DEDICATED TO MAKING A DIFFERENCE World Business Council for Sustainable Development 2004Case studyThis version of the Real Microcredito case study is based on the full business school case prepared by Yerina Mugica under the direction of Professor Ted London at the Kenan-Flagler Business School, University of North Carolina. Fabio Rosa’s approach to social entrepreneurship Distributed solar energy in Brazil There are approximately 25 million people in Brazil (about 5 million families) that do not have access to electricity. In the southern state of Rio Grande do Sul approximately 150,000 people remain isolated from the electric power networks. There are no plans in place to provide these people with access to conventional electrical services. Prior to the 1990s the Brazilian government launched a number of initiatives to expand the electric grid and provide power to people in rural areas. However, the 1990s marked a period of extensive deregulation in the country. As a result of this trend, in the late 1990s Brazil’s electric utilities were privatized. While the government had not only served existing clients but also sought to increase access to electricity and create new clients through its efforts to extend the grid to rural areas, the privatized corporations focused only on servicing locations with existing grids. In effect the privatized electricity industry took over responsibility for providing electricity to existing on-grid customers, but did not take responsibility for providing electricity to the 25 million Brazilians that reside in off-grid locations. The utility companies had little experience working with low-income rural markets, and saw no incentives to provide electricity to rural off-grid communities. They preferred to serve the existing on-grid cities, which they saw as more profitable than pursuing low-cost rural electrification. As such, with the government out of the equation and corporations focused on maintaining the status quo, efforts to expand the grid came to a virtual end. Fabio Rosa has a long history of delivering electricity to low-income Brazilians. An agronomist by trade, Rosa has been developing electrical distribution solutions for over twenty years. In 1983, as the secretary of agriculture for Palmares do Sul, a rural community in the southernmost Brazilian state of Rio Grande do Sul, Rosa recognized the importance of electricity for the residents of rural communities who put electricity at the top of their list, even higher than better working conditions, as what they wanted most. Armed with this basic request, Rosa identified an existing technology that makes distributing electricity more affordable by using a single wire instead of three and substituting some materials with those that have a lower cost. Working as a consultant to government organizations, Rosa helped bring affordable electricity to 25,000 low-income rural households in 42 municipalities while reducing the cost of electricity by up to 90% from US$ 7,000 to US$ 500 per connection. In addition, the project also taught villagers improved rice farming techniques, made possible by inexpensive electrical irrigation pumps, which boosted farm incomes by 200 to 400% and caused many villagers to return to their land from the city. In 1996, the state of Sao Paulo launched a US$ 240 million project replicating this approach, providing electricity to one million people and saving the government millions of dollars. STA - IDEAAS Through his work in developing rural electrification solutions, Fabio Rosa founded both a for-profit corporation, Agroelectric System of Appropriate Technology (STA) and a not-for-WBCSD page 2 profit organization, the Institute for Development of Natural Energy and Sustainability (IDEAAS). Both STA and IDEAAS have been working to bring electricity and community development to rural Brazil since the mid 1980s. In addition to being the home of a rural distributed energy initiative dubbed the Sun Shines for All, STA also performs the manufacturing and assembly of some of the components used by The Sun Shines for All. This includes fluorescent lighting fixtures that are less expensive than those currently on the market. IDEAAS is a non-profit organization founded in 1997 to develop and demonstrate models of self-sustainable development for low-income rural populations. IDEAAS focuses on the use of high-efficiency and low-cost technologies in the fields of renewable energy and agricultural science to meet the needs of low-income markets. IDEAAS has successfully implemented project initiatives in the fields of rural electrification, the employment of energy for sustainable rural development, income generation and renewable energy models. Helping those without access to electricity Rosa began to explore new business models that could serve the needs of the millions of potential customers that had been left without access to electricity. Through STA, Rosa had spent years delivering solar energy to Brazil’s rural population. Now Rosa was looking for a way to expand the reach of solar energy as an alternative to on-grid electricity. Rosa began by conducting a market research study, spending eight months surveying 77 families in six rural municipalities in Rio Grande do Sul. They found that almost 70% of the families interviewed spent at least US$ 11/month on non-renewable energy sources such as kerosene, candles, batteries and liquid petroleum gas. Rosa knew that he could lease his solar energy service for close to the same cost as people were spending on inferior, non-renewable energy sources. Based on these findings, Rosa moved forward and with assistance from Ashoka-McKinsey began analyzing the market, risks and competition, as well as developing a market plan, including a ten-year pro forma income and cash flow statement. The business plan that ensued was dubbed The Sun Shines For All (TSSFA) project. TSSFA developed a basic photovoltaic solar home system that could be rented for US$ 10/month plus an initial installation fee, a little more than what people were already spending on non-renewable forms of energy. Fabio Rosa figured out early on that the rural poor are not interested in buying solar panels. What they are interested in is having access to the conveniences that electricity provides, such as effective and safe lighting at night and the ability to listen to the radio or heat shower water. Based on this understanding, in 2001,