Guest Blog by Peter George, Senior Director, Private Sector Investment at the Clean Cooking Alliance.
The SDGs offer tremendous potential to guide public and private sector investment towards protecting the planet and improving the lives of the less fortunate.
SDG 7 is clear that “access to affordable, reliable, sustainable and modern energy for all” must include thermal energy for cooking. This is sensible as cooking consumes the vast majority of energy in developing country households and accounts for the bulk of the negative health and environmental externalities.
So how do we get there? As global leaders gather at COP25, learning from other sectors will be critical. In particular, we should take cues from electrification. For many years, it was unprofitable for utilities to serve far off-grid consumers or those who consume small amounts of electricity, so alternatives such as solar home systems emerged. However, these alternatives remained unaffordable and inaccessible until 2010 when PV cost reductions and pay-as-you-go models changed the game. Companies began raising large amounts of capital and expanding rapidly, now serving tens of millions of customers. A far cry from the billion unserved, but meaningful progress – and private sector-driven growth and impact continues to this day.
It is important to note that this progress is on the basis of companies serving the most economic consumers or “picking the low hanging fruit”. These models target consumers in urban and peri-urban areas with an appetite for such solutions and the financial capacity to pay for them. As well they should: underwriting customer creditworthiness and willingness to pay is fundamental to the business model. Incorrectly assessed, these companies would be unable to monetize their investments and struggle to finance further growth. After all, few investors finance businesses unlikely to be sustainable or scale-up.
Are we seeing similar trends in the clean cooking market? Not at the scale we need… yet. While off-grid power players have focused on proving business economics that makes sense, targeting customers that value and can pay for their products, the clean cooking sector has more often been driven by “impact”. This focus on impact rather than commercial viability has left the sector with too few sustainable models with scale potential. For many companies, business model economics have not stacked up and many cookstove producers have remained unable to attract finance or sustain their businesses without grants or carbon finance.
Fortunately, there is an exciting ongoing transition towards strategies and solutions with commercial viability at their core. Investors are increasingly investing in companies targeting ‘early-adopters’; consumers with the means and desire to purchase. This focus on early adopters is providing innovative companies a chance to show market traction, refine business models, and prove viability. To reduce customer acquisition costs and drive down production costs. To attract equity and debt and use it to achieve greater traction, leading to a virtuous cycle.
The Clean Cooking Alliance is fortunate to have the opportunity to support pioneering businesses that subscribe to these principles. They span a range of fuels including biogas and ethanol, biomass pellets and LPG, and clean and efficient biomass stoves. They are innovating exciting new technologies such as efficient electric devices. They are taking a business approach in order to create impact, not the other way around.
To reach the billions, we must start by creating the foundation for an industry to grow. We must catalyze investment, which requires astute entrepreneurs who want to build big, profitable businesses to capitalize on some portion of the three-billion-person market, and the investors and banks waiting to finance them. The Alliance believes this is the best path to potentially achieving SDG 7 and all the climate impacts that can come with it. The human and environmental need is enormous, the commercial opportunity is massive and growing, and market transformation can start with even a few financially viable, investible companies that are able to demonstrate true market traction and scale potential.