Going global with green energy

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Feb 14, 2019

The transition to green energy has never been more important. As carbon dioxide levels in the atmosphere continue to rise and the earth continues to warm, finding ways to deploy clean, renewable sources of energy like solar, wind, and geothermal power is critical to improving the long-term climate outlook. But where can developers of green energy technology find markets that will readily adopt their solutions, especially as government support fluctuates from administration to administration? The Theory of Disruptive Innovation offers insights into finding markets that will embrace green energy—without relying on government subsidies to make them cost competitive with the electrical grid.

In developed economies, green energy technologies like solar and wind power have faced an uphill climb in displacing traditional energy sources. The major reason for this is that they must compete head-on with a ubiquitous, reliable, and low-cost electricity grid. In that head-on competition, green energy has historically lost out to the grid in the absence of government subsidies for two critical reasons. First, it has been more expensive (though recent reports show that costs are “falling fast” and that cost parity with the grid is closer than ever before). Second, green energy production methods have historically struggled with performance deficits such as an inability to meet customer demand during peak hours due to insufficient energy storage. Whereas the grid is relatively unaffected by mother nature, solar power generation can be interrupted by weather and seasonality. Wind power is also dependent on weather conditions and can have variable output in the best of environments.

Given the public’s trepidations about the cost of green energy technologies, as well as their performance limitations, is there another way to commercialize them? Beyond the environmentally conscious who support green energy for purely altruistic reasons, are there customers who would actually value energy sources that are less reliable than a traditional electric grid? We believe there are—in the villages of low-income countries around the world.

In low-income countries, competing with the electrical grid is a much easier proposition. In many of these nations, the electrical grid is either unreliable or unavailable to large portions of the population. In the language of the Theory of Disruptive Innovation, there is widespread nonconsumption of electricity—people are literally unable to consume it. When any product is competing with nonconsumption, the performance hurdle it must clear to delight potential customers is much lower as the alternative is having no product at all. So, having access to solar energy, for instance, that is only available at certain times of day and can only produce a limited amount power, is far better than having no electricity at all.

Although deploying green energy in low-income countries may be easier from a competitive standpoint, there are unique challenges that would-be entrepreneurs must still solve. We offer three suggestions that will greatly aid the commercial success of green energy in these less-competitive settings.

1. Make local products for local customers

Product development of any kind in low-income countries works best when the business unit responsible for both the development and the deployment of that product is located where the target customers are. This way, the business unit has the right cost structure, growth incentives, and local knowledge to deliver the right solution. Too often, we see products developed in R&D labs in the developed world fail to gain traction in low-income countries because corporate sponsors quickly lose interest in what they perceive to be smaller initial market sizes and lower profit margins. However, when a product is developed in the local market, that business unit sees the same market as a source of tremendous growth and vigorously pursues the opportunity.

2. Sell light, not solar panels

In low-income countries, entrepreneurs should focus on selling full solutions rather than component products. Many places where potential customers live lack traditional electrical infrastructure, so if customers don’t have a way to route electricity from solar panels or don’t have any appliances to power, the solar panels won’t do much good. Instead, companies should focus on meeting a full-customer need by developing a solar-powered lighting or refrigeration system where the energy technology and its application are bundled and sold together.

3. Do it all

In many low-income countries, an ecosystem of distribution, logistics, and retailing does not exist. So in order to get solutions to customers, companies need to perform more of these functions themselves. Distribution is often taken for granted by large companies in wealthy nations, where retail and logistics partners abound. But in low-income countries, companies sometimes need to get more creative. D.light Design, a solar lighting company, developed a team of local entrepreneurs to help sell its products to their friends and family in India.

Go green

Green energy is gaining steam having reached ~13% of U.S. energy production in 2017. However, it still suffers from cost and performance issues that hold back adoption in some places with a reliable electrical grid. Fortunately there is a population of nonconsumers that will embrace green energy solutions so long as they are deployed in ways that make sense in those communities. With the added benefits of lower carbon emissions and local economic growth, deploying green energy in the developing world just makes sense.  

Rich Alton is the director of emerging research at the Clayton Christensen Institute. He is responsible for training new visiting research fellows, advising them on research questions, and helping them drive their research to publication.