To tackle this, TERI seeded the concept of energy entrepreneurship (EE) in certain regions and created a brand called ‘Uttam Urja’ (English: Best Energy). These franchisees (image attached herewith) are given access to a network of reputed solar lighting products and other facilities such as returnable inventory, branding, ERP and other marketing support from TERI. Upon establishment, the EEs become cognizant of the massive market demand and some of them (the more entrepreneurial ones) start procuring local but non-standard equipment for sale and also deviate from the standard processes laid down in the agreement. Unfortunately, this has become one of the prominent mechanisms that franchisees exploit to make themselves financially viable (sustainable??).
This brings me to the point that Alejandra made i.e. absence of standards can lead to double or triple costs for the poor customer. Does deviation from standards really matter if the franchisees are ready to service/replace the non-standard products under their traditional arrangement with the customer? Unfortunately, that traditional arrangement does not exist with the ‘poor’ customers because of lack of agency and bargaining power (I recall here Anil’s point on a Pyramid at the Bottom of the Pyramid). What could be the incentives (other than cash transfers) that could drive the franchisees to serve the community in a sustainable way? How can we communicate the proven benefits of franchising; long term sustainability by adhering to standards etc. vs. short term financial gains?
Dear Dan, great post! thank you for sharing your resources.
Dear Raj,
to answer your questions:
Dear All,
The good news is there is an emerging need to develop mini-grid structures inside power utilities worldwide, because not only the Rich is looking for Cleaner and Safer and Reliable supply avoiding black-outs (many problems with big utility that did not provide good service in weather problems and so); but also the Poor is looking for Energy Access and Reliable service for Economical Development.
For those reasons franchising opportunities need to be related to regulatory rules that allow the development of these mini-grid structures within the main utility with a concession contract in that area, including standards and compatibility that later allow connection and energy exchange.
Furthermore, on this discussion and the potentiality of these mini-grid structures; please find here a work from the Professor Ilic from Carnegie Mellon on her presentation on Dynamic Monitoring and Decision Systems (DYMONDS)
http://dimacs.rutgers.edu/Workshops/Infrastructure/Slides/Ilic.pdf
This topic is also under discussion on the power utility regulatory councils in USA. Adding to this dialog is “Americas power plan” which was just released yesterday and covers these ideas in more detail. http://americaspowerplan.com/ ; where Prof Ilic was one of the reviewers.
Similar approach is under development in the European Union.
I hope it helps,
Regards,
Alejandro