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Archive for August, 2012

On Thursday 5th April it was announced that the President of Malawi, Bingu Wa Mutharika, had been admitted to hospital following a cardiac arrest. For 2 days local media continued to report that he was in ICU suffering cardiac arrest, despite it generally being accepted as a terminal condition. The foreign media was reporting his death but it wasn’t until Saturday 7th April that it was officially announced in Malawi and Joyce Banda was sworn in as the new president.

It subsequently transpired that the ruling Democratic Progressive Party (DPP), from which then-Vice President Joyce Banda had been expelled two years previously, had tried to by-pass the terms of the Malawi constitution – that give the Vice President power if the incumbent dies mid-term – in favour of appointing Wa Mutharika’s brother. Their efforts collapsed when Malawian security forces refused to undermine the constitution.

One of the new president’s immediate actions was to devaluate the Malawian kwacha by around 40%. Alongside promising to sell the presidential jet that Wa Mutharika controversially bought, the devaluation helped appease Malawi’s foreign donors including the IMF and the UK which had both suspended aid. Malawi typically relies on donor funding for around 40% of its government budget so this had caused a large deficit. The devaluation has provided a local income boost for farmers in the export market, particularly tobacco, and it should help economic stability in the longer term. In the short-term, however, it’s causing financial difficulties for many. This includes importers of foreign products and their potential customers.

For my PhD research I’m currently based in Mzuzu, northern Malawi, at the office of SolarAid. It’s a UK headquartered NGO that has created a social enterprise called SunnyMoney which aims to catalyse the market for micro-solar li

ghting systems. They import products designed by western companies such as D.Light, Barefoot and ToughStuff and manufactured to international standards in China and India. SunnyMoney Malawi sells them through a network of dealers and entrepreneurs to householders that don’t have access to grid electricity. Since this constitutes up to 96% of rural households in Malawi, it’s a fairly sizeable potential market.

Rural areas here have generally relied on kerosene lamps for lighting, but withdrawal of donor aid and poor tobacco sales over the past few years created a severe lack of foreign currency. Malawi imports all its liquid fuels so this in turn led to a critical fuel shortage. As well as disrupting transport systems, it means many people have resorted to candles and torches for lighting.

Pupils at Hara primary school in Karonga, Malawi, using candles

Pupils at Hara primary school in Karonga, Malawi, using candles

It’s an interesting time to be at SolarAid’s offices here because they’re still in the process of shifting from a donor-based to business-based approach to micro-solar. This follows a broader trend in development projects involving energy technologies: it’s now recognised that overly-subsidised or even free distribution of products is generally unsustainable. Projects would advertise early successes as targets for numbers of systems distributed were achieved, but later follow-ups showed systems not being maintained and sometimes never even used. There also tended to be minimal progress towards establishing local market infrastructure that could make the products available beyond the project period.

SunnyMoney has so far sold about 16,000 micro-solar systems in Malawi. However, the next consignments of the imported systems have been paid for post-devaluation in US dollars, so their local retail price will now have to almost double. Having been founded by an NGO and termed a ‘social’ enterprise, there might be an argument for a backwards shift – re-incorporating donor funding to subsidise micro-solar products down to pre-devaluation prices. However, counter-arguments include that it’ll only postpone the impact until after the funding package has expired and, perhaps more crucially, it will distort the wider market in Malawi. Although SunnyMoney aims to sell micro-solar products, the bigger objective is to catalyse a sustainable market for them. Seriously undercutting existing or potential competitors through donor-based subsidies may be counter-productive to that overall aim.

Carbon finance can sometimes be used to generate subsidies for products that reduce greenhouse gas (GHG) emissions: the emission reductions are sold as carbon credits to buyers wanting to reduce their carbon footprint. As the funding mechanism is in theory open to all, this may be less distortive to the market. Drawbacks, however, include the high cost of registering carbon credits compared to the revenue they generate, particularly for micro-solar. It’s also unclear at which stage credits should be claimed within a supply chain.

Children reading with a kerosene lamp (left) and a solar lamp (right)

Children reading with a kerosene lamp (left) and a solar lamp (right)

In theory, the solar lamp end-user – e.g. a Malawian villager – generates them through reduced kerosene consumption, but they have no way of claiming the credits and generally no knowledge of the concept. Even if you want to explain it, there’s rarely an appropriate translation in the vernacular. This leaves manufacturers, importers, dealers and project developers to argue it out, but only one entity can claim per product.

Another difficulty is the variable price of carbon credits, exacerbated by uncertainty in the regulatory framework that creates demand for them. Since University of Edinburgh is an accredited observer organisation, I was able to attend the 17th Conference of Parties (COP) to the United Nations Framework Convention on Climate Change (UNFCCC) in Durban in November 2011. At this annual COP, government negotiators from across the world discuss how to reduce and respond to human-induced climate change. During two weeks of painfully slow negotiations, however, little progress seemed to be made and there remains no international commitment to reduce GHGs beyond 2012, reducing demand for and thus price of carbon credits.  One advert
ised success of Durban was a decision on how a Green Climate Fund will operate, providing funding to low-carbon initiatives in developing countries, but the source of the funding is still undecided.

The UN has named 2012 as the Year of Sustainable Energy for All. With little momentum in related international frameworks, business-based approaches seem to offer potential. A recent IFC report estimates a $37 billion market opportunity for improved energy services in under-served areas. Despite the devaluation, SunnyMoney hopes to grow sales in Malawi and ideas such as pay-as-you-go solar are being trialled to provide customer finance options. It will be an interesting market to watch, and certainly a fascinating one to research.

Gill Davies, CAS PhD student

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