Starting and running a solar lamp retail business in a developing country like Kenya is no small feat. Kenya lacks strong transportation infrastructure for product distribution, and the bureaucratic red tape is not only tedious but can be opaque to foreigners. Meanwhile, the customers who need and want solar portable lamps most are those who can least afford it.

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. 

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developing countries, distribution, green economy, infrastructure, institutional voids, Kenya, rural electrification, solar portable lamps

Having just returned from my second clean energy finance summit this year, I was relieved to find that despite the rumors, the renewable energy industries aren’t dying—indeed they’re booming.

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.

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BNEF, energy, green economy, renewable energy, renewable energy finance, United States

In the first two months of 2013, there were only 58 requests (according to the United Nations Framework Convention on Climate Change, UNFCCC) to register  Clean Development Mechanism (CDM) projects in the world, compared to 280 requests in January and February 2012. CDM is one of the three flexible mechanisms defined in the Kyoto Protocol that provides for emissions reduction projects with Certified Emission Reduction (CER) units, essentially credits that can be traded in emissions trading schemes. Developed countries can fulfill their commitments to reduce emissions by buying CERs from developing countries, which, in turn, achieve sustainable development by building emissions reduction projects.

The CDM provides a solution for financing low carbon projects in developing countries, as CDM projects can derive revenue from two sources: operational revenue, such as selling electricity or decomposition product, and selling the CERs from the project to Annex I (industrialized) countries under the Kyoto Protocol. For example, a wind power plant can sell its generated electricity to domestic grid companies while gaining extra income from selling CERs after achieving a certain amount of CO2 emission reductions.

However, as shown by the lack of new CDM projects, the mechanism is failing. Due to oversupply of CERs, the price for each unit is falling rapidly. Two years ago, the CER price was above €12/ton of carbon dioxide equivalent (tCO2e) (US$15.46/tCO2e). At present, it is less than €0.5/tCO2e (US$0.64/tCO2e) (See Figure 1).

China is especially hard hit as it dominates the CDM market with the largest investment of CDM projects in the world ($220 billion, or 61.8 percent of total registered CDM projects globally). These Chinese CDM projects have supplied 738 million CERs, or 61.2 percent of all 1,200 million CERs issued from 2005 to present.

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Carbon Markets, China, Climate Change, emissions reductions, emissions trading, green economy, low-carbon, sustainable development

On March 15, Suntech Power Holdings Co., one of China’s largest solar photovoltaic (PV) manufacturers, failed to pay its US$541 million convertible debt, causing its stock price to bottom out. (See Figure 1.) Three days later, eight Chinese banks filed a petition asking for the company’s main operating subsidiary, Wuxi Suntech, to be declared insolvent and proceed to restructuring. With Wuxi Suntech owing the banks 7.1 billion RMB (US$1.14 billion), the company was forced to declare bankruptcy on March 20.

Figure 1: Stock price of Suntech Power Holdings Co. (Unit: USD) (Source: Google Finance)

There was discussion about whether the Chinese central government would rescue the former star of China’s solar sector, but the National Development and Reform Commission (NDRC), abiding with its new policies for renewable energy, said the government “wouldn’t and shouldn’t intervene.”

This put the municipal government of Wuxi, in China’s Jiangsu Province, in a dilemma. On the one hand, Suntech had become a model enterprise showcasing Wuxi’s sustainable development success; it would be extremely difficult for the local government to let it go. In 2012, a proposal from Suntech Power to shut down Wuxi Suntech had distressed the local government so much that the municipality made an effort to save the company, securing an additional 200 million RMB ($32.2 million) loan from the Bank of China.

But this time around, having lost the creditworthiness to receive strong support from state banks, government bailout options were limited. Wuxi Guolian Development Group, a financial company controlled by the municipal government, was expected to take over Wuxi Suntech. On March 20, a former senior executive of Guolian was assigned to be the new president of Suntech Power. This marked the official entry of local government into the restructuring process for the suffering Chinese solar company.

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China, finance, green economy, manufacturing, photovoltaics, renewable energy, solar industry, solar power, Suntech

Last month, the United States filed a complaint with the World Trade Organization (WTO) to challenge India’s domestic content requirements (DCR) for projects under the country’s Solar Mission – a national program aimed at reaching 20,000 megawatts (MW) of grid-connected solar power capacity in India by 2022, enough to power almost 30 million Indian homes at current average levels of consumption. According to U.S. Trade Representative Ron Kirk, the DCR provisions in the Solar Mission that require projects to use solar panels produced within the country, as well as subsidies to solar power producers using domestically manufactured equipment, violate WTO rules prohibiting discrimination in favor of domestic goods.

India's domestic content requirements for solar projects has prompted the United States to file a complaint with the WTO. (Source: Treehugger).

Phase I of India’s Solar Mission, which draws to a close at the end of this month, requires crystalline silicon (cSi) solar photovoltaic (PV) projects to use Indian-manufactured modules and concentrating solar power (CSP) projects to use at least 30 percent Indian-manufactured equipment. During Phase I, thin film solar PV panels were exempted from the DCR due to the lack of thin film manufacturing within India.

While the United States has long stated its opposition to India’s Solar Mission DCR provisions, the recent timing of the WTO challenge is likely due to the expectation that India will expand the DCR to cover thin film PV modules in Phase II, which starts next month. While there is significant competition in the global cSi PV manufacturing market, the United States is a dominant player in thin film manufacturing. First Solar, an American company, is by far the world’s largest thin film manufacturer. First Solar thin film systems currently make up more than 20 percent of India’s solar PV market. Conversely, solar projects in India accounted for eight percent of the thin film modules manufactured by First Solar in 2011, and the company continues to seek opportunities in the country. A DCR provision for thin film solar projects in India could deal a significant blow to U.S. solar manufacturers, in particular First Solar.

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energy, energy policy, green economy, India, renewable energy, solar power, solar war, trade dispute, World Trade Organization, WTO

With the United Nations “Rio+20” Conference fast approaching, the word “sustainable” is more present than ever – including in our own State of the World 2012 publication – sometimes to the point of excess. For low-lying island nations, however, “sustainability” is more than the mild, consensual definition of the United Nations: it is really about maintaining the environmental conditions necessary to sustain human life as we know it. Many countries, regions, and cities fear the potential consequences of runaway climate change, be it desertification, droughts, or increasingly frequent storms. What makes the cases of countries like Kiribati, Tuvalu, Micronesia, and the Maldives so unique is that their very existence as sovereign states is at stake, and some of their younger citizens might live to see that existence brought to an end – the IPCC (2007) has predicted 0.5 to 1.5 meters of sea-level rise before the century is over.

For low-lying island nations, climate change and sea-level rise are not really a matter for debate, but already a threatening feature of everyday life (Source: The Atlantic.com)

Whether that prediction turns out to be overly optimistic or gloomy is still to be determined, but low-lying island nations are not passively waiting to find out. Despite their remarkably low carbon-footprints, they are trying to lead by example when it comes to mitigating greenhouse gas emissions: while an international treaty would only, by the timeline set at the 2011 climate change negotiations in Durban, South Africa, come into force in 2020, the Maldives and Tuvalu (among others) have pledged to become carbon-neutral by that date. But these nations have understood that due to natural – as well as political – inertia, more emissions and increased sea-level rise are already locked in. This is the basic reasoning behind the islands’ adaptation policies, which are only as varied as they are extreme. For instance, though the President of Kiribati Anote Tong admitted it sounded “like something from science fiction”, the country seriously considered building offshore floating islands and higher seawalls last year, for a total cost of about US$ 3 billion – quite a challenge for a country with a GDP of US$ 200 million in 2011 (about US$ 6,000 per capita).

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Climate Change, COP15, developing countries, electricity, emissions reductions, energy, green economy, Kiribati, low-carbon, low-lying island states, Maldives, negotiations, renewable energy, renewable energy finance, sustainable development, Tuvalu, UNFCCC

Worldwatch is happy to announce the launch of the much anticipated 2012 REN21 Renewables Global Status Report (GSR). GSR 2012 details worldwide developments in the renewable energy sector through 2011. The report highlights a number of key developments, including market and industry trends, investment flows, the shifting policy landscape, advancements in rural renewable energy deployment, and the evolving synergy between renewable energy and energy efficiency.

REN21 Renewable 2012 Global Status Report (source: REN21)

The new GSR data highlights many remarkable worldwide trends, demonstrating that the renewable energy sector has emerged from the global finical crisis stronger than ever. In 2011, new investment and added power generation capacity for renewables broke their all-time records yet again. Global investments in renewables were estimated at US $257 billion in 2011, an increase of 17 percent over 2010. Investment in renewable energy power generation was $40 billion greater than investment in fossil fuels in 2011.

Total renewable power capacity grew by 8 percent in 2011, reaching over 1,360 gigawatts (GW) of installed capacity by year-end. Renewable energy technologies now account for 16.7 percent of total final energy consumption and over 25 percent of the world’s installed power-generating capacity. China, the United States, Germany, Spain, Italy, India, and Japan are leading in new renewable investments and now account for almost 70 percent of the world’s non-hydro renewable power generation capacity.

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electricity, energy efficiency, feed-in tariffs, green economy, renewable energy, renewable energy finance, transportation, wind power

As I discussed in a previous blog, renewable energy trade disputes are becoming a particularly contentious issue between many nations. The United States and China are facing off in one of the most publicized of these disagreements. Further action was taken last week as the U.S. Department of Commerce made its second ruling of the year on this issue, placing tariffs on solar photovoltaic (PV) imports from China.

A Suntech Power Holdings employee at a Chinese solar PV manufacturing facility. The Commerce Department ruling placed a 31.22% tariff on Suntech products. (source: China Daily)

The previous Department of Commerce ruling from March 2012 placed countervailing duties on solar PV imports in order to balance what the department determined to be illegal subsidies to solar PV manufacturers from the Chinese government. The initial tariff rates, which were set between 2.9 and 4.73 percent, came in much lower than what was expected by most experts.

The new preliminary ruling comes in response to the second set of claims by the Coalition for American Solar Manufacturing (CASM) that Chinese solar companies have been dumping their products in the U.S. market at below market value. The coalition, led by SolarWorld USA, looks to level the playing field for U.S. solar manufacturers against what they see as artificially cheap imports coming from China.

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China, energy, energy policy, green economy, green jobs, Green Technology, Innovation, renewable energy, solar power, United States

As we described last week, there is a growing consensus that the time is right for a global shift to sustainable energy solutions. The Worldwatch Institute, in partnership with the International Renewable Energy Agency (IRENA), is taking a leading role in facilitating this shift through the creation of the Renewable Development Index.

Countries enacting renewable energy support policies or targets as of 2011 (source: IPCC SRREN, 2011)

Countries worldwide are recognizing the significant role that renewable energy can play in their national development. As of early 2011, nearly 100 countries had set targets for wind, solar, biomass, and other renewable energy sources. Governments aim to utilize these technologies to meet a host of development priorities, including reducing carbon emissions, expanding energy access, enhancing energy security, and creating new jobs and industry opportunities. At both the national and sub-national levels, they are using a variety of policies and measures to support centralized and decentralized renewable energy installations and to work toward achieving wider national development goals.

Despite the many forces working in favor of renewables, growth within the sector remains constrained. Although renewable energy technologies accounted for roughly half of the newly installed power generation capacity during 2010, they were responsible for only 16 percent of global final energy consumption and close to 20 percent of electricity generation that year. Government support policies, adopted by 118 countries as of early 2011, continue to be one of the most significant forces driving renewable energy deployment.

To more efficiently harness the potential of renewables to meet national goals, decision makers must have a better understanding of the effectiveness of support policies in overcoming existing barriers. Countries continue to face challenges in the renewables sector, including gaining public acceptance and buy-in, mobilizing financing, attracting investment, building local capacity, and facilitating collaboration between the public and private sectors.

Worldwatch is partnering with IRENA to help governments develop policies aimed at best utilizing their renewable energy potential as a way to meet national growth and development goals. As a first step, the project seeks to identify barriers constraining renewable energy deployment. It will then develop strategies that can help policymakers overcome those hurdles. Finally, the project aims to develop a set of renewable energy indicators, with the goal of helping countries assess the effectiveness and efficiency of renewable support programs. Because there is no one-size-fits-all policy for promoting renewable energy, fully inclusive indicators can help to inform the policy community in a more objective manner.

In the development arena, well-designed high-level indicators, such as the United Nations Development Programme’s Human Development Index (HDI), have been influential in shifting the discourse away from one based solely on domestic economic growth, providing the basis for a deeper understanding of national progress toward overarching development goals. The Renewables Development Index aims to achieve a similar goal in the energy arena, steering the discourse away from conventional fossil fuel energy usage and toward cost-effective and more environmentally sound approaches to meeting global energy needs.

Worldwatch has actively engaged key actors from leading institutions in the international energy community on this initiative. Through a series of interviews, meetings, and workshops, the Institute’s Climate & Energy team will facilitate the development of this new and influential tool.

When completed, the analysis based on this small and concise set of renewable energy indicators will provide governments with a powerful new instrument to better inform domestic policymaking, implementation, and monitoring processes. The indicators can be used for steering investments, refining policy choices, optimizing the impact of limited financial resources, and understanding the outcome of policy results supporting renewable energy development.

This Renewables Development Index will fill an important void in the landscape of sustainability indicators and will help countries in their important transition to a sustainable energy future.

Evan Musolino is a Climate and Energy Research Associate at the Worldwatch Institute, an international environmental research organization. Alexander Ochs is Director of the Climate and Energy Program at Worldwatch.

Climate Change, emissions reductions, finance, green economy, low-carbon, renewable energy, renewable energy finance, sustainable development

The Dow Jones Sustainability Index is the only sustainability index for investors and remains the Oscar of corporate sustainability. But does it employ an effective definition of sustainability? (Photo Source: hms.harvard.edu)

In an age where environmental awareness and climate mitigation are becoming central priorities, it’s encouraging that more than a billion people from 192 countries recently celebrated Earth Day. But what are the most effective steps we can take to reach sustainability, and how can we best track our progress in getting there?

Unfortunately, metrics and best practices for achieving a sustainable planet are failing to develop concretely. So when I discovered a webinar, “Unlocking the Mysteries of the Dow Jones Sustainability Index,” discussing the methodology behind this widely accepted tool for measuring corporate sustainability, I was intrigued to learn how the for-profit world defines and ranks businesses seeking to be more sustainable.

Launched in 1999, the Dow Jones Sustainability Index (DJSI) was the first global benchmark for sustainability. I had assumed that the Index ranked companies based on such variables as their business practices, supply chains, or some other method that would assess which companies are the most environmentally and socially responsible. But instead, the main priority of the DJSI is to rank “sustainability-driven” companies based on how viable of an investment option they are, according to their long-term fiscally sustainable growth.

The DJSI is the only sustainability index for investors, and, according to the webinar, earning a DJSI ranking remains the “Oscar” of corporate sustainability. The index looks at only the largest of the 2,500 companies in the Dow Jones Global Total Stock Market Index. Last year, of the 2,763 companies that were invited to submit an application to be considered in the DJSI, 1,443 were analyzed and approximately 320 were included in the index.

(Photo Source: "Unlocking the Mysteries of DJSI" powerpoint)

On April 10, companies were sent the requisite survey to be considered for the DJSI. Each question has a predetermined score for the answer, a weight for the question, and a weight for the overarching criteria questions are placed into. When filling out the assessment, a company does not know the point value given to different questions and criteria. This allows for every question to be answered as honestly as possible, but it also makes it difficult for companies to focus their resources in specific areas that would make them more sustainable, at least in the eyes of the DJSI.

This lack of transparency prevents an accurate and effective evaluation of the assessment tool as well. For example, it is widely accepted that one of the most effective ways to reduce energy demand while also mitigating climate change is to improve energy efficiency—yet it’s not clear how the efficiency of, say, a company’s buildings or facilities, plays a role in the DJSI rankings.

One gets a sense of the index’s priorities when looking through the DJSI guidebook. The document lists the many reasons why a company may be removed from the index even after having been awarded a ranking. The first reason is poor business practices (tax fraud, money laundering, antitrust, balance sheet fraud, corruption cases, etc.) followed by human rights abuses (discrimination, forced resettlements, child labor, etc.), layoffs or workforce conflicts, and, lastly, catastrophic events, which include ecological disasters.

Examples of companies being taken off the list are BP, following the Deepwater Horizon oil spill of 2011, and more recently Olympus due to an internal financial scandal. The fact that poor financial conduct—not careless environmental and social behavior—is the very first reason given for why a company may be removed from the DJSI shows just how relative the definition of sustainability is.

It’s been more than 20 years since the Brundtland Commission defined “sustainability” as “meeting the needs of the present without compromising the ability of future generations to meet their own needs.” The fact that, still today, the most widely regarded sustainability metric in existence is a financial investment tool that values economics more than environmental and social impacts shows that we are not yet where we need to be. Investments deemed worthwhile by the DJSI are based on expectations of long-term economic growth and expansion, which, if done irresponsibly, are largely counterproductive to what environmental sustainability is.

Despite the well-intentioned effort of the DJSI, a lack of transparency in how the index’s questions are weighted and a focus on underlying financial priorities that may be contradictory to environmental sustainability make it difficult to determine if a company is truly sustainable and if it is being labeled correctly. For investors attempting to invest intelligently and sustainably, there is a need for a clearer and more all-encompassing definition of sustainability in the DJSI.

 

 

Dow Jones, finance, green economy, Green Investing, Impact Investing, United States