Examining and analysing value chains is necessary to be able to strengthen the single links that make it a whole and in consequence develop them further. This evolvement leads to economic advancement and thus to an upturn in the incomes of the players along the chain. This article provides an insight into the income of actors in the value chain of different technologies.
Actors in the Value Chain of Different RE Technologies
Who are Value Chain Actors?
All providers of operational and/or supporting services to produce, market and deliver a product are actors of the value chain. These are individuals, private companies as well as public agencies. If government institutions subordinate to the business environment of the respective value chain play an integral part they can also be value chain actors.
The Off-Grid Solar sector has evolved continuously in the last years. The market now accommodates a wide spectrum of actors, various stakeholders, a broad range of products as well as innovative business models such as PAYGO. Furthermore, recent developments enabling SHS to power productive use appliances will have a great impact on the market and its players.
The number of actors in a PicoPV market depends on the type of the distribution models in place. There are two common schemes which are the integrated supply chain model and the distribution dealer model. In the first one all actions along the value chain down to the retail are taken over by one solar lantern company. The latter describes a scenario where several actors play a role in the value chain. There is the lantern producing company, the importer, commercial retailers as well as FBO’s/CO-OP’s/SACCOs (Figure 1, Figure 2).
Figure 1. Integrated supply chain model (EUEI PDF 2015).
Figure 2. Distribution dealer model (EUEI PDF 2015).
The Solar Home System (SHS) market has similar value chain scenarios as described for the PicoPV market. Thus, common players can range from one dominating enterprise to several importers, distributors, associations and cooperatives. However, in addition franchises engaged in retail and/or rental and leasing can also be found in the SHS market (Figure 3).
Figure 3. Fee-for-service business model (EUEI PDF 2015)
Figure 3. Fee-for-service business model (EUEI PDF 2015).
Different organisational structures determine the number and type of actors in the Mini-Grid Value Chain. Import, manufacture and assembling, retail, supply and installation can be carried out by various actors. Apart from the operational services, supporting services are provided by project developers, electricity companies, financial institutions, companies tasked with maintenance and consultants.
Improved Cookstoves (ICS)
In the ICS market the type of players engaged is based on the manufacturing method of the stoves. For locally and centrally produced stoves most of the value chain is covered by the stove producers themselves. Whereas for local-decentral and artisanal production as well as internationally produced stoves more actors such as importers and assemblers, distributers and national and local retailers are involved in the process.
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Income of Actors in the Value Chain of Different Technologies
Income generation through SHS
There has been a lot of governmental subsidisation of the SHS market especially in countries where the targeted end consumer is not able to afford the high upfront cost of these systems. However, this attempt to facilitate the market can then backfire once subsidies are taken away and lead to severe misallocations. In these scenarios especially the small and medium sized enterprises (SMEs) at the end of the chain suffer great losses in revenues.
However, new business models such as PAYGO have helped to push the SHS market and increase revenue. Yet, these capital-intensive innovations have mostly benefitted the larger players in the market. In addition, SMEs struggle even more with the number of defaulting customers.
As can be seen in Figure 4 although the end-user price increases the longer the contract is the average profit margin before overheads of $ 63 for the SHS company remains the same. This results from higher financing and risk costs that need to be taken into account.
Figure 4. End-user price breakdown in different contract models (Lepicard et al., 2017).
Income generation through PicoPV
Research on income generation through PicoPV has mainly been done on the level of the local retailers, the last-mile-entrepreneurs (LMEs). A study carried out by RWI on ICS and PicoPV in Kenya found that individuals stepping into the PicoPV market as retailers have been able to increase their average monthly net income in comparison to other income generating activities they had pursued before. Furthermore, the study revealed that there is an initial gender gap when individuals take up this business. However, in comparison to the improved stove sector female entrepreneurs in this market are more successful in closing this gap.
Another finding in a study on the PicoPV market development in Tanzania was that the interviewed LMEs enjoyed working with solar technologies very much as 35% chose score 9 or above on a satisfaction scale from 1 to 10. Main reasons given for this level of satisfaction were that the solar business is very profitable. Quantitative information on profits or income was difficult to obtain since many businesses refused to talk about the details of their operation.
For more information, see Productive End Use of PicoPV.
Income generation through ICS
Also for the ICS several studies can be found on the business development of small-scale and local stove entrepreneurs. A study in Kenya showed that although there are a few stove producers and salesmen for whom the stove business is the main source of income, the majority pursues additional income-generating businesses. Thus, due to the various parallel income sources it is difficult to depict the actual income generated from the stove business. Furthermore, the businesses were informal, hence the entrepreneurs were not obliged to keep sales records and did not do so. Nonetheless, the study displays an estimate given by the stove entrepreneurs on their total monthly income and their stove business revenue in Kenya Shillings.
Table 1. Monthly income of stove entrepreneurs (Hartmann et al., 2016).
Table 1 above shows that a third of the interviewed entrepreneurs earned EUR 8.00 – EUR 24.00 per month from their stove business and around 48% of them can created a monthly revenue ranging from EUR 24.00 up to EUR 96.00. Thus, several individuals were exceeding the minimum monthly wage of a fulltime cleaner or gardener in the rural area at the time of the study which was approx. EUR 53.00.
The study also examined the value added per step along the value chain (stove producer – stove installer – customer) of locally produced ICS as seen in Figure 5 below. It showed that producers only have a profit margin of 88%, while installers have higher profit margins (189% of their costs).
Figure 5. ICS value chain (Hartmann et al., 2016).
A study carried out in Cambodia on ICS production in rural settings identified a daily income of EUR 1.08 for a potter in an ICS production centre amounting to EUR 32.4 per month. A few potters were selected to receive an additional training to step up production efficiency and quality. Division of labour was introduced to the production process also resulting into an increase of income for the potters. Depending on the tasks carried out during the day, the daily income ranged from EUR 1.75 to EUR 2.62. This amounts to a monthly income of EUR 52.5 to EUR 78.6 meaning that individuals were achieving up to twice the minimum wage of EUR 42.6 in 2010 when the study was carried out.
Another study was able to identify a gender gap in the income generated from stoves. Female stove entrepreneurs earned less money from their businesses than their male colleagues.
In RE technology markets a wide range of business and distribution models can be found accommodating various actors. However, quantitative information on the different income levels is hardly available. Various studies on business models and market analyses exist, yet barely any of these examine income, profit margins or even revenue of the market players in detail. As mentioned above concerning retailers and entrepreneurs at the end of the chains the difficulties of obtaining this particular information are the various income generating activities carried out in parallel as well as the informality of the businesses. Regarding the actors further up the chain which are generally formal larger enterprises the issue here is probably reluctance to share internal information on revenue or profit of the company.
Nevertheless, it was noticed that LMEs can increase their monthly income by engaging entrepreneurially with RE technologies. In the improved stove market, installers have a significant higher profit margin than producers. Further, on the LME level of the chain gender inequality in earnings remains an issue in all markets.
Very little information on the income generation of the actors along the value chain of renewable energy technologies exists. Further research is necessary along the whole value chain to display the different profit margins, added value and incomes and thus, getting closer to uncovering inequalities along the chain. This would in turn create possibilities to enable win-win situations and strengthen the chain performance.
No valuable information on income of the actors along the value chain of Micro-Hydropower could be found.
- ↑ GTZ, n.d.. ValueLinks Manual – The Methodology of Value Chain Promotion – First Edition. http://www2.giz.de/wbf/4tDx9kw63gma/ValueLinks_Manual.pdf
- ↑ Lighting Global/GOGLA, 2018. Off-Grid Solar Market Trends Report 2018. https://gallery.mailchimp.com/cb42ca6d63b6f335fac8f0694/files/40b8690a-3325-4c05-89fa-21931059c24f/2018_Off_Grid_Solar_Market_Trends_Report_Full.pdf
- ↑ 3.0 3.1 EUEI PDF, 2015. Building Energy Access Markets – A Value Chain Analysis of Key Energy Market Systems. http://www.euei-pdf.org/sites/default/files/field_publication_file/150907_euei_value-chain_en_rz_03_web.pdf
- ↑ Mali, S. et al, 2016. Value Chain Analysis of the Solar PV Market in Pakistan. https://www.solarwirtschaft.de/fileadmin/user_upload/BSW_VCA_Report_Final.pdf
- ↑ Clough, L., 2012. ‘The Improved Cookstove Sector in East Africa: Experience from the Developing Energy Enterprise Programme (DEEP)’ (GVEP International, 2012). http://www.gvepinternational.org/sites/default/files/deep_cookstoves_report_lq_for_web.pdf.
- ↑ Reiche, K. et al, 2010. What difference can a PicoPV system make? Early findings on small Photovoltaic systems - an emerging lowcost energy technology for developing countries. https://energypedia.info/images/3/3b/Gtz_picopv_booklet.pdf
- ↑ Lepicard, F. et al, 2017. REACHING SCALE IN ACCESS TO ENERGY - Lessons from practitioners. https://www.gogla.org/sites/default/files/recource_docs/hystra_energy_report.pdf
- ↑ 8.0 8.1 Bensch, G. et al, 2016. Employment and income effects of improved cook stove and pico-solar interventions: An impact evaluation of the EnDev Kenya Programme. https://www.econstor.eu/bitstream/10419/145965/1/866079807.pdf
- ↑ Gemio Beltrán, G. 2016. Market Development Assessment of Pico PV Systems in Tanzania’s Lake Zone Rural Areas (internal EnDev document)
- ↑ 10.0 10.1 Hartmann, J et. al, 2016. MEASURING MARKET DEVELOPMENT IN KENYA - Testing the Energy Access Market Development model. (internal EnDev document)
- ↑ Africapay.org, 2015. Minimum Wages in Kenya with effect from 01-05-2015. https://africapay.org/kenya/home/salary/minimum-wages/archive/1
- ↑ The World Bank, 2010. Cambodia: Supporting Self-Sustaining Commercial Markets for Improved Cookstoves and Household Biodigesters. http://documents.worldbank.org/curated/en/495411468046793044/pdf/611560WP0P12021usehold0Biodigesters.pdf
- ↑ ILO, 2016. Cambodian Garment and Footwear Sector Bulletin. http://www.ilo.org/wcmsp5/groups/public/---asia/---ro-bangkok/documents/publication/wcms_463849.pdf