SZ / GIZ Bangladesh case study summary

"Building Business Cases to Reach Scale: A Study on Biomass Cookstove Business Models in Asia and Africa"

CASE STUDY

GIZ -­‐ SZ -­‐ BANGLADESH

Company's stage of development: GIZ -­‐ SZ -­‐ Bangladesh is in rapid expansion, with a re-­‐designed Business Model from October 2012.

SZ was legally registered in 2008. Currently 5,500 partners -­‐ sanitary shops, specialized in manufacturing supplies for the construction sector -­‐ producing ICS (Bondhu Chullahs). Artisanal production, low mechanization and robotization. Open source technology Product: Artisanal production of a fixed, concrete single-­‐mouth and two-­‐ mouth stove. Industrial production of a portable, single pot stove with insulated vertical chimney, usually constructed from metal, any biomass fuel can be used. Saves up to 50% of fuel compared to traditional stoves. Design is done in collaboration with GIZ technical team. GIZ -­‐ SZ is currently engaging in the development of improved fuel.

Price: Final price is 8 Euro / unit. Channel strategy: MoU with SMEs (Sanitary shops 5,500). Global goal is to have all rural communities 100% Bondhu Chullah users. Massive Marketing and promotional campaigns. Currently 32

Unions are 100% Bondhu Chullah Sales: From 2008 to 2014 there were 1,500,000 units sold. In the period from October 2012 to December 2013 (Phase I of the new Business Model -­‐ 14 months) there were 500,000 units sold. Phase II is coming soon (18 months), expecting to sell about 815,000 units.

Investments are mainly CDM (SZ) for Monitoring & Evaluation, funds from GoB providing subsidy for end users. GIZ provides for staff salaries (550 staff, 1300 volunteers & administrative costs), marketing & promotional activities and training programs (Production Units). All services are built in-­‐house.

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HISTORY Established in 2008 is a privately owned company registered by GIZ. Vision: Social Enterprise that deals with climate change related issues on the backdrop of Kyoto Protocol with a primary objective of facilitating CDM projects formulation and implementation. "To improve the environmental quality of Bangladesh and tackle the adverse effect of climate change by partnering with local organizations, business houses, community leaders, multilateral agencies and neighbours to create a clean

and safe place to live and work for us and coming generations".

Objectives of the social enterprise: • To increase the capacity of local organizations for implementing renewable energy and energy efficiency related projects • To promote renewable and efficient energy technologies to meet the energy gap of the mass people • To develop the awareness of the people regarding impact of climate change • To introduce and promote various technologies to tackling the catastrophe of climate change.

Mission: "To Achieve the target of reaching every household using solid fuels with Bondhu Chullah (Brand name of a kind of improved clean cook stoves) in Bangladesh by 2021". Bondhu Chula is designed to meet the diverse cooking needs of Bangladeshi families.

Partners: Initial Business Model (2008 -­‐ 2012) -­‐ High number of NGOs and some small private organizations (>250 partners) all of them adopted the same ICS model "Bondhu Chullah" -­‐ and some of them still commercializing, but none of them reached scale.

Current Business Model (October 2012 -­‐ March 2014) -­‐ Phase I of the Project -­‐ GoB (DoE) + GIZ New business model that took a market approach. Adopted for faster dissemination of the ICS. About 5,500 sanitary shops are partnering with GIZ, this new business model gets the producer/ installer closer to end users and improves after sales service and sustainability.

The link between end users and the SMEs is done through promotion, and promotion is done by 1,300 volunteers (100% women).

Organizational Structure and Management SZ is a social enterprise established in 2008 to manage the CDM and responsible for CDM registration (July 2011). There was a Project Management Unit (PMU)

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for implementation, according to the administrative and legal requirements of the GoB & GIZ. 550 staff of the project & 1,300 volunteers.

Ownership of Business Units – partners They go through short trainings on construction and installation Non registered businesses SZ signs an MOU with each SME Sanitary shops active in the construction sector are brought to the ICS industry–specialized in construction throughout country (exit strategy) Funding: Origin of the capital to be invested: CDM – Carbon credit GIZ (2 M Euro) & Subsidy from GoB (2.5 M Euro) SMEs – profit from sales – re-­‐invested in the VC -­‐ no data available

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THE BUSINESS ENVIRONMENT:

SECTOR MAPPING SUMMARY1

Macro Environment

Bangladesh is one of the most densely populated and poorest countries in the world, it is prone to severe ecological issues such as cyclones and flooding and experiences severe energy shortages across the country. The government is heavily focused on development, both socially and economically and is key to the support of the ICS sector.

Cooking styles are similar across Bangladesh with women responsible for most of the cooking. Biomass use is more than Social and Environmental 90% for the entire country while free fuel sources such as cow dung and rice husk are common in rural areas. Health effects of IAP are significant and women need to play an integral role in the sector particularly in community outreach and sales.

Impact

Consumers

Cookstove Industry Carbon Financing

The “villager” segment (defined later), rural populations and those above the international poverty line appears to show the most promise for market based ICS approaches. Consumer research is limited but from what is known, awareness of IAP and the benefits of ICS appears to be low so consumer education is essential. Humanitarian efforts and financial assistance will be needed to address the more vulnerable, lower income segments.

The Bangladesh market is dominated by the ‘Chullah’ stove design. The three largest programs (Grameen Shakti, GIZ and VERC) all utilize this design, although it is available in different sizes and materials. Basic capabilities exist across the value chain to support programs, but there appears to be a lack of product diversity, enterprise financing and larger private sector participation.

There is an established Designated National Authority (DNA)2, an existing Program of Activities (PoA)3 and different CDM registered cookstove projects in Bangladesh. However, the sector’s heavy reliance on carbon credits and rigorous M&E processes pose a risk to the growth of the market.

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From the document "Bangladesh Market Assessment -­‐ Sector Mapping", by Accenture Development Partnership on behalf of the Global Alliance for Clean Cookstoves (April 2012) 2 The body granted responsibility by a Party, among other things and where applicable, to issue a letter of approval with respect to CDM project activities or PoAs on behalf of that Party, in accordance with the CDM rules and requirements. (From CDM Glossary by UNFCCC) http://cdm.unfccc.int/Reference/Guidclarif/glos_CDM.pdf 3 PoA: A voluntary coordinated action by a private or public entity which coordinates and implements any policy/measure or stated goal (i.e. incentive schemes and voluntary programmes), which leads to anthropogenic GHG emission reductions or net anthropogenic GHG removals by sinks that are additional to any that would occur in the absence of the PoA, via an unlimited number of CPAs. (From CDM Glossary By UNFCCC) http://cdm.unfccc.int/Reference/Guidclarif/glos_CDM.pdf

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SWOT Analysis

STRENGHTS

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Strong leadership at PMU & GIZ Strong managerial and technical skills PMU & GIZ Manufacturing facilities can increase production easily according to demand, the production units are ready and enough to serve the national market. The potential target market in Bangladesh is 30 million households. GIZ -­‐ SZ has designed the intervention to respond to that goal Ownership by the Bangladeshi Government. Partnership with government agency (national as well as local) is critical to success Strategic partnerships for promotion and awareness: local and central government, universities, NGOs, celebrities, etc.

"Local Product", local Value Chain Good monitoring and evaluation systems Strong support service providers (Post sales service and product warranty for one year) Very strong link between BoP Producers and end demand Market information and industry knowhow: customer insight, business model Strong customer, producer and channel awareness of new market-­‐ based solution and appreciation of its benefits Role of women remains marginalized. GIZ -­‐ SZ gives women a central focus when designing their new strategy and implementing it. Through their figure of 1,300 women volunteers. Women are traditionally responsible for most of the domestic tasks (e.g. cooking, finding firewood, etc.);

WEAKNESSES

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Business model and distribution channels built from scratch Limited access to capital Project management -­‐ Complexity due to the project engineering -­‐ (Carbon Finance) High ODA & Subsidy dependence Lack of capital. Lack of access to finance as working capital for all business units of the Value Chain (Producers, Distributors, wholesalers, retailers, etc.) & for the Business Association Lack of financing for customers (some informal ways along the Value Chain) Producers / installers are able to produce low number of ICS monthly = lower margins High cost of awareness campaigns Monitoring of decentralized projects raises the transaction costs of carbon finance

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OPPORTUNITIES •

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A cookstove intervention can serve a large market size in both rural and urban areas but many of those lie below the international poverty line The extremely high number of DALYs and deaths attributable to IAP presents a strong case for cookstove interventions in Bangladesh The large biomass market is likely to exist for many years due to poor access to electricity & clean fuels. If gas supply or price becomes an issue, consumers may start reverting to biomass The cultural & historical attachment to traditional stoves will be challenging to overcome. Any new stove design should fit with existing cooking habits (Bondhu Chullah is very adapted culturally) Given the heavy reliance on biomass, stove designs should accommodate all types of biomass fuels Facilitate cooperation within the sector: Share effectively in terms of lessons learned, best practices, research, etc. In order to strengthen the industry Further work on bringing partners to the value chain, widen network of target consumers Developing and promoting accepted standards: there is a current need of performance standards

High number of IAP related deaths creates a strong case for change Significant livelihood improvement opportunities, particularly for women Entrepreneurial culture with many active community organizations Improving general awareness of the problem will help the development of the market Additional work on access to carbon finance might bring more players to the sector Country Action Plan for Clean Cookstoves from GoB, to cover the period 2013 -­‐ 2018. There are 32 interventions outlined, and the 10 priority interventions are: • Develop a coordination mechanism, the Household Energy

THREATS • • • • • • • • • • •

Infrastructure still a challenge Challenges in identifying partners for production/ installation in some rural areas.

Absence of national quality standards creates lesser quality cookstoves to in the market Customer awareness needs to be created Limited access to working capital, limited financing available to the sector Limited information on carbon financing Current demand for carbon credits is low Carbon markets are in a transitional period, waiting for the new international agreements in 2015 There is very little diversity in the sector in terms of technologies and variety of products present An inclusive industry needs to be built: diversity of firms and healthy competition will bring greater value for customers IAP is recognized as an important health issue but low per capita health spending and other pressing priorities, mean large scale government intervention based on health is unlikely

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Platform, to ensure sector players and facilitators are working towards a cohesive coordinated strategy and are learning from each other, leveraging each other’s work, not duplicating efforts, and are able to advocate for the sector with one unified voice.

• Utilize local institutions, conduct R&D to improve the existing local models and potentially create new cookstove models in order to increase the quality of products available and offer a variety of technologies to consumers.

• Develop a national network of suppliers that are able to widely produce and/or disseminate locally produced or imported technologies, increasing the quality and distribution of available technologies over time.

• Identify strong non-­‐cooking product distribution channels and add improved cooking solutions into the already successful, wide-­‐reaching distribution chains.

• Increase awareness of clean cooking solutions among consumers through a national awareness campaign.

• Build the capacity of individual suppliers and distributors to effectively market their products.

• Increase access to finance for cookstove and fuel entrepreneurs.

• Better understand Bangladeshi consumer preferences through applied research studies and pilots to ensure products meet consumer needs and are in high demand.

• Establish a national cookstoves testing and knowledge centre for laboratory and field-­‐testing.

• Include cookstoves and fuels as a critical priority in achieving reductions in short lived climate pollutants (SLCPs), improvements in exposure to household air pollution, improvements in maternal and child health, women’s empowerment and other key Government priorities.

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BUSINESS MODEL: SZ -­‐ GIZ VALUE CHAIN

• High subsidy support • Ma rket intelligence • Emb edded services

Promotion

n e ng i l ab n E

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