A Study to Better Understand Cookstove Business Models
In early 2014, StovePlus and GIZ-HERA initiated a study to better understand biomass cookstove business models across Asia and Africa.
This study comes at an important time where market-led approaches are increasingly used for cookstove dissemination and as market actors search for more effective and sustainable ways of financing their businesses and investing in stove value chains.
Focusing on investment choices and flows, researchers aimed to bring recommendations from major market actors to the sector’s financers, such as donors and private investors, and lessons learned to practitioners in the sector.
The study, “Building Business Cases to Reach Scale: A study on biomass cookstove business models from Asia and Africa”, analyzed 8 cookstove business models:
- IcoProDac, GERES Cambodia
- SZ Consultancy, GIZ Bangladesh
- Envirofit India
- Envirofit Kenya
- Cookswell Jiko, Kenya
- Toyola Energy Ltd., Ghana
- EnterpriseWorks/ VITA, Ghana
- FAFASO, GIZ Burkina Faso
By conducting 100 in-person interviews, direct field observations, focus groups and two regional workshops (Phnom Penh, Cambodia and Accra, Ghana), researchers were able to gather a large amount of firsthand data and recommendations.
"GIZ has been promoting sustainable markets for cooking energy for a long time. [Their] experience shows that learning from successful businesses which benefitted from the right support in the right moment helps speed up impact. This study aims at enriching the knowledge base of stakeholders involved in the cooking energy sector in order to enable them to make informed decisions," said Dr. Marlis Kees, Director of the GIZ Sector Program “Poverty-oriented basic energy services” (HERA).
Where, when and how to invest in a cookstove business?
Quite a complicated question! There is no simple answer since it depends on the type of initiative implemented (NGO supported vs. social enterprise vs. private entity), the business phase (start-up vs. scale-up), market readiness, available financing mechanisms and the local socio-cultural context.
However, participants stressed the importance of investing directly in stove value chains, especially at the production level (e.g. on training, tools & equipment for stove producers). Quality control through stove standards, labels and certifications, as well as public awareness efforts were also identified key areas to invest in.
Market maturity was found to be a very important factor in considering where, when and how to invest in a cookstove business. For example, raising awareness on improved cookstoves is an essential activity for successful stove dissemination and those entering immature markets invest heavily in this area, both in terms of time and resources. Comparatively, stove businesses entering a more mature market tend to focus their investments on product development, standardization and marketing.
What financing mechanisms were used?
A variety of financing mechanisms were seen, such as Official Development Assistance (ODA), private loans, carbon finance, awards, etc. However, the most common across all the cases was carbon finance. Carbon finance played a very important role in the ability to scale-up cookstove businesses, yet given the recent collapse in carbon markets it may pose a threat to business models that are highly dependent on the sale of carbon credits.
Access to finance is vital for the development of cookstove businesses and the sector, and direct investments into cookstove value chains have made stoves more accessible to end users. Market actors mentioned the importance of subsidies (i.e. any type of financial assistance reducing the cost of stoves to end users) in their growth and success, though the manner in which they are implemented must be carefully assessed. The study also explores the very interesting case of Cookswell Jiko; a cookstove business that was able to reach scale without any financial assistance.
What role can donors play?
Despite a shift towards more market-led approaches, donors are still very relevant and have an important role to play in the development of the cookstove sector. In particular, market actors are calling upon development agencies and governments to lead large-scale, national level awareness raising efforts on the impacts associated with inefficient cooking, in particular the adverse effects of Indoor Air Pollution (IAP) on human health.
Explore the cases and increase your knowledge on cookstove business models!
Read the study here: