A South African commercial delivery case study 1

Clean affordable cooking energy for previously disadvantaged poor households

A South African commercialsupply case study

Prepared by

Paul Harris and Chris Hazard

Integrated Energy Solutions

IAEE Workshop on Clean Cooking Fuels Istanbul16 June 2008 – Panel II – 10 minute lessons learnt

A South African commercial delivery case study 2

Commercial delivery model - Principles

# 1 Household energy model* Energy needs – cooked food

* Provision of the service appliance – two plate cooker

* Energy source – LP Gas, paraffin

# 2 Energisation* Meeting all energy needs simultaneously

* Differentiating between essential electricity and thermal needs

* Combined energy and appliance solutions

# 4 Delivery model and structuring decisions* Selection of optimal “baskets” – fuels and appliances

* Supply side facilitation – confidentiality, convergence etc.

* Demand side facilitation – customer/market approach etc.

* Coordinated implementation with stakeholders

A South African commercial delivery case study 3

A commercial case study from South Africa

Project background * Regional electricity net work / power station problems

* Constrained electricity grid situation

* Urgent Demand Side Management programme

Rationale and planned execution* Two industries brought together – LPG and Electricity

* Like walking two ladders

* Full commercial terms prepared

* Open bidding process by LPG suppliers to participate

* Urgent procurement of appliances and cylinders

* Delivery within 3 months

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A commercial case study cont.

Customer offer - for the exchange of an electric two plate* Quality double plate LP Gas stove – becomes customer

property worth R207

* 5 kg LP Gas cylinder (exchangeable for a R50 deposit at any time) and required regulator and connections

* Free first fill, up to the value of R45

* R 120 of free LP Gas in the form of a first fill and vouchers redeemable on a monthly basis (four R 30 colour coded discount vouchers)

* Total value R422 per low income household ($60)

* While stocks last, up to a total of 100,000 low income households

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A commercial case study cont.

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A commercial case study cont.

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A commercial case study cont.

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A commercial case study cont.

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A commercial case study cont.

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A commercial case study cont.

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A commercial case study cont.

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A commercial case study cont.

Project results – Numbers achieved

Cumlative delivery rates

-

20,000.00

40,000.00

60,000.00

80,000.00

100,000.00

May June Jul Aug Sep Sep Oct Nov Dec

Nu

mb

er

Supplier A Supplier B Supplier C Supplier D

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A commercial case study cont.

Project results – Sustainability (from a #2000 sample)* Question “What energy/fuel did you use to cook your food?”

Responses Percent What Energy did you use before(a)

Electricity 1872 89%

Paraffin 169 8% Gas 53 3% Total 100.0%

What Energy did you use after(b)

Electricity 387 17%

Paraffin 81 4% Gas 1784 79% Total 100.0%

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A commercial case study cont.

Project results – Satisfaction (from a #2000 sample)* Please rate how satisfied are you with the following: Using a

10 point scale where: 1 = Very Dissatisfied and 10 = Very Satisfied

Service Aspect Responses Mean Scores Q3.5.1 Rating : Free LP GAS 2000 9.09

Q3.5.2 Rating : Having to give in your old electric plate stove 1998 7.84

Q3.5.3 Rating : When giving you the free LP Gas package 2000 8.85

Q3.5.4 Rating : In providing you with training on how to use it 1998 8.33

Q3.5.5 Rating : On how you were informed your community about the free offer

2000 8.74

Q3.5.6 Rating : Overall Service 1999 8.38

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A commercial case study cont.

LP Gas affordability issues * LP Gas Industry – Government negotiated price for low

income households

* Based basically on crude oil price – significant increases

* Regulation is now coming in the South African market

LP Gas availability issues New retailers set up throughout the supplied areas

* Local refinery problems give rise to shortages 2 to 3 weeks

* Two cylinders/customer would have alleviated the problem

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“Key lessons learned” (related to list)

Topic 3. Key elements of market creation* Households viewed as “the customer”

* LP Gas is seen as a modern thermal fuel

* Assistance with the capital cost of switching

* Always allow the customer choice to switch or not

* Cover all energy needs simultaneously to greatly increase acceptability (essential electricity and thermal)

* Offer a market acceptable modern thermal fuel – “one that the rich use”

* Viewing the new market development as a bankable project rather than a ‘development project’.

* Rigorous performance management with payment for results

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“Key lessons learned” (related to list)

Topic 4. Issues of capital availability & financing mechanisms* Switching subsidies is the key – around $40/household, to

kick start the new market development

* Finding the subsidy provider – the key

* A positive business case is needed by the energy supplier and the funder (based on their particular agenda)

* Positive “value equations = price x performance” for all

* Commercial players have required rates of return/hurdle rates – these must be met

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“Key lessons learned” (related to list)

Topic 6. Business model sustainability & replicability* Large scale is possible – 89 000 households supplied

* Cooking related usage levels are sustainable for the LP Gas industry, plus being a year round load

* Replicability of the commercial approach – YES, replicability of the business framework for each situation NO, unique!

* Commercially minded project facilitators/change agents with credibility is a non negotiable

* Undertake the entire project on 100% commercial principles, from participation tendering, enforced operating procedures, price and time scale penalties etc.

* Pragmatic stakeholder management essential

* Monitor customer satisfaction

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Conclusions“Harnessing of major commercial enterprise will be the

only way that rapid and substantial numbers of currently energy disenfranchised households can be served, but a different pragmatic modus operandi is

urgently needed by development and commercial stakeholders to make it a reality in time. ”

I am available for more detailed discussions …

Thanks to BP for sponsorship and

making the conference possible