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IFC study finds $37 Billion opportunity for improved energy services at the Base of the Pyramid

A new report from IFC, a member of the World Bank Group, has identified a $37 billion opportunity for the private sector to improve energy services for people who live in relative poverty.
The report 'From Gap to Opportunity: Business Models for Scaling Up Energy Access,' was released at the United Nations Conference on Sustainable Development. Published in partnership with the government of Austria, it breaks new ground by estimating the market for energy services offered at the household level to low-income people. It also profiles companies with innovative business models and explores in detail what it takes for them to succeed.

'Across the world, people spend more than $37 billion a year on kerosene for lighting and biomass used in open fires or traditional cooking stoves that pollute the environment,' said Rashad Kaldany, IFC's Vice President for Global Industries. 'This study shows that — with the right business models and conditions — the private sector can play a vital role in providing energy solutions that are better for people's health and better for the environment.'

Private enterprises have started to seize the opportunity. 'While this is still a nascent sector, many businesses are rapidly moving beyond being cottage industries and are successfully serving tens of thousands to hundreds of thousands of customers,' according to the report, which studied more than 100 businesses around the world. 'Some companies are seeing profit margins of 10 percent to 30 percent, often with fairly small subsidies on capital costs…or no subsidies at all.'
To scale up successful business models, the report offers a series of recommendations for key stakeholders—including companies, social and commercial investors, governments, policymakers, and donors. For instance, it suggests that governments resist give-away programs and unrealistic promises, remove discriminatory taxes on energy access products, and leverage public-private partnerships and smart subsidies for extending electricity grids.
For investors seeking both social impact and financial returns, the report recommends that they keep investment mandates broad and beyond a single technology, develop a local presence, provide appropriate funding for each part of the business life cycle, support enterprise development and business model refinement, and fund the provision of public goods.

Additional information: Full report
News date: 19/06/2012

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