Start-ups dominate major market opportunity

Lack of interest from major corporations has opened up a huge solar energy market for small start-ups in the developing world, according to a recent report from Lux Research.

Off-grid solar installations in places like India, Pakistan, Thailand, Indonesia and Sub-Saharan Africa have gone from zero to 4 million in less than a decade with almost no thanks to major national utility companies or large corporate interests.

Entrepreneurial business people from the United States, Europe and some local start-ups in these developing regions have created a lucrative business model selling thousands of off-grid systems to local villagers. But now some are employing the same pay-as-you go model that launched a telecom revolution in the developing world, said Steve Minnihan, Lux Research analyst and author of the report.

“They’ve built a model that has nice recurring revenue with large growth potential,” Minnihan said.

Big companies have looked at these start-ups’ successes.

“About 99 percent of them say that’s fascinating and they need to think about getting something going there themselves,” Minnihan said. “But, ultimately, they end up thinking it’s too low-margin and too low volume to be worth their time.”

These startups are providing complete kits to remote villagers with low-cost solar panels, inexpensive lead-acid batteries, a few wall outlets for phone charging and a few light-emitting diodes.

“Solar advances have certainly been essential,” Minnihan said. “But what has been really essential here is the LED technology. The LED dimmable and its long lifetime is really what has helped this service take off.”

Since LEDs last up to 20 years, it’s easier for small companies to sell a service with them. They can install the lights and walk away without having to replace bulbs every couple years. That’s something new that came along with the LED and allowed companies doing business in the developing world to transition their model from selling whole systems to selling power and light on a pay as you go basis, almost like a large utility would.

Some of the biggest players in the space have been getting notoriety lately. FlexEnclosure, Egg Energy and Simpa Networks are getting a lot of venture capital funding for this kind of work, Minnihan said. But they’re a bit newer to the model than some more-established and less notable companies like Barefoot Power, SRE Solutions and Mera Gao.

While all of these start-ups pursue these continuing revenue streams in the developing world, Minnihan said they will also have plenty of more conventional opportunities in some of these countries as well.