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Some 1.2 billion people — or 16% of the global population — don’t have access to electricity. Entrepreneurs are developing innovative, off-grid energy solutions to bring power to those populations, but challenges of varying kinds are slowing down their progress.
For Nikhil Jaisinghani, co-founder of Mera Gao Power, a provider of low-cost, off-grid solar power to villages in India’s Uttar Pradesh state, a prime challenge is attracting investors who are used to large, publicly funded grid-based power projects with government subsidies, and are unfamiliar with projects like those of Mera Gao Power. “We’re trying to put this into a model where we’re serving ultra-poor customers without public funding, and we’re trying to create a profitable model with a three- to four-year payback period on infrastructure,” he said.
In Australia, David Allen works for a family office that has met with success in its investments in renewable energy projects aimed at benefiting indigenous communities and reducing the carbon footprint. But Allen, who champions a for-profit model for sustainability, finds it disconcerting when the entrepreneurs he backs prefer to service middle-income consumers instead of stretching their business model to reach poorer people at the bottom of the pyramid. “That’s one of the risks we’re now turning our attention to,” he said. “How can we bake the social purpose into some of these businesses?”
Jaisinghani and Allen shared their perspectives on the guiding principles for impact investing with Knowledge@Wharton for a new podcast series called “From Back Street to Wall Street.” The series is being produced in partnership with Impact Investment Exchange (IIX), a Singapore-based organization that serves as a bridge between investors and development goals in Asia. (Listen to this episode using the player at the top of this page. Find the first episode here and the second episode here.)
Jaisinghani was struck by the idea for Mera Gao Power (“Mera Gao” means “My Village” in Hindi) some two decades ago when he worked in the Peace Corps in a small village in Nepal. The village had no electricity, and people got by with kerosene lanterns. Over the years, he thought up a “lighting-as-a-service” business model, and founded his firm in 2010 in Lucknow, Uttar Pradesh
Mera Gao Power started out by designing a solar-powered micro grid that provides seven hours of electricity from 7 p.m. every day to village households in Uttar Pradesh. Priced at less than $2 a month, the service powers two light points and a phone charger; the latter is crucial for households to charge their mobile phones, on which they watch movies and other entertainment.
The company started with a few pilots in 2010 and 2011, and started growing slowly in 2012. Today it serves some 20,000 households with 100,000 people in 1,500 communities of Uttar Pradesh. Its plan is to grow to 50,000 households by end-2018. “We wanted to focus on a level of service that was going to be as impactful as possible, but still affordable to our customers,” Jaisinghani said.
Mera Gao Power has enabled people to earn more income, such as shop owners who can stay open for longer hours in the evening. “The biggest impact we can measure is on the amount of time children spend studying,” said Jaisinghani.
Scalable Business Model
Mera Gao Power’s model is scalable with relatively lower capital costs than grid-based facilities, and with its ability to get projects installed quickly. Compared to the capital cost of $15,000 to connect a village to the national grid, Mera Gao Power’s investment in a micro grid is just $900. That covers the costs of two panels, two batteries, a number of distribution lines, and installation of lights and phone chargers in its customers’ homes. Each community has about 150 households, and a staff of untrained people — not skilled electricians – completes installation of the grid in a day. “What makes it great is how simple it is,” Jaisinghani said of his firm’s model.
“The biggest impact we can measure is on the amount of time children spend studying.” –Nikhil Jaisinghani
Last June, Mera Gao Power raised $2.5 million in equity funding with support from IIX that would enable it to extend its services to more than 50,000 households with 300,000 residents in Uttar Pradesh. It is now raising funds on a German crowd funding platform.
Jaisinghani estimated that Uttar Pradesh alone has more than 100,000 communities that are off-grid, which makes up a significant market for his firm’s services. Yet, it has been a challenge to get prospective investors to appreciate the soundness of low-priced, off-grid, renewable power projects. “Potential investors like the idea that we’re using renewables and serving core communities, but we’re doing so in a way that they’re completely unaccustomed to,” he said. “Over time, we’d love to be able to showcase it as a real model for a true rural or geographic electrification strategy.”
An Urge to Give Back, Use Skills
At the other end of the planet, Allen as executive director at a family office juggles a different basket of opportunities and challenges. The family, which ran a global business, wanted to “achieve impact at scale,” for which it has used instruments such as grants and investments. It has four focus areas — indigenous Australia, disability, climate change, and the Christian faith. That suited Allen, who studied manufacturing engineering in the U.K. and France, and pursued a career in investment banking, private equity and three startups, but wanted to use his skills to find out what doing business and doing good looked like.
With an objective to support “livelihood and climate solutions” for indigenous communities in Australia and in Southeast Asia, the family office has invested in projects aimed at reducing carbon in the atmosphere, for example, with renewable power such as solar and biodigesters or biogas. Such power is cleaner than fossil fuels, and it helps communities to raise incomes and improve health and living standards, he said.
For-profit, for Good
Allen is convinced that such projects can only be addressed with a for-profit model. “There are a billion people without toilets in the world, so how do you give away a billion toilets and keep them serviced?” he asked. “You just can’t. You need a profit model that will deliver them, install them and keep them maintained. It’s the same with energy access as well. The profit motive helps us achieve scale and achieve energy access for the masses because it’s the only thing that can keep these services sustainable.”
“I see the role of family offices and charitable trusts in using their capital as pioneer money.” –David Allen
Allen said the family office is looking for a model that is “inherently profitable and scalable,” and focuses on three aspects: the number of people affected, carbon reduction and income enhancement.
One of the investments is with a Cambodian biodigestor firm that enables rural communities to convert manure and kitchen waste into biogas. The company also has a scalable model where its biodigestors could be easily manufactured at any plastic facility with the rights to the design.
Allen is not the happiest when the enterprises he backs don’t quite deliver the desired impacts. One of Allen’s investments has become a big and successful multinational business, but it has found it more profitable to serve middle-class customers instead of those at the bottom of the pyramid. “We’re not quite having the impact at the social level that we had hoped when we first made the investment a few years ago,” he said.
Even so, Allen said it is critical that entities like his embrace those risks because traditional Wall Street investors don’t have the appetite for them. “I see the role of family offices and charitable trusts in using their capital as pioneer money.” When risks are lower and the business model has proven itself, he expects pension fund managers and other profit-driven investors to back those projects.
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