Focus Topic: Productive Use of Energy

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Introduction

Productive use of energy (PUE) is gaining increasing attention from companies and funders alike. But creating businesses where PUE products are meaningfully sold, and ensuring that last mile consumers can afford them and realise productivity gains, is complex. This section will shed light on the potential benefits and challenges of PUE strategies in rural settings. First, PUE is defined. Second, different challenges that can occur when getting PUE to rural settings are discussed. Third, guiding principles are provided to help overcome these barriers. Last, different tools and resources are listed.

Definitions

The term productive use of energy (PUE) refers to energy use that creates value, for example in the form of increased productivity or income, employment creation, or reduced hardship. While definitions of PUE differ, there are two main reasons why it is pursued: first, it can improve the viability of energy access business models (for example of mini-grids in rural areas) and, second, it is a means to achieve broader socio-economic goals. Figure 1 shows the range of possible productive uses in agriculture, industry, commerce and social/public services.

Fig.1: Universe of productive uses relevant for off-grid markets in sub-Saharan Africa (non-exhaustive)

Challenges

This section will discuss the main challenges that business developers and rural end-users face regarding productive use appliances. These obstacles have to be overcome in order to enable viable projects and an uptake of PUE applications in Africa.

Limited demand and poor market linkage

Considering the whole value chain, the level of demand and market linkage should be assessed before intervening with PUE promotion for value addition on a commodity. Local producers have to be linked to larger markets where their products can be sold. Otherwise, investments in PUE equipment are financially unviable. African rural producers oftentimes struggle to unlock demand for their products, even after processing. If these producers cannot get their value-added product to a larger market where it can be sold, then investments into PUE equipment thus value addition is entirely unviable.

Poor availability of appropriate PUE equipment and lack of after-sales service

Retail and hardware stores that sell power tools are predominantly found in larger towns. However, even then the quality of the equipment usually is low and mostly no after-sales support is offered, although, due to the higher complexity, after-sales service is of particular importance for PUE appliances. One way to encounter this is the hardware supplier model where mini-grid companies supply hardware in their villages of operation themselves, to stimulate demand for their power. To be successful, this requires enough villages with demand for PUE equipment and affordability through suitable financing instruments.

Low affordability and low access to consumer credit

Most PUE equipment that enhances economic activity is relatively expensive for the targeted end-users. Farms in Sub-Saharan Africa tend to be too small to generate an income above the poverty line of USD 1.90 per day. Without the financial means to invest upfront, a large proportion of the target group is dependent on financial services to invest in PUE equipment. However, the limited outreach of banks into rural areas and the high interest rates continue to prevent uptake.

The Nigeria Off-grid Market Acceleration Program (NoMAP) is implementing a pilot to test the viability of a finance vehicle for productive use at select mini-grid sites at “friendlier terms” then prevailing market rates offered by commercial lenders. NOMAP is on-lending to solar mini-grid developers (SMDs) for the purchase of productive use appliances at concessionary interest rates which will be provided to productive community users under a lease-to-own arrangement. The fund is channelled through a licensed Fund Manager who manages the operationalization of the fund. NOMAP is working with three mini-grid developers across multiple sites in three states to test out the financing model. Learnings from the pilot will be shared with sector actors and will inform the development of a sector-wide fund for productive use financing .

Guiding Principles

Use PUE as a strategy for demand stimulation

Relying on households as the sole electricity consumers mostly is not profitable from an energy access developer’s perspective. The promotion of productive use of energy (PUE) can improve the viability of solar mini-grid projects, by increasing demand for energy and providing stable demand during the day time. One approach with regards to this is the establishment of anchor projects that provide an anchor load, which ensures having a customer with predictable use of electricity. Those anchor projects can either be run by the developer or by independent entrepreneurs. A good example for anchor projects that have been incorporated in mini grids in Kenya is the company Nal off grid which used economic activities such as gold mining in Nadwat or ice processing for fish preservation in Longtech.

PUE to achieve broader socio-economic goals

PUE not only potentially improves the viability of energy access business models but it also has the potential of capturing more economic value within rural areas. To result in positive outcomes for local living conditions, PUE projects need to ensure aspects such as quality capacity-building, information provision, awareness-raising and market access.

Consider the whole value chain

As a developer who pursues a PUE approach, it is essential to consider the whole value chain of a sector. This includes assessing the market potential, providing users with market information and ensuring market access to enable end-users the selling of goods and services without overproduction or false expectations. The current value chain should be analysed to determine who will (not) benefit from PUE to avoid increases in inequality.

Energy efficiency as crucial component in PUE appliances

High-quality, efficient, and off-grid appropriate PUE appliances are key to making PUE business models viable. A number of organisations are developing technologies to make PUE appliances efficient and suited for use with off-grid solar standalone systems or mini-grids: the Efficiency for Access Research and Development Fund (Efficiency for Access, 2018) and the Low Energy Inclusive Appliances (LEIA) Programme. For example, Agsol, a manufacturer of solar-powered agricultural machinery, active in the East African market, received support from the Efficiency for Access Fund and improved the efficiency for its mill by 32%, while at the same time making it more affordable for customers.

Existing Tools

Name	Nigeria specific	Open source	Description
Energypedia Productive Use Portal	No	Yes	The productive use portal provides an overview of the articles related to productive energy use on Energypedia. The articles are divided in various categories, including for example climate change and productive use, energy technologies and PU, or promotion, financing and business models for PU. The portal is being updated regularly.
A2EI’s productive use assessment tool	No	Yes	The tool supports the design of business models that incorporate productive use in the agricultural sector, for example oil pressing, maize shelling or spice grinding. It contains technological, business and energy assumptions and can calculate different financial KPIs based on the assumptions in each model.
KeyMaker Model	No	Yes	The model was developed by INENSUS and aims at enabling rural manufacturing and successfully trading goods from previously unelectrified rural areas of developing countries in competitive national and international markets.
Productive Use of Energy initiative (PRODUSE)	No	Yes	The joint initiative from ESMAP, AEI and GIZ on the interaction of energy access and productive activities developed a user manual for energy practitioners. The manual provides step-by-step guidance for designing and implementing productive use of energy activities in electrification programmes. It comprises six modules, each describing practical tasks to be conducted in every project phase, as well as references and links to other publicity available tools.
Powering Renewable Energy Opportunities (PREO) Knowledge Hub	No	Yes	The hub collects information related to productive use of energy. The published resources aim to close critical knowledge gaps in sub-Saharan Africa’s PUE market, helping to uptake PUE, stimulate economies and create jobs. The knowledge hub is clustered in various subject areas like case studies, mini-grids, agri-processing, cold-storage and many more.
Rapid Product Assessment: A New Approach to Testing Productive Use Appliances	No	Yes	The framework offers a cost-effective and time-saving way to quality verification for nascent PUE technologies. It should help to access reliable data and information about the performance, durability, and safety of PUE to enable market stakeholders to make informed decisions and identify high-quality, energy-efficient technologies. Egg incubators were selected as a first trial product for the Rapid Product Assessment approach.
Solar Pumping Toolkit	No	Yes	The Global Solar and Water Initiative developed the Solar Pumping Toolkit which is accessible at Energypedia. The toolkit is made up of four chapters which are all related to solar pumping: guidance and assessment, technical design and tender, installation and O&M, and monitoring and evaluation.

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