They do

June 2012

Villgro Innovations Foundation Case Study Series – Sustaintech India Private Limited

Villgro Case Study Series – Sustaintech India Private Limited June 2012

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ACKNOWLEDGMENTS The authors would like to thank Villgro Innovations Foundation for this opportunity to study social enterprises across diverse sectors such as energy, agriculture, livelihoods, healthcare and technology. We would also like to thank Svati Bhogle - Founder, Promoter & Managing Director, Swetha Krishnakumar - 2011 Villgro Fellow and Babu Subramanium - CEO at Sustaintech India Private Limited for being so generous with their time and inputs. Authors: Sowmya Suryanarayanan Usha Ganesh About Villgro Villgro Innovations Foundation works to identify, finance and support early-stage social enterprises that promote innovative products and technologies in the health, energy and agriculture sectors, and have clearly defined potential to positively impact rural and peri-urban India. Villgro has been in operation for over 10 years and has financed and supported over 50 social enterprises. Social enterprises supported by Villgro have collectively gone on to raise over INR 200 million in follow-on funding and have impacted the lives of an estimated 400,000 rural Indians. Villgro differentiates itself with its high-touch mentoring and support services. Villgro’s advisory services go beyond traditional consulting roles to encompass domain-specific mentoring, strategic and operational planning and access to key industry stakeholders in an enterprise’s sector of operation. For more information, please visit http://www.villgro.org/ About Intellecap Intellecap is a pioneer in providing innovative business solutions that help build and scale profitable and sustainable enterprises dedicated to social and environmental change. We are uniquely positioned at the intersection of social and commercial business to attract and nurture intellectual capital that combines the business training of the commercial world with the passion and commitment of the social world. Our clients include a broad range of enterprises, investors, development finance institutions, foundations, and private sector corporations. We work in over 20 countries around the world, with a special focus on South and South East Asia, and Sub-Saharan Africa. Knowledge and Information Services leads Intellecap’s research, knowledge management and thought leadership related to social enterprise, with specific emphasis on the sectors we work in and themes we focus on. The practice area undertakes studies on social enterprise; yielding academic and non-academic papers and articles, policy briefs, reports, and online material. For more information, please visit www.intellecap.com

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Selvam and his wife run a roadside hotel in the outskirts of Erode, Tamil Nadu. The narrow space seats 15 on rough steel and wooden benches. Lit by lanterns, the kitchen area is at the very back, where a wood-fired stove belches smoke all day long. The hotel has been Selvam’s source of livelihood for the past 15 years. His day typically starts at 5:30 am. In his poorly ventilated roadside hotel, he serves dosas and other flat breads along with chutneys, sambar, and different curries. A meal would cost less than INR 15-25 here. Selvam cooks and serves all day long using his traditional cook stove that emits large amounts of smoke and heat that might make him vulnerable to respiratory ailments in the long term. His day ends when he puts out his stove at around 11 pm. This situation holds true for most of the small eateries across Tamil Nadu, one of the most highly urbanized states in India. The rural and semi-urban areas of the state typically have a heterogeneous mixture of small, one room restaurants, tea shops and eateries that work round the clock to serve the floating local and migrant population. Apart from health-related risks, the use of inefficient stoves results in greater fuel consumption and longer time to cook meals, in turn leading to higher financial burden on people like Selvam, who cannot afford it. In 2009, Svati Bhogle, S. Rajagopalan and M. V. Krishna, a group of technocrats with a passion to develop sustainable technologies and create social impact, started Sustaintech India Private Limited. They sought to make energy-efficient cook stoves accessible and available to low income families living in rural and semi-urban areas. Sustaintech’s efficient cook stoves were targeted at the small and informal commercial establishments serving food and beverages (small hotels, eateries, and small institutions such as orphanages and schools) that dotted the state. These eateries, owned by and serving the sizable low-income population, used inefficient cook stoves posing health and environmental risk. The Sustaintech team decided to focus on this section. For the last three years, Sustaintech’s energy efficient cook stoves have slowly been replacing existing inefficient cooking equipment at tea shops, small restaurants, eateries and institutions in Tamil Nadu. The organization aims to create a positive social impact among low-income populations with minimum interference in their daily working pattern and routines. Understanding that access to finance is a considerable hurdle for their customers, Sustaintech also connects them to financial institutions. Sustaintech’s cook stoves are being adopted successfully in the target markets, and the organization continues to innovate based on user experience and feedback. As the leadership team takes stock of their achievements, they are also struck by a number of critical questions that will chart their future course. These focus on their plans for expansion: since most of their customers cannot afford cook stoves without financing, how can they obtain long-term consumer finance linkages? How can Sustaintech form new and stable partnerships with cook stove manufacturers? How can they find investors who would be committed to support Sustaintech’s vision? How can the team tackle human resource challenges as they scale up?

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Cooking Fuels in India

Biomass fuels such as firewood, crop residues and animal dung, continue to be a dominant source of cooking energy in India. According to the National Family Health Survey statistics of 2005-06, around 71% of households in India relied primarily on solid fuels for cooking purposes.1 Approximately, 69% of the surveyed households used biomass as their primary cooking fuel.2 These numbers indicate that nearly 770 million people (approximately 160 million households) in India remained primarily dependent on solid fuel for their cooking needs.3 Figure 1: Percentage of rural households across states using different fuel types for cooking (2006-07)

Source: ‘Cooking with cleaner fuels in India: a strategic analysis and assessment’. Policy Brief Series. The Energy and Resources Institute. November 2011.

Solid fuels are the primary source of fuel not only for poor households in India, but also for small tea stalls and restaurants in the rural and semi-urban areas. These low-price eateries are open for business for approximately 10-12 hours a day, and its owners spend much of this time cooking meals, snacks, and preparing tea on traditional stoves, which have efficiencies of less than 10% and are highly polluting.4 In the case of small restaurants, use of inefficient cook stoves exposes them and their customers to hazardous indoor air quality. Moreover, small commercial establishments have to purchase solid fuels like firewood and coal from the market, exposing them to price increases and fluctuations in fuel costs, adversely impacting their profit margins.

1C. Venkataraman et al. ‘The Indian National Initiative for Advanced Biomass Cookstoves: The benefits of clean

combustion’. Energy for Sustainable Development. Issue 14. Pgs. 63–72. 2010. 2Ibid.

3Ibid.

4MNRE. ‘New Initiative for Development and Deployment of Improved Cookstoves: Recommended Action Plan’.

Prepared by Indian Institute of Technology Delhi and The Energy and Resources Institute, New Delhi. May 2010.

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Energy Efficient Cook Stoves in India Energy-efficient cook stoves are cleaner substitutes for conventional, highly polluting traditional cook stoves used widely in India. There are various models in the market that are designed on the basis of local conditions and usage patterns. Most of the energy-efficient cook stoves manufactured in India are fixed or portable. The fixed cook stoves are usually built on site by local workers, using mud or clay. Portable cook stoves, on the other hand, are manufactured at small-scale industrial units according to a standard design using metal. The portable stoves are typically more expensive than the fixed ones. These fuel efficient stoves burn solid biomass cooking fuels 20% to 65% more efficiently than traditional stoves do.5 The potential annual market value of energy efficient cook stoves in India is estimated to be INR 1.1 billion (approximately US$ 24.12 million).6 In India, the existing market for energy efficient cook stoves is limited due to its high costs, which puts them out of the reach of a majority of the poor households. Energy-efficient cook stoves cost anywhere between INR 500 (~ US$ 9) and INR 2,000 (~US$ 35) – this estimate includes basic fixed cook stoves constructed using mud and brick.7 The portable energy efficient cook stoves are more expensive, with prices ranging from INR 5,000 (US$ 87) to INR 20,000 (US$ 350), depending on the type and size of the product. In comparison, traditional cook stoves can be constructed by the users themselves at either no cost or at a moderate amount of around INR 100 (~ US$ 1.7). Thus, for the poorest of the poor that exist on less than US$1 per day, even a modest upfront purchase cost of energy efficient cook stoves could be prohibitive. Currently, companies engaged in manufacturing energy efficient cook stoves use existing distribution channels to access potential markets as this does not require significant investment. They sell their products through multi-product rural distributors and retailers, who also sell other energy products such as LPG stoves and fuel. In addition, cook stove manufacturers partner with microfinance institutions (MFIs) and NGOs to use their local networks. Most retailers and distributors, however, sell the cook stoves at a higher margin, and therefore, at a higher price to the end users. For instance, First Energy cook stoves are resold at markups of roughly 9% by NGOs through their networks of local entrepreneurs.8 This significantly escalates the costs of the fuel efficient cook stoves for low income buyers, thus increasing the need for consumer financing in this sector. The payment option that is generally available for the poor to acquire energy products such as energy efficient cook stoves requires the customer to make an initial up-front payment to own the product, and pay the remaining amount in installments. The consumer finance is obtained

5Bairiganjan, Sreyamsa, et al. ‘Power to the People. Investing in Clean Energy for the Base of the Pyramid in India’.

World Resources Institute. IFMR research. Center for Development Finance. 2010. 6Ibid.

7Ibid.

8Ibid.

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primarily through MFIs to help overcome the initial high upfront cost of energy efficient cook stoves. To date, however, very few MFIs offer loan products for clean cook stoves in India. Consumer finance available for purchase of these clean cook stoves through commercial banks is also negligible – banks state that high transactions costs involved in processing such small loans render them unviable. Lack of consumer finance is considered a major hurdle for expanding the adoption of the clean cook stoves in the Base of the Pyramid (BoP)9 segment. Another important factor could be the difficulty in implementing improved cook stove programs, which become complex as they involve a range of custom designs and prices, and often require customized loans for different regions, as well as customer segments among the poor. This trend however, is changing with increasing links among different types of service providers and institutions that offer considerable scope for extending financial access through banks and MFIs. For instance, Sonata Finance Private Limited, an MFI, offers Interest Free Smokeless Chullah Loan (Advanced Cooking Stoves - Envirofit brand) that can be repaid over 10 to 16 weeks, to poor families living in India in partnership with Gajam India Pvt. Ltd, a social enterprise engaged in distribution of energy efficient products. Sonata earns a small commission on every sale. Recently, International Finance Corporation has agreed to provide a US$ 5 million loan that ICICI Bank is providing to SEWA-sponsored Grassroots Trading Network for Women (GTNW) to help women members purchase cook stoves and lanterns.10

Key Players in the Energy Efficient Cook Stove Segment

Most enterprises that are engaged in the production and distribution of energy efficient cook stoves have been in business for only the last 5–10 years. Of these, very few players cater to small commercial establishments. TERI, for instance, has developed the clean combustion cook stove to meet domestic, as well as community cooking needs in dhabas, canteens, and restaurants. Similarly, Prakti Design launched the Orka stove to meet cooking requirements in restaurants, institutions and refugee camps. These cook stoves are fuel agnostic and are designed to operate with various types of biomass fuels such as wood, charcoal or compressed briquettes/pellets. While improving efficiency levels of existing cooking fuels used by customers is a key objective, many enterprises have expanded to offer other forms of fuels such as pellets, solar energy in this segment. Enterprises such as First Energy Pvt Ltd., and Nishant Bioenergy Pvt. Ltd., amongst others, offer biomass fuel - pellet/briquette based cook stoves as an improvement over fossil fuels, as well as an alternative to LPG. However, cost of biomass pellets is prohibitive, at

9 Base of the Pyramid or BoP is a socio-economic designation and constitutes roughly 4 billion people around the

globe whose annual per capita incomes fall below US$ 1500 in PPP terms. 10

‘IFC, SEWA tie up to provide solar stoves, lanterns to rural women’. Business Line. 24 May 2012. <http://www.thehindubusinessline.com/industry-and-economy/article3452014.ece>

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present; therefore biomass fuel based cook stoves are more popular among the commercial segment such as restaurants, tea shops, school canteens. A majority of the enterprises focus on providing energy efficient cook stoves to the individual household segment. Some of the key players that offer biomass based, energy efficient cook stoves include - SEWA, a member-based organization of self employed women workers, provides microfinance under the Hariyali project, which seeks to finance around 200,000 efficient cook stoves that would be sold over a period of three years to its clients in four states of India (Gujarat, Rajasthan, Uttar Pradesh and Bihar). Each stove will cost around INR 4,500 (~US$ 79) and borrowers will pay an interest at the rate of 15%.11 Envirofit India Pvt. Ltd.—founded by Shell Foundation, and Envirofit International, a US-based not-for-profit, sells energy efficient cook stoves to poor consumers. Having started operations in January 2008, Envirofit India has so far sold 50,000 stoves in the southern states of Karnataka, Tamil Nadu, Andhra Pradesh and Kerala.12 The cook stoves are available in 5 models with their prices ranging from INR 500 (~ US$ 9) to INR 2,000 (~US$ 35).13 Samuchit Enviro-Tech Pvt. Limited (SET) was established in 2005 to provide environment friendly, energy efficient solutions to satisfy the household energy needs of the rural and semi-urban populations. SET is currently marketing fixed and portable biomass burning cooking devices that cost anywhere between INR 900 (~US$ 16) to INR 3,500 (~US$ 61). Greenway Grameen Infra, started in 2010, developed a portable metallic stove called Greenway Smart Stove that works on any type of biomass fuel. The stove priced at INR 1,250 (~US$ 24) burns 70% less fuel and produces low emissions as well.

Government Policy

The Indian Government has been attempting to encourage and support adoption of energy efficient cook stoves through different programs. As early as 1983, the Indian National Programme on Improved Chulhas (NPIC) was launched in all states, as well as union territories. The program aimed to disseminate improved clay and mud chullahs (stoves) to increase the energy efficiency of traditional cook stoves and decrease indoor air pollution. Under the program, around 30 models of chulhas were developed. However, in 2004, the funding for this

11

“SEWA, IFC to provide eco friendly lamps to over 2 lakh”. The Economic Times. 24 May 2012. <http://economictimes.indiatimes.com/news/news-by-industry/et-cetera/sewa-ifc-to-provide-eco-friendly-lamps-to-over-2-lakh/articleshow/13456093.cms> 12

“Rural India gets a lifesaving cookstove”. Livemint.com.22 April 2009. <http://www.livemint.com/2009/04/21190721/Rural-India-gets-a-lifesaving.html> 13

“Now, biomass cooking stoves in India”. Sifynews. 09 July 2008. <http://www.sify.com/news/now-biomass-cooking-stoves-in-india-news-national-jegrTCiicij.html>

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program was discontinued due to customer dissatisfaction and lack of resources to implement the project. The responsibility for continued Improved Cook Stove (ICS) dissemination was passed to the states. Since that time, state governments such as Maharashtra, Andhra Pradesh and Tamil Nadu amongst others, and NGOs have continued ICS-related projects. In 2009, the Ministry of New and Renewable Energy (MNRE) announced the National Biomass Cook-stoves Initiative (NBCI).14 The primary aim was to enhance “the availability of clean and efficient energy for the energy deficient and poorer sections of the country”. The NBCI is envisaged to be structured differently from the earlier National Programme on Improved Chulhas (NPIC); and aims to build on the several successes of that program while also drawing lessons from the experience gained from its implementation. This initiative includes a series of pilot scale projects using several commercially available and better cook stoves and different grades of process biomass fuel. This will help in exploring deployment of a range of technologies, biomass processing and delivery models leveraging public-private partnerships. NBCI had proposed a pilot scale project for demonstration of one lakh family-sized, portable cook stoves during 2011-12 across the country. The objective of the pilot projects is to demonstrate the use of improved biomass cook stoves and study the impact of improved biomass cook stoves on social and economic development of energy-deficient people, and its market potential in near future. The financial assistance for the project covered upto 50% of the cost of biomass cook stoves.

Sustaintech India Headquartered in Bangalore, India, Sustaintech was established in 2009, as a for-profit social enterprise with a mission “to promote the rapid adoption of sustainable energy related technologies and products” across rural and semi-urban areas. Their products include three different models of energy efficient cook stoves that are sold to road side kitchens, tea stalls, small closed-roof hotels, bakeries and small institutions such as orphanages. Currently, they operate in four districts - Salem, Tanjavur, Madurai and Tirunelveli - in Tamil Nadu. The Sustaintech team of around 20 members includes three members of the Board of Directors, its CEO, three area managers, and a sales force of 10-11 people working at the district centers in Tamil Nadu. As the only provider of commercial energy efficient cook stoves in south India, Sustaintech has sold over 700 energy efficient cook stoves since its inception. Their stoves cost anywhere between INR 6,000 (~US$ 105) – INR 17,000 (~US$ 299) each, with a projected pay-back of one year through savings on fuel alone (Refer Figure 2). Typically, the stoves have a product life

14

National Biomass Cookstoves Initiative. Ministry of New and Renewable Energy website. <http://www.mnre.gov.in/schemes/decentralized-systems/national-biomass-cookstoves-initiative/>

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cycle of about seven years with a one-year warranty period on the equipment. After the expiry of the warranty period, customers bear the cost of servicing and repairs which are carried out by Sustaintech. This also forms an important revenue stream for the organization. The fuel efficiency of the cook stoves decreases after the completion of its life cycle because of basic wear and tear from usage and, more importantly, from thermal stress on the metal. Therefore, the stoves need to be replaced once they reach this stage.

Background of Co-Founders

Svati Bhogle is the co-founder and CEO of Sustaintech. She has over 20 years of experience in technology for development and has contributed to several projects that have explored entrepreneurship models for sustainable technology dissemination. While working at Indian Institute of Science, Bangalore, she met Dr. S. Rajagopalan, the Co-Founder of the company. He has been the Chief Executive Officer of the Karnataka State Council for Science and Technology, Bangalore, for about 13 years and has been involved in the management of science and technology research, demonstration and dissemination projects. Mr. N. V. Krishna, Co-Founder, has a successful track record as a manager and entrepreneur. He is co-owner and director of Microsense Pvt Ltd and Microsense Software Pvt Ltd. Krishna has set up and managed businesses addressing markets in India, USA, Europe and Singapore, focused on software services and networking.

Taking off the Ground

The idea of setting up an organization providing fuel-efficient cook stoves took shape while Svati worked as a scientist for the Karnataka State Council for Science and Technology (KSCST), where she was involved in research on the development of fuel-efficient, biomass-based stoves. At the research institute she realized that there were no linkages between research and adoption of technologies at the grassroots level. Hence, in 1993, along with Rajagopalan, who was then the Executive Secretary at KSCST, Svati set up Technology Informatics Design Endeavour (TIDE) as a not-for-profit society. TIDE aimed to promote sustainable development through technological interventions by identifying profitable, as well as environment-friendly technologies, and develop them into successful enterprises. Their focus was on stimulating grassroots level entrepreneurship through technology. Svati and Rajagopalan realized, however, that technology alone was not enough to improve the livelihoods of the poor, and it was important to create a system that incentivizes each stakeholder in the value chain. This would then effectively build a distribution network and channel to reach the poor. With this aim in mind, they founded Sustaintech Private Limited as a for-profit social enterprise and the retail division of TIDE. Sustaintech got its preliminary funds of INR 34 lakh (~US$ 63,000) in mid-2008, when it won the Ashden Award for Sustainable Energy prize. In addition, Sustaintech also got an interest-free loan of INR 25 lakh (~US$ 47,000) from Villgro.

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The company aimed to encourage financial outlook among the poor consumers, who, through their use of the fuel efficient stoves, could substantially reduce their fuel bills and increase their incomes. By saving on fuel bills, poor customers were able to repay their bank loans in 15-18 months and this made it a viable business proposition for financial institutions to extend credit to an otherwise un-bankable group (Refer Figure 2). Figure 2: Estimated Payback Period for different Sustaintech stove models

Stove Type Price (INR)

Fuel Saved

Annually (kgs)

Fuel Saved Daily

(kgs)

Cost of Fuel Saved

Daily (INR)

Payback Period

(Days)

Payback Period

(Months)

Tava 16 Firewood 17000 10834 32.8 98.5 172.6 6.9

MP* (40 cm) Firewood 6500 528 1.6 4.8 1354.2 54.2

MP* (40 cm) Charcoal 7500 488 1.5 11.8 633.4 25.3

MP* (50 cm) Firewood 9800 2640 8.0 24.0 408.3 16.3

MP* (50 cm) Charcoal 10800 924 2.8 22.4 482.1 19.3

MP* (60 cm) Firewood 12800 4950 15.0 45.0 284.4 11.4

Tea (5 litres) Cement Pipe

Firewood13500 2911 18.0 54.0 250.0 10.0

Sloping Grate 73 cm 16500 5940 18.0 47.7 345.9 13.8 *MP – Multipurpose cook stoves The calculations were made based on the following assumptions - Charcoal Price/kg INR 8, Firewood Price/kg INR 3, and Loose Fuel Price/kg INR 2.65 (used in Sloping Grate Stove Model)

Target Market

As noted earlier, Sustaintech targets commercial establishments like street-food vendors, owners of micro and small boarding establishments, including semi-portable food vendors. Their target customer’s daily income broadly ranges from INR 500 (~US$ 9) to INR 5000 (US$ 87). Street side food vendors, who constitute the lower end of the income bracket, spend considerable amounts of their income on firewood. Thus, they often tend to operate on low profit margins. These individuals were shown to spend up to INR 30,000 annually (INR 83 or US$ 1.5 daily) on firewood while earning daily incomes of around INR 300 (~US$ 5). Owners of small hotels catering to the needs of approximately 100 customers a day constitute the higher end of the income bracket. These food vendors rely primarily on wood and biomass. The amount spent on fuels varies depending on the number of customers, as well as type of food served. Their average daily incomes range from INR 3000 (US$ 53) to INR 5000 (US$ 87). Before launching their products, Sustaintech conducted an extensive market survey in Tamil Nadu in order to assess the market potential for fuel-efficient tava stoves and frying stoves, based on user inputs. The survey results revealed that the total number of tea shops, small and medium hotels, and street food vendors to be 73,650 in the state of Tamil Nadu alone with

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firewood being the most common type of fuel being used. The limiting potential15 of fuel efficient wood burning stoves in the state of Tamil Nadu was 94,300 stoves and the addressable potential16 was 38,700 stoves. The survey also showed that 50% of the tea shops were willing to pay INR 8,000 (US$ 140) – INR 10,000 (US$ 175) per frying stove and 67% of the hotels were willing to pay INR 8,000 (US$ 140) – INR 14,000 (US$ 245) per tava stove. Around 40% of the respondents found the product to be appealing and more than 50% of the respondents were willing to shift to energy efficient stoves. The survey results identified firewood as the cheapest source of fuel and indicated that innovations around it have potential for acceptability among the consumers.

Sustaintech’s Product Offering

Based on the market survey, Sustaintech developed three wood-burning stoves under the brand name Pyro. Although firewood is used as a primary fuel, these stoves have higher efficiency, in other words, they use less firewood to cook the same amount of food, as compared to traditional cook stoves. Each model of fuel efficient cook stove is adapted to a particular type of cooking - one to make dosas on a flat plate, one to make tea, and one for multi-purpose (also called the frying stove) cooking. Each of the three models is available in different sizes based on customer needs. A total of 8 variations of the models are currently available. The Tava Stove is used for making omelets, chapatis, dosas and parathas. The product brings 40% fuel saving, flame control, uniform tava temperature, safety features like ash box and a smoke-free working environment. The foldable legs of the stove are an additional feature for mobility. The Frying Stove, used for making of deep-fried snacks like samosas, vadas and bajjis, includes a kadai (for better heat transfer and to ensure that the oil attains high temperature quickly), fuel efficiency, heat regulation, smokeless cooking (through the use of a chimney) and mobility. To ensure that the stove is convenient for the cook while standing and sitting, there is a facility to embed the legs in the ground to adjust the height of the stove.

15

Limiting Potential is calculated based on calculating the number of teashops, street food vendors, and small & medium hotels there are in the districts in Tamil Nadu (and then extrapolated numbers to consider entire state of Tamil Nadu). Based on this number, the type of usage and the number of cook stoves required was determined. 16

Addressable Potential is calculated by filtering customers/businesses from the limiting potential that would be interested and also have the appropriate conditions to use Sustaintech products. For instance, addressable potential would include customers who use firewood and exclude customers who would use gas/kerosene as fuel because they would not be willing to change their fuel type to firewood.

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Figure 5: MERITS OF SUSTAINTECH’S IMPROVED COOK STOVES

• Cook stoves are highly efficient and generate at least 30%-40% in fuel savings for the end user and less carbon emissions for the environment.

• Cook stoves do not change the user's cooking habits • The cook stoves reduce the heat emitted drastically from 300

degrees to approx. 70 degrees. • All cook stoves have chimneys and temperature isolation

bodies, and therefore are smokeless.

Figure 4: PYRO Brand Fuel Efficient Cook Stoves

Tea Boiler, used for tea and coffee making, is made of stainless steel and uses firewood. The stove components include different vessels for tea / coffee decoction and for the milk / water that are fully dipped into the water bath. This water bath is always simmering to keep the liquids at the tea serving temperature. This stove occupies less space and it comes with its own stand. The Sustaintech team tested all three models in a few villages in Tamil Nadu and customized the models further based on feedback from users. In addition, chimneys were provided that made cooking smokeless and less cumbersome for the user.

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Figure 6: Comparative Efficiency Analysis – Conventional Vs Sustaintech Cook Stoves Stove Type Salient Features Efficiency of

Conventional stoves (%)

Efficiency improved using TIDE stoves (%)

Large Cook Stove On-site construction with optimized internal geometry using local materials, case iron grate and chimney

11.3 23.8

PYRO Brand Tava stove for cooking on a flat surface

Prefabricated stove made of mild steel, with insulation bricks, air regulators, chimney and optimized internal geometry

11.7 24.7

Pyro Brand kadai stove for deep frying and cooking in a round bottomed pan

Prefabricated stove made of mild steel, with insulation bricks, air regulators, chimney and optimized internal geometry

10.7 32.4

PYRO Brand tea stove for preparation of tea and coffee

Prefabricated, insulated stainless steel stove conceived as a water bath with a chimney

11.6 55.0

Source: ‘Renewable Energy in the SME Sector’. E-Net Newsletter. Practical Action. January 2011.

Reaching the Consumer

Consumer Finance

Sustaintech realized that a large section of the poor could not afford their energy efficient cook stoves and required financial assistance. In order to make their energy efficient cook stoves affordable and increase outreach to target customers, Sustaintech decided to partner with financial institutions. The team first challenge was to find institutions that provided small loans. Moreover, while attempting to forge alliances with consumer finance partners, Sustaintech found that many of them lacked awareness about the benefits of fuel efficient stoves such as providing improved air quality, better respiratory health and fuel savings, restricting deforestation and shifting users away from non-renewable fossil fuel usage. Sustaintech’s initial goal was to identify potential partners, as well as leverage existing networks they had with banks to reach out to funding institutions. After having made initial contact, Sustaintech made presentations detailing the financial benefits of their products and showed banks that the default risk of their customers was actually low. They secured their first partnership with the Indian Overseas Bank (IOB) to provide consumer finance. Under the IOB scheme, Sustaintech’s marketing team identifies customers who want to buy the cook stoves. If the customers cannot afford the energy efficient cook stove, then Sustaintech helps them to

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open a bank account, fill out a loan application form and also delivers the stove to the customers. The bank then conducts due diligence of the borrower and releases the payment directly to Sustaintech after proof of purchase and delivery. The rate of interest is about 9% and the loan period is between 18 - 24 months. Under this financing model, there are no processing charges, no collateral security or third party guarantee, and no margin is required. Sustaintech has also partnered with Vistaar Finance, an MFI based in Bangalore that provides credit services to the small businesses segment in rural and semi-urban areas. The financing model adopted for this partnership provides customers minimum loans of INR 30,000 (~US$ 526). These are general loans that can be used for multiple stoves or 1 stove with the balance borrowed in cash for other uses. Vistaar is funded through its own equity and from banks, and therefore, the interest rates to customers are high. Vistaar offers a diminishing interest rate of 29% (the equivalent flat rate would be about 17.5%). The tenure of each loan is about 18-24 months based on the customer. There is a processing fee of about INR 500-600 (US$ 9-10). In lieu of providing collateral to Vistaar, the customer needs to either own a shop, own a house in the area, or own farm land in the area.

Market Value Chain

TIDE plays a key role in the development of energy efficient cook stoves that are marketed by Sustaintech. TIDE is also responsible for identification of potential devices, understanding needs of end users, product development, testing, certification, material and cost optimization etc. These energy efficient cook stove designs are then outsourced by Sustaintech to a manufacturer. Currently, the company purchases the pre-manufactured stoves from a manufacturer based in Karur, Tamil Nadu. The transportation costs from Karur to sales outlets in Tamil Nadu are roughly INR 600 (US$10) per stove. Sustaintech is also identifying manufacturers that are located close to the current sales outlets to decrease transportation costs and also stabilize the supply. Except for the chimney that is sourced locally, the manufactured stoves are ready to install in user sites. Before the product is released into the supply chain, the stoves are quality certified and branded by TIDE.17 The average amount of time taken for a customer to receive the product would be one day for popular products such as Tava stoves, which are more heavily stocked in the warehouse. It would take about one week for other products like the multipurpose stove, and about one month for the less popular stove variations. The stocks available in the warehouses are based on expected demand for different products.

17

Bioenergy India, UNDP-GEF Biomass Power Project, Issue 5, July-September 2010. <http://www.undp.org/content/dam/india/docs/bioenergy_india.pdf>

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The flow of product from Sustaintech to the end-user depicted above is as follows: 1. Product development and sourcing from TIDE 2. Manufacturing sub-contracted / outsourced to suitable units 3. Quality control by TIDE 4. Marketing and product distribution from Sustaintech to customers 5. Product distribution through Sustaintech centers, independent dealers and

marketing agents

Figure 7: Marketing Value Chain

In the initial phase from end of 2009 to end of 2010, Sustaintech engaged with existing distribution channels such as Rural Energy Network Enterprise (RENE) and Adharam Energy in Tamil Nadu. However, these partnerships did not produce desired results and eventually fell through. Svati notes that, “Sustaintech went into partnerships pretty early in the life of the company”. Also, at that point their manufacturing agreements were not stable. Once they had everything in place, Svati realized that the distribution partners possibly did not meet the sales target as they had no incentives to do so. Currently, Sustaintech plans to strengthen its market penetration and distribution by creating Pyro centers, its own brand retail and service outlets, in about 25 locations. Each center would have about 10 sales agents. At present, Sustaintech has three Pyro centers in Tamil Nadu. The Sustaintech head office and the Pyro centers would be responsible for all marketing activities. The team at the head office is also focused on strengthening operations with identifying production partners, inventory management, supply chain, market development and expansion, brand building, advertising and promotional activities, and decisions about expanding reach.

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Sustaintech and Villgro Sustaintech’s work is an example of social entrepreneurship. Social enterprises, or start-up enterprises, are organizations that have dual aims of financial sustainability and social impact. SustainTech is being incubated by Villgro, a not-for-profit company empowering rural development by identifying and incubating innovations that could be translated to market based social enterprise models thus impacting thousands of lives. In Sustaintech, Villgro saw tremendous potential to address the needs of low-income roadside eatery owners who could potentially gain economic and health improvements from using fuel efficient cook stoves.

Marketing Strategies

Sustaintech focused its marketing strategies on building awareness about the positive aspects of energy efficient stoves among potential customers and addressing skepticism for their products in stakeholder groups, especially the financial institutions. The TIDE experience in the past has shown that placing demonstration units at strategic locations and planning awareness campaigns around these stoves was the way to mitigate this issue. The team also took the products to the customers using vans. This allowed cooks and owners to experience the products first-hand, and realize the potential benefits of shifting to a new stove. This has helped in creating good word of mouth publicity and translated into better sales.

Key Partnerships

Over the last three years, Sustaintech has built strong partnerships, and aims to expand its network further through partnerships with other companies and financial institutions. One of the first distribution partners of Sustaintech is Rural Energy Network Enterprise (RENE), an initiative of IFMR Trust for the development of rural areas distribution network. RENE has helped Sustaintech sell its energy efficient stoves in Thanjavur. In addition, Sustaintech had also partnered with Adharam Energy to promote its energy efficient stoves in Madurai, Tamil Nadu. Sustaintech’s key product development partner is TIDE. Sustaintech focuses on enhancing markets through the energy efficient cook stoves developed by TIDE. Sustaintech uses the product designs for a small fee i.e. 3% of the cost of production of the stoves.18 TIDE also provides quality assurance and technical support for Sustaintech’s products. Sustaintech believes that in order to keep costs low, it is important to build a strong collaboration with local manufacturing partners. Also, since most of their products are developed based on customer feedback, a local manufacturer would make quick adaptations, enabling faster stove dissemination. At present, Sustaintech has formed such a partnership with a local manufacturer in Karur.

18

Rai, K and McDonald, J. ‘Cookstoves and Markets: Experiences, Successes and Opportunities’. GEVP International. December 2009. http://www.hedon.info/docs/GVEP_Markets_and_Cookstoves__.pdf

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Social Impact The environmental, health and economic benefits of using a fuel efficient cook stove are enormous. Firewood is purchased by the micro entrepreneurs at INR 2000 (~US$ 35) per ton. Each cook stove saves between 7 to 20 tons of firewood per year, which cumulatively adds up to INR 14000 (~US$ 245) and INR 40,000 (~US$ 701) savings to the customer every year. The use of energy efficient cook stoves would drastically reduce respiratory ailments and provide a smoke free working environment for the poor customers. As a result, this would also significantly reduce medical expenses of these people. Sustaintech estimates that the 65,000 fuel efficient wood burning stoves sold by Sustaintech in the first five years would offer a safer, cooler and healthier working environment to at least 65,000 cooks and 6.5 million people who would eat around these stoves every day. Use of energy efficient cook stoves also generates considerable environmental impact. Given the usage patterns of the stoves the carbon abatement potential of the venture through installations in the first 7-year planning period would be of 4 million tons of carbon dioxide.

Company-specific Challenges Svati notes that “Sustaintech faced different challenges at different points of time”. In the initial stages, developing a strong business plan was a key challenge as Sustaintech targeted new market segments. In order to gain a better understanding of their potential market, they conducted a market survey and then developed their business plan based on the survey results. The next set of constraints Svati noted were “actually selling their business plan to the investors”. Although the company was well known in the energy field because of TIDE’s work, getting investments for this particular product and customer segment was a challenge. Banks and other financial institutions resisted any proposal to provide small loans to potentially high

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risk customers. This, they believe, will continue to remain a challenge as Sustaintech plans to expand into new geographies within the country. In addition to this, street food vendors did not want to visit banks during their working hours in the day, as this would take them away from their hotels and stalls, resulting in loss of business and income. They preferred to work with intermediaries who provided door to door collection for repayment of loan. Typically, such services are provided only by MFIs. Sustaintech has, however, found it difficult to forge partnerships with MFIs as these institutions primarily focus on providing loans through either SHGs or to women, while most of Sustaintech’s customers were men who ran roadside eateries. Sustaintech foresees building and expanding a strong team to be a key challenge in the future. Svati feels that finding the right people at the salaries they offer could be a constraint as the company moves from the start-up stage to the growth stage. Moreover, as they expand operations, finding local manufacturers to develop their products and establishing distribution networks with existing players in the field could be a primary concern. In the past, partnerships with distributors have not been profitable because of the multiproduct sale approach used by distributors, as well as their own lack of understanding of the distribution channels. Consequently, Sustaintech started their own Pryo centers to distribute their products. Having gained significant experience in developing their own distribution network and sales team in the last two years, Sustaintech is now ready to build partnerships with established distribution channels in other states.

The Road Ahead Sustaintech is aiming to create a mechanism for rapid acceptance and adoption of fuel efficient stoves. Until now, the company has sold around 700 energy efficient cook stoves and is aiming at total sales of around 2000 stoves by the end of financial year 2012-13. In the next few years, Sustaintech will look at expanding into new geographies, building new distribution models, creating new financing linkages, and tying up with new manufacturing partners. Svati plans to scale up operations by replicating what they have done in three centers to 6 or 7 centers in new geographies. The Sustaintech team plans to expand to other south Indian states - Karnataka, Kerala and Andhra Pradesh and is in the process of identifying vendors that have the necessary infrastructure and capacity to produce on a large scale. They realize that the entry barrier for imitators to launch products similarly styled as those developed at TIDE is low. To address this concern, Sustaintech plans to ensure that all products released into the supply chain will be quality certified by TIDE. Spreading awareness about this quality certification would also feature in their marketing strategies. Sustaintech’s expansion plan involves establishing new dealership models with various partners in different states. One model they have looked at in Kerala, for instance, is to leverage the partner MFI not only for finance, but also for its extensive distribution network to sell their

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products, in the initial period. In Karnataka, Sustaintech is looking at building partnerships with an MFI and a dealer that can do door to door sales. They realized that, although the MFI had a good distribution network, they lacked experience in product sales and thus, having a separate distribution partner made more business sense. When Sustaintech started operations in 2009, their vision was to facilitate and promote the rapid adoption of sustainable technologies. Although they had the technical knowledge, it took them some time to understand the market dynamics, learn about customer needs and customize their technologies to reach a wider market. Today, looking back at their growth path, the Sustaintech team feels confident about venturing into newer geographies while they continue to address important challenges on how to build consumer finance linkages, establish sustainable partnerships with manufacturers and distributors, as well as how to build a strong team to execute their vision of delivering cutting edge, yet affordable cooking technology to BoP markets.