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.