Published July 24, 2016 by Ned Tozun
One day, a friend of Bala Suleman, who lived near Kano, Nigeria, was raving to him about a new portable solar light he’d started using. Suleman, a chicken farmer, was skeptical but open to learning more about his friend’s new acquisition.
“When I saw the way it was constructed and the quality of the plastic, I was completely convinced of the great value it can bring and bought two lamps straightaway for my stall,” Suleman recalled.
With his new solar-powered d.light lamps, the output of Suleman’s chicken farm grew by 30 percent. The light scared away predators and allowed him to feed his chickens in the evening. He was able to produce 15 more eggs a week from the same flock.
Suleman is one of the 2.3 billion people living around the world in energy poverty, who lack access to reliable electricity or live off the grid completely. Of this population, over half spend about $27 billion annually on mobile phone charging and lighting with kerosene, candles, flashlights, or other fossil fuel-powered technologies.
Burning kerosene to light homes and businesses has serious drawbacks. Breathing kerosene fumes is equivalent to smoking two packs of cigarettes a day. Structural fires and severe burns are common, resulting in fatalities 13 percent of the time. Meanwhile, kerosene fuel costs 40 times what the average American pays for energy, making it a significant hindrance to economic advancement for individuals and communities.
Studies from India indicate that electrification, from anything from solar lighting to microgrids, increases incomes up to 38 percent and literacy rates as much as 74 percent. As the burden of high kerosene costs are removed and families have access to reliable energy, significant economic potential is being unlocked globally. Yet we’ve only begun to enable this growing market.
Over the past decade, social impact investors and entrepreneurs have provided solar energy solutions to people at the base of the economic pyramid and generated financial returns on par with conventional investments. But, for the vision of economic development in emerging markets to be fully realized, the industry needs more conventional funds and large investors to finance companies improving energy access in emerging markets.
This is why Catholic Relief Services and the Pontifical Council for Justice and Peace highlighted the significant impact solar solutions have made around the world its recent Vatican II Social Impact Investing Conference. The Vatican is interested in how lifting developing world families up the energy access ladder can tap into their under-realized economic potential. The answer needn’t be complicated or expensive; access to energy can begin with one small, low-cost solar-powered task light.
The widespread adoption of mobile phones in Africa in the mid-1990s provides an apt analogy. Mobile phones didn’t take off until telephone providers developed inexpensive handsets and operators began selling airtime in smaller, more affordable units. Once products matched their needs and budget, people throughout the continent adopted mobile phones, bypassing centralized infrastructure and opening up new opportunities for communication, business, and trade.
Today, solar products are doing the same with energy access. As of mid-2015, over 13 million brand-quality portable solar lights had been sold worldwide, budding into a $300 million market.
Social Impact: Real Markets, Real Returns
The market of off-grid families and businesses is ripe for opportunity. In this space, businesses and investors can make strong returns and have a tremendous impact on the quality of life and economic futures of individuals, villages, and entire countries.
In its Impact Investing Benchmark research, Cambridge Associates and GIIN found that fully realized and closed impact investment funds outperformed their conventional peer group by 10 percentage points. Later funds that were not yet fully realized also showed returns on par with conventional investment strategies.
The University of Pennsylvania Wharton Social Impact Initiative found that impact investing private equity funds (both realized and unrealized) yielded approximately a 13 percent return between 2000 and 2014. When the social or environmental mission of the company persisted after the investment exit, returns were comparable with non-mission-aligned exits.
These and other studies are debunking the myth that strong financial returns and social impact are incompatible. Investors with financial returns as their guiding principle no longer need to wait for real examples of international social-benefit companies that are scaling successfully and providing commercial-level returns. The evidence is clear and continues to mount.
As the market grows exponentially, more working capital from traditional funds is needed to provide greater numbers of people with energy and economic opportunity. Historically, sizable investments in energy have funded centralized infrastructure like government-backed grid expansion. However, in today’s emerging markets, the most efficient and scalable model is decentralized energy delivery. Small, individualized solutions are more affordable and empower families to control their own energy usage.
Many solar energy businesses are leading the way with cutting-edge technology and comprehensive distribution networks, and millions of families in developing countries are poised to adopt these new, truly life-changing solutions. But the industry needs more institutional investors to provide working capital to take advantage of the rapidly approaching inflection point.
The story of Bala Sulman and his chicken farm is just one of many entrepreneurial stories in the developing world, where a few solar lamps significantly improve the bottom line. Imagine the economic prosperity that could be realized if more people in Suleman’s village or the surrounding community made the same transition. Growing numbers of successful entrepreneurs can burgeon into a small business sector, raising untold numbers of households out of poverty and into greater economic mobility.
Investments in off-grid energy today will have a ripple effect for generations to come, delivering returns to investors and collectively improving macro-economies. The opportunity is at hand to power the arrival of these markets onto the global stage.