SPIS Toolbox - Evaluate the Business Environment

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3. Evaluate the Business Environment

While adoption of SPIS within a region may be feasible from a geophysical perspective, the operative business environment plays a key role in the actual uptake of the technology. There are various factors that contribute to an enabling environment for the adoption of SPIS, and whose significance varies with the entity promoting SPIS adoption. The 9 parameters presented in this chapter are seen to play the most significant role.

Government Interventions

Government interventions as a business environment parameter for SPIS look at policies, rules, and regulations that govern the irrigation and solar sectors in a country.

Together they provide a complete picture of the strength and breadth of government support and the actions taken to turn that support into reality. Typically, government policies and regulations vary from country to country, but can be assessed in terms of:

1. Promotion of renewable energy systems specifically solar,
   
2. Programs promoting irrigation devices and in particular SPIS and
   
3. Presence of relevant government bodies that are providing support to the sector.
   

An important indicator for an effective policy and regulatory environment for SPIS is the existence of programs to implement and support the frameworks in place. For instance, if the programs have an indicative or projected budget and target, it signals the government‘s commitment to implementing the policies. Additionally, the presence of government bodies to keep track of the progress in implementation and adherence to standards are good indications of the implementation of policies and regulations.

By way of example, contrast country X that has a clause in their Energy Act on the country adopting renewable sources of energy including solar to country Y that has the same clause but has also developed Solar PV regulations, has set standards for equipment and has designed a subsidy program to promote adoption of SPIS among small scale farmers. Country Y is seen to have a better environment for the promotion and adoption of SPIS.

Outcome/Product

• Determine the regulatory landscape of a region and its appetite to SPIS

Data Requirement

• Data on government regulations and policies in solar and irrigation equipment
  
• List of government programs that promote SPIS
  
• List of government bodies involved in solar and/or irrigation
  
• World Bank’s Regulatory indicators for sustainable energy (RISE) help in comparing national policy and regulatory frameworks for sustainable energy

People/Stakeholders

• National and local governments
  
• Energy and irrigation ministries

Important Issues

Some of the policies may cut across different government ministries. For example, a policy on trade may remove custom duty on solar. This would still be a government intervention but focused on finance. This is covered in the financing parameter of the business environment module.

Development Organization Interventions

Development organizations may introduce an agenda or programs that present a significant influence on the adoption of SPIS within a country or region. Most of these organizations build their agendas around the Sustainable Development Goals (SDGs) necessitating an understanding of SPIS within the SDGs. SPIS falls in an interesting cross-section of several SDGs including:

• SDG #2 which is aimed at ending hunger, achieving food security and improved nutrition and promoting sustainable agriculture;
  
• SDG #7 on ensuring access to affordable, reliable, sustainable and modern energy for all and;
  
• SDG #13 on taking urgent action to combat climate change and its actions.
  

It is therefore important to understand the target areas of action for development organizations working in a country or region to identify opportunities for SPIS.

Development organizations may vary as civil society organizations, research institutions, and bilateral and multilateral development organizations. It is observed that involvement of these organizations in SPIS at a localized level is often well positioned to bring the various elements needed to promote SPIS uptake together in a systematic, integrated way to empower individual actors and create market momentum.

Ordinarily, development organizations vary from country to country, but they can be assessed in terms of:

1. Organizations that have national programs that promote adoption of irrigation systems
   
2. Development agencies that have national programs that specifically promote adoption of SPIS.
   

Development organizations differ in knowledge, experience, needs and capacity. They each assess the market situation differently, and their specific areas of expertise can address different market development hurdles. Taken together, a comprehensive picture of the market potential for SPIS emerges, including the barriers that currently impede its adoption and the incentives needed to move forward.

Countries or regions with national interventions on irrigation and/or SPIS are more likely to create a positive atmosphere which is more likey to work in to the advantage of SPIS uptake.

Outcome/Product

• Assessment of national development agencies interventions in irrigation and SPIS within a country or region.

Data Requirement

• List of possible development agencies in irrigation and/solar system

People/Stakeholders

• Civil society organizations
  
• Research institutions
  
• Bilateral organizations
  
• Multilateral organizations

Important Issues

• For an agenda or program to be a significant parameter in influencing the SPIS market potential, it needs to be of a size significant enough to shift market dynamics. For instance, a program implemented at a national scale is likely to have a more significant impact on SPIS operations than one implemented at a very localized level.

Financing

Uptake of SPIS is associated with substantial upfront costs which often limits their adoption, especially among low income farmers. For some, farming is the only source of livelihood and investing in SPIS equipment would take away finances from other household needs. The ability to meet the high capital cost of SPIS is therefore seen as a significant barrier to SPIS even though its lifecycle costs are lower than alternative solutions. Facilitating adoption of these systems would, therefore, require support in terms of financing.

Some governments, development agencies and the private sector have developed various mechanisms in different regions to offer this support. Financing for SPIS can be looked at from two perspectives:

a) End-users financial ability

b) Availability of financial institutional support

End-users financial ability

This parameter assesses the purchasing capacity of the end-users as a key indicator of the market potential of SPIS within a region. It helps determine the amount of capital available and/or accessible to an end-user, including options for external market based financing. This informs their financial empowerment and consequently, ability to purchase SPIS.

A population’s general financial ability and access to financial services may be inferred from factors such as incidence of poverty, income and employment indices and the prevalence of financial institutions within an area. Other factors could include number of individual accounts in financial institutions, value of customer savings and borrowing rates at financial institutions, and ease of access to loans. The Gross National Income (GNI) may also be used.

Availability of institutional support

Institutional support can either be from government, development agencies, or private sector. These influence the rate at which an end-user can raise external finance. Government financial support may be in terms of subsidies, tax incentives, rebates, customs and duty incentives. Typically, government support is most effective at the early stages of market development and is phased out as markets mature. Development agencies may also offer subsidies, result based financing (RBF), grants and soft loans. The more the mechanisms available in a country or region the better for the market potential.

It is also critical to evaluate financing mechanisms towards competing sources of power for irrigation. For instance, government support may, directly or indirectly, promote the use of competing sources of fuel such as diesel or electricity. For instance, a rural electrification subsidy or subsidizing of butane gas for cooking may negate adoption of SPIS in a country or region if the recurrent costs of energy are insignificant compared to the upfront cost of SPIS.

Outcome/Product

• Assessment of the financial landscape of the region

Data Requirement

• Incidence of poverty among the rural population
  
• Ratio of formal bank accounts to population in rural areas
  
• Value of savings and access to loans among the rural population
  
• GNI per capita
  
• Employment figures
  
• Government fiscal policy on solar and irrigation
  
• Development agency that finance irrigation and SPIS

People/Stakeholders

• Government
  
• Civil society organizations
  
• Research institutions
  
• Bilateral organizations
  
• Multilateral organizations
  
• Financial institutions

Important Issues

• Evaluation of the financial landscape should go beyond the financial empowerment levels of end users (individual financial ability and available institutional support) to include financing options for competing sources of power for irrigation.

Availability And Cost of Alternvative Fuels

The economic viability of SPIS within a region may be affected by the availability and cost of alternative fuels. In most cases for the same size of pump, SPIS normally require higher initial capital investment as compared to either diesel or grid-electricity powered pumps. However, the latter two have life-cycle fuel costs while SPIS does not hence the need to evaluate the life-cycle fuel savings and payback periods of SPIS within the target market.

An availability assessmentshould determine the quantity and quality of alternative fuels for water pumping. For instance, if a country or region is exploiting fossil fuels, it is likely that fossil fuel based power will compete favourably against solar. For electricity, the rural electrification rate can help to determine the availability of electricity for pumping. Holding other factors constant, the more electrified a rural area is (where most farming is carried out), the higher the likelihood that a notable proportion of the population will use electricity for pumping. The cost and quality of the electricity, however, are among the factors that affect actual use of electricity for irrigation. For instance, there might be high penetration rates but frequent outages, that make electricity unreliable, present an opportunity for SPIS.

In some regions, wind can also be seen as a competing resource for irrigation pumping. Some studies have shown that wind applicability and economic viability of wind competes with solar power at speeds greater than 8 m/s.

In addition to the financing considerations presented in the previous section, the cost of alternative fuels may have a significant effect on the potential of SPIS within a market. One way to conduct a cost assessment of available fuels is to standardize the unit of measure– determine the per unit market prices (cost / kWh) of the competing fuels in the market. This allows estimation of the amount of fuel needed for a specific pump size, and consequently the cost to power the pump. It is often observed that the lower the costs of alternative fuel compared to the capital investment of acquiring SPIS, the less the market potential of SPIS.

Outcome/Product

• Availability of alternative fuels in the region or country
  
• Cost analysis per unit of the alternatives

Data Requirement

• Data on energy resources in the country
  
• Per unit market prices of diesel, petrol
  
• Market prices of electricity per kwh
  
• Electrification rate in rural areas
  
• Quality of electricity in the rural areas

People/Stakeholders

• Government agencies in energy

Important Issues

• It is important to determine if there are any government subsidies offered to the alternative fuels presented. These may be a deterrent to uptake SPIS in the country or region.

Technical Capacity

A successful intervention to promote and upscale adoption of SPIS would require the technical capacity for solar solution providers to design, implement and maintain the systems. Lack of such capacity makes it difficult to sustain the SPIS market in the country or region. The availability of this capacity is especially crucial at the infancy stages of a market – this is the time when end users are introduced to the technology and when first impressions are critical to long-term adoption. As an example, poor installations leading to frequent SPIS breakdowns and lack of timely repairs on SPIS may result in a negative attitude towards SPIS by end users, limiting the market potential for SPIS.

Technical capacity evaluates the availability of skilled personnel for the installation and maintenance of SPIS. It may be inferred from:

1. Availability of training courses on solar systems;
   
2. Number of accredited institutions offering solar courses and;
   
3. Licensing of solar technicians.
   

In addition to the presence of skilled technicians, the presence of a licensing and regulating body for SPIS practitioners is key. Licensing indicates the existence of standards of professionalism and a regulator for the market. For instance, the energy regulator in Kenya – Energy Regulatory Commission (ERC) – registers all solar practitioners who have to adhere to a certain code of conduct and standards. It also maintains a members database that acts as a pool for obtaining qualified technicians for installation and maintenance of solar PV systems.

Outcome/Product

• Assessment of level of skilled capacity in the country/region

Data Requirement

• List of solar training institutes and courses
  
• List of licensed technicians

People/Stakeholders

• Energy agencies

Awareness of Solar PV Technology

General awareness of solar technologies (solar lighting and solar water heating) and irrigation systems, mainly pumps, may be indicative of a population’s willingness to adopt similar technologies. The converse is also likely - lack of knowledge and information about solar technologies can pose a barrier to public discussion and decision making on the use of solar as an alternative energy solution. By way of example, high levels of awareness among end-users about the benefits, long-term costs and payback periods, and performance of solar lighting compared to use of alternative fuels for lighting (e.g. kerosene) can act as an enabler in the adoption of SPIS. Lack of exposure to real-life solar PV installations, on the other hand, is likely to lead to low confidence in new solar technologies.

Awareness of solar PV technologies may also affect the public’s access to market based financing. For instance, financial service providers who are not well-versed with SPIS and its related benefits may be hesitant in disbursing loans for their acquisition, and where loans are available, they may be under limiting conditions (e.g. high-interest rates). This hinders the technology adoption due to lack of financing for the high capital costs associated with SPIS.

The level of awareness of SPIS in a region or country can be deduced from various factors including:

1. Trends in the adoption of irrigation pumps: Presence of suppliers and distributors of global brands of irrigation pumps and their associated spare parts may be considered a key indicator of market potential. This is especially relevant for SPIS suppliers where presence and growth rate of competitors may be indicative of the markets appetite for SPIS.
2. The percentage of solar energy in a country’s energy mix: A significant proportion of solar power may be indicating of an enabling environment for the adoption of solar PV technologies.
3. Solar PV adoption trends over a period of time, say 5 years can be assessed to determine uptake of the technology in the country/region.

Outcome/Product

• Assessment of awareness level of the country/region

Data Requirement

• Trends in solar technology adoption
  
• Number of distributors and suppliers of global brands of irrigation pumps
  
• Number and distributors of global brands of solar equipment
  
• Solar energy proportion to the country’s energy mix

People/Stakeholders

• Government bodies in energy and trade
  
• Research institutions

Significance of Agriculture in the Local Economy

This parameter examines the contribution of agriculture to a target area’s economy. Relevant indicators would include:

1. Proportion of the population engaged in agriculture – the higher the proportion of the population practicing agriculture, the higher the probability of good market potential for SPIS. This is because there is a higher population that may be seeking to ensure their water security for farming. Also, there is a higher probability of favorable government and non-governmental interventions to ensure employment opportunities within the sector.
   
2. Existing irrigation culture – practice of irrigation farming that is mostly powered through fossil fuels and electricity presents a ready market to shift to solar energy.
   
3. Proportion of the GDP attributed to agriculture – regions with a significant proportion of GDP attributed to agriculture are likely to offer an attractive market for SPIS as agriculture would be an established economic driver. It is, however, important to take note of the main crops or livestock contributing to the GDP. For example, coffee and tea could be significant contributors but these do not present obvious avenues for SPIS uptake. This could be contrasted to the export of horticultural products (e.g. flowers and vegetables) which are water intensive and therefore ready markets for SPIS.

Outcome/Product

• Contribution of agriculture to the GDP

Data Requirement

• GDP figures
  
• Agricultural output numbers
  
• FAOstats

People/Stakeholders

• Government ministries in agriculture

Important Issues

• Although the economic contribution of agriculture to a country’s GDP may be steadily declining it may be in sight of the country's broad-based economic growth and agriculture may still be the broadest economic sector in terms of demographics, and plays a significant role in the nation’s overall socio-economic fabric.
  
• In addition to agriculture‘s contribution to the GDP, the type and method of agricultural practice should be assessed. Areas that practice irrigated farming would be more ideal markets for SPIS.

Land Access and Tenure

is an agribusiness, land is at its foundation and it is therefore important to determine land rights, land access and land tenure terms in an area under assessment. Therefore, it is key for an area to have a pragmatic land policy environment. A desirable land policy is one that has emphasis on land access and development, secure property rights, is backed by reliable information and has clear permitting processes. A proper land policy has the land administration services including surveys and mapping, land use planning, rural and urban development, housing and market information service providers well established. Paucity of information about the laws, procedures and/or information required to safely and legally complete land and real estate transactions creates uncertainty and discourages investments.

Land access is defined by the availability of land with the required security of ownership, desirable physical and economic attributes and level of transparency and fairness in transactions.

Land tenure is the institutional structure that determines the political, economic and social framework by which individuals and groups secure access to land and associated resources. The absence of reliable information to guide rapidly expanding land market is, by far, the most persistent bottleneck undermining long-term development in most countries.

Clear tenure rights are an important consideration when investing into SPIS. Not only do they provide investment security, but may also serve as collateral when applying for loans. For some countries, there are clear demarcations between commercial land (with fixed title deeds) and communal lands (with only informal land use rights and agricultural practices limited to subsistence farming).

Outcome/Product

• Country land ownership patterns and statistics

Data Requirement

• Land access and tenure rights in the country

People/Stakeholders

• Government Ministries especially that of land

Transport and Communication Infrastructure

Infrastructure is an organizational system of resources that is needed for a society or business to run. Transportation infrastructure such as roads, harbours, airports and rail, and telecommunication infrastructure are physical systems that are needed for efficient operations within a country or region.

Transport infrastructure determines the ease of movement of goods and people. Lack of transportation infrastructure (e.g in deep rural areas and islands) can have significant cost impacts - inefficient transport systems make it difficult to obtain inputs and to deliver products to customers affecting scalability and quality of services. For SPIS market potential, good transport infrastructure would mean reduced costs of system installation as well as easier access to skilled labour for installation and maintenance. Additionally, lower transportation costs could lead to better allocation of funds in running businesses and ease of access to new markets. Good physical connectivity in the urban and rural areas is therefore essential for SPIS users.

Communication infrastructure (especially mobile phone connectivity) would be relevant to SPIS as indicative of access to mobile banking in rural areas and implementing monitoring devices in SPIS. Mobile phone use can also be used as a proxy indicator for income levels. Mobile phone usage in rural areas also shows the users can access services such as agricultural information and financial services such as mobile remittances and loans.

Outcome/Product

• Assessment of transport and communication infrastructure

Data Requirement

• Data on transport network especially roads in rural areas
  
• Data on mobile penetration particularly in rural areas

People/Stakeholders

• Government ministry of transport and communication
  
• World Bank ease of doing business report