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Integrated Southern Africa Business Advisory (INSABA)A Project co-funded by the European Community under the Intelligent Energy Initiative - CoopenerEIE/04/094/S.07.40675
Intelligent Energy Europe
Publishable ReportReporting Period April 1, 2005 – March 31, 2008
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Table of contents
List of Abbreviations 3
I. Final Report: Approach, Success Stories, Lessons Learned (Klaus Knecht) 4
Overall Idea and abstract 4
Rationale 4
Objectives 5
Structure of Training, Dialogue and Networking 6
Capacity Building Concept 8
Market orientation 8
Pilot Regions 9
Interdisciplinary Advisors 9
Preliminary Assessment/Pre-Screening 10
Market Assessment, Sensitivity Analysis, Feasibility Study, RES, Business Plan 10
Success Stories 12
Lesoons Learned 14
II. Handbook (Belnyda Petrie and H.W. Böhnke) 17
III. Tool application and examples (by SCs, compiled by H.W. Böhnke) 59
Zambia (Prof. Yamba and Lilian Munyeka Zulu) 60
Namibia (Conrad Roedern) .64
Botswana (Nozipho Wright and Gerrit Jacobs) 67
South Africa (Belynda Petrie) 70
Concluding Recommendation (H.W. Böhnke, Klaus Knecht) 73
The sole responsibility for the content of this publication lies with the authors. It does not
necessarily reflect the opinion of the European Communities. The European Commission is
not responsible for any use that may be made of the information contained therein.
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AB Associated Beneficiary
BMZ Federal Ministry for Economic Cooperation and Development
BOT Botswana
CO Coordinator
DRFN Desert Research Foundation of Namibia
IAs Interdisciplinary / integrated advisors
IAT interdisciplinary advisory team
INSABA Integrated Southern Africa Business Advisory
IR Interim Report
NAM Namibia
NGO Non-governmental organisation
PR Progress report
RE Renewable energy
RES Renewable energy system
RET Renewable energy technology
RSA Republic of South Africa
SC Sub-contractor, INSABA partner organisation in each of the 4 target countries
SME small and medium sized enterprise
SME-GS SME producing goods or services
SME-SP SME supplying RES or services
ZAM Zambia
WB World Bank
List of Abbreviations
4
The INSABA-approach, which is a part of a more complex approach
for a renewable energy based sustainable development concept/
strategy, can be earmarked by the following key words:
Capacity building for SME Political energy concepts
Renewable energy based Rational use of energy
Market orientation Full cost basis
Income generation Economic development
Ecological production Climate friendly energy supply
Interdisciplinary advice
The INSABA approach complements already known forms of pro-
ductive use of RE like the production of agro fuels or the use of
electricity from small hydro power plants or from wind generators
for the production of goods or the production of renewable energy
systems themselves. Unlike these forms the INSABA concept aims
at identifying that renewable energy form which is best suited for
the production of a specific good or service. It considers all options
of available renewable energy sources but the decision on the
renewable energy system used is clearly based on the most eco-
nomic solution.
The INSABA Approach – Overall idea and abstract of this report
Based on the INSABA-project this report will describe an approach
on how to use renewable energy for productive purposes and how
we recommend this approach to be further developed and im-
plemented.
Following the INSABA-project idea, renewable energies can be
used in a productive way. Jobs and income shall be created through
the production of marketable goods and services in rural and urban
areas utilizing the energy needed from renewable energy systems
in a way, that the revenue (selling price) allows the pay back for the
energy (systems or services) needed as well as the advisory services
given. To make this process successful, detailed market studies,
feasibility studies, sensitivity analysis and business plans have to
be carried out to find and calculate marketable goods and services.
Furthermore, the producers of these goods and services shall be
advised and coached. Locally available resources have to be identi-
fied and used. To allow close contacts between producers and
advisers, locally available experts for market studies, technical and
business advisory (including marketing, business plans, cost
calculation) but also for different production technologies (like
agrarian, fishery or handicraft experts) and particularly specialists
for micro financing and for renewable energy systems, shall be
Productive Use of Renewable Energies in the SADC RegionFinal Report: by Klaus Knecht
identified, trained and brought together to work as “inter-
disciplinary advisers”). To start a project like this, project regions
meeting special criteria (in the case of INSABA, this has been pilot
regions in the four participating countries (Botswana, Namibia,
RSA, Zambia) shall be identified.
The production of marketable goods and services using renewable
energies will then create demand for such systems and help to
increase employment and income in the sectors which design,
implement and maintain renewable energy systems. Employment
and income will also be created in the production of marketable
goods and services.
Furthermore, through the local production of marketable goods
and services, the people living in the pilot areas can also benefit
from the project in having access to new, cheaper goods and
services in better quality just as renewable energy systems can also
be used in water conveyance and treatment, communications, food
processing, concentration, commercial heat et alter.
This approach aims at strengthening the capacity of local partners,
advisers as well as producers in economical and technical know-
how and planning for productive use of renewable energy systems
in the SADC region.
Hence, with this approach, one of the essential preconditions for
applying and integrating renewable energies in rural energy supply
systems can be established and co-operation among governmental
agencies, private business from the SADC-region and from Europe,
financing agencies, NGOs and international donor agencies can
be strengthened.
The INSABA Approach – Rationale
With the Insaba approach InWEnt attempts to find solutions and
concepts to a number of urgent questions, stated as:
The immense expansion of RE use required to reach the
necessary climate goals (50% until 2050) will only be possible
if RE are also and increasingly used in productive applications.
Increasing costs for fossil/conventional energy make RE use in
the rural setting not just the only available option but also the
most economic.
Community services like schools, health stations can on the
long run only be operated by RE if there are additional RE
users in the villages so as to justify the creation and operation
of maintenance and service structures
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RE offers an improved access to information and education
in rural areas by public/private partnership. An internet shop
may such receive public support to offer pupils a knowledge
base or farmers may get climate/weather data, information on
seeds or market trend of their produce.
A significant number of people prefer to earn a living for
themselves and their family by their own work, if necessary
self-employed and self-determined, rather than living on
public benefits (if there are). In particular those living before
mostly on subsistency have to be carefully acquainted with the
market and need intensive advisory. Sometimes there is
advisory available in public rural development programs, rural
energy supply, SME development or micro-financing.
These advisers should be convinced to cooperate on an inter-
disciplinary level towards an integrated development which
explicitly includes the opportunities of RE power supply.
Generally, for improved working and living conditions in the
rural areas it is not only important to create/enhance access
to energy, but to make sure it is generated locally, environmentally
und as much as possible climate friendly without creating
dependence to imported fuels and that it can be operated and
serviced locally. This not only includes off-grid power but also
increasingly grid based energy systems such as wind and
hydro, so grid extension would also serve climate protection if
it transports clean energy into the rural environment.
Rural poverty can be fought most effectively if people are sup-
ported in utilizing their experiences, aspirations goals and pro-
duction methods while showing them to work more efficiently
with improved methods and additionally available resources.
There is intention, interest and necessity to offer a better
future for family and specially children. The project therefore
was designed to be integrated into the social structures while
at the same time it contributed to a careful socially responsible
expansion and widening of these structures (which will be
true also in the continuation of the project idea)
Industrial RE utilization in combination with rational use of
energy becomes more interesting as fossil fuel prices rise.
Productive RE use thus is not limited to small rural production
but increasingly attractive for workshops and industrial pro-
duction. Encouraging approaches in agro fuel now need careful
analyses and under development aspects should only be followed
where sufficient land an water are available and biofuel will
not compete with food production.
With the necessity and willingness to respond to changes
and to handle the transition, people are more open to accept
challenges when their situation changed and adaptation to a
changed situation is no longer possible, sufficient or satis-
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factory. So, if over-fishing led to drastic reduction of catch, if
increasing drought strongly reduced food production, if climate
change affects plant growth or if more frequent floods have
crops washed away or rot, then there is need for adaptation and
change. The desire for change exists in most families in any
country to raise family income as soon and whenever there is
an opportunity so as to improve health and education, particu-
larly for the children. Advice and the provision of access to
required resources such as Renewable Energy Systems create
such positive preconditions.
The INSABA Approach – Objectives
Within this background setting, INSABA set forth to achieve these
objectives:
It is proven that renewable energy systems (RES) can be used
economically and productively, particularly in combination
with efficient machines and devices.
Based on the available resources and utilizing the developed
tools, application of renewable energies/energy services has
identified, produced and sold marketable goods and services.
Enhanced rural production and also production from craft and
industry has induced a significant and potent increase of the
demand for RES.
Advise in the conduct of market analyses and the following
steps towards a bankable business plan avoids squandering
own or loaned capital
This additional production guarantees work, income and more
financial security and even expands domestic food production.
A systematic and systemic conduct in preparing a bankable
business plan allows loans or public funding to be granted.
The business plan also provides potential producers a realistic
view on the opportunities and risks of expanding production.
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Broad-scale dissemination of RE-technologies is achieved in
convincing and enabling also small and medium sized local
enterprises to a commercially viable engagement being sup-
ported by regionally based business advisory tailored to the
needs of the private sector practitioners;
Capacity in planning, economical, and technical know-how for
productive use of renewable energies in the SADC region is
increasing. Integration of renewable energies in rural energy
supply systems is established and co-operation among govern-
mental agencies, private sector, financing agencies, NGOs and
international donor agencies is strengthened;
Strategies, concepts and decisions in energy policy are more
often based on the experiences in rural development with
production of goods and services and local RE systems. This
creates income, experience, tax revenue and an improved
education and health service.
The maintenance and service structure created for productive
RE systems is also used for systems in public service like
schools and health centres
Private-public-partnership (PPP) e.g. for internet shops
provides cheap access to knowledge for pupils, farmers and
producers.
Sustainable economic and social development founded in the
existing structures is supported.
Goods and services are produced and marketed ecologically
sensitive (i.e. chicken farms and fish farms have been excluded,
because of mass production not appropriate to the species).
Description of the work
The project was implemented in eight work packages: WP 1 was
project management, kick-off-meeting and other project team
meetings, and project planning. In WP 2, the project trained the
SADC-partners (subcontractors) as intermediaries to be able to
identify, establish and train IAs (interdisciplinary advisors, being
local experts in financing, marketing, sustainable production, re-
newable energy systems, market analysis and different production
fields like agriculture, fishery, aquaculture, tourism, craft, forestry etc.), and to train and coach the designers and provider of the re-
newable energy systems (SME-SP s). In WP 3, IAs have been
trained by SCs, supported by the Coordinator (CO) and European
Project Partners (ABs) to conduct market studies and to advice and
coach SME-GS who produce goods and services at marketable
prices with energy from locally available renewable energy sources.
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The interdisciplinary advisors (IAs) then have advised with strong
help of the SCs the producers of marketable goods and services
(SME-GS). In WP 4 the provider of renewable energy technology
or renewable energy services have received training to strengthen
their skills in re-technology and business and to some extend they
have learned about additional renewable energy technologies. In
WP 5 a dialog with political decision makers about supporting
structures for a wider productive use of renewable energies was
started. Additionally experts from non-governmental organisations
to support rural development and from financing institutions have
been included in this dialogue. Under WP 6 match-making and
networking activities are summarised. WP 7 and WP 8 contain
the dissemination activities.
2
Solar International Botswana
3
Solar International Botswana
4
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The figure gives an overview on the structure of the training, dialogue and networking.
*) BOTEC/Botswana, CEEEZ/Zambia, OneWorld/South Africa and SolarAge/Namibia
European Project Partners: Adelphi-Research/Germany, CENTRIC/Austria; Folkecenter/ Denmark. Project Lead/Coordinator: InWEnt/
Germany
Integrated Southern Africa Business Advisory (INSABA) Publishable Report
EIE/04/094/S07.40675 INSABA 9
The figure gives an overview on the structure of the training, dialogue and networking.
*) BOTEC/Botswana, CEEEZ/Zambia, OneWorld/South Africa and SolarAge/Namibia European Project Partners: Adelphi-Research/Germany, CENTRIC/Austria; Folkecenter/ Denmark. Project Lead/Coordinator: InWEnt/Germany
European Pro-ject Partners
Interdis-ciplinaryAdvisors
EuropeanTechnology Providers
CapacityBuilding
Match-making
SupportTraining
Training
Advice & Training
SupportTraining
Local part-ner organi-sations *)
RES-produ-cers (supply-side for RES)
Training& Advice
SME-producer of goods & ser-vices (demand-side for RES)
RES De-mand Ana-
lyses
Politicians and energy executives
Supportingmeasures for rural / urban
RES use & SMI producing goods
& services
Supportinglegal frame-works for RE & local RES-production
Dialog
8
The INSABA Approach – Capacity Building Concept of InWEnt
The Capacity Building Concept of InWEnt, her conceptional
approach and goals were substantial elements in formulating and
implementing the INSABA approach. Providing politicians an
applicable base for political concepts in climate, energy and
development the project was to prove that environmentally and
climate sensitive energy systems are an essential economic basis
for rural development. Further, the approach of productive use of
renewable energies in industry can contribute significantly to
climate protection. The project’s experience and awareness are to
supply components for political concepts and strategies.
In many ways, the INSABA approach requires re-thinking 1. In
order to cope with the different requirements from this approach
and target orientation and to actively use the changes in economic
and social conditions, the project partners and interdisciplinary
advisers were introduced to change management. This was to put
them in a position to see the change potential and to use it for
sustainable rural development. Accordingly, local producers of
goods and services and also RE systems could get training and
advice motivating them to actively manage the change processes
they are part of.
The systemic approach becomes apparent at the integration and
interlinking of interdisciplinary experts, which offers access to
their know-how and experience while showing the crucial inter-
dependence of successful production and sustainable development.
This method aims to strengthen the independence of rural
producers and helps them to obtain and evaluate information they
need for successful economic action. Practical knowledge and
experience from different disciplines, when offered in an integrated
way has a high probability of successful production and then
poverty alleviation by creation of work and income. The lack of
important training components or ill-conciliation of the recom-
mended measures 2 may for instance lead to crop failure.
The INSABA-approach targets training of partner organizations.
They should be enabled to themselves train the interdisciplinary
1 Many projects up to now supported exclusively certain renewable
energy technologies. Others assumed the technology available (e.g.
hydro) and sought to utilize (surplus) electricity productively. Or
projects focused on rural development without sufficient attention to
energy questions. Or focus was on grid extension connecting rural
areas to (already weak) power lines. Others attempted legal framework
formulation towards enhanced RE use and got stuck on the issue of
grid-feeding with no or minor contribution to rural energy supply.
2 The soil condition for instance has to be known to determine whether
a certain vegetable can be successfully grown, how much irrigation is
possible and necessary and how much and which (natural) fertilizer
leads to best yield and most economic results
advisers, join them in close cooperation and create a network of
partner organizations, advisors and rural producers. Besides the
level of political decision makers (system level) mentioned above,
this names the two other levels targeted by capacity building
measures of InWEnt: Individuals deciding with social sensitivity
on sustainable development and the institutions and organizations 3
they have influence in. This is what InWEnt calls three-level
approach: the individual, the organisation, and the system.
Combining advanced training, human resources and organi-
sational development, Systemic development management closely
links activities on these three levels. The regional approach finally
allowed the exchange of experience and knowledge and opened
cooperation opportunities between the partners from the four
participating countries.
The INSABA Approach – Market orientation:
A product without potent demand quashes the production capital
and the chance for development and escaping poverty. Therefore
demand assessment has priority. It’s cost may be balanced to some
degree with the savings on aggressive marketing or the losses
avoided. The project’s focus for this reason was on developing and
adapting tools for the conduct of market analyses, preparation of
feasibility studies, sensitivity analyses and business plans. The
material available was evaluated and simple yet meaningful
methods were developed which can be used for small enterprises,
minor production expansions or new products and can be handled
with some training by local advisors and even some producers.
This emphasizes training related to immediate professional
practice. The learning material is directly linked to the partici-
pants’ everyday professional life and the acquired knowledge and
skills can be used with a view to improving the competency to act,
so as to facilitate the ultimate transfer to the life and work situa-
tion of the participants. As much as possible, the concrete struc-
ture of the programmes is oriented to the prior knowledge, moral
concepts, needs and interests of the rural producers which they
actively bring to the learning process. The evaluation tools and
manual hereto attached were used and constantly improved and
adapted by the project partners. Handbook and Tools are attached
– see chapter II 4
3 This not so much attempts the subject qualification of interdiscipli-
nary advisers but rather the introduction of tools which were developed
within the project. The project conduct showed the importance of
identifying such advisers willing to cooperate with each other with
the producers and the project. This would be even more effective if
those advisors succeeded to convince their institutions to actively
cooperate on the concept of productive RE use
4 Handbook and Tools, prepared by B. Petrie, H.W. Böhnke
9
The INSABA Approach – Pilot Regions
For a project to be accepted it early on has to show success. There-
fore in a first phase it is important to select an area as pilot region
which offers favourable conditions. To choose a region as a pilot
region, extensive knowledge on the region should be there (the lo-
cal project partner should know the economic and social structure
of potential pilot regions and should have ongoing projects there).
They should be able to discuss with producers about their ideas on
additional production if energy required would be provided as well
as advisory service and financial means. Some important criteria
for the selection of pilot regions should be met (similar to what we
defined for pilot regions in Namibia, Botswana, South Africa and
Sambia):
Active Government Development Plans for the region;
Activities of government agencies, NGOs, international do-
nors. The availability of subsidies for (renewable) energy and/
or agriculture or the existence of rural or urban development
programmes can be an additional selection criteria;
Information on the average power /energy consumption in the
region and what it is used for are available;
Information on electrification development plans for the re-
gion are available;
Information on power providers (independent providers, inde-
pendent power producers) are available;
The region has viable renewable energy sources and regional
suppliers of renewable energy technology;
There is experience with renewable energies;
Infrastructure exists to provide renewable energy technologies
and to give access to markets;
Information on the economic situation and social structure are
available;
A critical mass of existing or potential producers of marketable
goods and services with business instinct can be identified in
the region. They are innovative, active, experienced, interested
in new products, and technologies, they feel themselves re-
sponsible for their income generating activities.
Information is available on average monthly income and on
subsidies for energy and/or agriculture production or goods.
Community based development initiatives are advantageous;
Producers are interested/willing to cooperate with advisers;
Experience with businesses being exposed to formal loans.
Potential producers have ideas on potential productive uses;
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Information on the situation of potential producers are
available with their current kinds of businesses and their
duration, number of employees, experience with loans,
markets, business perspective.
Availability of potential interdisciplinary advisors who will be
able to cooperate and to install a business advisory service for
SME producing goods and services – the potential demand
side of RE; but advisors should also be available to support
designers and suppliers of renewable energy systems or energy
service companies. Those should have entry or at least estab-
lished contacts to people living in the selected region.
The INSABA Approach – Interdisciplinary Advisors
Why and what for are interdisciplinary advisors needed?
People in rural areas need regular and easy contact to advisors to
take more decisions and to take them on time. Experts being em-
ployed by government agencies, NGOs or international donor agen-
cies could best serve as such interdisciplinary advisers and it would
be most worthwhile to attracted (and train) them to work as advi-
sory “team” together and help to strengthen economic develop-
ment. These advisory teams should be able (or be enabled) to use
developed tools to conduct market studies, feasibility studies and
sensitivity analysis and to compile business plans on and for mar-
ketable goods and services that can be produced/provided with re-
newable energy. 5 Based on these studies and the results summa-
rised in a bankable business plan shall deliver all relevant
information for producers to start additional or new production.
5 Renewable energy experts often have limited knowledge on all the
different technologies. Here either a group of renewable energy
experts with knowledge on the different systems are needed or some
with a broad understanding of the different RE technology options
and economics.
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Solar International Botswana
5
Solar International Botswana
6
10
Experts are also needed to advise producers on production processes
(the project asked for sustainable production of goods and services).
The INSABA project introduced this kind of intermediary – the
integrated, interdisciplinary advisor (IA) in the project region. IAs
have specialized knowledge on the demands of producers of goods
and services (SME/GS) and INSABA traded this knowledge with
knowledge on renewable energy technologies (RETs). It was in-
tended that several IAs will form a team of more comprehensive
knowledge – the integrated advisors team (IAT) to allow best use
of a combined or integrated knowledge of the IAs e.g. on econom-
ics (for market analysis etc.), financing, energy supply, develop-
ment planning, production technologies and processes, etc and in
project development.
While in the pilot regions, interdisciplinary experts should come
from different already existing institutions, organisations and com-
panies. In additional regions, they would have to be recruited.
These experts will have to be trained for their specific tasks and
they will also have to learn to work together as a consulting group
(IAT) for rural producers as well as of goods and services as well
as for renewable energy systems in villages and even urban cen-
tres. They also need to be trained in how to guide and coach as well
as in organising themselves in a very efficient way in order to offer
and sell a coordinated consulting service. Local partner organisa-
tions will be responsible for organising the IAs, for training them,
and, further, for conducting together with the IAs additional mar-
ket analyses, coaching and training measures for producers. As a
result of the project, a self sustaining structure shall be initiated
in different regions.
In addition to the subjects enumerated above, IAs (integrated/
interdisciplinary advisors) could have these qualifications:
Market: market analyses, marketing, business planning,
and accounting
Financing: micro credit, taxation aspects
Production: sustainable/ecological manufacture
(Cleaner Production)
Training: coaching and need analysis, team building
and twinning
Development: Rural development planning, socio-economics,
policy, business (SME) development assistance,
Energy: distribution planning, economic and efficient renewable
energy technologies and services, independent power providers,
decentralization, long range marginal cost;
Consultants: Commercial consultants will have much of
the required background and could qualify as IA. They need
however, to charge for their services which might be a problem
at least for the initial project scrutiny.
SME-SPSME providing renewable energy systems, have
much of the qualifications as well, they might however lack
the impartiality that is imperative for an IA.
SME-GSSME producing goods and services, as being the
experienced end-user could make important IAs. Their practical
experience is convincing but they may also lack the impartiality
INSABA approach – Preliminary Assessment/pre-screening
After pilot regions and IAs were selected and comprehensive con-
sultations with local producers took place, there are numerous
initial business-ideas which need to be screened and evaluated. As
a full feasibility study would have been beyond the means of most
proponents and be neither efficient nor appropriate at this early
stage, INSABA introduced a simple and efficient pre-screening
tool with which those proposals can be sorted out which obvious-
ly have little probability to survive as demand may be unknown,
experience of the potential producer may not be sufficient or com-
petitors may offer similar products at very low prices or the re-
sources required are not available at the site. But often this would
be because the additional cost of the RE system was not met with
adequate value addition so it could not be produced at marketable
costs/conditions. So as to be safe, only proposals with more than
30% ROI (return on investment) were considered.
As even the most economic concept can fail with a weak proponent,
the tool would at the same time look at the personal resources (see
entrepreneur-criteria on page 15 like professional experience, risk
acceptance, social responsibility, communicative competence,
motivation, knowledge, technical skill, market connection, corpo-
rate culture).
And finally, the pre-screening tool offers a sensitivity analyses 6
which gives an important statement on how the ROI changes at
varying parameters. A producer, seeing how much cost and price
variations affect the result, can determine within which price/
quantity bracket his production will remain competitive.
Market Assessment, Sensitivity Analysis, Feasibility Study, RES and Business Plan
Those proposals on new products and services or production
expansions which pass the preliminary assessment need next to
be verified because not rarely, the assumed data are outdated,
over-optimistic or confused.
This is where the IAs advice is needed, because the technology ex-
perts can verify the design and cost of the proposed technology, the
agronomist the additional food value/quantity etc. Such deeper pro-
file assessment should also analyse the other available resources
and sales opportunities and be conducted in close timely proximity,
based on the ideas and presentations of the potential manufacturer.
6 A more detailed sensitivity analysis will be conducted after the feasi-
bility study with more accurate figures and better knowledge on deci-
sive parameters and variations which may occur.
11
This includes naturalresources (ownership of land, access to water,
raw materials, biomass required for the project)
Renewableenergies (whether wind- hydro- or geothermal power
required for the project is sufficient. Most of all whether the pro-
posed renewable energy technology is locally available and (else-
where already) proven.
Financialresources of the proponent (combined assets, free equity
and collateral including that of the family, eligibility for special
loans/grants)
In order to determine the marketing options of promising pro-
ducts, sensitivity analyses, market analyses, feasibility study and
selection of suitable RE systems and energy efficient appliances
and production methods have to be done and presented in bank-
able business plans.
Here, production know how on various goods is crucial. Environ-
mentally sensitive and energy efficient production (ecologic pro-
duction) saves resources, often increases competitiveness and in
the long run helps to avoid over-use and destruction of natural re-
sources and the immediate environment.
After careful pre-screening and verification a number of proposals
on new products and services and expanded production remain.
To provide the producers further information, required to decide
whether and which ideas shall be followed, a simple but informa-
tive market analysis shall be conducted. It shall give information on
Whether there is a market/potent demand for the product and
at what effort this market (local, regional, international) can be
reached.
Whether there are competing products of comparable quality
successfully marketed and whether competition could expand
production and enhance quality easily
Whether potential customers consider the product or service
important or even essential or whether it is a product con-
sidered only at minimal cost.
Whether existing marketing channels can be used and the
product be traded to regular customers
Whether quality improvement would open new markets
Whether the producer has manufacturing advantages such as
skill and knowledge, access to the required resource including
renewable energy resource which would avail him of a com-
petitive edge
Whether potential customers are able and willing to pay
(which is important when semi-finished goods for crafters and
industry are manufactured)
How reliable the market information on novel products can be
considered
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These important data from market analyses then are used in a
feasibility study, which clears ownership and land-use rights,
so expanded production is not hindered by additional land
requirements. Also rights of way and water usage should be
clarified.
Makes sure the necessary technologies are available, used
and serviced. This refers to both production technology and
renewable energy technology. The study shall also determine
whether the product can be manufactured as planned or
whether additional cost and essential delay, even production
losses have to be considered.
Assesses whether the production violates cultural or esthetical
values of the local population, whether negative environmental
impacts may arise (environmental impact assessment) or
whether the production violates laws and regulations e.g.
labour laws.
Most of all verifies the economic feasibility: Can at given con-
ditions the product be manufactured economically i.e. at
marketable prices which include the needed energy cost from
renewable energies and the cost of advisory. Which are the
critical factors of economic production? Is there dependency
on external factors e.g. suppliers?
Identifies the availability of sufficiently qualified staff, their
bestinternal organization and the relation of work quality to
product quality.
The business plan requires a cash-flow analysis where the timely
and quantitative allocation of resources are placed to match the
development of cost and income. The time chart includes financial
inputs, whether equity or loan and leads to a liquidity and profit-
ability prognosis. It should be simple yet sufficiently informative
to show financiers and aid organizations whether it is a viable en-
deavour. The business plan as well must show and clearly describe
the potential producer the risks and opportunities of production.
It should present the company and its present work and products
and then justify which product or service is offered additionally,
describe the market opportunities of the product and the planned
marketing measures. The potential producer should present his
own knowledge and skill and that of the required staff.
The development and adaptation of these different tools was done
in agreement with the project partners and the interdisciplinary
experts/advisers during project implementation as an ongoing “on
the job-training” processes.
•
•
•
•
•
12
Dialogue, training, networking, studies, development of tools
(market analysis, feasibility study, sensitivity analysis, business
plan), advise, technical coaching, implementation measures,
evaluation and reviews have been adequate methods for the design,
discussion and implementation of the INSABA concept in pilot
regions.
The African project partners learned to work closer with inter-
disciplinary advisors and understood that they are locally close to
the producers and can be contacted within due time. As IAs know
the economic and social situation and problems of rural population
as well as of urban manufacturers much better than anybody
working far away in the country´s capital, they also can advise
African and European project partners. These advisors are normally
not used to network and cooperate to achieve common results and
impacts 7. Besides further advanced training they need training in
twinning and communication and integrated project planning.
They understood that working together as teams allow them to
easier calculate an integrated service and offer whole packages.
As a result of the project, a self sustaining structure was initiated
in some pilot regions.
A dialog between project partners, interdisciplinary experts and
political decision makers has also started. Proposals for articles
and paragraphs of legislation to create a more favourable legal
framework for renewable energies as integrative part of sustainable
development can now be formulated together with local advisors.
A Dialog between decision makers from the government respon-
sible for energy supply, rural and urban development and for the
development of SME is initiated. Contacts have even been made
with German parliamentarians which can further been used.
A practical business planning toolkit and a handbook has been
developed to assess business ideas of productive use of renewable
energy for their feasibility and to prepare business plans for their
presentation to potential financers.
A number of business ideas have been assessed for their feasibility.
In each country it could be demonstrated that marketable goods
can be produced and sold, using energy from renewable energy
systems. The selling price of these goods allows the pay back for
the energy needed in a period accepted by the investor/SME-GS.
First businesses have started and others are close to start. Descrip-
7 The idea of Interdisciplinary Advisory Teams has first been developed
and successfully be implemented in Brazil from InWEnt’s project
partner Suzanna B. Maia, former president of the Brazilian NGO
BRASUS.
Success Stories
tions and results are presented in chapter 111 of this report and
further details can be found at www.insaba.org.
The preparation of business plans for sound projects based on re-
newable energy and an open dialog with financing institutions has
improved the financing conditions and opportunities for such
projects.
National and international institutions are now interested in using
the INSABA approach.
The impact of the project can also be seen by the different target
groups addressed by the INSABA-project:
The first level target group are the SADC-project partners, the
second level target group are the interdisciplinary advisors (IA s)
and the producers of renewable energy systems (SME-SP). The
third level target group are the producers of marketable goods and
services (SME-GS), the fourth level target group are the people
living in the pilot regions who benefited from a wider and some-
times cheaper supply of goods and services.
The fifth level target group are potential SME-GS and SME-SP out-
side the pilot regions who have access to detailed information about
the project-approach and who can contact INSABA`s project
partners and/or IAs and they can implement the project idea in
additional regions.
As a sixth level target group political decision makers in the SADC-
partner countries were addressed to support a productive use of
renewable energies on both sides, on the demand and on the supply
side. Project partners, IAs as well as producers (SME) can support
political decision makers in formulation and reformulation of
articles and paragraphs of laws and regulations promoting RES
and SME-GS as well as SME-SP.
At the seventh level renewable energy system producers and provi-
ders from European countries may find an easier access for a closer
co-operation with the SME-SP in the SADC-partner countries.
Additional target groups are potential cooperation partners like
UNDP, GEF.
Research institutions, polytechnic universities, vocational training
centres and local consultants are now also invited to use the hand-
book and tools and provide adequate training.
It is expected that the project partners are interested to keep the
idea going and use the tools developed and train and advise advisers
and producers and thus contribute to income generation and de-
velopment in their respective country. Also local experts, trained
as trainers and advisers will use their advanced developed skills
and continue independently with training and advice using the
tools and experience gained – and also earn from this.
13
A rather simple graph will provide an overview on the main issues which are important for further project implementation:
Integrated Southern Africa Business Advisory (INSABA) Publishable Report
EIE/04/094/S07.40675 INSABA 17
A rather simple graph will provide an overview on the main issues which are important for further project implementation:
Lessons learned:
Key actors in a project for the use of renewable energies in a productive way are local project partners cooperating closely with interdisciplinary experts directly linked with potential pro-ducers of marketable goods and services. The long-term involvement of integrated advisors into the Project, including the establishment of networks and teams among them will only be successful where the IAs themselves expect that collaboration with advisors of different dis-ciplines will yield better results. Only then will professional competition be overcome. More-over, advisory services need to be adequately paid for. Interesting and fruitful training pro-grammes as offered by INSABA have been most welcome by IAs and could have been inten-sified.
Producers need:
Market as-sessment
Advise finan-cing
Advise power supply
Government / NGO- Support for SME
For rural deve-lopment
For rural ener-gy supply
Market analyses to business planning
Advise manu-facturing
Training & Coaching
For SME
Prerequisites, ressour-ces needed:
Vocational talent & skill
feedstock
Infrastructure Market access
Energy
Commercial demand
Micro credits
Business-Instinct
RE-System Design
Technical and commercial feasibility of RE-Systems
Productionknow-how
3
Based on these figures a Pre-Assessment of the vegetable farm using drip irrigation with solarPV was carried out. Results are shown in Table 1. Also calculations were carried out comparinggrid electricity with PV solar electricity. Results of this assessment are shown in Table 2.
Table 3 below shows a comparison between the two sources of energy.
Solar PV Electricity GridElectricity
ROI 44% 63%
Paybackperiod (yrs) 1.81 1.35
It can be observed that growing vegetables in both cases is highly profitable. The largeinvestment for the solar panels has a limited impact on the ROI. The reason for this can beobserved from the sensitivity analysis below Table 3. The cost of energy/unit has only a limitedinfluence on the change of ROI.
Market AssessmentMost of the vegetables are sold to the supermarketchains in Gaborone. Limited amounts are sold from thefarm to local customers. The vegetables aretransported in a small truck (bakkie). Since Mrs.Sibanda resides in Gaborone, she drives backward andforward between Otse and Gaborone and takes loadsof vegetables with her. There is not a plannedmarketing strategy and marketing is mostly donethrough word-of-mouth. The demand is currently higherthan supply therefore there are no problems selling thevegetables the market. Late payments for the sales ofvegetables sometimes cause problems.
Seedlings are bought and readily available. To reducecosts, the farm will grow their own seedlings from seedsfor most vegetables in the future.
The cost of chemicals and fertilisers is perceived as very high and it was expressed thatgovernment should subsidise these items to help farmers.
Covered areas where tomatoes are grown using hydroponics
Harvested and packed cabbagesready to be marketed
2
Description of the SWH system
The lodge uses Solar Touch solar water heaters with electrical back-up elements for waterheating. Each unit has a capacity of 300 litres and is supplied by 3 solar panels. In total there are10 units (3 groups of 3 units and 1 single unit). Water is circulated by means of polypropyleneunderground pipes.
Some of the units areleaking due to frostdamage and are inneed of resoldering. Itappears that the unitsare direct systems,without heatexchangers. Warmwater production hasdecreased over timedue to extensive scalingof the units since thewater conditions in theKhutse area areunfavorable for directSWH systems.
Pre-AssessmentCalculations are based on the collector areapresently installed. The price of the SWHincluding installation at the lodge is estimatedto be P3,500/m2. The average solar radiationis estimated to be 5 kWh/m² per day. TotalSWH system efficiency is taken as 40%. Thevariable with the highest uncertainty is thespecific diesel consumption which is definedas the diesel consumption of the generatorwith engine per kWh of electricity generated.This value is estimated as 0.25 litre/kWh.An overview of values that are used in the pre-assessment are given in the table on the right.
Three battery banks with inverters provideenergy when the generator is not running
Deutz F6L912 diesel engine with a MarelliMotori three phase 56kW generator
Three solar water heater units with tank capacity of 300 litres
Solar Water Heater Output and Diesel Saved
Collector area 60 m²
Installed price of SWH 3,500 P/m²
SWH investment 210,000 P
Solar irradiation 5.00 kWh/(m²*d)
Total SWH system effiency 0.40
Energy generated 120.0 kWh/d
Specific diesel consumption 0.25 litre diesel/kWh
Diesel replaced 30.0 litre/day
Cost of diesel incl transport 5.00 P/litre
Diesel saved per day 150 P/day
Diesel saved per year 54,750.00 P/year
14
Key actors in a project for the use of renewable energies in a pro-
ductive way are local project partners cooperating closely with
interdisciplinary experts directly linked with potential producers
of marketable goods and services. The long-term involvement of
integrated advisors into the Project, including the establishment
of networks and teams among them will only be successful where
the IAs themselves expect that collaboration with advisors of dif-
ferent disciplines will yield better results. Only then will profes-
sional competition be overcome. Moreover, advisory services need
to be adequately paid for. Interesting and fruitful training pro-
grammes as offered by INSABA have been most welcome by IAs
and could have been intensified.
The productive use of RES creates a demand for such systems and
the training for system providers supports a qualitative market
supply for such systems. The matchmaking between the both
forms of SMEs (SME-GS and SME-SP) leads to better adapted sys-
tem designs, to a development of energy services and to a sustain-
able service structure.
The capacity of local project partners as well as interdisciplinary
experts to use tools and training materials in relevant business
management issues, such as market analysis, feasibility study, sen-
sitivity analysis, business plan, financing, marketing, production,
as well as in technical issues such as adapted and specialised re-
newable energy systems (RES), application of RES in productive
use, system engineering etc has to be trained intensively on the
job allowing enough time for learning and implementing this
approach.
Information from the market studies and from the production of
goods and services using renewable energies transferred to
SME-SP will allow them to meet the demand in a cost efficient way.
A regular dialog between decision makers from the government
responsible for energy supply, rural and urban development and
for the development of SME and project partners/ implementers
and interdisciplinary advisors/integrated experts can lead to new
political concepts. With the „productive use of renewable energy“-
approach, political decision makes have an methodology and prac-
tical knowledge and experience on hand which allows them to use
this approach for political concepts and strategies towards inte-
grated rural development, support of SME and sustainable devel-
opment to further push job creation, income and knowledge trans-
fer – and which allows them to have support for community based
health and education programmes. Also proposals for a legislation
which creates a more favourable legal framework for renewable
energies as integrative part of sustainable development can now
be formulated.
Lessons learned:
Producers of marketable goods and services can serve local, re-
gional or even international markets8 and will create income and
jobs and thus contribute to a sustainable reduction of poverty. They
also create a demand for renewable energy systems. On the supply
side, system producers will serve this higher demand and thus
also create additional jobs and income.
Using the developed tools and the coaching of the SME-GS through
AIs will help the SME-GS to earn income instead of loosing their
money in business activities which have been started without
proper analysis of the market. In providing tools and information
which allows the producers to take their decision, the project also
paves ways for a sustainable development which in the longer run
will be more independent from international donors.
The experience gained by the local partner organisations and the
SME can be made available to other SME within the same sector,
to other sectors in the country and to other countries in Africa.
Information on the methodology and on the tools are made
available trough INSABA.
During match-making events, demand- and supply side have the
chance to meet each other and SME-SP can learn from SME-GS
to which needs the systems have to be adapted. As a result, local
expertise in RES application can be improved and networking
between local and international SME be promoted.
8 While in the application it was assumed that markets considered
could be local, regional or international we now would rather prefer to
look for markets which are close by for he following reasons: It should
be avoided that local natural and personal resources will be exploited
and used to satisfy international demand and leaving the needs of the
local people unsatisfied. The increased production of agro-fuels is just
one of these rather problematic productions: market power of great
land owners is stronger than those of local population and often even
stronger than those of political decision makers. Arable crop and wa-
ter needed for food production may be used for more profitable export
crop or agro fuel production, food scarcity may follow and govern-
ments would have to provide solutions to feed their own people while
agro fuel producers increase their private profits. While strong advo-
cates of the market philosophy may argue that a rise in prices for food
would reverse the production and more food would be produced it has
to be considered that there is hardly enough income with rural or poor
urban population to pay higher prices for food. And long distance
transport of raw materials as well as of commodities should be avoid-
ed by climate protection reasons. It was said these days again: Eco-
nomic growth deserves to be called development only if the benefits of
the growth are still bigger than the disadvantages.
15
A wider productive use of renewable energies may attract European
system suppliers and support the transfer of renewable energy and
energy efficiency expertise and know-how from the EU to the de-
veloping countries, allowing local professionals to benefit from the
experience that has been gained in the EU in recent years. It will
help to create a sustainable core of energy sector expertise, par-
ticularly amongst professionals in private businesses, local manu-
facturing companies, utilities, and energy service providers.
During the project time, there was only a rather small interest of
European suppliers on the SADC-market. Rising prices for con-
ventional energy may change the situation in the very near future
especially if additionally national measures to reduce risks for in-
ternational investors and system suppliers may be taken. InWEnt
will proceed with additional programmes to strengthen the links
between both regions.
Concerning the Producersofgoodsandserviceswe had to learn
thatin a first phase of such a project, experiencedproducers are
much more likely to successfully implement this approach. There-
fore the project developed the following criteria for the selection
of producers. Producers of marketable goods and services as well
as producers/suppliers of RE-Systems (SME-GS and SME-SPS) in
the pilot phase should:
be more than three years in operation
keep books
be willing and able to use renewable energy systems for energy
supply
have an entrepreneur with at least secondary education
have experience in producing for markets or industries (not
just subsistence production)
be located not too far from major business centres and markets
have ability for product innovations
be willing to be initiative and flexible to market changes
be able and willing to reduce overall dependency on one singu-
lar product or on just one customer;
have the capability to diversify the product range and introduce
new technologies and be able to design new products
be willing to work hard
be willing to implement more efficient and ecological produc-
tion processes
have more than three (registered) workers
have skilled workers available
have experience in (simple) cost calculations and drawing up
business plans
have experience in re-investing parts of revenue
be able to maintain machinery used (also renewable energy
technology – RET)
be run by an individual owner rather than be a cooperative or
common venture
•••
••
••••
•
••
•••
••
•
In the longer run, rural family economies however would have to
be included as they seem in many countries to be the most sus-
tainable form of doing business. Also cooperatives can be included.
The project is not limited to only SME, also medium sized enter-
prises and urban enterprises (formal and informal) are in the focus
of the project, as long as they generate jobs and income by using
renewable energy technology for the production of marketable
goods and services.
INSABA was conceptualised as a capacity development project that
goes far beyond implementation of seminars and workshops.
Instead, it aimed at direct involvement of the final target group
(SME potentially producing goods and service with the productive
use of RE) in the process of identifying bankable businesses
through the use of adapted assessment tools. This approach
requires a change in each stakeholder’s (project partners, advisors,
and entrepreneurs) own role perception. Such a process of change
in thinking and behaviour, and finally the acceptance of responsi-
bility requires much time. The three year project duration proved
to be too short to fully achieve this change.
In a pilot phase, relatively high initial investment costs for renew-
able energy technologies are difficult to be financed as long as
financing institutes are not convinced by businesses, based on re-
newable energy technologies and as long as there is no co-funding
or financial support from governmental side. The project however
assumes that – in the long run – all investment costs (including
for RET) have to be covered through the revenue realised in sell-
ing the produced goods and services. For most of the potential
businesses assessed during the project financing to purchase RETs
systems was readily available, particularly for very small businesses
that require loans less than € 1000.
12
Solar International Botswana
23
Solar International Botswana
24
QUESTIONS ?
tel: 31 82 890 [email protected]
www.web.co.bw/sib
Contact:
16
In an advanced project approach also following problems should
be addressed:
Care must be taken in implementing this approach, not to
use local resources as e.g. biomass extensively or to exploit
cheap labour for producing for the world market (which may
not always be avoidable)
Likewise it should be avoided that a subsistency based pro-
duction by structuring it towards regional or international
markets, would detriment the supply of the home market
Knowledge on the different renewable energy systems and
their technical and commercial viability needs to be strongly
expanded by capacity and awareness building in almost all
regions.
The local project partners need to have profound knowledge of
framework conditions prevailing in a region in order to decide
whether it could be an appropriate pilot region to start pilot
projects of productive use. Crucial conditions relate to the
economical situation, social structures, modes of production
as well as existing resources. This information is often rather
difficult to compile.
•
•
•
•
The industry sector needs economic solutions for grid based
systems. Legal and contractual regulations for independent
power producers need to be improved and terms of electricity
wheeling clarified. This might be of interest for communities
who e.g. would operate wind parks in favourable locations and
utilize the environmentally and climate friendly generated
electricity for communal workshops and buildings.
Climate protection and protection of the bio diversity are main
challenges of an approach aiming at a sustainable development
also in developing countries. Developing countries deny a historic
responsibility for the present situation on climate change but they
are aware of their responsibility now and in the future due to their
increasing CO2emissions. A productive use of renewable energy
meets the interests of developing countries in using CO2-emis-
sion free technologies combined with high efficient appliances as
it allows them to become increasingly independent from fossil fuel
imports and to be able to develop their countries while minimis-
ing negative effects of economic development on the climate.
•
11
Solar International Botswana
21
Solar International Botswana
22
GETTING IT RIGHT -
PLANNING FOR BUSINESS SUCCESS
The INSABA practical business planning toolkit
18
Prepared by: OneWorld Sustainable Investments [email protected]
Reviewed, amended and edited by Heinz-W. Böhnke for InWEnt Disclaimer: The sole responsibility for the content of this toolkit lies with the authors. It does not necessarily reflect the opinion of the European Communities. The European Commission is not responsible for any use that may be made of the information contained therein.
Getting it Right 19
“Getting it Right” INSABA Toolkit Project Overview The project "Integrated Southern Africa Business Advisory" (INSABA) falls under the
European Commission’s Intelligent Energy – Europe programme and aims at the
establishment of a high profile business advisory network for renewable energy (RE).
INSABA has a unique, two-pronged approach in that it aims on the one hand to train a
broader base of advisers in appreciating the RE economics and on the other hand to use this
advisory base to identify more RE applications from the supply side.
In order to improve sustainable capacity, local partner organisations are being trained to act
as intermediaries to allow for continuation of activities post the life cycle of the INSABA
project.
The overall objective of INSABA is to strengthen productive application of
renewable energy in southern Africa. INSABA will help to build a critical mass of
human capacity with up to date knowledge and expertise in energy planning and project
financing, as well as in the latest technologies and best practices available for increasing the
productive use of renewable energies.
The project focuses mainly on small and medium sized enterprises (SME).
The project aims at increasing the utilization of renewable energy alternatives
There is a wide range of tools for developing small businesses and RE projects available in
the donor and NGO communities internationally. These consider RE productivity and RE
financing options and can have broad application in assessing the funding of RE based
projects. Examples include the recently published World Bank Toolkits for RE projects1 and
AREED2. Then there are toolkits for small medium enterprise (SME) development, such as
the International Finance Corporation (IFC) SME Toolkits that provide ‘technology solutions
for small businesses in emerging markets’.
1 REToolkit, available at www.worldbank.org/retoolkit/ 2 UNEP’S African Rural Energy Enterprise Development Initiative with similar initiatives for Brazil (BREED) and China (CREED)
Getting it Right 20
INSABA (Integrated Southern African Business Advisory) is a capacity building programme
aimed at stimulating RE for productive use as a key concept in small medium enterprise
(SME) development in southern Africa. The four countries participant to this programme
(Botswana, Namibia, South Africa and Zambia), face either issues of cheap fossil fuel based
electricity (primarily available from the Eskom powered grid) and/or lack of access to energy.
Programmes such as the already mentioned AREED, focus on rural entrepreneurs through
the development of new sustainable energy enterprises that use clean, efficient, and
renewable energy technologies to meet the energy needs of under-served populations.
Whilst there are parallels between INSABA and other described programmes, there are
some key distinctions, which the tools and guidelines in Getting it Right aim to address.
These include:
Better utilisation of renewable energy resources in delivering goods and / or services to market
Building capacity in entrepreneurs and their advisory base to assess business opportunities using renewable energy technologies (RETs)
Bringing the supply and demand side for energy services together in southern Africa
Tackling the poverty alleviation agenda by providing advisory services for businesses using RET, for example for water conveyance and treatment, communications, food processing and commercial heat
Evaluating INSABA based opportunities requires reference and answers to a specific,
consistent and common set of questions. Some of these questions have to do with the
financial viability of the RE technology proposed and a key objective of Getting it Right is
to guide the user through a process in finding, documenting and using these answers
through the lifecycle of INSABA and beyond the business development cycle.
Getting it Right 21
The Getting it Right Toolkit contains these main parts:
A set of excel sheets with 4 categories of tools for use throughout the INSABA
business development cycle which cover an initial evaluation and market
assessment, planning and feasibility phases. The tools are color-coded and
individually numbered for clear identification. An introductory, glossary and project
development outline accompany the tools.
Guidelines to using the tools – a manual to guide the user through the application
of the tools. The guideline manual includes practical examples of tool application and
reporting formats.
A set of work-sheets and check-lists for the market assessment and survey part and for the market strategy and business plan development.
OUTCOME - Getting it Right!
Getting it Right 22
Getting it Right – Planning for Business Success – Tools in the INSABA Project Cycle –
CATEGORY OF INSABA TOOL
TOOL / WORKSHEET NAME AND NUMBER
WHEN TO USE THEM
WHO MIGHT USE THEM
Screening
1. The Entrepreneur 2. Business Description 3. Preliminary Economic
Analysis 4. Sensitivity Analysis and
Income Streams
Scrutinizing business ideas for INSABA
Integrated Advisors with entrepreneurs, Sub Contractors
Market Assessment 5. Cost of Technology & Parameters Analysis
6. Product / service analysis
7. Sample market survey questionnaire
8. Market Survey response analysis
9. Competitor analysis 10. Market assessment
evaluation
On successfully screened projects
Sub Contractors, Suppliers and experts Integrated Advisors with entrepreneurs
Business Planning and Full Feasibility
11. Market Strategy 12. Cash flow forecast 13. Cash flow model 14. Profitability and Balance
Assessment
On projects that withstand market analysis
Entrepreneurs, Sub Contractors, Integrated Advisors
TABLE 1
Getting it Right 23
CONTENTS OF THE TOOLKIT List of Abbreviations and Acronyms 24 ____________________________________________________ 1. INTRODUCTION 25 Discussion of RE project development 25
2. GUIDELINES TO USING THE TOOLS 26 Overview 26
Screening Tools 1-4 29
Market Assessment Tools 5-10 36
Business Planning & Strategy Tools11-12 47
____________________________________________________ 3. PROJECT EVALUATION AND DEVELOPMENT TOOLS 52 MARKET ASSESSMENT TOOLS 52
MARKET STRATEGY AND BUSINESS PLANNING TOOLS 58
____________________________________________________
Getting it Right 24
LIST OF ABBREVIATIONS AND ACRONYMS
AREED African Rural Energy Enterprise Development Initiative
BOTEC Botswana Technology Centre
BREED Brazil Rural Energy Enterprise Development Initiative
CEEEZ Centre for Energy Environment and Engineering Zambia Ltd
CREED China Rural Energy Enterprise Development Initiative
ENTR Enterprise Director General for the European Commission
IAT Inter-Disciplinary Advisory Teams
IFC International Finance Corporation
INSABA Integrated South African Business Advisory
P&L Profit & Loss
PV Photovoltaic
RE Renewable Energy
RET Renewable Energy Technologies
ROI Return on Investment
SC Sub contractors
SME Small and Medium sized enterprises
SWH Solar Water Heated USD United States Dollars
W Watt
Getting it Right 25
1. INTRODUCTION
Discussion of RE project development Rapid global growth in population and energy consumption along with dwindling resources is
sending the world energy supply situation disintegrating. Among those least prepared for the
conflicts to arise are the countries with already weak energy systems, also in Southern
Africa.
The good news is that renewable energy options are existing in most of the threatened
countries with the technology ready to operate as reliably as any. For many years the RE
technology has been subsidized for operational demonstration and for macro-economic
benefits like environment protection, rural development and decentralization. Such subsidies
will run out and cannot drive the required energy shift.
But there are productive uses of RE application emerging, which can pay the investment and
offer a sustainable income. With RE technology becoming constantly more affordable while
conventional energy is getting constantly more expensive, the productive RE-use is sure to
increase in number and applications.
The INSABA project is set to identify those productive RE applications and show where
successful development is emerging.
The project is not offering financing or special terms on its own, so proposals have to satisfy
the terms and conditions of suitable financiers. For all countries involved, the project
commissioned a survey on the financiers and instruments available and suitable.
One of the results was that SMEs often are shy to approach financiers and and that those
presenting a proposal often are turned down because of a lacking consistency and economic
quality of the presentations. On the other hand, commissioning a commercial consultant to
prepare a high quality viability study often is beyond the financial means of an emerging
SME.
For this reason, INSABA devised a set of tiered tools which will assess the business
proposals in useful steps, thus early and at minimum effort identifying shortcomings and
using a stop/go process in focussing only on the most promising ventures.
This tool set is supported by an equivalent set of computation tools provided as excel sheets.
This manual describes how to use and analyse those computations.
Getting it Right 26
2. GUIDELINES TO USING THE TOOLS Overview These tools aim to assist the entrepreneur and his advisory base in developing a dynamic
business plan that is appropriate to the size and scale of the proposed business that
utilises renewable energy. There are a number of steps involved, but firstly, what is the
purpose of the business plan? • To enable the entrepreneur to effectively deploy his or her resources – it is important
that the entrepreneur takes ownership of the business plan
• To communicate the strategy and viability of the project to investors (including the entrepreneur), donors, customers, suppliers, employees and other stakeholders
Both are important. Often, the entrepreneur will be more concerned about the second -
seeing the business plan as a necessary evil and a ticket to external financing, rather than an
integral part of the entrepreneurship process. Thus the business plan becomes a pure
marketing tool, rather than a realistic appraisal of capabilities, opportunities and strategy.
However, the “pure marketing” approach rarely works - a large proportion of financing
(including the entrepreneur’s money or that of family, friends or partners intending to support
him) may be squandered, as there is no realistic plan and priorities to focus spending.
Why this manual? This manual guides the user through a simple, integrated business planning approach that is
applicable at any business level and enables the user to identify the assumptions behind the
business concept and to develop a process for testing these assumptions. It further aims to
support INSABA in the sourcing and identification of RE for productive use projects that are
viable businesses and to assist in the business planning process.
How to use this manual
It is recommended that you read the guidelines before using the tools. Not all the tools will
be applicable to your project and reading the guidelines will help you to select the
most appropriate tools for your project.
Getting it Right 27
GETTING IT RIGHT
- GUIDELINES TO USING EVALUATION TOOLS -
This manual has a guidelines section, followed by a set of tools. The tools are colour coded
and numbered in sequence to make ONE set of tools, numbered 1-14.
Providing Context: Four Critical Success Factors There are a number of critical success factors in establishing any successful business. An
understanding of what these are early on is crucial to identifying a good business opportunity
and then conducting the analyses required to putting a business plan together to support the
concept. Simply, a successful business is a combination of the following critical success
factors:
• A qualified and committed entrepreneur
• A sound business model that fits in its market context, and
• Realistic financing and financial projections
INSABA is further interested in supporting businesses that tackle the poverty agenda and
thus projects that also display a
Positive (or neutral) environmental and social impact
These four critical success factors can be split into a total of 10 sub factors as per the
following table, which acts as a guideline to completing tool 2, assessing the business
indicators:
Getting it Right 28
# Requirement What this means Related to the entrepreneur 1 The entrepreneur/
management is qualified
The entrepreneur/-designated management has been in operation more than 3 years with experience that will enable him/her to handle finance and keep books, operations and marketing. He/she employs more than 3 staff and he/she has secondary education. Understanding the strategic impact of renewable energy in the overall energy context of the proposed business environment is key as is innovation. The entrepreneur’s fixed assets/collateral are in proper relation to the required investment, qualifying him for financing. In addition, the qualified entrepreneur will be located close to market and major business centres. and is an individual owner, not a cooperative.
2 The entrepreneur is committed and has identified what he/she wants from the business
The entrepreneur is personally and financially committed to the success of the venture, as indicated by e.g.: • Being fully / partially invested personally and / or • Drawing only a low salary (financial reward to flow from future profits) and • Close involvement with the business planning process
Also, the entrepreneur has established what he / she wants form the business in return for that commitment and this is realistic, for example: • Creating value over time through slowly building the business • Creating early value – i.e. establishing and selling • Creating a steady income stream • Creating employment (self, staff)
Related to the business model 3 There is a clear market
There is a demand for the product/ service, sufficiently large to absorb the capacity added by the new business. Also, there is a sufficient supply of adequate raw materials. For example, a honey based business will assure sufficient / constant supply of the raw material to keep the business in operation
4 The product/ service is competitive:
The product/ service has a competitive advantage compared to existing offerings and/or can be sold at a lower price. Note that it is generally always preferable for new entrants to compete on the basis of higher quality rather than lower price on its own. New entrants are seldom able to compete in an established market purely on a cost basis.
Related to the financial projections 5 The cost of making
sales is known: The direct manufacturing or service delivery costs are identifiable. The product or service can be produced at a competitive cost.
6 The margins are attractive:
The business can withstand a level of drop in sales volume and/or price from budgeted projections. In other words, direct costs over revenue do not exceed 30%
7 The business demonstrates ability to support an overhead
The business generates sufficient cash flow to carry overhead costs, such as salaries, rent, communications, etc.
Related to the environmental and social impact 8 Environmental and
social impact is not negative
The business has a net positive environmental and social impact in terms of monies paid out to community, environmental benefits (e.g. of renewable energy), conditions of workers and skills developed.
9 The business model is scalable and replicable
The environmental and social impact achieved in 8) is acceptable, in relation to the commercial, technical and financial assistance provided. Generally, this will require the business to be scalable, either by the entrepreneur him/herself or by others as well.
10 Capital can be sourced on realistic terms
Sufficient investment is committed or likely to be committed to make the business financially viable, i.e. not run out of cash. The terms of such investment are not unacceptably onerous to the entrepreneur/ stakeholders, e.g. in terms of interest/shares
TABLE 2
Getting it Right 29
It is unlikely that all of these factors would be in place from the outset. Typically, a business
will start out as a combination of an entrepreneur and a loose idea about a business model –
or even just as an INSABA – driven idea about a business model, without any entrepreneur
yet committed.
However, over the duration of the business planning process it is the role of the INSABA
team – with the help of the entrepreneur where there is one from the outset – to investigate
these factors and ensure that they are in place, or can be put in place. If the team is not
convinced that this is the case, it should raise serious concerns about the viability of the
business and/or its suitability for support under the INSABA project.
The same 10 factors identified and explained in the above table can be used as a “checklist”
throughout the business planning process in Getting it Right.
Assess: INSABA Preassessment of Project Proposals
Tool1 Assess: The Entrepreneur As explained in item 1 of the the above table it is not the intention of the Insaba Project to
create entrepreneurs from formerly unemployed or self-employed proponents, but focus on
experienced business people. This decision is based on SME studies conducted under the
project in Botswana and Namibia which report a very high failure rate of SME-businesses
because of lacking entrepreneurial talent, business skills and financing. As the introduction of
RE technology in the business concept is likely to pose another uncertainty, the risk can only
be minimized when an otherwise already successful entrepreneur is chosen.
Objective:
To present the proponent and his/her abilities to successfully run an RE based business.
This includes education and entrepreneurial background, core data of the currently run
business and qualification to satisfy loans.
What it means (tasks and considerations):
Using the check list below, describe the proponent as entrepreneur. Remember that anyone
will assume that the proponent will describe himself to the best of his abilities, so being
convincing and truthful here will also suggest to be convincing in presenting the product on
the market.
Getting it Right 30
Personal Data Indicate detailed address and contact by phone, e-mail of the proponent or the proposing enterprise.
Curriculum Vitae List education, degrees obtained, any other relevant training or certification, and professional career particularly in entrepreneurial function
Current Business Describe current subject and size of business, details to registration, bank contact, and number of employees with formal contract. SMEs are often shy to register, but a minimum indication of a formal and liable
business is required, at least a bank account.
Employment is often informal with family and friends on an “as needed” basis.
Formal contracts indicate sustainability, including health care and social fees. Loan History Indicate whether financing has been sought / approved before
and whether the loan has been paid yet. In case of disapproval give the reasons. Mention any running financial obligations.
Any financing sought must be in sound relation to the existing fixed assets. A
satisfied loan therefore is a strong recommendation to the possible financing
volume, just as other on-going loans reduce this volume.
Experience in cost calculation / business plan
State whether the current business does cost calculations on a regular basis and whether it has an underlying business plan which is regularly verified. Since the Insaba projects require regular monitoring, experience in maintaining
business plans is a strong asset.
Practice in maintaining/ operating equipment
If your business is using technical equipment like generator, machine, transporting devices, state whether you are doing the necessary service and maintenance. If this is any renewable energy related equipment, please emphasize.
RE-Equipment like any other machinery need regular maintenance which might
be far and difficult to access if the operator is inexperienced in doing basic
service on site.
TABLE 3
Also, use page Assess provided in the Excel-sheet, to give the key data from the table 3
above. Here, numbers are used to replicably describe the proponent´s profile. Such data
may change over time and can be compared with those of other proponents, should there be
more candidates.
Proponent name, contact Indicate “none” if the business idea has no formal applicant yet. Years of experience as owner of business 5 Number of employees w/contract 4 Proponent uses bank account (no=0, yes=5) 5 Experience with formal loan (received=5, applied=3, no=0) 5 Experience in cost calculations, business plans (no=0, several=5) 5 Practice in maintaining/operating equipment (RET) (none yet=0, regularly=5) 3
Getting it Right 31
Tool2 Assess: Business Description Here comes the key statement on whether idea, person, location and time combine to a
successful endeavour. Often a decision maker will already determine from this description
whether it is worthwhile to look further into the proposal.
Objective:
To obtain a clear understanding of what the business idea has in place and to understand
the gaps in the business idea information currently available.
What it means (tasks and considerations):
Using the check list below, describe the business idea and its key factors. Taking the
objective above into careful consideration, define the business goal and its strengths and
weaknesses.
Business Idea Description
Provide an executive summary (3-5 sentences) of the business idea
List Key Business Factors
List the key business factors such as what the product / service mix is, the business location, raw materials required and supply availability, the customer / consumer, energy and water requirements and any other key factors that may be peculiar to your project.
Identify Renewable Energy Resource / Technology
Name the Renewable Energy resource / technology identified and provide a brief justification (max. 3 sentences) of why this will give competitive advantage
Justify RET Selection, identify the energy alternative and the cost of alternatives
Consider other possible RE solutions and the conventional energy supply options with its advantages/shortcomings and describe the economic advantage
Identify and state the key objectives / goals of the business and the Entrepreneur.
What does the entrepreneur expect from the business and what does the business want to achieve?
TABLE 4
Also, in page Assess provided in the Excel-sheet, the following key data identify a proposal
Country: Give nationality of business Region: Region or town of operation RE Technology: Briefly describe the renewable energy technology Business Idea: One key sentence on the business goal
Getting it Right 32
Tool3 Assess: Preliminary economic analysis This is the first step of the tiered Insaba evaluation process where a formulated business
idea will be supported by figures. It forces the proponent to identify to his best knowledge key
data on cost, price, turnover and production cycles. At this stage, no costly viability study, no
detailed loan and interest data are required, often data may even be based on experience
and an educated guess. Only if satisfactory, data will then be counter-checked and verified
by a person more specialized on the subject.
Objective:
To provide a simple and inexpensive way to check the viability of a business idea based
on a minimum of key data. To show the influence of varying data in a replicable way and to
present a return on investment indicator for comparison with other solutions.
What it means (tasks and considerations):
Using page Assess provided in the Excel-sheet, enter six input values into the spreadsheet
and it will respond with a computation of cost analysis ratios, the return on investment ROI, and a sensitivity analysis.
To complete the preliminary viability calculation you will need to be able to estimate items
such as sales volumes costs of sales and running costs for the business. You will also need
to be able to estimate the cost of technology and the related energy costs. Be sure the data
on cost, price, investment, turnover are as accurate and realistic as possible and that they
have a common time base (mostly years)
The definitions for each calculation item are given in Table 5 below, along with sample
values. Only the input values may be changed in the excel sheet. The computing fields show
the formulas an give useful Analysis Ratios
It is helpful, for example to know the gross margin is sufficient to carry at least the fixed costs
in your business. Another is the Return on Investment which tells whether or not the
entrepreneur is getting a better return on his capital from the business investment or from
say interest in the bank. As these data are yet excluding the cost of financing, currency
changes and market price fluctuations the result has to carry a risk premium, i.e. must be on
the safe side. The desired result therefore is an ROI better than 30%
This initial calculation serves as a stop/go indicator: If the ROI is too low, the proposal will
not be further considered at this point, thus saving unnecessary expense and effort. Only if
the ROI is satisfactory, the process may continue with page Verify provided in the Excel-
sheet where special effort is given to validate the input data and to assess this RE solution
against competitive RE options or alternative energy costs, such as grid electricity for
example.
Getting it Right 33
Calculation of ROI Example Definition
Investment Capital 2.000 Input data: Total cost of technology investment directly related to the income stream (incremental) in the same currency as the cash flow
Investment Lifespan 10 Input data: Lifetime of the technology - i.e. period before it must be replaced. This is not the investment time. The time unit must be the same as for production, mostly years
Production 2.500 Input data: Units produced per time unit (typically year, but may also be per day, per season) as in lifespan
Price /unit 3,00 Input data: Sales price per unit produced and sold
Revenue 7.500 Computed data: Sales price multiplied by number of units sold
Variable cost /unit 1,50 Input data: Direct cost per unit produced e.g. raw material, processing, packaging, handling by staff. Will be zero if production is halted
Total fixed costs 2.400
Input data: Indirect costs per time unit for the entire business, such as rent, telephones, transport, repair&maintenance, taxes, bookkeeping and office operation, salaries of staff and owner. Will continue even if production stops
Amortization /unit 0,08 Computed data: Amount needed per unit to cover investment in lifetime
Direct costs /unit 1,58 Computed data: Variable costs plus amortization
Gross Margin /unit 1,42 Computed data: Sales price per unit less the direct costs per unit
Fixed costs /unit 0,96 Computed data: Total fixed costs divided by the number of units produced
Total costs 2,54 Computed data: Total direct costs plus total fixed costs
Net Margin 1150 Computed data: Profit=Revenue less total costs
ROI 58%
Computed data: Return on Investment = net margin divided by capital investmentShould be sufficient to cover the cost of capital (e.g. loan costs) and include a risk premium (the money is safer in the bank at say a 7% return) therefore should include the 7% plus the risk factor of say 20%, meaning an ROI > 27%
Payback period 1,48 Computed data: capital investment divided by cash flow until initial expenses are compensated by the net margin. Will be longer if financing is involved.
TABLE 5 Example: Honey Processing Extracting honey by means of a PV driven centrifuge requires an investment of 2000$ (1300 centrifuge+400PV system 50 W+300 e-drive) Clear honey is assumed to earn 2 $/kg, buying raw honey from farmers at 1,5$/kg. A 50 Wp solar panel produces ca.200 Wh daily, the centrifuge consumes 80 W for about 20 min per extraction of 5 kg, enough for 8 extractions daily or 40kg. The annual cost for the operator and for repairs is 2400$ The unit is not continuously operated as honey comes in seasons. Even if used for 2 months only (61 days) the 2500 kg/year produced give a sufficient ROI of 58%.
Getting it Right 34
Variations Sometimes the data may not lead to the desired ROI value. The calculation sheet then
serves as a valuable tool to determine by various inputs what cost, turnover etc has to be
targeted to reach profitability.
Excel offers an elegant way to do this, using the “goal
seek” function in the tools menu : Setting the ROI to 30%
by changing the unit price, finds that the price can be
down to 2,78$. Alternatively, the investment may be as
high as 3370$ This way the border values for all
production data may be determined.
Tool4 Assess: Sensitivity Analysis Another helpful tool in assessing the business proposal is the sensitivity analysis included
with page Assess provided in the Excel-sheet. It shows how much the ROI changes when an
input parameter is changed. If reducing the price by -20% makes the ROI drop 130% the
business is extremely sensitive to price changes. At the same time, the influence of the
investment life is very low.
Sensitivity Analysis
-150%
-100%
-50%
0%
50%
100%
150%
-20% -10% 0% 10% 20%
percentage change of parameter
perc
enta
ge c
hang
e of
RO
I
Capital Investment
Investment Lifespan
Units/annum
Price/unit
Variable cost of sale/unit
Cost of energy/unit
total fixed costs
This way, weaknesses of the business can be determined and improvements can be
considered for parameters where it matters.
Getting it Right 35
Income Streams Business proposals sometimes comprise of various income streams, i.e. they manufacture
different products or offer various services.
1- Where the business gets income from activities which are RE-related and non RE-related, the RE-related stream should be scrutinized separately. A farmer for example, who
earns from raising pigs and who wants to irrigate plants with a PV pump, should separate the
piggery from the irrigation stream.
2- Where the business income stems from different streams which all use RE, the tool can
be helpful in identifying the more profitable stream within the overall proposal. A phone shop
for example, which offers internet access and telephone service, could show the following
income streams (see also the excel sheet compilation “INSABA Tool Examples) :
Internet+Phone Determination of parameters Internet Phone Investment Capital 9.993 Total cost of equipment with PV
system 9.673 1.276 Investment Lifespan 3 Estimated average equipment lifetime 3 3
Production 300 working days per year 300 300 Price /unit 67,5 daily revenue 37,5 30,0 Revenue 20.250 US$ income per year 11.250 9.000 Variable cost /unit 0,00 No variable costs 0,00 0,00 Total fixed costs 7.080 Provider flat rate, rent, insurance,
maintenance, replacements, salaries 7.080 7.080
Amortization /unit 11,10 10,75 1,42
Direct costs /unit 11,10 10,75 1,42 Gross margin /unit 56,40 26,75 28,58
Fixed costs /unit 23,60 23,60 23,60 Total costs 34,70 34,35 25,02 Net Margin 9839 946 1495
ROI 98% 10% 117%
Payback period 0,76
A phone shop in an unelectrified town offers internet and phone call services. It is powered by a PV array. Line access from provider is on a 300$ flat rate basis. 2 staff are employed. The internet services are provided by 5 laptop-PCs which use little energy and minimum batteries, but still require a 300 Wp array. At 5 h/d usage and 2,5 Cents/min they earn 37,5 $/d The call services from 2 phones use very little power. At 2 h/d usage and 12,5 Cents/min they earn 30 $/d Only the phone stream is viable 2,32 0,66
TABLE 6
While the overall business looks good, separating the cost and income for the incorporated
income streams shows that in fact the profitable phone business subsidizes the poor internet
branch. So any smart competitor would only invest in the call service.
Getting it Right 36
GETTING IT RIGHT
GUIDELINES TO USING MARKET ASSESSMENT TOOLS
Overview The pre assessment component of the Business Planning process focused on a high level
analysis of the viability of the business and ensured that the entrepreneur assess the sales
volumes, energy costs and pricing structure required to sustain the business entrepreneur.
Testing these assumptions against the reality of the market is crucial and falls within the
second common success factor identified:
A sound business model that fits in its market context
Market conditions and information required, include:
Verification of technology design and the related investment cost
Price competitiveness – will the entrepreneur be able to produce this product or service
at a cost that allows for competitive pricing? A number of input factors need to be
considered here e.g. given that these are renewable energy utilization businesses, an
energy cost analysis (considering the cost of the alternate energy resource) is essential
– as covered in page Verify provided in the Excel-sheet and which will be validated in
application of the market study tools.
Need for and affordability of the product or service to the customer base
Size of the customer base and potential sales volumes
Existing and potential competition for the product or service in the market
Understanding of the potential market barriers that exist or that could emerge. These
are barriers that would impact negatively on sales and therefore in cash-flow and
business sustainability.
Examples of market barriers General price increases to the extent that the customer has to prioritize as to how he
disposes of his income. This could mean that consumption of the product decreases Significant fuel price increases may result in rising transport costs increasing the price of
the product to a level the customer can no longer afford = a direct impact Severe drought which would impact on a business that solar dries food products from non
irrigated land = a direct impact Subsidized conventional energy costs which outcompetes an otherwise viable RE option
Getting it Right 37
Tool 5 Verify: Verification of technology parameters and costs of technology Economic viability should show not only if the RE technology is viable and a realistic
alternative to conventional energy as demonstrated in the pre feasibility, but also that the
technology specifications and platform is available and appropriate.
Available means that firstly it has proven to operate reliably and that it is available and
maintainable in the envisaged region. An invention or novel solution may be tried in an
established company, but cannot be the core of a new SME business.
Appropriate would mean that the resource is available (like sufficiently regular wind for a
wind generator, or sufficiently regular water for a hydro scheme or a PV pump) and the size
fits the production requirements (like an oversized pump would be both expensive and
drawing down the water table)
This information could well represent a stop/go decision today but might change in future. If a
“go” then the design and investment cost assumed in the pre-assessment can be finally
established. It will also inform the rest of the market study and help to clarify how big the
market needs to be for the venture to be viable. As example, the honey production case described in Tool 3 above was originally presented as a
factory with a newly imported centrifuge capable to process twice the entire country’s honey
production, thus failing the appropriateness.
With these data available the economic computation assess is transferred for a verified
viability assessment to the page verify provided in the Excel-sheet.
Verify: Investment Capital and Design A simple verification tool for the cost and output of the frequent RE applications of PV and
Solar Water Heater is provided in the excel sheet compilation “INSABA Tool Examples” :
Solar PV Generator Output
Generator Power 50 Wp
System Price 8,00 $/Wp
investment 400,00 $
Solar irradiation 5,00 kWh/(m²*d)
Power Factor 0,84
generator energy 210,0 Wh/d
load per unit produced 27 Wh
daily production 7,88 load/d
Solar Water Heater Output Collector Area 25 m²
System Price 750 $/m²
investment 18.750 $
Solar irradiation 5,00 kWh/(m²*d)
total system efficiency 0,42
energy per area 52,5 kWh/(m²*d)temperature difference 30 k specific heat capacity 4,20 KJ/(kg*K)
hot water produced 1.500 kg/d
hot water used per room 40 l/d
number of rooms 38
Getting it Right 38
The goal of this computation is to find the size of RE-source which will match the demand.
Using common costing figures for stand-alone PV systems and flat plate type SWH the
computation considers the average daily solar irradiation (not sunshine-hours!) to come up
with an energy yield. To compute the production, this value is then divided by the load. When
the production is acceptable, then also the RE unit is known from size and general cost.
Example: The PV example describes a honey centrifuge, which consumes 80 W for a 20 min extraction=27 Wh and thus can do up to 8 spins a day. The SWH example describes a lodge where in each room 40 liters hot water are used each day, so 38 rooms can be served daily.
For other or more complex applications technology experts and suppliers may need to be
called for design proposals and cost figures. Relevant questions to be answered in addition
to price and lifetime include:
Is your chosen technology in the most appropriate? And is it indeed the only one?
Considerations will e.g. involve the availability of the renewable resource on the site, like
regular solar, wind or water regime.
Is there an economy of scale i.e. how much cheaper comes my technology in big sizes. As
RE applications like PV often are modular, it can even prove economic to start a business in
smaller size, thus reducing cost and risk, and ramp up gradually as required.
What kind and size buffer is recommended to overcome irregular resources.
What repair costs have to be considered and what back-up is then recommended
What are the capacity requirements of your selected technology? If for example you have
chosen solar water pumping for the irrigation of crops, you now need to specify what size
pump will be required for the amount of hectares you want to plant. Specific plant´s irrigation
needs and rainfall data determine the volume of the water required which would influence the
size of the pump as well as overall height the water must be liftet. This is where you may
need an expert to guide you and to help in establishing the availability of the equipment and
cost of buying it and having it installed.
TABLE 7 below will take you through typical questions you may need to ask in order to get
the realistic costs necessary for selecting the right technology for the project. These realistic
costs will now be entered and reviewed in the page verify provided in the Excel-sheet. These
costs then also need to be tested against a range of sales scenarios. It may be that at high
volumes the technology is affordable and conversely if sales volumes are not high
enough, it will not be financially viable.
Getting it Right 39
Jan Feb Mrz Apr Mai Jun Jul Aug Sep Okt Nov Dez
Insolation
Deficit
waterneed
Averagerainfall
Examples of questions for the technical expert / supplier
Solution 1 Solution 2 Function required Pump water
60 m³/day in dry season over 40 m static head
Pump water 60 m³/day in dry season over 40 m static head
Renewable Energy options PV pump Wind pump Technology requirement Unshaded location Average windspeed > 4m/sSize of equipment 1600 Wp 600 W Equipment supplier Grundfos Southern Wind Cost of equipment 9640 4670 Cost of installation 1250 1350 Average annual repair cost 95 195 Back up recommended GenSet GenSet Life span of technology 15 5 Storage required water tank water tank TABLE 7
At this stage it will be useful to not only verify the costs of the RE technology, but also all the
other costs in the production process, which have been assumed during the pre-assessment.
On the technology side, this may be maintenance and repair cost and time required for
operation. On the production side, this will include fixed costs for office and salaries and
variable costs for handling, packing and transporting the product.
Verify: Production The sizing for an application is defined for one case, often the worst case or a typical
average. Renewable energy output however, changes in the course of time as does the
demand. It is important to distinguish between production and demand.
In particular RE based technologies follow availability patterns which do not necessarily match the time of demand. In the above example, the honey centrifuge will only be used twice a year during the honey season and most of the time may be out of (productive) use. The hot water demand in a lodge will depend on the seasonality of guests but will also have to consider that particularly during cold, overcast weather hot shower demand will be higher. In agriculture the demand e.g. for irrigation comes in season, of which some may be rainfed. The graph below shows a Zambian situation where pumping is only required during one season. Consequently, only the harvest with the PVPump can be attributed to the production side.
Getting it Right 40
Competing technologies often have the advantage of flexible adaptation to demand. A petrol
irrigation pump will not consume fuel in rainy season, an electric geyser needs no electricity
when there is no guest. RE technologies like solar, hydro, wind for this reason are most
efficiently employed in year-round applications.
Verify: Market Price Even if the market price is closely prescribed by competition, additional value always justifies
higher price. Often a market survey can provide an understanding of the price the goods or
services may fetch on the target market. RE based products will have a strong case, if they
can justify a premium price for that renewable edge. While it is not likely that customers pay
more just because an offer is “solar” a premium can often be justified for enhanced quality:
“solar dried” goods may be cleaner and tastier than even “sun dried”, an eco lodge is quieter
and environmentally benign than one operated by diesel, bio-fuel smells less and is less
hazardous, and a phone shop can offer more reliable service when others suffer power-cuts.
All this must be considered with caution as it will fluctuate in a supply/demand market, but
RE based products generally only have a chance if they aim at the upper price bracket.
Verify: Production Cost Other than selling higher quality, RE based products need to show lower production cost as they use free energy for operation. To emphasize this, and to allow for adjustments at
rising energy prices, the page verify provided in the Excel-sheet. has an entry field for cost of energy. Here, the fuel or electricity need of a competing solution should be itemized. This
considers not only the direct manufacturing, like gas saved for drying herbs, but also the
reduced fuel consumption in transport, when herbs are dried in the field and then have less
tara, thus making the product less vulnerable to fuel prices.
Verify: Fixed Cost
These indirect costs must include a realistic composition of overhead like office operation,
repairs and salaries. Even a single-person enterprise must compute for the entrepreneur’s
income as there is a need to live. This cannot be left to the “profit” of the business calculation
as this is a risk buffer for financing, tax, and other emros.
RE based business can show favorable cost aspects in a number of ways: Repair and
maintenance e.g. for electric geysers often are so high they off-set the cost of the solar water
heater. Added the damage from broken geysers and the insurance premium. The same is
true for fuel-operated generators. Office rent in the unelectrified province will be less than in
the capital, and staff may require less expenses.
Getting it Right 41
Verify: Alternatives All the above size and cost values will be required for the proposed technology and also for
the likely competing technology. The consideration of competitive renewables often is
straightforward, since favourable wind or hydro schemes are not always available where a
business wants to settle. Grid electricity mostly is a strong competitor, particularly if it is
subsidized. Rarely however, there is no competition. A fuel or gas based solution is mostly
possible as is muscle power. E.g. irrigation has for ages been the domain of muscle power.
Also today, treadle pumps offer an economic solution, petrol pumps give more power and
more comfort, and a PV pump has to compete with all of the above.
Once those necessary data have been identified, reviewed and entered in the two columns
of page verify provided in the Excel-sheet a comparison between the proposed and the
competing technology allows to make a stop/go decision as to whether the proposal is
technically and economically competitive and whether to proceed with the business concept
development.
Calculation of Competitiveness Calculation of ROI Apple Drier Stove Drier Description of Alternative Investment Capital 650 500 Dry apples in electric stove Investment Lifespan 5 5 stove lifetime
Production 520 520 20 kg fresh apples per day can also go in stove
Price /unit 19,50 19,50 The current market price Revenue 10.140 10.140 Euro
Variable cost /unit 8,00 8,00
Cost of fresh apples:10x0,55 €/kg=5,5 €/kg (sales price of 0,55 €/kg is relevant as this is the opportunity cost of the farmer);Cost for packaging: 0,5 €/kg; preparation cost: 10 kg are prepared in 15 minutes and hourly wage is 8 € : 2 €/kg
Cost of energy /unit 2,20 drying of 10 kg lasts 10 h, stove needs 2 kW, price of power is 0,11 €/kWh, therefore costs for power are 2,2 €/kg
Total fixed costs 1.000 1.000 Cost for display, handling Amortization /unit: 0,25 130 0,19 100 Direct costs /unit: 8,25 4.290 10,39 5.404
Gross Margin /unit 11,25 9,11 Fixed costs /unit 1,92 1,92 Total costs 10,17 5.290 12,32 6.404
Net Margin 9,33 4.850 7,18 3.736 ROI 746% 747% Payback period 0,13 0,13
Although the ROI for a solar drier is good, the competition with electric stove can produce cheaper. If we are satisfied with the same margin, the solar drier may cost up to 6.215 €, if we want to achieve the same ROI, the goal-seek function tells us to look for a drier at about € 649. Production reservation: The solar drier may be able to produce more than the stove, but it may fall back during bad weather.
TABLE 8
The example in Table 8 shows that an electric competition can be met if the RE technology
can be manufactured at sufficiently low cost and if the electricity price is reasonable.
Getting it Right 42
Tool 6: Product / Service Analysis & Market Context After reviewing the technology and its costs another stop/go decision must be made. A
product which may be viable as itself but meets an unsurmountable competition is always in
economic peril. You may seek to improve the product or see under which conditions the
economic competition can be overcome. Otherwise halt your efforts.
If the product´s viability is confirmed in Tool 5, it is the time to have a closer look at the
position of the product/service in the market.
Using the check list Tool 6, provided further below define the product or service offering: Objective:
To understand what the key differentiators of your product / service are and WHY these will
make your product or service sell
Justify the use of renewables and not conventional energy?
Identify competitive products / services
What it means (tasks and considerations):
Define the product / service taking the objective above into careful consideration.
List all the competitive products / services and all existing providers. Note that having no
competitive product / service can be an opportunity – but it can also be a disadvantage. If a
consumer, who has limited income is not used to purchasing your proposed goods / service,
your product or service will then compete with other necessities that consumer spends
income on.
Define the key differentiators of your product / service – what makes your product or
service unique and is this factor attractive to your customer base?
Tool 6 also takes you through a process of defining the market context in which you sell your product:
Identify the market need for your product / service
Define the economic environment in which your product / service will sell
Assess growth opportunities
Identify market sensitivities
Consider as well the general factors, which influence the market but are outside of your
control:
Political: - would a change of Government impact on your business? Would government
support your business? What are the tender requirements if applicable?
Getting it Right 43
Energy environment: - Policy; energy access issues; financial support structures from
government (e.g. subsidies for solar water heaters); regulatory incentives such as tax
rebates for biofuels utilization; anticipated trends, policies and related enabling
environment
Macro-economic – inflation levels. Economic growth and stability; employment /
unemployment levels
Commercial: - Local interest rates; technology availability and support; import tariffs and
logistical requirements. How are other similar businesses supported and financed in your
area?
Social and Environmental: - Will the local community / rural area / peri urban area /
benefit from the business? Is there social support for the goods / service? Is there a need
to conduct an Environmental Impact Assessment? What are the environmental impacts
of your product – e.g. burning fuel?
Tool 7: Market Survey For the experienced entrepreneur often the market opportunities, demand pattern and price
fluctuations are known. In a wholesale or contractor´s market, a few enquiries will provide the
necessary information.
For a new product/service however, a market survey may be useful, particularly when it is
offered to the end consumer. Such a survey can be time consuming and expensive, but it
should be seen as a promotion tool as much as a market survey tool. Objective:
To understand the motivations and limitations of the envisaged costumer group.
What it means (tasks and considerations):
From the product definition and key differentiator description done in Tool 6 prepare a brief
description of the project using key words on customer value and price worthiness.
Mention incentives if there are (like tax rebate provided for by Revenue Services on any
business that uses a percentage of Biofuels in their production facilities)
Prepare a questionnaire. Questions should be non-suggestive and result in clearly
distinguishable answers which can be easily evaluated. Multiple choice questions, yes/no
answers or numerical answers have the advantage that they can be statistically evaluated.
Make sure to ask questions that give answers on the following KEY issues (refer to Tool 7) : Price: Will the consumer accept the price you need for your offering?
Need: Will the consumer buy / pay for your product / service? If yes, how frequently?
Getting it Right 44
Affordability: Can your consumer afford to pay, and on which terms (cash/credit) Competition: Where does the consumer get the product / service from at the moment?
If not at all, why not? If yes, why would they change loyalties and buy from you?
As a template, use the questionnaire provided as Tool 7 further below, adapt this if
necessary. You will also find there the example of a survey and the corresponding evaluation
done for a phone charge project in Namibia.
Select a market survey methodology. It is recommended that the survey is conducted on a
personal interview basis as opposed to telephone survey or sending out questionnaires as
‘flyers’. This means that the questionnaire acts as a guideline and a prompt for the
interviewer. An interviewer can explanation the product better and can react on questions or
inaccuracies. The quality of the survey however may also vary with the talent of the
interviewer.
Select the sample size i.e. the number of contacts to be interviewed. The sample should
represent the different income level groups in the potential market and the size should be in
proportion to the size of the potential market. Minimum sample size is about 30.
RE based products tend to small and focused markets, so a small number of focused and
well targeted face-to-face market interviews are likely to be appropriate in most cases.
Tool 8: Analyse Survey Results Immediately after the survey, the questionnaires have to be checked for completeness and
plausibility. Incongruent results have to be expelled, not modified. Numerical or multiple
choice answers can be evaluated statistically. Free formulations have to be analysed for
common denominators and trends.
The check-list provided as Tool 8 further below shall help as evaluation form. A carefully
drawn conclusion should answer who will need how much of the product under which terms.
Tool 9: Competitor Analysis In assessing the competitive environment, we have been looking at the technical competition
(e.g. using a solar drier or an electric stove) and we found out about competing products
(e.g. dried apricots and banana go well in the dried fruit market, dried vegetables access the
gastronomy business) Now we are looking at competing enterprises.
As long as a business is viable, there will be competition. This is true for established goods
and services where the RE proposal seeks to offer a competitive advantage (e.g. dried fruit).
Here, competition, market behaviour and market segments may well be known and can be
gauged.
Getting it Right 45
But also for a new offering, competition will likely emerge and assuming who the likely
competitors will be and how they will operate is a necessary exercise (e.g. dried
homeopathic herbs).
Sometimes it will also be useful to look at the indirect competition, which may affect the
base of the proposed business (e.g. producers of direct juice compete for the same raw
material than apple chips driers)
Objective:
To understand what the competitors are offering, at what price and in what quantities.
Identify their market segment and market perspective, and the corresponding strategy.
What it means (tasks and considerations):
Identify existing or potential competitors. Don´t be satisfied with “there is nothing else out
there” unless you realize that there may be no or little market for what you are offering
Collect information material and observe their business presentation. Sort them in terms of
market penetration, sales volume and customer segment.
Find out about heir supply base, sales structure and price range
Talk to suppliers and customers about the company’s ability and image
Enter the information obtained using the check-list provided as Tool 9 further below. This
matrix serves to provide you with a picture of your competition and information about
competitors that may influence your business planning and modelling decisions as well as
valuable information as to how they price their services / goods, what their service levels are
and how their customers react to them.
Analyse those information, data and seek to learn where the strengths and successes of the
market are.
Finally, identify gaps and opportunities which your offering could fill and describe how you
would do that.
Tool 10: Market Assessment Evaluation Having done the market assessment work under Tools 6- 9 you know now more about the
business than anyone else and you have to communicate it – to customers, to business
partners and most of all to financiers. This is best done in brief abstracts with conclusive
results. Detailed supporting material can always be annexed.
For your own overview, the check-list provided as Tool 10 further below reviews the most
crucial parameters of the market research and allows you to gauge the strengths and
weaknesses of your offering. This tool allows you to consolidate the market study information
Getting it Right 46
and to obtain a “snapshot” view of whether or not favourable market conditions exist for the
development and growth of your business.
In order to complement the one page market information Verify provided in the Excel-sheet
complete also the “market context” section provided there. Table 9 gives an example for the
market analyses given for an assumed apple drier business :
Market Context
Market Size & Potential naturally dried fruit are increasingly popular, domestic demand justifies the investment, international market survey may justify further expansion
Market Need, Risk
market is not short of dried fruit, may even reject if contamination happens. For producer drying is important for surplus harvest, which else will rot or go to juice. Risks: Cheap import, extended bad weather
Competitor DuPlessis with sun-drier is much cheaper, with electric stove still can produce cheaper
Competing Technology Electricity (subsidized)
Appropriateness of RET natural production and natural processing go together. "Sun-dried" gives better aroma, sells higher
Market Segment competition goes for bakery market, drier targets small package consumer market
Main Differentiator solar dries faster than open air, less risk, environmentally superior to electric
Sustainable Production incresed production might require chemical/radiative stabilization TABLE 9
Getting it Right 47
GETTING IT RIGHT
GUIDELINES TO BUSINESS PLANNING & FEASIBILITY
11. Market Strategy From the conclusions drawn through the market assessment work, you can now develop a
strategy as to which market segment you target, at which pricing terms and under which
growth rate. Use Tool 11 provided further below to describe your market strategy in that way.
Market Strategy & Customer Analysis / Sales Plan
Compile and collate information obtained in the 3 steps outlined above
Define a market strategy
Define customer target groups and types
Assess average income levels of customer groups and payment reliability
Objective:
To define a marketing strategy and plan for business implementation, with clear goals and
targets.
What it means (tasks and considerations):
Using completed tools and with careful consideration to your competitor analysis and
market survey results, prioritise your approach so that you start your business tackling
the potentially most successful segments. For example, you may have established during
the competitor analysis that your competition is stronger in some areas than others. This
could mean that you sell into their weakest point first, establish your base and reputation
and then go and tackle them where they are stronger.
Redefine your product / service offering statement if your survey results indicate unclear
response. Your offering statement should be clear and make sense to those buying.
Determine your final pricing structure for the initial roll-out of your product / service.
Establish the growth areas and the potential thereof and assess the pricing strategy (e.g.
increase over time) for the first 3-year period of your business.
Getting it Right 48
12. Cashflow forecast The ROI based viability assessment introduced in page Assess provided in the Excel-sheet
provides a simple yet powerful tool to establish the profitability of the proposed
product/service and to understand the influence of the basic business parameters.
The market assessment part in page Verify provided in the Excel-sheet describes the
competition and market environment, leading to the definition of your market position and
strategy.
Now, the page Cashflow provided in the Excel-sheet introduces the timeline and financing
aspects because your market strategy entails a growth pattern over time and the infusion of
financing to fuel that growth.
Example: The apple chip drier example led to the decision, to start the business instead with a large, expensive dryer capacity rather with a smaller, locally manufactured unit which does not give too much initial financial burden, and buy more driers later from the income earned. This way the competition of a cheap electric stove can be overcome.
The preparation of the cash flow sheet is fairly simple as it requires only to insert cost and
prices and a series of sales quantities over time. It also provides for the insertion of overhead
cost like salaries and rent over time. As time frame the detailed figures for the first twelve
months and the overall figures for the next two years are considered.
The overall cash inflow and cash outflow data, the operating result and finally the cash flow
are computed from these data.
For monitoring the success of your business, it is recommended to make an extra copy of
this page and insert the real business results as the company progresses. This way,
deviations can be identified early and remedied if necessary.
Financiers usually would want this cash flow analysis along with a profitability forecast and
an estimated operational balance sheet. For this reason, the page Cashflow provided in the
Excel-sheet computes also the data used for page Balance provided in the Excel-sheet
which will tell a financier how soundly based the business is.
The following pages show examples for a cash flow analysis and balance sheet.
Getting it Right 49
Month-1 Month-2 Month-3 Month-4 Month-5 Month-6 Month-7 Month-8 Month-9 Month-10 Month-11 Month-12 TotalYear 1 Year 1 Year 1 Year 1 Year 1 Year 1 Year 1 Year 1 Year 1 Year 1 Year 1 Year 1 Year 1
Products SalesApplechips kg 20 20 30 40 80 70 50 40 40 40 40 50 520Bananachips kg 0 0 0 0 0 20 20 20 30 40 50 60 240Product 3 0 0 0 0 0 0 0 0 0 0 0 0 0
Cash InflowTurnover PriceApplechips 19,50 390 390 585 780 1.560 1.365 975 780 780 780 780 975 10.140Bananachips 22,00 0 0 0 0 0 440 440 440 660 880 1.100 1.320 5.280Product 3 0 0 0 0 0 0 0 0 0 0 0 0 0TOTAL Turnover 390 390 585 780 1.560 1.805 1.415 1.220 1.440 1.660 1.880 2.295 15.420TOTAL Cash Inflow 390 390 585 780 1.560 1.805 1.415 1.220 1.440 1.660 1.880 2.295 15.420
Cash OutflowMaterial CostApplechips 8,00 160 160 240 320 640 560 400 320 320 320 320 400 4.160Bananachips 10,00 0 0 0 0 0 200 200 200 300 400 500 600 2.400Product 3 0 0 0 0 0 0 0 0 0 0 0 0 0TOTAL Material 160 160 240 320 640 760 600 520 620 720 820 1.000 6.560Overhead Cost 1.000Staff A share 50 50 50 50 60 80 80 80 80 80 80 80 820Staff B 0Office share 10 10 10 10 10 10 10 10 10 10 10 10 120Communication 0 0 0 0 0 0 0 0 0 0 0 0 0Vehicle 0 0 0 0 0 0 0 0 0 0 0 0 0Marketing 5 5 5 5 5 5 5 5 5 5 5 5 60Investment 650 900 0 1.550Investment Lifespan 5 6TOTAL Overhead 715 65 65 65 75 995 95 95 95 95 95 95 2.550Capital costinterest, redemption 16% 21 21 21 21 21 21 21 21 21 21 21 21 250TOTAL capital 21 21 21 21 21 21 21 21 21 21 21 21 250TOTAL Cash Ouflow 896 246 326 406 736 1.776 716 636 736 836 936 1.116 9.360
Operating Result -506 144 259 374 824 29 699 584 704 824 944 1.179 6.060 /accumulated -506 -362 -102 272 1.096 1.125 1.824 2.408 3.113 3.937 4.881 6.060 6.060Capital input 600 600Cash Flow 94 238 498 872 1.696 1.725 2.424 3.008 3.713 4.537 5.481 6.660 6.660
Cash Flow Analysis
Getting it Right 50
Getting it Right 51
Profitability PreviewYear 1 Year 2 Year 3
15.420 17.470 18.3006.560 7.440 7.800
8.860 10.030 10.5000 0 0
820 900 1.0500 0 00 0 00 0 0
60 80 100120 200 20050 50 50
130 370 3700 0 0
1.180 1.600 1.7707.680 8.430 8.730
/accumulated 7680,2 16110,4 24840,6
marketingoffice
annual surplus/deficit
interestdepreciationother expensesTOTAL Expenses
personnel costshire chargescommunicationvehicle
SalesCost of SalesGross profitother operating income
BalanceYear 1Assets Liabilitiesfixed assets 1.420 shareholders equity 7.680current assets 6.660 liabilities 400Σ 8.080 Σ 8.080
Year 2Assets Liabilitiesfixed assets 2.250 shareholders equity 16.110current assets 14.060 liabilities 200Σ 16.310 Σ 16.310
Year 3Assets Liabilitiesfixed assets 1.880 shareholders equity 24.841current assets 22.961 liabilities 0Σ 24.841 Σ 24.841
Getting it Right 52
Tool 6 Product / Service Analysis & Market Context Definition of product / service offering: What is it? Who will buy it?
List all competitors / competitive products / services. If none state if this is an advantage / disadvantage and why
Identify the key differentiators of your product / service & Why
If this is a new product / service, describe why you think the market wants / needs it
State the relevant aspects of the economic environment into which you will sell your product / service
Make a clear statement as to the market need for your product / service:
GETTING IT RIGHT
MARKET ASSESSMENT TOOLS
Getting it Right 53
Tool 7 : SAMPLE MARKET SURVEY QUESTIONNAIRE
IMPORTANT: This may need to be adapted to the project specifics INSABA PROJECT TITLE: __________________________________________________
INTERVIEWEE: _______________________________________________
QUESTIONS Responses: Describe the project to your interviewee
Gauge your interviewees response / reaction to your business idea
A. Potential Users
Who in your organization / household will use this offering and why?
Who is the decision maker that will decide to spend money on this offering?
How frequently would you buy this product / service?
What are the issues that would stop you from buying this product / service?
B. Finance & Economics
What do you think this product / service is worth?
What value would you attach to the product / service? I.E. How important is this product to you and your household
Cost benefit: What is the financial / economic benefit of having this product / service?
What are the benefits for you in purchasing this product / service?
Do you already purchase this product / service from elsewhere? If yes, where?
What do you pay for it?
How would you prefer to pay for the product / service?
If a capital item, ask: How would you finance it? Do you think there are / should be alternative financing mechanisms available? For example?
How frequently would you buy this product / service? If a commodity, how much do you consume in a month?
What added value would you like to see in this product / service?
Would you buy my offering instead of the one you are buying? Why?
Getting it Right 54
Tool 8 : Analysing Survey Results
Using the valid questionnaires and interview notes, evaluate by means of an analysis matrix like this:
Interviewee Location Date A:
Potential Users
B: Finance and Economics
C:
General comments
Area, access, socio-economic, energy situation
Key issues- Focus on income bracket, product awareness
Key issues- Focus on pricing, financing / affordability and value add issues
Key issues – focus on volumes, barriers and needs
State in which customer group
there is a market for your product
/ service and why
Getting it Right 55
INSABA - Solar Cell Phone Charging January 2007 Questionnaire: Cell phone charge 1. Do you have a cell phone? YES NO 2. If you do have a cell phone, where do you charge it? at home at work at friend's shop 3. Do you pay for charging your cell phone? YES NO 4. How much do you pay for a charge? N$ 5. How long can you use your cell phone until the next charge? Time 6. How often do you need to re-charge during one week? once twice more often
Tool 8 : Example Survey and Evaluation
Getting it Right 56
Tool 9 : Competitor Analysis Direct Competitor Market
penetration Price structure Sales volumes / month
List:
Indirect Competitor Market penetration
Price structure Sales volumes / month
List:
Gap Analysis: Given the above analysis, state where your product / service is / will be competitive
Getting it Right 57
Tool 10 : Market Analysis Evaluation Rank each item on a scale of 5 – 0, where 5 is attractive and 0 means you have no answer to / knowledge on that item in relation to your business. Use the information and analysis obtained from completed market assessment tools.
The product/ service is competitive (differentiators)
There is a clear gap in the market
My offering is price competitive
Market linkages are in place (value chain)
Buyers afford the product / have accessible finance
There is sufficient volume of potential users
Barriers can be overcome
Growth potential in the market is positive
Market share is sustainable
Market risks and sensi-tivities can be mitigated
#10
#9
#8
#7
#6
#5
#4
#3
#2
#1
5 4 3 2 1 0
TOTALS
Getting it Right 58
GETTING IT RIGHT
BUSINESS PLANNING AND FEASIBILITY TOOLS
Tool 11: Market Strategy
Market strategy statement /
mission statement
Pricing strategy: I am going to sell this product service for x in
year 1 and increase this year on year by?
Competitive advantage: I can compete effectively with other product
service providers because my offering has
the following distinguishing factors:
Market share or market segment I can take x% of this share from them over
the first 3 years of selling this product /
service because:
Growth Strategy: Based on the market survey results, I believe
I can sell x volumes in year 1. After x period, I
will be able to grow these sales volumes
because:
My sales volumes will increase from x to
y in the period commencing:
Do this exercise for the lifetime of the
investment cost. For example, if you are
running a SWH Laundromat and the cost of
the system is 5000 USD and lasts for 5 years,
then sales projections and a growth strategy
should be done for a 15 year period
59
The INSABA project introduces a multi-faceted paradigm shift in
the field of RE application:
By emphasizing the productive use it requires commercially viable
projects which have qualities dramatically different from RE
projects implemented before:
it bases decisions on economic results
It requires to work with verifiable market data where before
the market was considered in formation or given
It focuses on entrepreneurs
It asks project partners to become advisers and not subsidy
brokers
The tool described above was developed by INSABA as an in-
dispensable instrument to introduce this shift, because for the work-
sheets the input needs to be quantitative instead of qualitative,
•
•
•
•
data have to be transparent and verifiable, and decisions are based
on replicable and non-negotiable results. Furthermore, proponents
are required to an active dialogue with practitioners in the
field and in the market, with technology suppliers and with
financiers.
For this reason the tool grew during the project period being
applied to different project cases and variations. It was used by
the SCs to evaluate a number of their project ideas, and a selection
of those examples are included in the excel-sheet [Tool-
Examples.xls]
For a better understanding of what different ideas were developed
in the different countries, in the following pages some examples
will be elaborated, showing for each country one business started/
running and one interesting business idea/perspective.
Tool application and examplesby SCs, compiled by H.W. Böhnke
60
Operating Business: Solar vegetable driers
As a classical application of productive RE use, the Zambian SC
CEEEZ (Centre for Energy, Environment and Engineering Zambia)
presented solar vegetable driers which have been assessed with the
INSABA-tools and implemented with financing from AREED.
In Zambia, dried vegetables and various other dried food are very
popular and find a steady market. Several solar drying enterprises
are existing, manufacturing capacity for basic dryer models is
available and the University of Zambia is actively supporting the
technology.
Short description of the enterprise
The entrepreneur SYLVA FOOD SOLUTIONS LIMITED appears
a capable operator with a good marketing concept and a solid
financial background. It was successful in obtaining a loan from
AREED for the creation of their solar drier business. From the
loaned 110.000$ the solar dryers (9 large, 27 small) cost 27.000$.
Targeted is a sale increase from 40 t/year, which is 30% of the
market, to 100 tons.
These solar dryers are part of an entire value chain for dried
vegetables and fruits. Based on a network of farmers in several
provinces of the country, Sylva Food introduces solar dryers in
order to increase the quality and quantity of their products. Very
interesting is the contracting model, where farmers pay for the
dryers by delivering dried vegetables.
The dryers give the advantage of:
Better quality of the product (shorter drying process), thus
giving access to supermarkets and even exporting
Better hygiene (no insects, no dust etc.)
Delivering of larger standardized quantities thus becoming a
partner for regional or national supermarket chains
Sylva Foods also conducted several training courses with the
farmers about hygiene, marketing of products (size, quality and
quantity) to have sufficient raw material. The solar dryers (either
bought by the farmers or leased from Silva Foods) are used during
8 months of the year by the farmers to dry all kind of vegetable,
fruit and even meat and fish. The dried products are collected by
Silva Foods in order to be packed and sold to local supermarkets
and exported to the UK and Australia.
This value chain is accompanied by cooking books featuring dried
vegetables. Silva Foods is trying to establish a long lasting business
relationship with the farmers, maybe this is also an important part
of this success story.
•
••
AssessmentTechnically, Sylva is using a tunnel dryer made of welded steel with
a plastic roll cover. The model shown has a collector area for pre-
heating, but no fan to enhance air-flow. Some models have an
electric coil for pre-heating during rainy days, but experiences were
not encouraging. The active drying area is 2 m2, cost typically
400 $.
Computing the production at 15 kg/day for 21 days per month and
an average 8 months of operation (less rainy season, repairs,
material shortage), it processes 2.520 kg raw material per year. A
drying ratio to 85% dry material in the processed product means
that 7,7 kg of raw material is required to produce one kg of dried
fruit. So 2.520 kg of will lead to a production of 327 kg of dried
goods.
For the market value of dried goods CEEEZ gives the selling prices,
for example of sweet potatoes to 4,80 $/kg and cost 3,43 $. The
sensitivity on these values is extraordinary (vz left), so they should
receive high attention. Additional costs are for the electric heater
and scheduled repairs. Entering these data in the INSABA pre-
assessment computation tool (INSABA_ZAM.xls/dry) produces a
ROI of 54%
Assessing driers must take into consideration:
Many different crops are dried in one solar dryer, so with
season the output may change
Quantity per drying cycle differs with crops, and supply of
fresh material needs to match dryer capacity
Drying process differs from one day (vegetable leaves during
sunny season) to several days (potato or mango during cloudy
season)
The ratio of raw material to dry material differs and is a
quality factor
••
•
•
•
Sensitivity Analysis
-50%
-40%
-30%
-20%
-10%
0%
10%
20%
30%
40%
50%
-20% -10% 0% 10% 20%
percentage change of parameter
per
cen
tag
e ch
ang
e o
f R
OI
Capital Investment
Investment Lifespan
Units/annum
Price/unit
Variable cost of sale/unit
Cost of energy/unit
total fixed costs
Sensitivity Analysis
-50%
-40%
-30%
-20%
-10%
0%
10%
20%
30%
40%
50%
-20% -10% 0% 10% 20%
percentage change of parameter
per
cen
tag
e ch
ang
e o
f R
OI
Capital Investment
Investment Lifespan
Units/annum
Price/unit
Variable cost of sale/unit
Cost of energy/unit
total fixed costs
Zambia
61
Prices of raw material and dried products vary considerably
The effort of preparation of raw material varies from cleaning
and chopping of fruit to steam-bleaching for vegetables
••
Calculation of ROI (all figures are in US$ at a rate of 1US$=4000 ZAM-Kwacha)
Single solar
dryerDetermination of parameters
Entire Sylva loan AREED
Investment Capital 400 drier investment 110.000
Investment Lifespan 6 Estimated lifespan in years including transport 10
Production 327 kg dried product annually, considering harvest,
rainfall396.000
Price/unit 4,80 market price of 1,2$ per 250 g of dried goods 1,32
Revenue 1.571 Revenue US$ 522.720
Variable cost/unit 3,43
7,7 kg of raw material will produce 1 kg dried
fruits, thus raw material costs will be 7,7 *1000
ZMK plus preparing (cleaning,chopping) of
7.7 kg
0,80
Cost of energy/unit 0,41 electrical heating 4 h per 1,95 kg daily with 2kW
@ 10 $ct/kWh
Total fixed costs 33 annual repair costs during livespan 131.000
Amortization/unit: 0,20A solar dryer costing 1,6 Mio ZMK with 6 years
lifetime produces 327 kg dried fruits for an
average of 8 months yearly. Sales price is
19.200 ZMK*kg, requiring 7.7 kg fresh fruit at
1.000 ZMK/kg purchase price plus processing.
Repairs need 200 US$ in 6 years.
ROI is ok but sensitivity is high on the cost /
purchase price relation, which needs to be
verified cautiously.
0,03
Direct costs/unit: 4,04 0,83
Gross Margin/unit 0,76 0,49
Fixed costs/unit 0,10 0,33
Total costs 4,14 1,16
Net Margin 214,61 63920,00
ROI 54 % 58 %
Payback period years 1,42 1,47
Boosting the drying process with electric heater or charcoal
stove may be required to avoid the goods rotting during rainy
days, but it reduces efficiency and sustainable production.
•
62
In their final report, CEEEZ uses the overall investment of
110.000$ and bases the evaluation on cost/selling prices of 250 g
packages (0,8/1,32$) and a production of 396.000 packages
annually. This arrives at a similar ROI of 58%. Not so clear is the
statement “the solar drier has an input capacity of 10–15kg of fresh
vegetables per batch and an output of 5–6kg of dried vegetables.
The drying period is one and half hours per batch and three
batches per day” which is rather improbable and suggests a review
of their figures.
ConclusionSylva uses the investment to expand the supply base and uses the
driers to tie farmers into their network because the supply chain
is the critical element in Sylva s business.
This contracting model describes a very interesting approach to
disseminate RE-applications to a farming community who
otherwise would not enter the financial or entrepreneurial risk to
invest in a new technology.
Business Perspective: Telecenters
Another very interesting approach to productive RE use, is
introducing telecom services in the unelectrified countryside.
Already an omnipresent service in the urban areas, phone booths,
call services and internet shops meet a steady demand for
communication which is not yet adequately served in rural areas.
Besides a strong business aspect this offers a good potential to
have rural folks participate and contribute in today s information
society.
DescriptionThe Telecenter proposal of CEEEZ is based on the use of 5
computers and provides services for internet, telephone, faxing
and copying. Electricity for the center is generated by solar panels
with battery backup.
AssessmentThis proposal is special because it combines several income
streams: services for internet, telephone, faxing and copying. The
INSABA-tool can be used to look at the overall business as well as
to look at the separate streams, where it is important to compare
only related cost and income. For demonstration, first the internet
and telephone part will be evaluated as a whole, then the viability
of the internet and phone component is regarded separately.
One major improvement of the SC was to introduce mini-com-
puters which are less expensive and more energy saving as usual
PC systems. This way, the PV power system could be downsized
from 1729 Wp to 267 Wp and the total investment from 27.518$ to
9.993$.
63
Internet+Phone Determination of parameters Internet Phone
Investment Capital 9.993 Total cost of equipment with PV
system 9.673 1.276
Investment Lifespan 3 Estimated average equipment lifetime 3 3
Production 300 working days per year 300 300 Price /unit 67,5 daily revenue 37,5 30,0 Revenue 20.250 US$ income per year 11.250 9.000 Variable cost /unit 0,00 No variable costs 0,00 0,00
Total fixed costs 7.080 Provider flat rate, rent, insurance, maintenance, replacements, salaries 7.080 7.080
Amortization /unit 11,10 10,75 1,42
Direct costs /unit 11,10 10,75 1,42
Gross margin /unit 56,40 26,75 28,58
Fixed costs /unit 23,60 23,60 23,60
Total costs 34,70 34,35 25,02 Net Margin 9839 946 1495
ROI 98% 10% 117%
Payback period 0,76
A phone shop in an unelectrified town offers internet and phone call services. It is powered by a PV array. Line access from provider is on a 300$ flat rate basis. 2 staff are employed. The internet services are provided by 5 laptop-PCs which use little energy and minimum batteries, but still require a 300 Wp array. At 5 h/d usage and 2,5 Cents/min they earn 37,5 $/d The call services from 2 phones use very little power. At 2 h/d usage and 12,5 Cents/min they earn 30 $/d Only the phone stream is viable 2,32 0,66
With fixed cost of 7.080 annually (mostly from salary and
broadband provider flat-rate) and a daily income of 37,5 $ for the
internet and 30 $ for phones (based on market price) the combined
business reaches an attractive 98% ROI.
Stream hrs/day Usage Price/min Income/day
5 internet PC 10 50% 0,025 37,5 $
2 telephones 10 20% 0,125 30 $
For internet services alone, most of the power requirements
remain, so the investment is only reduced to 9.673 $ while the
income is only 37,5 $ per day. This results in a weak 10% ROI.
For phone services alone, power requirements are substantially
less, so the investment is down to 1.276 $ while the income is 30 $
per day. The resulting ROI of 117% this way becomes much more
attractive than the overall business design.
ConclusionThe case shows that for a business with several streams it might
be worthwhile to evaluate the individual streams separately in
order to avoid cross-subsidization. The PV supply is less costly than
e.g. a generator set and it offers a new quality of service. The
PV-telecenter is a valid and attractive business proposal, yet in
implementing it would be prudent to start with the profitable
phone business and consider the internet service part later.
The SCs suggestion to raise the internet price from 2,5 to 4 Cent/
min is risky in an establishing phase. The entrepreneur might
however offer value added services like computer school, informa-
tion mining or internet trading. Such telecenters along with
packages of training content are also very suitable for franchising
packages.
64
Operating Business: Cell-Phone Charger
This novel service is based on the observation that the use of cell
phones is growing exponentially also in un-electrified areas.
Charging such a phone is a service for which users are willing and
able to pay and since a customer has to go twice to that service
station he might also make use of other services offered there.
ShortdescriptionoftheenterpriseMr Venasius Amukwa is resident in Havana, one of Windhoek’s
unelectrified informal settlement areas and operates a small shop
selling basic commodities. Mr. Robert Schultz is an IA to INSABA
who installed the initial prototype system and provided the fund-
ing while Mr. Amukwa operates the business which is now paid
back by sharing the income.
The INSABA project, provided the necessary inputs to conduct a
market assessment. The INSABA project had compiled a market
assessment and feasibility tool kit specifically for such business ven-
tures and has provided training in the use of the tool. This was an
opportunity to test the INSABA toolkit in the field and compare the
results for subsequent implementation. Based on the market assess-
ment, Mr Schultz and Mr Amukwa submitted an application to the
Sam Nujoma Innovative Entrepreneur Awards 2006 under the
Bright Idea category and was awarded an amount of N$ 25,000
AssessmentTechnically, the cell phone charging system is a PV system for basic
lighting and radio which in addition is provided with a charger for
up to 10 cell phone batteries. As these batteries do not need much
energy, the system can be small and the investment of about 625 €
renders it more competitive than e.g. a small generator set.
During the charging process of about one day the phones are kept
in lockers because safekeeping of the precious phones is an issue.
Here, a known person in the neighbourhood will also have an
advantage to a grid based shop further away.
Namibia
Calculation of ROI (all figures in NAM$ at a rate of 1€ = 12 NAM$)
CP-Charger Determination of parameters
Investment Capital 5.000 PV system with charger for 20 cell phones
Lifetime 10 System life time
Production 893 average annual customers required
Price/unit 4,0 current market price
Revenue 3.571 NAM$
Variable cost/unit 1,20 Other indirect costs
Cost of energy/unit No other energy
Total fixed costs 500 Handling, display, rent, insurance, maintenance, salaries,
battery replacement
Amortization/unit: 0,56
The small home size PV system for basic lighting and radio is
provided with a charger for up to 20 CP batteries.It can pay for itself
when ROI of 30% is achieved which requires 893 pay charges per
year. Initial test operation had 157 charges in 70 days (at max 8 daily)
which is 818 yearly
Direct costs/unit: 1,76
Gross Margin/unit 2,24
Fixed costs/unit 0,56
Total costs/unit 2,32
Net Margin 1500
ROI-Value 30%
Payback period years 2,50
65
Sensitivity Analysis
-60%
-40%
-20%
0%
20%
40%
60%
-20% -10% 0% 10% 20%
percentage change of parameter
per
cen
tag
e ch
ang
e o
f R
OI
Capital Investment
Investment Lifespan
Units/annum
Price/unit
Variable cost ofsale/unit
Cost of energy/unit
total fixed costs
The market study in the area showed that people are paying around
4 N$ for charging every 4 days. It over-estimated the market size
though as instead of 3000 expected charges per year the initial
frequency was 818 (157 in 70 days).
The system evaluation indicates that in order to achieve a ROI of
30% per year 893 pay charges would be required, which seems a
realistic assumption. The sensitivity looks solid, with the charging
cost the most sensitive factor
ConclusionThe charging business certainly cannot provide a livelihood, but
it is productive and can pay for the investment, while offering
additional amenities like lighting and radio. In fact, this is the first
formal approach to recover the cost of a solar home system by
sub-selling its energy.
In all system design it is important to match the size to the expected
turnover in a rural neighbourhood, but the system is modular and
can start with as little as a single phone charger. The SC is so
enthusiastic to consider each such PV installation with a CP
(pay)charger attached as a business and accounts for at least 20 of
such applications running.
Business Perspective: Farm conversion
The conversion of the power supply in farms more and more
becomes a very strong perspective of RE application. Remote elec-
tricity is increasingly unreliable and fuel prices for generators are
constantly rising (the SC in Namibia reports more than 75% in
two years) so RE power supply is both creating operative security
and economic advantage.
DescriptionTechnically, the RE system is added to the existing power supply
in a hybrid way and targets to gradually phase out the conventional
energy. The farmhouse´s electricity supply receives a retrofit
package with solar panels, backup batteries and inverter to cover
most of the daily load for household and refrigeration. Some water
pumps for irrigation and watering can easily be converted from
diesel drive to electric motor which can be powered by PV panels.
Overall, the RE package can take over up to 90% of the farm s
electricity demand.
AssessmentThe Namibian SC assessed the cost for three supply alternatives,
namely solar, diesel and grid producing the same energy at a tar-
geted value of 5 N$/kWh. The solar hybrid solution comes out best
as the diesel supply has high operating cost and the grid connec-
tion high initial investment. Although the figures are not elabo-
rated it appears a realistic assumption that the RE package can over
time pay for itself by avoiding e.g. diesel cost.
66
Calculation of ROI (all figures are in N$ at a rate of 1€ =12 N$)
Solar Hybrid
System
Existing Diesel
generator
Connection to
the national grid Determination of parameters
Investment Capital 120.000 30.000 180.000 Initial Cost of supply option
Lifetime 20 10 20 Lifetime before replacement
Production 4.015 4.015 4.015 kWh units required and produced
Price/unit 5,00 5,00 5,00 The price aim per kWh
Revenue 20.075 20.075 20.075 N$ value per year (at price aim)
Variable cost/unit 0,30 3,00 0,60 Variable cost per unit
(Fuel/Fuel/kWh units)
Cost of energy/unit 0,50 1,00 0,00 Maintenance and battery cost per kWh
Total fixed costs 0 0 18.000 Basic fee grid/Year
Amortization/unit: 1,49 0,75 2,24 The PV energy system shows a clear
advantage over the use of Diesel
which will increase in future since fuel
and maintenance cost follow a rising
trend. A grid connection for this
comparatively low energy use would
result in a loss for the farmer as well
as for the electricity provider; this even
at a low kWh unit price.
Direct costs/unit: 2,29 4,75 2,84
Gross Margin/unit 2,71 0,25 2,16
Fixed costs/unit 0,00 0,00 4,48
Total costs 2,29 4,75 7,32
Net Margin 10863 1015 -9334
ROI 9% 3% -5%
Payback period years 7,12 7,47 -538,92
ConclusionFarm power conversion is not introducing new goods or service
for productive use as the value addition lies in the avoided energy
expense, but it has a strong and viable potential in the productive
sector. It familiarizes with RE use and creates a wider experience
and service base for new productive applications like lifestock
watering, coldstorage or hydroponic farming.
At the beginning of a conversion process always an energy audit
is recommended, as saved energy is the cheapest energy. By using
energy saving refrigeration, lighting, and solar water heating much
of the household s energy demand can be lowered. The energy
adviser s planning tools allow for optimizing the relation of RE to
the conventional component in an hybrid system, and most of all
the farm is the role model for energy use and handling in the
surrounding villages.
67
Operating Business: Mobile Photoshop
Inspired by the example of a PV operated barber shop which is
successfully operating near an urban Gaborone mall for some 9
years, INSABA Botswana set out for similar concepts and described
a number of business models (e.g. juicer, payphone, haircut) which
are mobile, innovative and can even operate in urban centers. Just
recently, the mobile PhotoShop started operation.
ShortdescriptionoftheenterpriseYoung entrepreneur Arnold Tshwaranang Moleofi already owns a
car wash and now operates the mobile photo shop at a bus termi-
nal in Gaborone.
Equipped with a PV system to operate digital camera, printer/
copier/scanner and laminator, he offers on-the-spot photo, print-
ing, copying and laminating service. The PV system is loaned by
the supplier SIB who is an IA to INSABA.
AssessmentModern digital image processing made this business possible,
eliminating the need for a computer and lowering the energy
demand to the capacity of a mobile PV system. This compactness
also allows the operator to omit the rent of a studio and rather do
business wherever clients assemble. These are the major business
advantages. The economic evaluation shows that in order to achieve
a basic 30% ROI there has to be an annual 2329 photos per year.
Following a market survey undertaken by the owner it appears that
producing 10 photos per day (3000/a) with an average selling price
of P15 per photo is achievable. Assessing technical alternatives, the
option of grid-charging the batteries was computed and found less
favourable, because the charging cost is higher than the PV invest-
ment. This may change for higher turnover but will give the new
business a head-start.
Botswana
Calculation of ROI (all figures in BWP at a rate of 1€ = 10 BWP)
PhotoShop Determination of parameters Grid-PhotoShop
Investment Capital 8.938,85 PV system, photo equipment, inventory, advertising 5.279,00
Lifetime 5 System life time 5
Production 2.329 photos per year 2.329
Price/unit 15,00 average price per photo 15,00
Revenue 34.935 BWP 34.935
Variable cost/unit 7,20 average cost per photo 7,20
Cost of energy/unit No other energy 1,00
Total fixed costs 13.700 insurance, storage rent, salary 13.700
Amortization/unit: 0,77 The higher ROI is caused by the reduced cost of charging
the battery. Although the cost of the solar technology is
much higher compared to the recurrent cost of charging
the battery it turns out more profitable at small turn-over.
Plus it should be noted that charging the battery is very
cumbersome since the battery has to be dropped off in
the evening and collected in the morning. If not, two
batteries are required. Also there are few places where
batteries can be charged and transportation costs will be
high and there is an opportunity cost associated with the
time that it takes to charge the batteries.
0,45
Direct costs/unit: 7,97 8,65
Gross Margin/unit 7,03 6,35
Fixed costs/unit 5,88 5,88
Total costs/unit 13,85 14,54
Net Margin 2678 1081
ROI-Value 30% 20%
Payback period
years2,00 2,47
68
ConclusionThe photo-shop example represents a new business generation,
which offers quality, delivers immediately, and moves where the
clients are. If run in a professional manner and with branded uni-
form it has the potential to develop into a veritable franchise, which
simplifies marketing and financing.
Business Perspective: PV irrigation
Often, INSABA has been approached by farmers to suggest a
profitable way of PV irrigation. Farmers are very well aware that
water and pumping power will within short become a rare
commodity which will affect their livelihood. Often however, the
options were negative when water was squandered in surface
irrigation, was needed only a few months, when fields were
scattered, or produce would not find an attractive market.
INSABA Botswana then was happy to find a vegetable farm
operating profitably with advanced techniques like drip-irrigation,
net-houses and covered fields using hydroponics. SIB the batswana
IA researched valuable data which now help farmers in similar
settings to decide on an appropriate RE support.
DescriptionAmong the advanced techniques described, drip-irrigation re-
quires less skill and will see the widest distribution. Water and
liquid fertilizer are fed through a perforated tube system directly
to the roots, thus minimizing water loss. The system requires a
storage tank (either a high tank or a basin with booster pumps)
and the borehole-pumps for groundwater conveyance.
The vegetable farm named “Khoda Agencies” is located on the out-
skirts of Otse (55km from Gaborone) and is connected to the grid.
So INSABA not only looked at the economics of PV irrigation but
at the option of a remote farm to be connected to an extended grid.
The total system investment cost are given in this table:
Investment cost Irrigation pump system (BWP) PV Grid
Cost of equipping the borehole and irrigation system per hectare 88.714 88.714
Drilling of the borehole and pump 49.120 49.120
Cold room, office and office equipment 14.250 14.250
Storage tank. Double size (370 cbm) for PV pumping to cover for cloudy days. 42.500 21.250
Small truck 200.000 200.000
Cost of solar PV array for pump with 50 m head, 90m3/day at P35/Wp
For grid option: Line extension cost 8000 BWP per km e.g. 16km=128.000
121.092 128.000
Total 515.676 501.334
AssessmentThe economic assessment is based on a one hectare field with drip-
irrigated cabbage. The evaluation shows that the PV-driven irriga-
tion system reaches 42% ROI and would run viably. The existing
grid supply however allows for 60% ROI, because the PV genera-
tor is omitted and the water tank can be smaller. The value addi-
tion of the PV system can only come from the saved electricity cost
and the connection cost to the grid. Doubling the electricity cost
reduces the grid-ROI merely to 59%. If a power line has to be built
to a remote farm, the ROI breaks even at a distance of 16 km.
69
Calculation of ROI (all figures in BWP at a rate of 1€ = 10 BWP)
PV-Pump Determination of parameters Grid-Pump
Investment Capital 515.676(PV system / grid extension), drilling, tank, irrigation
system,coldstore, vehicle501.334
Lifetime 9 average equipment life time 9
Production 224.000 Average kg cabbages per year (20% production losses) 224.000
Price/unit 1,62 Average price of cabbage per kg 1,62
Revenue 362.880 BWP 362.880
Variable cost/unit 0,29 seedlings, fertilizer, pesticide, transport 0,29
Cost of energy/unit electricity cost 0,032
Total fixed costs 23.700 wages, ploughing, insurance 23.700
Amortization/unit: 0,26 The PV-driven irrigation system reaches 42% ROI and
would run viably. The existing grid supply however allows
for 60% ROI, because the PV generator is omitted and the
water tank is smaller. The value addition of the PV system
can only come from the saved electricity cost and the
connection cost to the grid: Doubling the electricity cost
reduces the grid-ROI merely to 59%. If a power line has to
be built to a remote farm, the ROI breaks even at a
distance of 16 km.
0,25
Direct costs/unit: 0,55 0,57
Gross Margin/unit 1,07 1,05
Fixed costs/unit 0,11 0,11
Total costs/unit 0,65 0,68
Net Margin 216923 211348
ROI-Value 42% 42%
Payback period years 1,88 1,88
ConclusionFarming with a water and energy saving drip-irrigation system
offers a productive and profitable enterprise, as long as no other
power supply is available. A grid connection is the better alternative,
even if electricity prices double. An unreliable power supply may
change this assessment. If the grid needs to be extended to a farm,
the cost breaks at 16 km in favour of the PV system.
70
Operating Business: Eco-Lodge
With eco-tourism becoming a strong issue particularly among the
game lodges in southern Africa, lodge operators increasingly seek
to offer their guests the quiet and sustainable services of RE
applications such as solar water heaters and PV electricity. The
INSABA SC in South Africa exerted much assistance through
INSABA in advising such a lodge to this end.
ShortdescriptionThe new Kazuko game lodge in Eastern Cape decided for a hybrid
solution: Renewable energy used for specific purposes such as
water heating and lighting, with gas for cooking and diesel
generators as backup supply. Solar photovoltaic panels have been
installed for lighting and solar water heaters in each chalet for
water heating. Air conditioners run on diesel generation capacity.
As no further data on the economics are available, an example from
Namibia is used, which was described by the Namibian SC:
The Grootberg Safari Lodge receives a PV upgrade package for N$
800.000 to reduce the diesel operation to under 10%. Targeting
an electricity value of N$ 6 the higher investment cost is offset by
saving diesel fuel and battery capacity, so the ROI comparison is
in favour of the hybrid package.
South Africa
Calculation of ROI (all figures are in N$ at a rate of 1€ =12 N$)
Solar electric
system
Diesel Genset
AlternativeDescription of Alternative
Investment Capital 800.000 250.000 Run Diesel Genset with Inverter System
Lifetime 20 15 Lifetime Diesel engine with overhauls
Production 16.425 16.425 45 kWh energy required per day
Price/unit 6 6,00 calculated price within production chain
Revenue 98.550 98.550 N$ (on par with Rand), per year
Variable cost/unit 0,0 4,0 Cost per 0.33 liter of Diesel fuel per kWh
Cost of energy/unit 0,2 0,3 Battery Storage cost per kWh, more energy through
batteries with Diesel option
Total fixed costs 4.380 7.865 Maint. Cost per running hour (24/7 Solar vs 4/7
Diesel) Diesel N$ 2/hour , Inverter N$ 0.5/hour
Amortization/unit: 2,44 1,01
The PV energy system shows a clear advantage
which will increase in future since fuel and
maintenance cost follow a rising trend
Direct costs/unit: 2,64 5,31
Gross Margin/unit 3,36 0,69
Fixed costs/unit 0,27 0,48
Total costs 2,90 5,79
Net Margin 50885 3391
ROI 6% 1%
Payback period years 8,80 12,46
71
The analysis for the hybrid package looks stable, with the in-
vestment showing the highest sensitivity, next to the anticipated
energy price.
The analysis for the diesel system shows an extreme sensitivity to
the anticipated energy price and to the variable cost (i. e. fuel price)
Thus with rising fuel price and maintenance cost the use of Solar
is rapidly becoming the better option.
Sensitivity Analysis
-800%
-600%
-400%
-200%
0%
200%
400%
600%
800%
-20% -10% 0% 10% 20%
percentage change of parameter
per
cen
tag
e ch
ang
e o
f R
OI
Capital Investment
Investment Lifespan
Units/annum
Price/unit
Variable cost of sale/unit
Cost of energy/unit
total fixed costs
Sensitivity Analysis
-50%
-40%
-30%
-20%
-10%
0%
10%
20%
30%
40%
50%
-20% -10% 0% 10% 20%
percentage change of parameter
per
cen
tag
e ch
ang
e o
f R
OI
Capital Investment
Investment Lifespan
Units/annum
Price/unit
Variable cost of sale/unit
Cost of energy/unit
total fixed costs
Business Perspective: Laundromat
Laundry services is a popular SME business in Africa. It requires
little investment but hard work and faces strong competition in
particular in urban settings with machine laundry outfits.
ShortdescriptionoftheenterpriseEntrepreneur Lulama Mqikela had saved over years ZAR 10,000
to invest in starting this business in the poor, densely populated
peri-urban area of Khayelitsha near Cape Town. The area is
electrified, so she planned to buy a used washing machine. The
INSABA SC suggested to install a solar water heater in order to
save the electricity for heating water.
AssessmentTechnically, a small SWH of 2 sqm can produce 150 liters of hot
water per day (weather permitting) which feeds the washing machine.
At a cost of ZAR 16.700 the RE value addition lies in the electricity
saved which is 5,3 kWh for 150 Ltr. heated 30 K. At ZAR 2,5/kWh
the saving is ZAR 4704 yearly and results in a slim ROI of 18%.
The SC chose a different approach, computing the full enterprise
cost to ZAR 22.700 and the income to ZAR 15 per washing. In
order to reach an ROI of 30%, 6900 washes per year have to be
reached, which appears hard because even at 8 washes per day,
6 days per week for 48 weeks only 2304 washes would be done.
1
Solar Water Heater for Tourist Lodge Business Proposal
Business DescriptionSolar Water Heater (SWH) for tourist lodge
ProponentThe Khutse Kalahari Lodge has been in operation since 2003. The Lodge is run by a managerat location. It is also assisted by business partners located in Gaborone and overseas.
LocationThe Khutse Kalahari Lodge is situated 10 km from the eastern gate of the Khutse GameReserve, 220 kms north-west of Gaborone, and is the final frontier before one enters therenowned Central Kalahari Desert and Central Kalahari Game Reserve.
Business FactorsThe Khutse Kalahari Lodge is strategically located outside the Khutse Game Reserve. The lodgeconsists of 12 individual guest houses with double bed, toilet and shower, and a common areawith office, bar, kitchen, restaurant and conference facilities. There are supporting buildings suchas laundry, workshop and staff houses.
Although the solar water heater systems have only been in operation for less than 4 years, aninvestment decision has to be made to replace the SWH systems or, alternatively use the dieselgenerator for heating water.
A diesel generator with engine provides power for large loads and simultaneously chargesbatteries that power smaller loads when the generator is not running. Three groups of solar waterheaters take care of the hot water requirement of the lodge.
Draft: 6 August 2007
Bar and restaurantGuest houses
1
Solar Water Heater for Tourist Lodge Business Proposal
Business DescriptionSolar Water Heater (SWH) for tourist lodge
ProponentThe Khutse Kalahari Lodge has been in operation since 2003. The Lodge is run by a managerat location. It is also assisted by business partners located in Gaborone and overseas.
LocationThe Khutse Kalahari Lodge is situated 10 km from the eastern gate of the Khutse GameReserve, 220 kms north-west of Gaborone, and is the final frontier before one enters therenowned Central Kalahari Desert and Central Kalahari Game Reserve.
Business FactorsThe Khutse Kalahari Lodge is strategically located outside the Khutse Game Reserve. The lodgeconsists of 12 individual guest houses with double bed, toilet and shower, and a common areawith office, bar, kitchen, restaurant and conference facilities. There are supporting buildings suchas laundry, workshop and staff houses.
Although the solar water heater systems have only been in operation for less than 4 years, aninvestment decision has to be made to replace the SWH systems or, alternatively use the dieselgenerator for heating water.
A diesel generator with engine provides power for large loads and simultaneously chargesbatteries that power smaller loads when the generator is not running. Three groups of solar waterheaters take care of the hot water requirement of the lodge.
Draft: 6 August 2007
Bar and restaurantGuest houses
72
Calculation of ROI (all figures are in ZAR at a rate of 1€ =12 ZAR) SWH-Esave SWH-Laundry Determination of parameters
Investment Capital 16700 22700computed for 150 ltr/day plus washing machines, irons
and miscellaneous equipment
Lifetime 10 10 Life of collector and washing machines
Production 355 6900Based on 8 washes per day, 6 days per week for 48
weeks plus periphery services
Price/unit 13,25 15,00Average price per unit – basic services (where 80% of
the market is basic)
Revenue 4.704 103.500 ZAR
Variable cost/unit 11,5
Cost of energy/unit No other energy
Total fixed costs 15.000 rental, salary
Amortization/unit: 4,70 0,33 Laundry services:
Assuming that no extra charge can be had for “solar
laundering”, and that electricity is available for running
the washing machine, the value of solar is in the saving
of electricity for the heating part. Heating 150 l 30°
takes 5,3 kWh at 2,5 R/kWh=13,25 R
A SWH for 150 l/d can be computed to some 2 m²
costing 16.700R and at 355 working days per year, this
can save 4704R and give a slim ROI of 18%
Direct costs/unit: 4,70 11,83
Gross Margin/unit 8,55 3,17
Fixed costs/unit 0,00 2,17
Total costs 4,70 14,00
Net Margin 3034 6880
ROI 18% 30%
Payback period years 3,55 2,48
ConclusionThe entrepreneur decided to start the business without the solar
heater which appears wise because now Eskom are in the process
of launching their Solar Water Heating subsidy scheme which
would give her most probably better economics to upgrade her
business with renewable energy.
73
Dissemination
The INSABA project was in the very favourable position to test its
structural concept in different countries of a region against a back-
ground of different resources and economics.
Interestingly, the advanced economic background in some
countries appeared to reduce interest in productive RE use. Users
and suppliers rather, call for subsidy and government support. It
was a positive development to see that change was possible in
thinking and in accepting a different approach and responsibility
and to notice that realized businesses received a very positive
resonance which has now altered the way users and government
regard RE.
To establish an IA network or engage interdisciplinary advisers
able to identify new applications and potential producers of
marketable goods and services and being able to advice on an
economic use of renewable energy for productive purposes remains
a challenge. Proper payment for the advice has to be calculated. It
also may remain difficult for SCs to train IAs in productive RE
assessment without support from experienced partners from the
north.
There is reason to see suppliers handle the INSABA project
dissemination more easily, i.e. for their orientation towards
solutions. They are aware that additional demand for RES comes
from producers of new goods and services, using renewable
energies for the production or from fuel change within ongoing
production.
All entrepreneurs need basic data to decide timely on the best of
several solutions. Therefore both, SME-SP as well as SME-GS.
will benefit from market assessment, feasibility study, sensitivity
analysis, business plan as well as best knowledge on renewable
energy applications in a successful implementation of the
INSABA-idea.
Concluding recommendationFinancing
During the project conduct it was often discussed whether INSABA
with a lending window of its own would inspire more interest from
SCs and SME. In order to find out whether there was such necessity,
INSABA looked into financing instruments available to SMEs in
the various countries and in particular commissioned financing
studies for Botswana and Namibia. It was found that financing
was no strong barrier as sufficient lending options were available,
although not always ideally suited for novel RE applications. Still,
all proposals with a convincing viability could be financed, smaller
investment directly from the supplier, larger investment like solar
driers from the AREED window. Only proposals with weak or
non-existing economics were found to demand preferential or
grant funding. The same applied when the proponent had
limited business record, little collateral or sought a loan higher
than his fixed assets. In addition to supplier s loans franchises (or
contracting) where owner and operator are different persons, can
play an important role in the dissemination of profitable RE
applications.
Technical
Generally, the interest of entrepreneurs in renewable technologies
was found to be very high. This is because in times of soaring
energy prices and power cuts they seek a cheap and reliable power
source. SCs and IAs have to muster profound technical knowledge
to adapt these high expectations to feasible solutions.
As the risk perception towards a novel, in the region still little
proven technology is very high compared to a known conventional
solution with long-term experience the presentation of the RE
approach has to be safe, accurate and verifiable. Else, the investor
will seek risk reduction by subsidy or a technical grant.
74
InWEnt
Internationale Weiterbildung und Entwicklung gGmbH
Friedrich-Ebert-Allee 40
53113 Bonn
Phone +49 228 4460-0
Fax +49 228 4460-1766
www.inwent.org
INSABA Project Coordinator:
Klaus Knecht
Senior Project Manager
InWEnt – Capacity Building International, Germany
Lützowufer 6 – 9
10785 Berlin, Germany
Fon +49 30 254 82-110
Fax +49 30 254 82-103
www.inwent.org
E-Mail: [email protected]
