Prologue

The windows were down and I was travelling along a single-lane road between the small towns of Bible and Ampara on the eastern side of Sri Lanka. It was a sunny day and the breeze felt good. This was March 2005, three months after the tsunami had laid waste to much of the country's southern and eastern coasts, and it was the first time I had been back in Sri Lanka since the tsunami had struck.

I was then working for Shell - the oil and gas company - which at the time was engaged in the global solar business. As part of this work, I had helped set up, and was now responsible for managing, several subsidiary solar businesses in Asia, including Sri Lanka. On this particular trip our final destination was Batticaloa, on the northeast coast, where some of our staff, as well as many of our customers, had been personally affected by the tsunami.

It was a long trip from the capital, Colombo, and we were taking a circuitous route in order to visit other branches. Because we were running late, my colleagues and I had opted for some warm soft drinks and potato chips instead of lunch, and we were chatting about the business as we drove. Before setting off, I had heard that quite a few houses along this particular stretch of road had bought solar power systems, but I had no idea how many.

As we passed a house on our left, our General Manager shouted, 'There's one!', and we all turned to look. No sooner had we turned back than someone else said, 'there's another'. We were late, and driving quickly, so I asked the driver to slow down. We slowed to a crawl as we passed homes on our left, mostly brick homes with tiled roofs. It was early in the afternoon, and hot, so not too many people were out. But on each home we could see a single solar panel poking through the roof, and, as we drove, all of us joined in, pointing out 'there's another', 'and another', 'and another!'...

I had never seen such an extensive adoption of solar systems. This is what large-scale diffusion of solar looks like, I thought to myself, when every home in sight is using the technology. When one house buys it and has light at night, then neighbours come to see it, talk about it, get convinced and then buy it themselves.

Just five years earlier in Sri Lanka, this was not the case. You may have found one solar system in every four to five villages. But now in villages like this, it seemed you could not find a single house without a solar system. And this showed in the statistics. In 1999, barely 500 solar systems were sold by the entire solar industry in Sri Lanka. But about 18,500 solar systems were sold in 2003 alone, and by the end of 2006, more than 100,000 systems had been sold to more than 7 per cent of Sri Lanka's formerly unelectrified households. What changed? How did this happen? Understanding this story in Sri Lanka, and other emerging markets, is what this book is about. It will, I hope, shed light on what will be one of the single most challenging issues facing the world in the 21st century - the diffusion of renewable energy in emerging markets.

I remember the day my interest in renewable energy was piqued. I was an undergraduate in London in the early 1990s, interning for Friends of the Earth a few days a week. It was one of those really grey, cloudy days you get in London in the winter, and I was asked to read through a pile of articles to help my team prepare for the Rio conference. It was kind of quiet, and despite several strong cups of tea, it was all going a bit slow. But when I picked up an article about renewable energy technology and its 'transfer' to emerging markets, something resonated with me.

It was clear from the article that emerging markets would need to consume much more energy to grow their economies and fulfil the aspirations of their surging populations. Of this there was, and remains, no doubt. But an energy future tied to fossil fuels was a scary scenario. Scary for the world as a whole, given the unprecedented levels of consumption to come. And scary for the emerging markets themselves, partly because they were likely to feel the impact of climate change disproportionately, and partly because without renewable energy, they were forging an intimate dependency on a finite resource that would become increasingly scarce.

But at this time, renewable energy technologies were simply not taken seriously. Despite their elegance, and enormous potential, they were marginalized. So I remember asking myself, 'If renewable energy technologies are such an attractive solution, why aren't they already being used more widely?'. It was a question that would stay with me from then on, and would, eventually, lead to this book.

Renewable energy technologies are today broadly referred to as 'renew-ables'. Sources of renewable energy we typically read about are hydro (from running water), tidal (from tidal currents), geothermal (from heat inside the

Earth), wind (from the prevailing winds), biomass (from plants) and solar (from the sun). I didn't know it then, but from the menu of renewable energy options, solar has a truly enormous potential.

To put this in perspective, today the world uses energy at a rate of 4.1 X 1020 joules per year. This is equivalent to continuous power consumption of 13 trillion watts, or 13 terawatts (TW). But with continuing economic growth and a global population growing from 6 to 9 billion, this is projected to increase from 13 TW to 30 TW by 2050, and to more than triple to 46 TW by the end of the century.1 In terms of the range of renewables that can contribute to this surging need for energy, further hydro-electric dams could contribute only 0.5 TW, tidal currents up to 2 TW, geothermal up to 12 TW (of which only a small fraction can be tapped) and wind in the range of only 2-4 TW. Solar, however, can contribute an incredible total of 120,000 TW. Indeed, in just one hour the Earth receives enough energy from the sun to power all its needs for an entire year. Put another way, if just 0.16 per cent of the world's land mass (equivalent to the land used by the US federal highway system) was covered with solar panels of 10 per cent efficiency (less than today's commercially available panels) this would provide 20 TW of power - two-thirds of our global needs in 2050.2

When it comes to accelerating the deployment of solar and other renew-ables, many people feel that industrialized countries should lead. For some, this is a political issue: if the industrialized world caused climate change, then it should also lead in solving it. For others, it is a more practical issue: the infrastructure, financing, markets and policies are all more conducive to renewables in industrialized countries:

It's hard to see how alternative energy technologies could succeed in developing countries. Alternative technologies are tremendously expensive and uncertain, even in the developed countries. ... It is very hard to imagine a technically backward country such as China or India successfully embracing solar technology or rolling out a production-ready fuel cell model before Detroit does.3

But this reasoning is flawed on several counts. First, in the absence of fully formed energy infrastructures in many emerging markets, renewables might actually have a competitive advantage over fossil fuels in certain segments. Second, because emerging markets have not yet made the same infrastructure commitments as industrialized countries, there are less fixed costs to consider when transitioning to renewable energy. Third, renewable energy is a source of technological innovation, wealth-creation and jobs, as well as energy independence - so self-interest can dictate an early turn to renewables. Finally, without an early and accelerated diffusion of renewables in the emerging markets (in addition to early action in the industrialized countries), the world simply will not head off climatic disaster.

Emerging markets already account for half of the world's energy demand and since 2000 have been responsible for 85 per cent of the increase. Moreover, since 2000, world energy consumption has increased at twice the rate of the previous decade.4 This surge in consumption is driven by a legitimate demand for the same sorts of goods and services that are taken for granted in industrialized countries - air-conditioners, computers, ovens, TVs, fridges, cars, roads, trains, communication and so on. But current increases in consumption are trivial compared to what will come. Take cars, for example. The total number of cars in China and India is projected to rise from roughly 30 million today to 750 million by 2040. This is more than all the cars presently on the world's roads, and even then it will represent only half the current per capita car ownership in the US.

Now consider where we are already in terms of environmental consequences. Start with local pollution. As Time reported in a special issue on pollution in Asia, all but one of the 25 most polluted cities in the world are in that continent. Of these, 17 are in China and 5 are in India. This pollution invariably has huge implications for people's health, notably respiratory illnesses such as chronic obstructive pulmonary disease (COPD), a condition:

that begins by making it uncomfortable for you to breathe, and eventually catches your throat in a steel grip so tight that you must lie on a hospital bed with a mask over your face, gasping for oxygen.5

There is no question that many emerging markets, and their local populations, are already, literally and tragically, choking on growth.

But there is also a global environmental dimension to the story of unfolding energy consumption: climate change. Sometimes it is hard to comprehend the magnitude of the disaster that faces us. But I think this journalist summed it up better than most when he wrote:

Sea levels will rise over the century by around half a metre; snow will disappear from all but the highest mountains; deserts will spread; oceans will become acidic, leading to the destruction of coral reefs and atolls; and deadly heat waves will become more prevalent. The impact will be catastrophic, forcing hundreds of millions of people to flee their devastated homelands, particularly in tropical low lying areas, while creating waves of immigrants whose movements will strain the economies of even the most affluent countries.6

Although China consumes only 2 barrels of oil per person per year compared to the 28 barrels per person consumed in the US,7 it is expected to pass the US

as the largest emitter of greenhouse gases in 2008.8 And if we look a little further ahead, the share of carbon dioxide emitted by emerging markets is projected to increase to 70 per cent by 2025, much of this from the growth in fossil fuel power plants in Asia.9

Such projections are no longer lost on the populations and policymakers of the industrialized world. As The New York Times reported, the climate change spotlight is shifting to emerging markets such as China and India, 'representing a combined population of 2.3 billion and both economies growing at a pace about 9 per cent a year', where it has become clear that 'allowing them to pollute as much as Western countries would have catastrophic effects on the environment'.10

For emerging markets, this concern with the environment, and climate change, comes at just the wrong time. Just when technology and capital has started to flow like never before - enabling them to develop their economies and lift their populations out of poverty - the world has suddenly become concerned with their energy consumption and consequent emissions. This simply does not fit with the dominant development paradigm, which has been 'grow first, clean up later'.11

Not surprisingly, the response from many emerging market governments has been to push back. They make their case on three levels. The first is that the industrialized world is historically responsible for 75 per cent of the existing excess of greenhouse gases above pre-industrial levels. Also, per capita emissions in emerging markets are a fraction of those in the industrialized world. Finally, emerging markets have less money than the industrialized world to pay for the required transformation. In an article entitled 'China says rich countries should take lead on global warming' an official makes it plain that 'as a developing country that's growing rapidly and has a big population, to thoroughly transform the energy structure and use renewable energy would need a lot of money'.12

Of course, the reality is that our shared climate will not respond to sensible arguments about historical responsibility, per capita consumption or fairness in terms of the global distribution of wealth. It will respond to aggregate levels of carbon dioxide emissions. And yet, at the same time, emerging markets cannot be asked to rein in their economies, just as the benefits of growth start to trickle down. This proposal would be as unacceptable in Beijing or Delhi as it is in London or Washington, DC. So what is the world to do?

In what was probably a little-read article called 'Climate change: Carry on flying says Blair', the former Prime Minister of Great Britain was clear on the 'danger' of saying to people, 'right, in Britain ... you're not going to have any more cheap air travel, everybody else is going to have it'. So instead he went on to recommend:

You've got to do this together in a way that doesn't end up putting people off the green agenda by saying you must not have a good time any more and can't consume. All the evidence is that if you use science and technology constructively, your economy can grow, people can have a good time, but do so more responsibly.13

And therein lies the solution that policymakers, business people, and all of us as consumers and citizens, consciously or unconsciously, in industrialized countries or emerging markets, fall back upon when faced with the threat of climate change: technology. As Blair says, none of us - whether in India, China or Great Britain - want to stop having a good time, and therefore technology and technological change become, as it were, our last and only hope.14

In terms of the technologies that emerging markets can fall back on, technologies for greater energy efficiency will have an enormous role to play in helping reduce emissions. For instance, Chinese industries are estimated to use four times more energy in their relative sectors than the global average.15 But greater energy efficiency without a dramatic expansion in renewable energy simply will not be enough:

In the longer term, any savings achieved by improvements in energy efficiency will only help to alleviate the problem; they will not in themselves solve it. ... [I]f carbon emissions and accumulations are to be reduced over the long term, energy conservation measures will need to be complemented by measures to develop non-carbon technologies.16

For their part, although emerging market governments prefer not to be bound by emission targets, they are already setting targets for renewable energy. The Chinese Government has pledged to make renewable energy account for 15 per cent of the country's total energy supply by 2020 and to spend US$200 billion on that effort.17 Similarly, in 2006 India's former President called for the country to increase renewable energy's share of power generation from 5 to 25 per cent by 2030.18

But such numbers imply an extraordinary technological shift. Consider the case of India in more detail. By 2030, the population is projected to reach 1.47 billion people, at which point it will become the most populous country in the world. Increasingly affluent, and desirous of the same standards of living as the industrialized countries, energy consumption is set to grow dramatically. The Indian Government's most recent integrated energy report states that:

To deliver a sustained growth of eight per cent through 2031-2032, and to meet the lifeline needs of all citizens, India needs, at the very least, to increase its primary energy supply by three to four times and its electricity generating capacity/supply by five to six times their 2003-2004

levels. ... By 2031-2032, power generating capacity must increase to nearly 800,000 MW from the current capacity of around 160,000 MW.19

If the former President's vision is to be realized, and if India is to increase the contribution of renewables from 5 to 25 per cent of power generation by 2030, it will need to grow the installed base of renewable energy from 8000 MW today to nearly 200,000 MW by 2030. This represents 25-fold growth in just 20 years!

The questions of course remain how emerging markets like India will make such a radical transformation so quickly and who will make it happen.

Most students are caught up in the issues of their day. In my student days, sustainable development was shooting up the policy agenda, and was quickly becoming ensconced in the global lexicon. The only problem was that people still weren't sure what it meant.

As far as I could make out then, renewable energy fitted the 'sustainable development' bill entirely. It would enable emerging markets to continue to 'develop' - in other words consume energy for improved quality of life and economic growth - in a way that was ultimately more 'sustainable', in other words emissions free. Some people propagated definitions of sustainable development as 'a negotiated process', allowing for multiple interpretations and for dialogue. I was personally looking for something more concrete.

Then, as now, it seemed to me that the climate crisis actually created a golden opportunity for emerging markets to build their nascent infrastructures around a new set of renewable energy technologies that will not only help to solve the problem of climate change, but create huge, innovative new industries; enhance their energy independence; produce a cleaner local environment for better public health; and limit large-scale resettlement. In the early 1990s, this concept of emerging markets going where no industrialized countries had gone before took on a fashionable new name, one that was bandied about almost as much as 'sustainable development': 'leapfrogging' became the order of the day.20

Because the energy infrastructure was, and still is, far from built in many emerging markets, an opportunity was identified to leapfrog over the conventional fossil fuel technologies used by industrialized countries to a new set of cleaner renewable energy technologies. But, like any new, catchy concept, the reality was that it's a lot easier to say 'leapfrog' than to do it. Leapfrogging told us nothing about how emerging markets could approach this challenge, and what might inhibit or accelerate the process.

In search of greater understanding, and at the outset of my doctoral thesis, I remember talking to a helpful professor and receiving some solid advice: maybe there would be clues in the progress of other innovations.

Following this lead I came across the literature on innovation diffusion. And what I read was compelling. By 'diffusion', the authors simply meant the process by which an innovation spreads to members of a society, and the literature referred to a whole host of innovations about which I knew relatively little: the diffusion of hybrid seeds, the diffusion of VCRs, the diffusion of washing machines, the diffusion of computers and so on. Needless to say, I was not as passionate about the diffusion of VCRs. But it was clear to me that the theories generated by such research could help explain the diffusion of renewable energy technologies in emerging markets.

Having found some theoretical basis for my research, I needed to focus on just one renewable energy technology, renewables as a sector being too broad, with different technologies having different reasons for being, or not being, used more widely. I initially thought that, given the scale of the problem, the scale of the solution needed to be BIG to be worthy of future enquiry. So it was with some surprise that I found myself so intrigued by a much smaller technology: solar photovoltaic (PV) panels applied at the decentralized level -households and small businesses - in rural areas of emerging markets. What caught my attention was simple. Compared to a lot of other renewables at the time, this technology was already being sold in some emerging markets on a commercial basis. Its being sold commercially was very compelling, as it portended the possibility of self-sustaining and ever-growing diffusion of solar photovoltaic technology. Moreover, although the application was small, enough for a few lights, TV, radio and so on, it was getting at a really BIG problem: how to get electricity to the then 2 billion people who did not have it, and to do it in a manner that would not further exacerbate emissions.

There are bigger applications of solar that might initially seem more worthy of enquiry, such as building integrated solar systems or large-scale solar power plants. But the case of rural solar always seemed to me more important for the global environment than many initially thought. As the director of sustainable development strategy and operations at the World Bank recently said, 'how the developing world chooses to electrify will determine the fate of the Earth'.21 Moreover, it struck me that understanding how solar had gained a foothold in rural markets could shed light on the much larger challenge of how emerging markets could accelerate the diffusion of renewable energy.

In the end, my doctorate considered contrasting rates of diffusion of solar systems in India and Indonesia. From this I generated conclusions that would inform my work in the industry, as well as this book. What I found was that rural areas of emerging markets were ready for solar technology. It was no longer a question of waiting for this or that improvement to reduce the cost or improve the functionality. Of course this would help, but what was really needed was for entrepreneurs to bring together financing for solar customers, with a widespread network to deliver, install and service the technology. These were conclusions that bore themselves out once I was engaged in the business of selling solar myself, and they are conclusions that I will return to in this book.

But if Selling Solar is largely about explaining the diffusion of solar in emerging markets, my hope is that it will also transcend the case of solar technology, and resonate for the reader in other ways.

First, I will bring to bear a range of theories on innovation diffusion to help us understand and explain the solar phenomenon. The starting point for all of these theories is that an innovation rarely diffuses through a society as quickly as is anticipated, and all of them try to explain this phenomenon. By integrating these theories into one coherent framework, I hope to provide a tool for those interested in the diffusion of other renewable energy and energy-efficient innovations, such as small hydro, solar water heaters, wind turbines, fuel cells, LED lights and electric vehicles. I also hope the framework will be relevant for those interested in green innovation and innovation diffusion more broadly. The book is intended to be of use to those who are studying diffusion from an academic perspective, as well as those who are more proactively trying to expedite the rate at which an innovation spreads.

Second, I want the book to delve deeply into how sustainable technological change is actually achieved. As a student, I remember being somewhat frustrated by the environmental literature, which talked a lot about the 'need' for technological change, but very little about how such change would come about or who would drive it. In the early years of the debates on climate change, many people expressed a sense of urgency that the world must change the way it generates, transports and consumes energy, but there was very little written about exactly how cleaner energy technologies would find their way onto the market. Nobody was really providing analysts, policymakers and business people with the theoretical frameworks to achieve this. What exactly were people meant to do about this problem? Where should they start?

Third, I would like to provide the reader with a greater understanding of the emerging market dimension. Not just in terms of the sound bites that people are now accustomed to, for instance 'large capital inflows' and 'increasing consumption of commodities', but a bit more about the nuts and bolts of actually doing business in emerging markets. And not doing just any business, but renewable energy business, of which thousands will be needed in the days to come. The challenge of diffusing renewable energy in emerging markets lies not just in the scale of the transformation that is required, but also in working through some challenging market conditions. I hope to shed some light on this and help people understand what to expect, and perhaps more importantly what not to expect, when exploring these new markets.

Fourth, history is replete with examples of individuals who combined vision, perseverance and skill to effect profound technological change. When sustainable development was coming of age as a concept, I remember wanting to read more about the people who were trying to effect profound changes in the way we use and consume resources. Specifically, I wanted to hear more about the obstacles they faced, the strategies they deployed for overcoming them and the new problems that emerged as their strategies started to take hold. Unfortunately, such accounts were difficult to find. So looking back, it is not surprising that my own path would focus on entrepreneurs as the 'agents' of sustainable technological change. I resolved that if and when I wrote a book about solar, it would tell the story of the people and organizations that brought about the diffusion of this technology.

Fifth, in the 1980s and 1990s there was a disconnect between the sustainable development movement and the world of business. Business was largely identified as the source of unsustainable development - seen more as the problem than the solution. And in the literature of the day, where business found any promising portrayals, it was usually a story about this or that company adopting an internal paper recycling scheme or some equally 'internal' initiative. There were few, if any, stories of businesses 'delivering' and 'selling' cleaner technologies, the challenges in doing so, and the key factors for success. It seemed to be a big omission. This book belatedly tries to fill that gap - to give the reader examples of where businesses have been trying to bring cleaner energy technology to market, and diffuse it on a large-scale basis in emerging markets, and where policymakers stepped in either to assist this process or hamper it.

Finally, I try to present to the reader a way of integrating entrepreneurship with policy, as it pertains to renewable energy diffusion. I put entrepreneurs at the centre of the analysis, not policymakers. This is because in our largely capitalist global system, it is often the private sector that can bring the most money, management skills and technological resources to the process of innovation diffusion. And it is entrepreneurs in particular who tend to be the most dynamic and innovative in the business community, and historically responsible for bringing innovations to market. That said, it is policymakers who will need to lead entrepreneurs by the nose, as it were, so that emerging markets will have better alternatives to the current fossil-based energy options. As Selling Solar will show, governments and international policymaking bodies like the World Bank can have a profound impact by altering the incentives entrepreneurs face in the renewable energy sector. They can literally make or a break a market that entrepreneurs are toiling to establish.

Selling Solar is therefore a hybrid in many senses. It devotes many of its pages to the empirical case of solar, but also tries to bring some theoretical foundation to the case. It delves deep into the details of solar energy diffusion, but also tries to step back and generalize about renewable energy diffusion more broadly. It identifies the transformative powers of entrepreneurs, but also the key role of policymakers in providing the right incentives. It builds on my early experiences in academic research, but also tries to bring a practitioner's eye to the matter. This melding of different objectives and perspectives will I hope make the book interesting to a broad range of people. If this seems an ambitious agenda, so too, at one time, did selling solar in emerging markets.

On our last day of travel in Sri Lanka in that March of 2005, we headed out for Batticaloa on the northeast coast of the island. To get there you first had to go through several military checkpoints, and pass by more than a few bombed-out homes and shelters. There had recently been a flare-up in violence caused by a breakaway faction of the Tamil Tigers, so in addition to the tsunami, the local people were also coping with increased communal tension.

When we arrived at the Batticaloa branch, I was amazed to find that despite the havoc wreaked by the tsunami, the branch and its staff were still selling more than 25 solar systems per month and continuing to carry out aftersales service. Many customers' homes had been washed away, along with the systems they owned, and we were looking at a solution to provide them with replacement systems once they had rebuilt. After reviewing the performance of the branch, the sales manager in charge then offered to take us to the site of his former home, where the tsunami had struck.

En route to his home, we stopped at a Hindu temple located on the beach. As we approached the temple I could see that it had literally been cleaved in two by the enormous power of the tsunami, with one half now leaning at an angle to the still upright half, virtually resting on the sand beneath it. The sea was about 50 metres away, and though largely calm today, it still seemed to gurgle and churn with a ferocity deep below the surface. We were able to walk right through the split in the temple, from one side to the other. It foretold of the awesome power of the waves that had struck the sales manager's home, located just a couple of hundred metres up the beach.

Standing in what was once his living room, I was stunned into silence and reflection. The former two-storey home, about 200 metres from the sea, was now gone. All that was left standing was the front door and some of the supporting wall. Most of the nearby houses had been swept away, revealing only the original foundations. His family had managed to survive by running inland in time, and getting to some height. But the community down the beach had not been as lucky - they had nowhere to run.

As I walked down, I came to a spot called the Dutch Bar, a sand bar named after the early Dutch settlers. This sand bar, on which an entire community had once lived, was stretched out between the sea on one side to the east and a deep wide lagoon on the other side to the west. I imagined it as it was before, shaded under the coconut trees, with each house pressing onto the other, a vibrant community where children would have played in the narrow lanes between houses, and where adults would have lingered in the doorways to chat with passing neighbours.

But now it was all gone. The tsunami took every single home and swept them into the lagoon behind, turning it into a mass burial ground. As I walked through the remains of this community, stepping between biscuit tins, bits of clothing and fractured pieces of furniture, I thought to myself that this is what climate change and its devastating effects will look like. There will be more and more such incidents with sea-level rise and sea surges. Entire communities will be washed away, and those who survive will be destitute migrants.

When you see such devastation, you can understand why people call climate change a weapon of mass destruction. It is a crisis that needs to be faced with the utmost urgency and resolution. Millions of lives are at stake, and only through containing present and future growth in emissions do we have a chance of addressing it. I know that solar systems sold into rural homes in emerging markets will not of themselves solve the climate crisis. But I believe the story of how such a technology came to diffuse in such great numbers serves as testimony to what can be achieved with the technology we have at our disposal today.

The entrepreneurs profiled in this story did not wait for an R&D breakthrough or a better solar panel to come along. They recognized that, if packaged and sold in the right way, people would buy the solar technology that was already available. In the end, what successful diffusion took was a combination of entrepreneurial vision, persistence and policy innovation to ignite a market for solar that was waiting to happen. It just needed some people to go and do it.

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