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3 important takeaways from our energy investments in Myanmar

To address issues of vulnerability and poverty, UNCDF SHIFT acts as a market facilitator in the ASEAN region. Our investment focus since 2015 has been on Cambodia, Lao PDR, Myanmar and Viet Nam (CLMV). We invest in business models that accelerate the achievement of the Sustainable Development Goals (SDGs) through financial inclusion services.

A critical issue many poor communities in the region face is lack of affordable and sustainable energy services which meet peoples basic or productive needs. Over 69 percent of the 54 million people in Myanmar have no access to grid electricity. Without access to energy services, people resort to low quality and unsustainable systems which can be costly over time (due to replacement/repair) and dangerous due to poor wiring (depending on the type of system being used). Energy insecurity can also have negative impacts on an individual’s heath, education and income levels.

That is why UNCDF SHIFT's first investment window, in partnership with UNCDF CleanStart, looked at energy financing. We wanted to invest in business models that used financial inclusion as an embedded service to increase energy access in off-grid areas. In total, we invested in five business models. Two of those five models focused on solar home systems in Myanmar, which has a high number of off-grid households coupled with market opportunities for new business models. One of those investments, Greenlight Planet, has taken off; becoming a market leader for pay-as-you-go (PAYG) solar in the country. Despite high customer satisfaction and continued use of the product, the other investment, Brighterlite, has closed operations as it was unable to reach scale at the rate needed to sustain business operations.

Investments in innovative business models are risky. Adaptation through learning is critical to build a successful portfolio. Based on our tested investments in Myanmar, we came away with three important lessons. These takeaways will help inform future investment decisions and can be useful for partners investing in this space.

1. Unintended consequences of subsidies on market competitiveness

The government of Myanmar has an ambitious target to expand access to electricity with targets to reach 100 percent electrification by 2030. Part of this approach includes a subsidy scheme for targeted areas in the country. While our investment partner was aware of the subsidy program, the spillover effects was not anticipated. Our investment partner operated in different communities than the subsidy target. But the subsidy scheme in theory vs. in practice was different. As a result, areas targeted by our investment partner became eligible or believed they would be eligible for a subsidized solar home system. This affected 30 percent of our investment partners off-grid target market.

The issue of a subsidy scheme affecting the commercial viability of businesses in the energy space highlight the need for coordination. It is important for government, development partners, and private sector to have an open and regular dialogue to discuss goals and market impacts of policy decisions.

2. Knowing the competition

The off-grid solar market in Myanmar has experienced rapid growth. But this growth has come with an influx of low quality, low cost energy products. Low-income consumers in Myanmar are extremely price sensitive. This makes it difficult for higher quality products or static business models (with inflexible pricing structures) to compete. Our investment partner had a static business model that saw it offer three products across two countries at fixed pricing structures and production costs. In contrast, the Greenlight Planet business model offered a range of products and flexible pricing. In the fluid off-grid solar market of Myanmar, inability to adapt means an inability to succeed.

3. Mobile network coverage

The key innovation in off-grid solar for expanding access is pay-as-you-go (PAYGO) financing. This financing model allows low-income households to pay in smaller increments over time to access energy services. These payments can be made through agents or via mobile payments. Our investment partner relied on planned expansions in mobile coverage to their target communities. But that expansion did not occur as planned. As a result, our investment partner had to rely on physical payment collections which increased costs of operation. Energy service providers need to account for the costs of physical payment collections or ensure partnerships are in place with telecom providers to leverage mobile platforms and minimize the cost of operations.

The combination of digital coverage constraints, subsidy schemes, and increased competition presented a perfect storm of conditions that made the business model commercially unviable. While this investment did not reach its intended market impact, these lessons are critical to inform future investment decisions and provide some guidance to other energy service providers in the off-grid market.

Stay tuned as we will release a more in-depth case study on lessons learned and recommendations from this investment.

ABOUT SHIFT

UNCDF’s Shaping Inclusive Finance Transformations (SHIFT) programme aims to expand women's economic empowerment through financial inclusion. SHIFT advances financial markets by changing the behaviour of market actors to stimulate investment, business innovations and regulatory reform in growing inclusive enterprises. SHIFT catalyses innovative partnerships to accelerate financial inclusion and women's economic participation in the least developed countries of the ASEAN and SAARC regions.

UNCDF’s SHIFT ASEAN programme is supported by the Australian Government.

Disclaimer

This publication has been funded by the Australian Government through the Department of Foreign Affairs and Trade. The views expressed in this publication are the author’s alone and are not necessarily the views of the Australian Government.

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