Local Production: Conditions and Success Factors

In contrast to imports, local manufacturing of energy products can constitute a reasonable cost-efficient alternative that supports local value creation.

Key factors for successful local production / manufacturing

1)    Relevant market: The demand of the relevant market should match the minimum size of one production unit. If a specific niche is big enough, the probability of success is higher. In Indonesia the niche was turbines for mini- and micro-hydro power, which has a high national demand and is not the core business of incumbents like Voith Hydro, Ossberger etc.

2)    Time factor: Establishing local production takes time (5-10 years). This is the biggest obstacle for projects which are only funded by EnDev and do not have a longer sectoral mandate like a focal area.

3)    Cluster: The production site / firm should be located within an industrial cluster, where it is easier to get qualified suppliers, employees etc. Multi-product firms are in a better position because they can compensate low demand with other product lines and transfer relevant knowledge to new technologies.

4)    No grants to the manufacturers. Better use (soft) loans or even better create trust for long-term investments like the German Feed-in Law did.

 

Source: Outcome of a discussion during the GTZ mini-hydro power working group meeting in Nairobi, May 2009.

Examples 

• Example: Mini & micro hydro power turbine manufacturing in Indonesia
• Example: Wind power plants and components
• Example: Local manufacturing of solar systems
• Local Production Systems of Wood Stoves