Transactive Energy seeks to engage all devices and resources in the electrical grid in a market-based system. (Source: Edward Cazalet, "Transactive Energy: Public Policy and Market Design." May 2013)

As the first such conference of its kind, the gathering was initiated by defining exactly what transactive energy is. In an interview with Sustainable Business Oregon, Carl Imhoff, manager of the electricity infrastructure sector for Pacific Northwest National Laboratory and a moderator at the conference, provided a succinct definition: “Transactive energy is a means of using economic signals or incentives to engage all the intelligent devices in the power grid—from the consumer to the transmission system—to get a more optimal allocation of resources and engage demand in ways we haven’t been able to before.”

If consumers need proof of what a smarter grid could do for them, transactive energy is a concept that can provide it. Transactive energy systems integrate both utility-owned and third-party-owned resources—including power generation, ancillary services, and load management services, among others—in order to utilize the lowest-cost electricity in real time. The key driver of transactive energy systems is the market-based approach, which allows every service provided to the grid, even those by consumers, to be valued.

This way, those providing the services, whether they are generating power or providing load reduction services or something else, can be compensated, thus splitting the benefits and savings of the increased efficiency of the electricity system between the customer and the utility. This system is a long way from the traditional unidirectional flow of power (from utility companies to consumers) and supply side-focused mindset of the historical electricity sector.

Employing the increasingly prevalent two-way information and communications technology deployed as part of smart grid development efforts, consumers can begin to interact within the electricity system in ways that were not possible in the past. A transactive energy system utilizes smart grid infrastructure to send signals back and forth between utilities, grid operators, and individual assets in the grid system, communicating the real-time flow and cost of power.

These assets can include everything from large centralized power plants to residential solar photovoltaic arrays to demand-response programs. Signals can even be sent to and from electric vehicles (EV), integrating EVs into the electrical grid.  In a transactive energy system, instead of being passive energy consumers, you and I could become what are being referred to as “prosumers,” not only receiving electricity from the grid, but providing our own services to the grid system and getting paid for it. 

Perhaps surprisingly, the conference was attended by a multitude of utility industry representatives. After all, integrating non-utility owned assets into the grid would result in competition for utilities, right? But, as more decentralized and variable sources of power come on line, utilities are finding that the conventional business models, in which utilities match centralized supply resources to demand, may not fit into the future decentralized grid.

Utilities recognizing this fact are thus coming to the table to participate in the transition. With a host of newly accessible power generation and load management resources on both the supply and demand side, and armed with real-time information as to which resources cost the least, utility companies that take the time to explore these new business opportunities could indeed end up becoming more cost effective.

But the concept of transactive control shouldn’t just appeal to economists, utility industry representatives, and engineers. The establishment of such a system will have benefits for consumers, both monetarily and environmentally. While the system may be focused explicitly on grid reliability and economics, the shift to this smarter electricity sector provides significant environmental benefits. Creating a more responsive, resilient grid is a significant step to integrating variable and decentralized renewable energy generation. This would enable clean energy solutions such as wind power and energy efficiency to be brought to the forefront of power sector operations.

Demand-side solutions that promote energy-saving measures, especially during hours of peak electricity demand, help stabilize the grid. These measures also reduce the need for typically expensive, fossil fuel peaking power plants. Peaker plants only run when there is high electricity demand on the grid, and are typically natural gas plants that can be ramped up quickly and have lower fuel costs (for the time being, due to the low cost of natural gas). Valuing more demand-side options, such as energy efficiency and demand-response programs, could reduce the need for peaker plants and their inefficiencies.

The added economic benefits of a transactive energy system can also incentivize environmentally friendly behaviors on the consumer side. For example, if electric vehicle owners start making money by using their cars as energy storage for the grid, it could promote interest in electric vehicle ownership. And if homeowners can save or even make money by responding to price signals for energy efficiency, residents would be encouraged to conserve more energy.

The implications of a transactive energy system thus stretch beyond economic and grid reliability benefits (although these alone are very significant). It would also enable the development of a cleaner, more efficient energy sector, which is, in fact, an explicit objective of the transactive energy concept.

The Pacific Northwest Smart Grid Demonstration Project is the largest transactive energy demonstration in the U.S. at present. (Source: www.pnwsmartgrid.org)

Transactive energy demonstration projects are now under way to begin understanding the challenges and full benefits of such systems. The Pacific Northwest Smart Grid Demonstration Project is the largest transactive control demonstration project in the United States at present. The challenges discussed at the transactive energy conference ranged from the engineering challenge of avoiding the creation of “architectural chaos” to the policy and regulatory issues that keep utilities hesitant to invest in such drastic changes to the power sector.

Certainly these are large challenges to surmount, which require not only technical solutions and regulatory reform, but also a shift in thinking away from a decades-old mindset of a centralized electricity system. But the good news is that the right people, including utilities, regulators, grid operators, and other stakeholders, are coming to the table. The transition will take some time, but the ball is already rolling. As one conference presenter put it, the transition to a transactive energy system will be an evolution, not a revolution.

Reese Rogers is a MAP Sustainable Energy Fellow at Worldwatch Institute. 

Last month I wrote a first blog about Poland and its future role as host of the UN climate talks, insisting on its ambiguities towards the diplomatic process and pointing out, for instance, that it had made the rather unconventional decision to host the negotiations in a football stadium.

Polish Environment Minister Marcin Korolec (pictured) has made the Polish leadership's position on the climate negotiations clear, but Polish civil society and environmental groups are optimistic that COP19 will see some successes. (Source: www.um.warszawa.pl)

Well, after a “field trip” in Warsaw, I’ve learned that the National Stadium is one of the things that the country holds dearest, and that this venue choice is actually a sign that Poland is taking its role as President of the UNFCCC 19th Conference of the Parties (COP19) quite seriously. So, please accept my deepest apologies, or as I should say, przepraszam.

This correction, sadly, does not apply to most of the other points I have made about Poland’s stance on climate and energy issues. Since my last blog, Environment Minister Martin Korolec, in recent comments to a news agency, bluntly closed the door on European climate policy-making before 2015 (the deadline year that countries have set for themselves to come up with a global, binding agreement for climate action within the UN framework). This is a notable difference with the pre-Copenhagen situation, when the European Union managed to put together the “20-20-20” package before the 2009 climate talks, as a way to lead by example and encourage other countries to step up their ambitions.

But Poland has its own ideas on how the EU should approach climate change leadership from now on. Not, of course, by interfering with sovereign domestic energy choices (ahem), but rather backing the production of electric cars, setting a target for reducing fossil fuel imports, and finally ending energy subsidies. Though these suggestions may seem like good common sense, it’s not too difficult to imagine the rationale behind them: insisting on reducing fossil fuel imports would effectively reduce the EU’s economic dependence on Russia, a country with which Poland has a long, often conflict-ridden past; while opposing clean-energy funding and carbon pricing helps protect Poland’s own coal industry development.

Having the same Environment minister burying European climate policy-making one moment, and serving as chairman of the UN climate talks the next, is preoccupying. Once again, common sense is not absent from this reasoning – how can one maintain influence in the negotiations if all of your cards are already on the table? – but the Polish position lacks sincerity. The deep disconnect between climate negotiations and reality, whether in the form of dire scientific predictions or green economy opportunities, has proven extremely hurtful for the entire process and Poland does not seem particularly intent on bridging this gap.

As of now, it remains difficult to think of any alternative country, region, or alliance to the EU that would be willing to combine significant diplomatic and economic weight with a (relatively) progressive stance on climate issue. European leadership may not have been enough to spark ambitious deal-making in Copenhagen, but the complete lack of that leadership would bode ill for the success of the Parisian rendez-vous in 2015. By preventing the EU from performing life-saving measures on its dying Emissions Trading Scheme (EU-ETS), and entertaining the separation between climate talks and climate action, the Polish government is not fulfilling its own promise of “paving the way for the 2015 deal.”

Thankfully, the fate of COP19 in November is not in the Polish government’s hands alone. Recently in Bonn, where intermediary talks on the 2015 deal were hosted by the UNFCCC Secretariat, the discussions were unusually open and productive. The ritual “agenda fight” that has become a regular feature of climate conferences was absent. Fresh, innovative ideas finally made it to the negotiations table, such as the EU-backed “spectrum of commitments” that would allow countries to choose from a wide variety of actions to fulfill their objectives, or a proposed mechanism to ensure that commitments remain in line with the latest science.

Another positive aspect is that Polish environmental and civil society groups are determined to seize this opportunity to shift the country’s official stance on energy and climate issues. Many sense that the Poland’s blocking stance is no longer diplomatically affordable. While in Warsaw, I was able to meet with representatives of the Polish Climate Coalition. The Coalition, in recent years, very cleverly switched from a “doomsday” climate discourse to one centered on distributed energy opportunities and the local health benefits of moving away from coal. The highlight of my trip was definitely an encounter with the burgeoning Polish Youth Climate Network, prepared and determined to make some noise around COP19.

Climate negotiations may not have made substantial progress toward what is needed to save the Earth’s climate – but they have at least developed the habit of motivating action in their wake. After speaking with those in the Polish environment circles, I’m confident we’ll see some interesting things happen around COP19… and with regards to what will happen inside the Stadium, well, let’s hope that the Polish Presidency of the conference will make me have to apologize again!

Antoine Ebel is a former intern with Worldwatch Institute’s Climate and Energy team, a regular contributor to ReVolt, and the President of CliMates, an international student think-tank striving to research and promote innovative solutions to climate change.

China is putting effort into developing its electric vehicle industry, but industry reports say it is falling behind other countries in terms of "EV readiness." (Source: Treehugger.com)

In 2010, A123 Systems, a leading advanced lithium-ion battery manufacturer, opened the first and largest U.S. manufacturing facility to produce batteries for electric vehicles (EVs). The project was supported by a $249 million grant from the U.S. Department of Energy. But when President Barack Obama called to congratulate A123 Systems on the milestone, which he said foreshadowed “the birth of an entire new industry in America,” he never would have imagined the subsequent bankruptcy of this rising star and its acquisition by China’s Wanxiang Group in 2012.

Although this overseas acquisition is one of Wanxiang Group’s highest profile actions, the company has long been quietly acquiring and investing in dozens of auto parts manufacturers. Wanxiang has expressed interest in supporting the struggling Fisker Automotive, a manufacturer of luxury plug-in hybrid electric vehicles (PHEV) and a previous client of A123 Systems. Wanxiang chairman Guanqiu Lu’s strategic ambitions to be an electric vehicle manufacturer are becoming closer to reality than ever before. According to the global consulting firm McKinsey, in 2010 China ranked third (together with Germany) in financial support for clean-vehicle technology development, just behind the United States and France.

As early as 2001, China’s Ministry of Science and Technology (MOST) had included electric vehicle technologies as a key project in the National High Technology Research and Development Program (863 Program). In order to reduce dependence on oil, compete with more developed foreign automobile industries, and reduce air pollutants, MOST proposed focusing on three types of vehicles: hybrid-electric vehicles (HEV), electric vehicles, and fuel cell vehicles (FCVs), as well as three key components: battery/fuel cells, electric motors, and power controls, with an investment of 880 million RMB (US$106 million) within five years.

As prototypes rolled out and major technical targets were achieved, China began trial use of EVs, mainly for urban public transportation and government use. These prototypes were featured at the Beijing 2008 Summer Olympics, Shanghai 2010 Expo, and Shenzhen 2011 Universiade. In 2009, MOST, together with the Ministry of Finance, Ministry of Industry and Information Technology, and National Development and Reform Commission, initiated the “Ten Cities & Thousand Vehicles” program. The government provided subsidies for purchases of “new energy” (unconventional and clean energy, including solar and wind) vehicles by the public transportation sector or private owners, to support EV development in 25 cities.

In early 2012, MOST’s 12th Five-Year Plan for electric vehicles laid out a technological roadmap: commercializing hybrid-electric vehicles and demonstrating commercially available small electric and plug-in hybrid vehicles between 2010 and 2015, and achieving a full-fledged production chain of electric vehicles between 2015 and 2020. In addition, three supporting systems (standardization and testing, energy supply, and integration demonstration) were proposed and were expected to be in full function soon.

With strong stimulus from the government, some state-owned automobile companies and universities have been successfully developing prototypes of EV, HEV, and FCV. Private sector actors, especially a few pioneering companies, have been making noteworthy progress as well. Build Your Dream (BYD), has already integrated value-chain segments in the EV industry (semiconductor manufacturing, energy storage, and solar power) and developed several HEV models (F3DM and F6DM) and EV models (E6 and K9) for the Chinese market.

Geely, another key private player in China’s auto industry, is partnering with Kandi Technologies to enter the EV market through joint venture. Geely also is competing with state-owned Dongfeng Motor to acquire Fisker Automotive, the U.S. luxury PHEV manufacturer that Wanxiang Group is interested in investing in. Foreign companies such as General Motors (GM), Nissan, and Volkswagen also have plans that will intensify competition in Chinese EV market, including introducing EV products and conducting research and development on battery technology.

Despite this progress, the Chinese government and automobile industry are still far from a full blossoming of the domestic EV market. When the “Ten Cities & Thousand Vehicles” program was initiated in 2009, many cities set ambitious goals such as increasing the number of “new energy” vehicles by 10,000–30,000 within four years. Plans also called for 24,220 “new energy” buses to be put into operation by 2012. Only 11,777 made it onto the road.

Shenzhen and Beijing were the only cities to adopt more than 1,000 such vehicles (2,024 and 1,120, respectively) by the end of 2012. BYD, collaborating with Shenzhen to deploy EVs, also suffered from a fatal accident in 2012, in which three people died in BYD’s EV E6 when it was rammed by a car from behind and caught fire. The company lost market value of 6 billion RMB within five days of the accident. Overall, according to a 2012 McKinsey report, China has been falling behind other major markets in “EV readiness” and ranked fifth in that year behind Japan, the United States, France, and Germany.

Stay tuned for a follow-up blog exploring China’s EV market in greater detail, and for suggestions on how China can boost its EV development and deployment in a more sustainable and healthier manner.

Eric Yue is an intern with the China Program at Worldwatch Institute. 

Sino-Singapore Tianjin Eco-city in 2012 (Source: http://www.tianjinecocity.gov.sg/)

SSTEC aims to offer green building certification based on more stringent standards than anywhere else in the country, including the national standards. It has already set up a Green Building Evaluation Committee (GBEC) to supervise building quality.

But in terms of energy efficiency, SSTEC’s GBEC still lacks the clearly defined requirements found in comprehensive international standards like the Leadership in Energy and Environmental Design (LEED) certification. According to a World Bank report, the GBEC provides standards only for the building envelope and central heating, unlike LEED, which covers a broad range of energy systems including lighting, air conditioning, water heating, and appliances. While the ambition in this eco-city project is commendable, the oversights in SSTEC’s efficiency standards reflect a lack of comprehensiveness in green building standards across China, as the GBEC is already the country’s most advanced and comprehensive building standard.

In addition to Tianjin, three other municipalities (Beijing, Shanghai, and Chongqing) and China’s eastern coastal provinces will promote green building standards, according to the Twelfth Five-Year Plan for Green Buildings issued earlier this year. Starting in 2015, at least 50 percent of new real estate projects nationwide will need to comply with the new standards. The effects on energy savings may be questionable, however, given that the standards could be met too easily. For example, residential buildings will need to achieve only two of the six requirements under the “Energy Saving and Utilization” criteria to get one star, the lowest green building certification.

Targeting Large Public Buildings

Unlike residential buildings, large public buildings with more than 20,000 square meters of gross floor area are required to meet the green building standards starting in early 2014, regardless of when they were built. Just meeting the criteria for green building certification does not necessarily mean that the buildings will reduce energy consumption, however. Poor management and unrestricted energy demand have an impact on the efficiency of a building and can keep its energy consumption high.

According to a study by the China Ministry of Housing and Urban-Rural Development, China’s large-scale public buildings account for less than 4 percent of the national urban building area, but accounted for more than 20 percent of the total national building energy consumption in 2004.

To reduce the energy consumption of large public buildings, the government established an innovative energy conservation scrutiny system in 2007 that includes energy consumption statistics, an inspection process, energy audits, and a certification system. The effectiveness of the system is questionable, however, as there are no reports on whether the Eleventh Five-Year Plan (which ended in 2010) actually reached its goal of decreasing the energy consumption of large public buildings by 20 percent.

Climate Effects on Heating

The energy consumption of buildings is heavily influenced by climatic conditions, with heating being the single largest source of building energy use in cold regions. About 550 million people (42 percent of China’s total population) live in China’s cold and severe-cold zones, occupying 43 percent of the national urban residential and commercial building stock.

Energy consumption for heating in those areas accounts for 45 percent of the total energy consumption of buildings in urban areas. Due to poor thermal insulation and low heating system efficiency, the energy used for heating in these areas is 2–4 times greater than in similar climates in Northern Europe. One of the targets of the Twelfth Five-Year Plan is to upgrade heat-metering and energy efficiency for more than 400 million square meters of existing residential buildings in northern regions by 2015. By the end of 2012, 220 million square meters had been upgraded, achieving an average energy savings equivalent to saving 2.2 million tons of coal in each heating season.

In order to promote building energy efficiency and green building construction, the central government provides economic incentives to local governments, residents, and real estate developers. For example, the central government gave 5.3 billion Yuan (US $860 million) in 2012 to local governments to fund the upgrade of heat-metering and energy efficiency of existing residential buildings in northern heating areas.

The indoor temperature of these upgraded buildings increased by 3 to 6 degrees Celsius. For individuals, the government plans to provide subsidies to residents who purchase properties with green building certifications, offering 45 Yuan (US $7.30) and 80 Yuan (US $13) per square meter for two- and three-star green buildings, respectively. Given that the average housing price in China’s largest cities reached 10,098 Yuan (US $1,638) per square meter in April 2013, however, the subsidy is likely too small to motivate people to buy green building properties.

Emissions Trading to Promote Efficiency

China’s pilot carbon emissions trading programs, which aim to be fully functional by the end of 2013, might force large commercial buildings to improve their energy efficiency. The effectiveness of such pilot programs depends on the total quota set on the building sector. At the initial stage, it is believed that the quota will be allocated for free to enterprises to maintain growth of the nation’s economy, which is heavily boosted by the real estate sector.

The good news is that 15 hotels, 15 shopping malls, and nine large commercial buildings have been selected as carbon emission trading pilot enterprises in Shanghai, accounting for 20 percent of the total enterprises included in the city-level trading plan. Enrolling these large, energy-intensive buildings in the emissions trading pilot will target some of the more culpable buildings for energy efficiency improvements. If the pilot programs are a success, large buildings such as these shopping malls will likely be targeted in a national emissions trading scheme.

Although the Chinese government saved the equivalent of 65 million tons of coal by the end of 2012 by introducing mandatory building energy efficiency codes, there is still a long way to go to improve the energy efficiency of China’s buildings. As noted in a previous blog post, the Chinese government needs in particular to address the effectiveness and efficiency of the policy implementation process associated with green buildings and eco-city development.

Lihuan Zhou is an intern with the China program at Worldwatch Institute. 

In recent years, certain EU member states have gone beyond what is required under the Directive to set even more ambitious national goals. Denmark, for instance, is now targeting 100 percent renewable energy across their entire energy supply by 2050. These efforts should be applauded and their lessons replicated around the world. However, these successes should not obscure the very serious gap that is emerging between current policies and mechanisms and the significant challenges still facing the European renewable energy sector.

A recent European Commission report has outlined the challenging road ahead for member states as they continue down the path towards their 2020 commitments. The Commission’s report sends a mixed message. On one hand, all but 2 countries – Latvia and Malta – met their first interim final energy targets defined under the Directive. In fact, 13 countries even outperformed the target by over 2 percent.

Unfortunately, while promising, the current rate of deployment seen to date is not sufficient to meet the 2020 goals. The EU targets as currently designed call for a strong uptick in deployment rates through the end of the decade.

As a result, a number of EU countries appear to be at risk of falling behind the goals set in their National Renewable Energy Action Plans (NREAPs). As written, the plans call for an EU-27 wide renewable share of 33.9 percent in electricity, 21.4 percent in heating and cooling, and 11.7 percent in transportation by 2020, culminating in an overall 20.7 percent share of renewable energy in Europe.

While system-wide renewable energy developments were still on track to achieve short-term goals identified under the 2009 Renewables Directive, many countries are falling behind their own indicative sectoral targets set independently of the Directive in a number of key sectors. This hints at significant challenges facing the overall renewable energy sector and underscores the Commission’s assessment that the 2020 goals are at serious risk.  Fifteen Member States missed their indicative targets for electricity from renewable sources while 22 Member States missed their transportation targets. The future of the biofuels target itself is currently up for significant debate as many seek to limit the volume of first generation biofuels produced in Europe. Though no targets exist for heating and cooling, analysis of the sector suggests that the renewable share may, in fact, decline rather than increase over the near term. The Commission’s technology deployment projections also point to expected underperformance. The onshore and offshore wind, biomass, solar photovoltaic, and biofuels sectors may all fall short of the national goals set for 2020. The Commission warns that even the currently over-performing solar PV sector is at risk of falling behind by 2020 due to an unstable investment climate created by recent policy uncertainty.

It is important to note that because of the long investment lead time, estimated at eight to ten years, a weak investment climate today will impact production well into the future. From development through installation, a typical offshore wind project currently sees a project lead time of 6.5-9.5 years, highlighting the urgency of quickly establishing an enabling framework to allow additional new capacity to be operational by 2020. Overall, many of the observed shortfalls in the sector can be linked to a number of barriers to renewable energies that have proven more difficult than expected to remove.

Administrative challenges and a slow uptake in infrastructure developments pose a significant constraint to project developers, further slowing and discouraging the investment necessary to meet the 2020 goals. The lack of grid and storage developments must be addressed as greater shares of renewables are integrated into these networks. Of great concern is the admission that current policies and support schemes do not appear sufficient to meet national targets.

This comes at a challenging time for policy makers. While the Commissions’ recommendations suggest that additional policy support is needed in many EU countries, the opposite is quite often coming true in practice. Due to a number of factors, policy reductions are hitting the European renewable energy sector. Over the past few years a number of support schemes have been weakened across the continent, including particularly damaging retroactive cuts to feed-in tariffs in Greece and Spain. Another troubling development has seen taxes or grid access fees on renewable power recently introduced in Belgium, Bulgaria, Greece, and Spain.

This policy uncertainty caused by these retroactive changes and unplanned reductions coupled with the low price of credits under the EU Emissions Trading System (ETS) has proven challenging to renewable energy developers and investors. It appears the combination of these factors is not sending the necessary market signals to fully encourage clean energy development. Though new capacity additions remained strong, total investments on the continent dropped by over US $30 billion to US $75.8 billion in 2012 as traditionally strong players such as Germany, Spain, and the United Kingdom all saw investments decline. Bloomberg New Energy Finance has estimated that a cumulative US $400 billion will be necessary to meet the 2020 goals.

Though not intrinsically linked with declining renewable energy investments, many of these same countries are witnessing other troubling trends as well. While Europe as a whole saw an increase of 0.6 percent in the renewable share of electricity consumption, 12 member states saw their domestic share decline between 2010 and 2011, mainly due to significant hydropower reductions. The continent as a whole witnessed a “marked increase” in coal generation, with significant growth of 8 percent in Germany, 65 percent in Spain, and 35 percent in the United Kingdom. For the 2020 targets to be met, both of these trends must be reversed.

This is not a time for defeatism but rather a time for reflection and reform. Great potential still exists and the EU 2020 targets are still within reach if the appropriate measures are adopted. European policy makers should take this opportunity to reaffirm their commitments to the development and deployment of renewable energy technologies by enacting well designed renewable energy support mechanisms to overcome the unique barriers in Europe.

Evan Musolino is a Climate and Energy Research Associate at Worldwatch Institute.

Solar portable lamp companies, such as Little Sun, must navigate informal economies and limited distribution infrastructure to market and sell their products to customers who benefit from the environmental, social, and health improvements that these lamps can provide. (Source: Little Sun)

But although Kenya’s economy lacks many of the market and political institutions that facilitate business operations in the industrialized world, there is significant potential for businesses to support rapid economic growth and generate social impact. A variety of successful solar portable lamp businesses have reframed Kenya’s lack of institutions (let’s call them institutional voids) as opportunities for economic growth.

In 2010, two Harvard Business School professors published the book Winning in Emerging Markets: A Roadmap for Strategy and Execution, highlighting the opportunities and challenges of operating a business in a developing country. They also released a toolkit for identifying and dealing with a country’s institutional voids, raising the following questions that are pertinent to running a solar portable lamp company in Kenya:

1. Do large retail chains exist in the country? Do they reach all consumers or only wealthy/urban ones?
2. Do consumers use credit cards, or does cash dominate transactions? Can consumers get credit to make purchases?
3. Is there a deep network of suppliers? How strong are the logistics and transportation infrastructures?

Successful solar portable lamp companies in Kenya are using a variety of strategies to address these challenges and to mitigate, avoid, and leverage the institutional voids that would otherwise deter or limit business operations. 

Overcoming retail barriers

In Kenya, as in most developing countries, the customers who most demand solar portable lamps are rural residents who are underserved by the traditional power grid. Because transporting and distributing products in rural areas is more costly and rural consumers have limited access to urban retail outlets, there is a general lack of formal retail products in these areas. Consequently, rural customers’ demands are predominantly met by independent sellers operating through channels in the informal retail sector.

To reach a rural customer base, a solar portable lamp company must learn to navigate Kenya’s informal retail channels. One company, Greenlight Planet, does this by outsourcing its physical logistics chain. The company relies on partnerships with social enterprises, standard retail companies, nongovernmental groups, and government institutions to distribute products to users through already existing informal channels.

“The physical logistics chain in Africa is more like one with the sales chain, where our partners buy our products in bulk and then also deliver them to local retailers, [microfinance institution] branches, etc,” says Laurens Friso, Global Partnership Advisor for Greenlight Planet in East Africa. “It’s not organized from our perspective.”

The outsourcing of the physical logistics chain allows Greenlight Planet to avoid the institutional void created by a lack of a formal retail market for solar lamps in rural Kenya.

Overcoming credit barriers

Credit is limited in rural areas of Kenya, and solar lamp customers do not have access to the traditional financing available to wealthier, urban customers and enterprises. In 2009, only 6.2 percent of rural Kenyans purchased goods on credit, but the volume of transaction services over the past three years has increased dramatically because of M-Pesa. M-Pesa is an informal and revolutionary mobile banking system that allows users to pay bills, transfer money, and purchase air time using mobile phones.

Because credit is limited in rural areas and mobile phone use and banking is accessible, a successful solar company must either develop a) a product that is affordable without credit, or b) an M-PESA-type financing scheme that improves the customer base’s willingness to pay for the product.

Little Sun, a solar company that sells a small solar task lamp of the same name, has succeeded on the affordability front. With a wholesale price of 790 Kenyan shillings (US$9) and a retail price of 990 Kenyan shillings ($12), the Little Sun is one of the simpler and cheaper products on the market. It has a light output of 25 lumens (equivalent to about a $7 flashlight) and is used primarily to light small areas for studying or eating, although it has no mobile phone charging compatibility.

By designing a low-cost but efficient product, Little Sun has overcome the institutional void repreented by the lack of credit by creating an affordable product for rural consumers.

Overcoming infrastructure barriers

In 2010, the World Bank Development Research Group compared the infrastructure levels of different developing countries using a set of four aggregate indicators and ranking them on a scale from 0 to 1. In terms of hard infrastructure, Kenya ranked 0.35 for Physical Infrastructure and 0.43 for Information and Communications Technology (ICT). In terms of soft infrastructure, it ranked a very low 0.18 for its Business Environment and 0.55 for its Border and Transport Efficiency.

According to these indicators, Kenya’s lack of trade infrastructure severely hampers supply chains. Successful solar lamp companies can navigate this challenge by developing partnerships with local organizations and companies that have a clearer sense of the barriers and how to negotiate them, thereby minimizing cost and time inefficiencies.

One Degree Solar has done exactly that. By developing a customer service practice based on short message service (SMS) with an in-country partner, the company has improved the accountability of the customer service product market. Customers are able to text One Degree Solar headquarters when they need help with their products. Through an in-country partnership, One Degree Solar was able to leverage the rural penetration of ICT in Kenya to mitigate the lack of trade infrastructure and its impact on the solar lamp supply chain.

The above examples of ways to overcome common institutional voids create a clear picture of the business potential in Kenya and other emerging markets. Through innovative customer service practices, cost-effective product designs, and partnership with local companies and organizations, solar portable lamp companies are not only navigating institutional voids, but using them to create discrete market niches for and brand trust in their products. Given the status of energy access in Kenya and other developing countries, there is incredible opportunity for generating both revenue and social impact.

Claire Remington is an intern with the Climate & Energy Program at Worldwatch Institute. 

Source: Michael Liebreich BNEF Summit Keynote, 23 April 2013

In 2012, according to Bloomberg New Energy Finance, $269 billion flowed into the clean energy sector worldwide—a big number by any standard.  Total global investment in renewable generating capacity now lags total investment in coal, oil, and gas generation combined by only 25 percent. With that much money you could purchase Google or Microsoft outright.

While clean energy investment in 2012 was down 11 percent from 2011, it is still 44 percent above the 2009 figure and 230 percent higher than it was in 2005.  Moreover, virtually all of the decline stems from the sharply falling prices for solar and wind equipment—a trend that in the long run will accelerate growth. While clean energy growth has understandably slowed from the extraordinary double-digit rates of the past decade, this remains one of the world’s largest and most dynamic industrial sectors.

The one dark cloud that hovered over both conferences (the Cleantech Investor Summit in Palm Springs and the Bloomberg New Energy Finance Summit in New York) was the United States, where declining government support and the uncertainty generated by a dysfunctional Congress led to a sharp decline in financing in 2012.  While the falling investment figures do presage a slowdown inU.S. clean energy growth in the next two years, it is still notable that theU.S. added more renewable capacity than any other single country last year.

Excluding theUnited States, global investment in renewable energy would have increased significantly in 2012. China, for example, is continuing to power global markets, with investment up a robust 20 percent to $65 billion in 2012.Chinais also playing a big role in driving down the cost of renewables while spurring robust growth in other emerging market countries such asIndiaandSouth Africa.

Japan’s clean energy investment was meanwhile up a remarkable 75 percent in 2012, driven by the government’s response to the post-Fukushima collapse of the country’s nuclear industry. And while Germany’s investment declined last year, renewable power generation continued to soar, reaching 24 percent of electricity production, up from 4 percent in 2000.

So, despite all the recent media focus on the rise of shale gas and unconventional oil inNorth America, the bigger energy story is a global one: New technologies and hundreds of billions of dollars of investment capital are steadily laying the foundation for a low-carbon global economy.

Chris Flavin is President Emeritus at Worldwatch Institute. 

LAC-CORE president, Carlos St. James, speaking at the 3rd Annual REFF-LAC conference. (Photo credit: Mark Konold)

Presenters included project developers, financiers, and government officials, all of whom had experiences to share about what’s working in the region. In some places, like Chile and Peru, project tendering is working to advance renewable energy deployment. In the Caribbean, mechanisms such as net metering and feed-in tariffs are still the preferred approach to fostering renewables development. Many presenters stressed that the key to continued success in the region is the political will that creates an environment conducive to successful renewable energy investment. They also highlighted how projects become more attractive the less they have to rely on subsidies or other support mechanisms.

Worldwatch, based on its extensive work in the Caribbean and Central America, was asked to provide insight at the conference on which technologies are working well in various countries. I had a chance to show that in both regions, renewable energy technologies are working wherever there is a resource to match—provided that a suitable environment for investment and project success exists. Large-scale hydropower plays a very large role in the electricity generation of most Central American countries, sometimes as much as 35 percent or more. And although renewables comprise only 8 percent of current electricity generation in the Caribbean, there is room for significant improvement, especially as geothermal resources are explored in places like Nevis and Grenada.

Despite strong solar, wind, and biomass resources, however, governments are still trying to meet sharply rising energy demand with increased fossil fuel-fired generation. For example, even though the Dominican Republic recently celebrated the opening of the second phase of its Los Cocos wind farm and has made significant progress in securing a developer for a 30 MW solar plant in Monte Plata, the country recently announced plans for a new coal-fired power plant 10 times the size of the solar plant. A second coal plant is to follow in the near future, both of which are being built to replace soon-to-be-retired diesel-fired generation. Carbon War Room President José María Figueres summarized this approach as, “taking us into the 21st century using energy technology that has run out of steam 200 years after the invention of the first steam engine.”

Worldwatch has already demonstrated that a very favorable solar resource exists in the Dominican Republic, and the costs of solar equipment worldwide continue to fall. Yet large-scale investment continues to elude the D.R. Unreasonable payback limits (seven years), shifting incentives for renewable energy, and poor government finances help contribute to a poor investment climate.

To maintain the region’s positive momentum, countries should be taking a cue from Aruba. On the second day of the conference, Jocelyne Croes, Minister Plenipotentiary for Aruba and Representative for the Government of Aruba at the Dutch Embassy in the United States, described Aruba’s recent partnership with Carbon War Room to transition the island to 100 percent renewable energy. Wind, solar, and ocean resources will play a central role in shifting the fossil fuel-dependent economy to one that is no longer affected by fluctuating oil prices or degradation of the natural environment, and that enjoys the economic benefits of increased investment and a technically trained workforce.

Aruba’s effort illustrates what ACORE President Vice-Admiral Dennis V. McGinn (USN-Retired) calls “a triple bottom line” of energy, economic, and environmental security, and is exactly the kind of bold, forward-thinking that Latin American and Caribbean countries should be adopting to successfully address their growing energy needs. It‘s also the kind of signal that investors look for as they try to bring innovative renewable energy solutions to market.

As with the first two REFF-LAC conferences, this week’s event was a great chance to survey progress made and to match investors with opportunities in Latin America and the Caribbean. LAC-CORE president Carlos St. James compared the renewable energy world to walking in a fog. Sometimes that fog lifts and you see the landscape as it is and in which direction you are going to go. REFF-LAC is that break in the fog and provided all participants with that necessary glimpse to keep moving in the right direction.

Mark Konold is a Project Manager for Worldwatch’s Climate & Energy Program.

Supported by the International Climate Initiative of the German Government, Worldwatch currently works onSustainable Energy Roadmaps for the Dominican Republic, Haiti, and Jamaica.

Solar portable lamp companies must find innovative ways of restoring consumer confidence in their products after a flood of cheap, faulty models created a distrust of the technology (Source: OneDegreeSolar).

Small solar portable lamp companies are learning how to navigate the relatively unstructured business environments of developing countries, but a lack of consumer confidence in the unfamiliar technology is a serious deterrent to scalability. Confidence has been eroded further by the presence of low-quality lamps that mimic higher-quality products. To increase sales and improve both the social and environmental impact of solar portable lamps, companies must develop a dependable product and brand that is appealing to customers both familiar and unfamiliar with solar technology.

Gaurav Manchanda, an Indian-born entrepreneur and founder of One Degree Solar, found a new way to restore consumer confidence in a low-cost lamp that meets the standards of the Lighting Africa project. He developed a short messaging service (SMS) technology that both provides customer service and allows the company to monitor the social and environmental impacts of every lamp sold.

The use of mobile phone technology has skyrocketed in East Africa, and Manchanda’s development of a customer service practice that utilizes this unique market characteristic allows his product to penetrate markets previously characterized by uncertainty. Manchanda’s interest in tracking the social and environmental impact is based on his background in development work, but is also reflective of this market as a whole. Companies that operate in the solar portable lamp market are typically social enterprises interested in the triple bottom line of economic profit, social impact, and environmental health.

Manchanda realized that high-quality customer service is a competitive advantage and a way to generate confidence in relatively new and unfamiliar products among customers with very little purchasing power. With the help of an in-country partner, he developed an SMS platform hosted by Safaricom and Airtel that allows his company to send bulk text messages to purchasers of One Degree Solar products.

Retailers and resellers are trained to collect the serial and phone numbers of a customer’s mobile device, which are automatically transmitted to the One Degree Solar headquarters in Nairobi. One Degree Solar sends out SMS surveys on the first day of purchase and one month later, asking questions such as, “Do you need any help with your product?” and “How much money did you spend on kerosene last week?” The high-quality customer service improves consumer confidence and sales for several reasons: 1) the connection to manufacturers and repair persons in regions otherwise characterized by isolation is invaluable, 2) the reliability and benefits of the SMS service spreads by word of mouth, and 3) the service provides an assurance of the product’s dependability and long-term performance.

Manchanda’s prior work experiences with the Clinton Foundation and the Ministry of Health in Liberia involved the use of Palm Pilots to collect data from rural health clinics and hospitals. The project revealed to him the importance of data collection, as well as the relationship between data quality and the quality of the reporter. He explained:

“There are going to be situations where respondents have an inclination to give an answer you want to hear, and this can be the case in aid and development projects, especially when leading questions are asked. We’re getting our responses from a paying customer and not a beneficiary or recipient, and we think our numbers are going to be more accurate as a result. That sense of ownership is critical for us and for development as a whole.”

For solar portable companies to grow, it is essential that they share information with private and public investors to demonstrate their social impact and the potential returns on investment. Although it’s easy for solar portable lamp companies to say that their products have impact— decreased expenditure on kerosene lighting, improved literacy rates and productivity due to increased hours of lighting, and health benefits—it can be more difficult to quantify and prove that impact.

One Degree Solar’s customer service SMSs allow the company to communicate directly with customers. For example, the company can ask how the product is being used and monitor kerosene usage and expenditures over time (and then calculate subsequent health improvements attributed to decreased kerosene usage).

In addition to tracking kerosene expenditure over time, Manchanda anticipates further survey questions that investigate improved literacy rates:

“We imagine that a few months after customers buy the system, we’ll start asking questions about whether they have any children and what the children are reading. We’re hoping that with the data we collect, we can approach an Education Minister and say, ‘We have all of these families with lighting at home in x regions who have children in a given age group, and they don’t have anything to read at home.’ Sharing that information with NGOs that give books would make the work we all do more cost effective and impactful.”

Even though information sharing is a priority, One Degree Solar is still a business striving to out-do competitors. One Degree Solar provides a high-quality customer service because it’s good for business.

Manchanda says, “We do pay money per message, we do pay for staff time for developing the service, for training our resellers, and those expenses could be seen as money we could save and put to something else, but we’re spending the money and resources on developing customer service that we would appreciate in the West.”

One Degree Solar’s investment in developing an innovative customer service practice provides the foundation for the company’s scalability by 1) generating information and data for future investors, and 2) improving the marketability of a solar portable lamp in a young consumer product market.

Over the next few years, consumer product markets are expected to evolve rapidly in developing countries. Energy customers will develop higher demands, and companies will compete to provide higher-quality products and services for less, improving energy access and meeting development goals.

Do you know of other social entrepreneurs who have changed market landscapes in developing countries through innovative business models? Please feel free to share in the comments section below!

Claire Remington is an intern with the Climate & Energy program at Worldwatch Institute. 

The niche for large-scale wind-to-heat

Figure 1. China’s installed wind power generation capacity, and average operation hours of the turbines from different sources (click image to enlarge graph).

According to the Chinese Wind Energy Association (CWEA), China’s total installed capacity of wind power jumped to 75.3 gigawatt (GW) by the end of 2012, while the annual installed capacity was 13 GW, nearly 27percent lower than that of 2011 (See Figure 1). This may reflect bottlenecks, such as growing wind curtailment, faced by the industry.

Since 2010, the operating hours of wind turbines have been decreasing (See Figure 1). Combined with growing generation capacity, wind curtailment in 2012 reached 20,000 gigawatt hours(GWh), nearly doubled the curtailed production of 2011.

Jilin Province is a region with one of the highest curtailment rates. Winter nights see high wind speed but low electricity demand, and the local grid’s flexibility for peak electricity management is limited. As a result, wind farms in Jilin Province, which have a total generation capacity of 3.3 GW, were generating for only 1,420 hours in 2012. This was much lower than the industry-adopted economic minimum of 1,900 hours.

Meanwhile, burdens created by coal-burning are becoming less bearable. It is estimated that 70 percent of residential area in northern China has central heating systems. Half of this heat comes from heat-power cogeneration (which is mainly coal-fired), and the other half comes from the direct combustion of fossil fuels. These coal-intensive approaches consume 160 million tons of coal equivalent each year, which translates to 108.8 million tons of carbon emissions.

The atmospheric pollutants generated from burning coal threaten human health, especially during winters when the demand for heating is at the highest. Adding insult to (literal) injury, many coal-fired heating stations are constantly losing money because the price for heat is relatively low. According to China National Renewable Energy Center (CNREC), if the profit of wind power companies could be increased by reducing wind curtailment, it would be possible to compensate for the loss in power generation and heating services.

Utilizing curtailed wind for heating could therefore mitigate some pollution impacts and be economically beneficial. As Mr. Lishan Shi, Deputy General of the New and Renewable Energy Department under NEA, said, “wind-to-heat is a key that can open two locks”.

From pilot projects to scaling up

Wind-to-heat pilot projects have been carried out by major power companies in the Inner Mongolia and the Northeastern regions. In 2011, Datang Group, one of China’s “Big Five” state-owned power companies, launched an experimental project in Taonan, a county-level city in Baicheng, Jilin Province (See Figure 2).

Figure 2. Map of Baicheng, Jilin Province, showing the city of Taonan (Source: Google Maps)

The project coupled the Datang Taonan Heating Stations with the Datang Jilin Xiangyang Wind Farm. During the off-peak hours in the heating season, electricity generated from the 200 megawatt (MW) of wind capacity is used to heat the water in nine heat storage boilers (each is designed to hold 150 tons of water), which then provide heat to 163,000 m² of residential area, or roughly 1,630 households. The 27 GWh of wind power saved at Taonan from curtailment and converted to heat during one season is equivalent to 9,000 tons of coal equivalent, which means an emission reduction of 5,000 tons of carbon dioxide and 150 tons of sulfur dioxide.

Encouraged by the preliminary results, the NEA plans to scale up the success in Baicheng by assigning wind-to-heat projects to all the major wind power companies in the region. If all of the wind power generation capacity in Jilin Province (3,997 MW by the end of 2012) could be connected to adjacent heating systems and operate in a similar way, the would-be-curtailed wind could reduce coal consumption by 160,000 tons per heating season (a period of about four to six months).

Implementation and beyond

To utilize the off-peak wind power in a larger scale, supporting policies need to catch up with the political will. Holistic planning is necessary to allow the penetration of wind power to fit into local situations. For example, the demonstrated approach requires extensive coordination between wind farms and coal-fired heating stations, and the pricing of wind-powered heating (as well as the compensation mechanism mentioned earlier) is key to wind power companies, heating stations, and customers.

It is also important to note that wind-to-heat, without further technology improvement and innovative policies, can hardly divert China from massive coal consumption. With the current approach, even with all installed wind capacities in northeastern and northern China (eight provinces including Inner Mongolia) combined, wind-to-heat would only able to reduce coal consumption by 20 million tons per season, a mere 1.2 percent of the total annual demand for coal-powered heating in the country. For the time being, China will need to explore other alternatives to existing heating infrastructures and the utilization of curtailed wind in order to reduce coal consumption in the heating sector.

Encouraging wind-to-heat is a step forward, highlighting the diversified approach China is taking to reduce coal consumption. With more projects to follow, the country seems to be exploring all available approaches to overcome barriers to the growth of the renewable energy sector and the progress towards more sustainable lifestyles.

Wanqing Zhou is an intern with the China Program at Worldwatch Institute.