The Case for Clean Biomass Cookstoves in Indonesia

Transcription

1 The Case for Clean Biomass Cookstoves in Indonesia An Initiative of the Government of Indonesia and the World Bank

2 The Apex Consulting Group has developed this business case for the Clean Stove Initiative (CSI) Indonesia, a joint initiative by the Government of Indonesia and the World Bank. It has been developed to provide a high-level overview of the clean biomass cookstove market in Indonesia. The business case provides information on CSI Indonesia including the support and resources that accredited Market Aggregator organisations are eligible to receive under the Pilot Program. Copyright August 2013.

3 The Apex Consulting Group The Apex Consulting Group (Apex) has been engaged to act as the Market Facilitator for the pilot phase of the Clean Stove Initiative Indonesia. Apex is a Jakarta-based consulting firm specializing in the field of business-based empowerment. We provide client solutions for private corporations, government-owned enterprises, government agencies and not-for-profit organisations across Asia. Our senior consultants have not only assisted organisations improve their business processes, but have established, managed and generated exponential growth for companies themselves; giving them the first-hand business experience clients demand from their advisors. To learn more about Apex and our role in CSI Indonesia please visit:

4 Disclaimer: The designations employed and the presentation of the material in this document do not imply the expression of any opinion whatsoever on the part of PT The Apex Consulting Group (Apex), the World Bank Group or any of its partners or the Government of Indonesia. Moreover, any views expressed do not necessarily represent a decision or the stated policy of Apex, the World Bank Group or its Partners. Any citing of trade names, trademarks or commercial processes is included for the information of the reader and does not constitute endorsement, recommendation, or favouring by Apex, the World Bank Group or its Partners or the Government of Indonesia. Some information contained in this document is derived from carefully selected public sources that have been deemed to be reasonable and reliable; however Apex, the World Bank Group or its Partners or the Government of Indonesia do not guarantee the accuracy or completeness of the data included in this report and accepts no responsibility whatsoever for any consequence of their use. The boundaries, colours, denominations, and other information shown on any map in this volume do not imply on the part of the World Bank Group any judgment on the legal status of any territory or the endorsement or acceptance of such boundaries. Any opinions expressed reflect the current judgement of the authors and do not necessarily reflect the opinion of Apex, the World Bank Group or its Partners or the Government of Indonesia. All opinions presented are subject to change without notice. This document is provided for informational purposes only, and is not a solicitation of any investment, monetary or otherwise, and should be read in conjunction with all additional materials developed by Apex, the World Bank Group and its Contractors and/or Partners and the Government of Indonesia. No representation or warranty, express or implied, is made as to the completeness or accuracy of the information. This document contains forward-looking statements for which the authors accept no legal responsibility. Such statements are subject to certain risk factors which may cause results to differ from those expected. The Apex Consulting Group 04

5 table of CONTENTS The Challenge 07 The Opportunity 09 The Business Environment 14 Potential Benefits and Risks 18 Who Can get Involved? 21 How to Participate in the Pilot? 23 Why Act Now? The Apex Consulting Group

6 CSI Indonesia is seeking clean biomass cookstove designs (domestic and international) to introduce to the Indonesian Market Any biomass cookstove that meets our performance requirements and receives accreditation is eligible for subsidy support. SALES 10 million cookstove sales towards Universal Access MARKET 24.5 million Potential Indonesian Buyers SUPPORT Subsidies, Demand Stimulation & Business Development Support Potential Sales The Business Case at a Glance We estimate there is an opportunity to sell up to 10 million clean biomass cookstoves in Indonesia over the coming six years with support from the World Bank s Clean Stove Initiative Indonesia (CSI Indonesia) and other Government and international donor support. The initial pilot phase of the program is expected to enabled sales of up to 20,000 units across two locations; followed by a National scale-up at the end of the pilot. Potential Market We estimate the long-term potential market at 24.5 million Indonesian customers across the archipelago. This potential customer base includes current biomass users with little or no access to clean biomass cookstove alternatives. CSI Indonesia will work across communities to stimulate market demand and raise awareness with key stakeholders. Available Support In partnership with CSI Indonesia, Market Aggregators with accredited stove technologies have the opportunity to access subsidies through a Results-Based Financing (RBF) mechanism. In addition to the RBF mechanism, accredited Market Aggregators are eligible to apply for business and technical support during the pilot to maximise sales and impact. CSI Indonesia will also implement initiatives to stimulate market demand and will support market and supply-side business development through Technical Assistance and consulting support. The Apex Consulting Group 06

7 The Challenge 07 The Apex Consulting Group

8 The Case for Clean Cook Stoves Although many households in Indonesia are shifting to modern cooking fuels, approximately 40 percent of Indonesian households still rely on traditional biomass (mainly wood) for cooking. Although the share of households using wood has declined slightly in recent years from 49 percent in 2007 to 40 percent in 2010 as of 2010, approximately 24.5 million households still relied on wood as their primary cooking fuel. Wood continues to be the dominant cooking fuel in 18 of 33 provinces. Number of Households Relying on Cooking Fuels, by Type, and primarily use the traditional Artisan Production Model; they have limited working capital, are more concerned about stove durability and heat than efficiency. These producers are hesitant to produce clean cookstoves without demonstrated consumer demand. The limited numbers of clean biomass cookstove manufacturers that do exist do not yet have a significant market demand for their products and wholesalers and retailers are unaware of stove performance. This means that the supply chain is very rudimentary and is limited to the islands of Java, Sumatra, and Sulawesi and is missing in areas with the highest biomass fuel use (e.g., Maluku, islands in Nusa Tenggara Timur, Papua, and Kalimantan). A Lack of Consumer Demand Source: National Socio-Economic Survey, BPS There is limited household demand as consumers are accustomed to inexpensive stove prices; they are unaware of the harmful effects of HAP on family health and the benefits of improved stove performance and normally use a mix of fuels based on availability and cost. Base of the Pyramid consumers also have limited income which limits their purchasing ability. Health Impacts of Indoor Pollution Indonesia ranks second among East Asia and Pacific countries in mortality attributed to household air pollution (HAP) from solid fuel combustion. The Global Burden of Disease Study 2010 estimates that each year about 165,000 premature deaths in Indonesia can be attributed to HAP linked to smoke emitted from solid cooking fuels (Lim et al. 2012). Limited Government and Institutional Awareness Biomass cooking fuel has not been afforded attention and is often neglected when calculating primary energy consumption. Official data is lacking on cookstoves and producers, and all levels of government lack awareness about the health and environmental effects of biomass fuel use; there are no standards or testing facilities for biomass cookstoves. An Industry in its Infancy There are a very limited numbers of high quality cookstove suppliers in Indonesia. Producers are small-scale and scattered The Apex Consulting Group 08

9 The Opportunity 09 The Apex Consulting Group

10 The Case for Clean Cook Stoves We estimate there is an opportunity to sell up to 10 million clean biomass cookstoves in Indonesia over the coming six years with support from the World Bank s Clean Stove Initiative Indonesia (CSI Indonesia) and other Government and international donor support. Scenario Analysis of Households using primarily biomass for cooking. alia, reduced fuel costs, predictable fuel expenses and reduced medical expenses/indirect loss of income strengthen further the benefits of introducing improved technology. Having determined a baseline of 40% of Indonesian households currently rely on traditional biomass fuel, CSI Indonesia has now set a target to achieve universal access to clean cooking solutions by 2030, where clean cooking solutions means modern cooking fuels or biomass fuel using clean biomass stoves (see above figure). There are four key trends that are currently influencing the Indonesian cookstove market: 1. Increased Awareness of Personal Health Issues and Causes of Disease: Increased end-user education and financial resources is leading to better awareness about the links between indoor air quality and personal health. 2. Reduced Access to Firewood in Peri-Urban and Urban Communities: In areas where population density is growing, easy access to firewood is reduced and is likely to lead to increased need for more effective fuel use. In periurban areas where firewood can often be collected at no cost, households that use LPG often supplement it with a secondary biomass cookstove. Source: CSI Indonesia The global alliance for clean cookstoves defines clean cooking solutions as those clean cookstove technologies, fuels, equipment, and practices that address the health and environmental impacts associated with traditional cookstoves. Many technologies exist that can do this but not everyone can purchase them due to financial restrictions, limited availability and limited awareness of the benefits and existence of improved and cleaner alternatives to existing systems. Scaling up access to clean cooking solutions is an important step toward improving health, reducing poverty, improving gender equality, and improving the local and global environment. Moreover, the financial benefits, including, inter 3. Increased Financial Awareness and Desire for Predictable Expenses: As communities become more financially capable, more planning and budgeting is likely to focus on health and related products. Household spending per capita is steadily increasing in a trend that has increased momentum since Fluctuating Fossil Fuel Prices and Uncertainty around Existing Subsidies: As Indonesia finds itself more dependent on importing fossil fuels, vulnerability to global price changes is creating state and personal budget challenges. A political shift towards a subsidyfree Indonesia has begun and fuel subsidies have been reduced. This is likely to lead to a shift in consumer fuel spending and sourcing. The Potential Market Indonesia is the largest country in South-East Asia both in area and in population. It has an estimated population of 237 million. Real growth in consumer spending has been close to 5% p.a. The Apex Consulting Group 10

11 Indonesian GDP Growth (annual %) for companies that can convert these BoP consumers into customers. If we consider the CSI Indonesia target of ten million stoves distributed by 2020 only, and look at revenue potential based on possible market share simulations and an average price per stove of US$ the opportunity begins to look compelling: Source: The World Bank since The country continues to experience economic growth and has strong prospects for long-term growth, based on macroeconomic stability, supported by strong domestic consumption and relatively stable political conditions. According to the World Resources Institute, it is estimated that Indonesian base-of-the-pyramid (BoP) consumers account for 95% of all national energy spending and 50% of this spending is attributed to consumers earning between $1.50 and $3 per day. Approximately 40% of Indonesian households (about 24.5 million households) still rely on traditional biomass (mainly wood) as their primary cooking fuel. Most of these households are in rural areas. About half of these households (approximately 11.7 million households) live in East, Central, and West Java. Most of these households are in the rural areas and they are likely to continue using traditional biomass due to lack of access to and affordability of modern fuels. Moreover, empirical evidence shows that even when these households have access to and use kerosene or LPG for cooking many maintain their use of biomass fuel for some of their cooking and for boiling water. The proportion of biomass-using households has continued to increase in the eastern provinces. Biomass, especially wood fuel, is most popular in rural areas and less developed regions in Indonesia because it is freely available in most regions. Research undertaken by CSI Indonesia shows that the demand for cookstoves used for household cooking is, and will, remain high for the foreseeable future. Four million households rely on biomass fuel in Central Java and Yogyakarta alone. The total potential market for clean biomass cookstoves over the longer term is up to 24.5 million households. This base-of-the-pyramid (BoP) market represents a significant economic opportunity Source: Scenario Analysis from The Apex Consulting Group. In order to test the strategies designed to support the development, growth and national scale up of the biomass cookstove industry before the potential rollout of a National Program, CSI Indonesia will conduct a one year pilot in Central Java, DIY and NTT provinces. Pilot Locations Two locations have been selected to pilot the CSI Indonesia Program; Central Java (including the province of DIY) and East Nusa Tenggara (NTT) Province. Central Java is predominantly connected to the electricity grid (although off grid areas are still found in the province) and transport and logistics infrastructure is comparatively well established. Sumba Island, on the other hand, represents the more remote and underdeveloped markets of Indonesia that will be key to the longterm goals of CSI Indonesia. In 2012, the province of Central Java had an estimated 4 million households (about 16% of national firewood dependant households) who were primarily using firewood for cooking; this makes the province the second largest firewood-reliant province in the country. East Nusa Tenggara, with its poverty rate at over 21 per cent, was, in 2010, estimated to be the 11 The Apex Consulting Group

12 province in the country with the highest reliance on firewood for cooking with 850,000 out of 1,010,000 households or 83.4% per cent stating firewood was their main source of cooking energy. Current Market Price of Cookstoves Java-Bali and Eastern Indonesia represents the largest market opportunity The distribution of biomass users show a higher density of biomass users in the eastern part of the archipelago, but biomass is still a major fuel source nationwide. Java-Bali represents half of all wood-using households in the country. Provinces Heavily Reliant on Firewood for Household Cooking Source: BPS Statistics Indonesia 2011 Source: Dian Desa 2012 Brief Potential Customer Profile Although there is no supply shortage of biomass cookstoves in Indonesia, most households use three-stone stoves or make their own stoves at homes. For those who purchase stoves available in the market, the stoves tend to be relatively inexpensive. The end-user cooking habits vary from urban to rural areas with urban areas seeing a higher consumption of convenience foods and rural areas mainly consuming less varied diets. On average, a majority of cooking is done indoors by women. Older generations prefer traditional stoves that are generally associated with taste and traditional compliance with recipes. According to GERES and Yayasan Dian Desa, each household consumes approximately 4,000 kilograms of wood per year. Source: Yayasan Dian Desa The Apex Consulting Group 12

13 This represents a potential spending of Rp. 2,503,345 (US$ 250) on wood. In reality, however, at this point, most families collect wood from their surrounding environment at no cost. In rural areas across the country, 80% of the population has a monthly per capita spending of less than Rp. 200,000 (US$20). Furthermore, according to the World Resources Institute s Base of the Pyramid market assessment, the Next 4 Billion, BoP households devote an average of 7% of their income to energy expenses. There are essentially three core potential customer segment groups. The first is peri-urban communities with some access to a range of fuel options, but with a preference towards biomass cookstoves due to lower cost and relatively high availability of fuel. The second is potential consumers in perurban communities who use LPG or Kerosene as their main source of fuel but also use biomass as a supplementary cooking fuel for selected uses. The third segment is rural and remote communities who use biomass as their primary cooking fuel due to limited infrastructure and cost restrictions. Monthly Per Capita Expenditure (Rp./Month) Source: Indonesian Bureau of Statistics Although the monthly regional per capita income for Central Java is approximately Rp. 1,384,137 (US$ 138), Indonesian households in rural and remote locations typically have small to no savings rates. The below expenditure table is indicative of household purchasing power in the pilot locations. Monthly Average Expenditure (IDR/USD) per Capita by Commodity Group in Central Java, Yogyakarta, and East Nusa Tenggara Source: Expenditure for Consumption of Indonesia by Province Indonesian Bureau of Statistics (BPS) 13 The Apex Consulting Group

14 The Business Environment The Apex Consulting Group 14

15 Key Stakeholders Central Government The Government of Indonesia has significant influence to facilitate change in the cookstove market through policy and framework changes. One significant investment made by the central government is the change from Kerosene to LPG subsidies that has affected the fuel used in many parts of the country. Local Government Provincial, district and lower levels of local government have some influence in the market, but can have limited interest in committing resources without support from central government and policies. The World Bank, Multilaterals and NGOs Multilateral organisations including The World Bank together with local and international NGO s have shown interest in this opportunity and are one of the most influential groups of stakeholders that are active in the market. Private Sector The significant market opportunity has attracted private sector interest in the opportunity, but the successful entry of private sector players is dependent on the support of other stakeholders such as the World Bank Group s support through CSI Indonesia. Market-shaping regulations and central government initiatives will play an essential role in building the market and demand profile needed to make the economics of producing and selling the clean biomass cookstoves work. The collaboration between the World Bank, the Government of Indonesia and partners of the CSI Indonesia are implementing a number of enabling policies and mechanisms to attract private sector participation. An Overview of the Current Business Environment The current business environment is challenging and is likely to require a number of simultaneous, long-term strategic interventions to create an enabling environment that allows private sector organisations to become self-sustainable and independently profitable from the manufacture, distribution and sales of clean biomass cookstoves. Industry: the industry for clean biomass cookstoves is in its infancy and developing the industry will require patience, targeted commercial and up-skilling interventions as well as the introduction on market mechanisms such as subsidies for manufacture and purchase. Market: the market for biomass and clean cookstoves is relatively small in its current state. Significant work is needed to create and stimulate demand. Once demand is stimulated and the tipping point has been achieved there is a significant national market that represents a very attractive opportunity for the private sector. Customers: customers within the market are relatively unsophisticated and purchases are made based on primarily on lowest cost option and need. At the higher end of the product offerings customers are more likely to buy based on prestige, so design will be an essential element. Manufacturing: there is limited manufacturing capability that is currently used for the production of clean biomass cookstoves. There is, however, potential capability, infrastructure and facilities that can be mobilised under the right economic incentives from related industries such as LPG and kerosene stoves, consumer electronics such as rice cookers and latent manufacturing capability from previously operating biomass manufacturing plants. Distribution: there is limited distribution capability that is currently used for clean biomass cookstoves. There is, however, a potential network of connections and relationships that can be mobilised under the right economic incentives from current distributors and resellers at the national, regional and local levels. Sales and Marketing Strategy: a grassroots sales and marketing strategy will need to be developed at both the national and local levels in combination with public awareness strategies. Each market segment will require a unique sales and marketing effort that will be developed and then implemented by manufacturers, distributors, resellers and then local retail outlets. Retail Pricing: retail pricing will need to be carefully aligned to the buying patterns of each of the target segments. Additional investigation will need to be completed once more information is available on the specific cookstoves that will be brought to market during the pilot program. A range of price points will 15 The Apex Consulting Group

16 then be established to address each customer segment s purchasing power. End-User Finance: end user financing will play a key role in the disbursement of the clean biomass cookstoves at the higher market segments of the product offerings. This is likely to be agreed at the national level through a bank or related financial institution that has significant regional reach and has the local presence to implement on the ground. Additional finance for resellers may also need to be investigated separately. The Key Players in the Market Existing clean cookstove producers in Indonesia are limited to small-scale production broken down into three models: 1) Locally constructed fixed stoves; 2) Artisan production; and 3) Familyowned/Small-scale manufacturers. While most Not-for-Profits are focused on either locally constructed fixed stoves or stove distribution there are both notfor-profit and private business actors in the industry. In general, however, stove producers are passive producers. They tend to not actively promote their products. Most stove producers depend on resellers to purchase their products. Only about 15% of interviewed stove producers in a recent CSI Survey are actively marketing and promoting their stove products to resellers or the general public directly. Larger players may be able to immediately utilise these smallscale producers to leverage from existing players but these existing organisations will not be sufficient to support National scale-up in order to reach the scope and required outcomes of CSI Indonesia. The three predominant existing business models are briefly outlined below: Locally Constructed Fixed Stoves: Many remote villages often rely on traditional and more rudimentary fixed cookstoves frequently built by local tradesmen, an NGO program or simply built by the villages themselves using three stones. Artisan Production: research confirms that almost all commercial biomass cookstoves sold in local markets are based on the Artisan Production Model. Interviews with biomass cookstove producers show that most cookstoves sold in the market are made individually by hand one at a time by local artisans in small family-owned businesses. Owners and workers have often been trained by their parents, have apprenticed with other cookstove producers or have been self-taught. Aside from the lack of formal training on stove making techniques, most stove producers also lack business management and marketing skills. Family-Owned/Small-Scale Manufacturers: Research confirms that cookstove producers that do not fit into either of the above categories are almost all small-scale, often family-owned, businesses with either a few employees or none at all. Most of these stove production businesses are usually passed down from generation to generation; only a small minority are new business. Research also suggests that the stove making trade is dominated by females. Most of these businesses also lack business and marketing skills and production quality and reliability is problematic. Given the above three categories are the most common business model in the market today, there is a significant opportunity for medium and large scale manufacturers to quickly obtain market share and leverage scale through mass production, high volume logistics, established business processes and local partnerships. New high-potential business models include: Small to Medium Volume Local Manufacturers: The technology for clean biomass cookstove manufacture could be leveraged by a local organisation or by an organisation with a local presence. The manufacture in Indonesia could contribute to cost-savings, improved lead-times to the enduser and reduced transport and logistics and importing costs. Distribution could be managed from a central warehouse in conjunction with a local manufacturing facility. Internationally Manufactured and Imported: Importing clean biomass cookstoves manufactured abroad can reduce the need for complicated local establishment procedures and staff training lead time before the market is proven. The cookstove could be imported via a major port and directly sent to regional warehouses for distribution through local retail and distributors partnerships. Once the model is proven, local manufacture could then be established and the benefits of being closer to market could be realised. The Apex Consulting Group 16

17 The opportunity for smaller scale family businesses, artisans and NGO suppliers, however, remains; particularly in the more remote areas of Indonesia and at the lower end of purchasing power of the BoP market. Competing Substitute Products CSI Indonesia will accredit a range of clean biomass cookstove products and these cookstoves are likely to provide market-based offerings that will be successfully introduced to the market and sold to consumers. There will be, however, be competition from similar existing substitute products including: Traditional Three-Stone Cookstoves: traditional cookstoves are made with local materials by the household at no cost. There is a high degree of tradition and ritual associated with these stoves in many, but not all, locations. The challenge is to create a motivation for households to transition from a no-cost solution to higher value, safer, cost-based solution that provides significantly more benefits to the family. Existing Biomass Cookstoves: a significant source of competition is from established, low cost, inefficient biomass cookstoves produced by local artisan producers, and, to a lesser extent, small scale local manufacturers. Again the challenge is convincing consumers to pay more for a product in order to substitute the product they are currently using by emphasising the efficiency and health improvements. Subsidies will play a key role in enabling more competition in this market segment. Kerosene Cookstoves: Kerosene cookstoves represent strong competition at the higher end of the market segment. In some remote areas, kerosene is still subsidised by the government. The primary area where Market Aggregators may be able to offer alternatives to kerosene stoves is when they are used as a secondary source for cooking or where there is no Kerosene subsidy such as LPG conversion areas. LPG Cookstoves: Conventional LPG solutions -- both subsidy and non-subsidy based -- represent strong competition at the higher end of the market segment. These stoves can be lower cost in the short term, but are higher cost over time. Market Aggregators may be able to offer alternatives where LPG stoves are used as a secondary source for cooking and as LPG subsidies are reduced or removed some consumers are likely to revert to the biomass cookstoves. Other consumers using both technologies will likely rely more heavily on biomass as LGP costs increase. Barriers to New Market Entrants The biomass cookstove market in Java, Sumatera, and Sulawesi are generally well established but are rudimentary and predominantly focus on the lower end of the market. These cookstoves are also often very inefficient and have poisonous emissions. The clean biomass cookstove market is yet to be significantly explored or developed and any commercial interest in the market is likely to provide first mover advantages. The following points create potential barriers to enter for first movers into the market: Lack of established large scale manufacturers, producers and distributors; Lack of established industry infrastructure; Ability of the consumer to pay actual cost of products; The subsidy triggers, timing and mechanisms; Difficulties to convince communities due to expense and change concerns; Educating users on the health benefits of clean biomass cookstoves to stimulate demand; Access to and knowledge about BoP sales strategies including arisan meetings, traditional markets and other points of sale; and Government importing and business licensing requirements and restrictions. 17 The Apex Consulting Group

18 Potential Benefits and Risks The Apex Consulting Group 18

19 SWOT Analysis Introduction of an alternate technology often requires a significant amount of consumer education and information to socialise its benefits before meaningful sales will be created. A brief analysis of the Clean Biomass Cookstove opportunity follows: 19 The Apex Consulting Group

20 Risk Analysis The following is a selection of high-level risks and suggested mitigation measures to be considered when a comprehensive risk management plan is developed in relation to entering the Indonesian clean cookstove sector. The Apex Consulting Group 20

21 Who Can get Involved? 21 The Apex Consulting Group

22 A Market Aggregator is defined as any organisation, local or international, private sector or not-for-profit that contributes to the sales and distribution of clean biomass cookstoves in Indonesia. Market Aggregator For the purposes of CSI Indonesia, a Market Aggregator is an organisation, local or international, private sector or not-forprofit that contributes to the sales and distribution of clean biomass cookstoves in Indonesia (with an exclusive focus on Central Java and Sumba during the pilot phase of the Program). Market Aggregators apply for pilot program incentives and are willing to take investment and performance risks. They may include stove producers, wholesalers, retailers, and project sponsors. To receive payment, they must produce, distribute and/or sell stoves that can be certified as a clean design according to customer preferences, and convince customers to buy and use the stoves. Only clean stoves that meet established criteria and are accredited by CSI Indonesia are eligible to receive support and be sold as part of the pilot. Prospective Market Aggregators who are interested in selling stoves under the pilot program can submit a stove to be tested and apply for accreditation. Eligibility testing will begin with an official request of cookstove to be tested by the Pilot Stove Testing Centre. Stoves that meet the criteria will receive certification to participate in the pilot program. After confirming that a proposed cookstove is eligible to receive support under the pilot, interested Market Aggregators will submit an application to participate in the pilot. Once the application to participate is approved, Market Aggregators and the program will sign a CSI Indonesia Pilot Program Implementation Agreement which will allow Market Aggregator to receive financial incentives on every eligible stove that is sold and used by end-users. The below figure provides a high-level commercial perspective on the biomass cookstove industry value chain. Market Aggregators from any segment of the value chain, as depicted below, are eligible to apply to participate in the Pilot. The Apex Consulting Group 22

23 How to Participate in the Pilot? 23 The Apex Consulting Group

24 Engaging with CSI Indonesia To register your interest in becoming a potential Market Aggregator as part of the CSI Indonesia, organisations are invited to complete the online Expression of Interest form on our webpage. Once your information has been registered, you will be contacted and invited to enter a dialogue with the Clean Stove Initiative Indonesia to ensure all documentation and eligibility requirements can be completed. The following steps outline the process flow that prospective Market Aggregators will undertake: 1. An announcement inviting Market Aggregators or prospective Market Aggregators who are interested in selling eligible cookstove(s) under the pilot program will be made. 2. Prospective Market Aggregators are required to submit an online Expression of Interest and then provide a letter of intent to CSI Indonesia. 3. Prospective Market Aggregators are then required to submit a request to have their stove tested at the Pilot Program Stove Testing centre. 4. The testing centre will review the application and make an appointment for the applicant to deliver the stove to the centre for testing. All testing will be conducted free of charge. 5. Pilot Program Stove Testing Staff will conduct the testing and prepare a report outlining the test results and recommendations. 6. The Pilot Program Stove Testing Centre will submit a report and recommendation on the level and classification of the cookstove design to the Program Management Office; at the same time a report of the test results will also be issued to the applicant. Stoves submitted for testing will be kept at the Testing Centre. 7. After reviewing the report and recommendations, the Program Management Office will grant eligibility indicating level and classification of the stove. This accreditation will allow stoves sold under the pilot program to receive financial incentives from results-based Financing. Stoves that fail to meet the established criteria and standards will not receive any certification from the office. 8. Approved Market Aggregators with accredited stoves will begin supply, sales and distribution of stoves. It is expected that he above outlined process will take a maximum of 60 days to complete. For more information on the CSI Indonesia opportunity for potential Market Aggregators submit an expression of interest on our webpage. The Apex Consulting Group 24

25 How an International Manufacturer Could Engage with CSI Indonesia CASE Clean Stove Initiative Indonesia study An online announcement from CSI Indonesia in a newsletter catches the interest of David, the CEO of Electromax International (Electromax). Electromax has a wide range of consumer products for BoP Markets, one of which is a cookstove that is sold in Mali, West Africa and manufactured in a central manufacturing and distribution plant in South Africa. David downloads the business case from the Market Facilitator s website and likes what he reads. We have been discussing the untapped opportunity for cookstoves in Indonesia, but my team agreed that we did not have resources to explore the market at the moment. With this support, however, we could make a significantly less risky move for us to test the market thinks David as he completes an online Expression of interest form excited by the new business opportunity he has discovered. David is then contacted by the CSI Indonesia Market Facilitator and after several conference calls and s, David understands the opportunity and the expectations the Program has for accredited Market Aggregators. He feels confident his organisation can deliver, so David signs a letter of intent with CSI Indonesia on behalf of Electromax, committing, in-principle, to the sale of 10,000 units over the course of the 1 year pilot. During several work sessions, the Market Facilitator, David and his team determine the areas of technical assistance and business support that will be the most effective to accelerate Electromax entry and success in the Indonesia market and this plan is submitted to CSI Indonesia. Electromax send the cookstove they are selling in West Africa to the CSI Indonesia testing Centre and 6 weeks later, David receives a certification and a performance assessment report which states that the cookstove is eligible to receive subsidies. With a certified stove, Electromax now signs a contract with CSI Indonesia which formalises the number of stoves, sales price and subsidy amount for the duration of the pilot. With the assistance of the Market Facilitator, Electromax identifies and enters into partnerships with a local distributor and a local retailer. The distributor is a local company with a network across the country and the retailer is a mini-market chain with a presence mainly in rural communities where biomass is regularly used by the community for cooking. All partners agree that the two local partners will receive payments as per their partnership agreement and that the CSI subsidies will be paid directly to Electromax in line with its agreement with CSI Indonesia. The partners prepare and implement a market penetration strategy with support from the Market Facilitator. The stoves are imported from South-Africa and packaging and instructions are translated into Bahasa Indonesia. The sales start and the first sale is made to a small family in Central Java. Each sale is recorded along with basic customer information in a salesreport that is submitted to CSI Indonesia, the receipt of this report triggers a 70% payment of the available subsidy. Simultaneously a local NGO, Yayasan Kommunitas, is engaged by CSI Indonesia to conduct market stimulation and awareness rising in Central Java and as a result of this work, and the marketing work of the partnership Electromax sells 600 units in the following month. 6 months after the first sale was made, CSI Indonesia has engaged an independent organisation to verify the continued use of Electromax s cookstoves and has submitted this report to the PMO at CSI Indonesia. Because this usage was verified, the final 30% of the subsidy was approved and dispersed to the company. 25 The Apex Consulting Group

26 How a Small Pellet Manufacturer in Jabodetabek Could Engage with CSI Indonesia CASE study As a member of the Indonesian renewable energy association, Pak Dodi has received an invitation to an event organised by the Market Facilitator of the CSI Indonesia Program. Pak Dodi is the CEO of PT PelletIndo, a small, successful pellet manufacturing company based in the Jabodetabek. I have had an idea of how to design a clean biomass cookstove for many years and finally, with this support; I can test and refine my design. Pak Dodi thinks as he listens to the presentation and reads through the business case. After the event, he submits an expression of interest on the Market Facilitator s website. A week later, Pak Dodi receives a phone call from the CSI Indonesia Market Facilitator and after some face-to-face meetings and s he is ready to commit to the sale of 4,000 units in the pilot phase. Pak Dodi is unsure about approaching potential partners and this is one of the areas where he and the market facilitator agree to allocate business support resources. He also requests assistance in developing a business plan for this additional business activity and CSI Indonesia agrees to provide pro bono support to assist him. Pak Dodi refines his design with his colleagues and when he feels that it is ready, he sends it to the CSI Indonesia testing facility, after making an appointment with the staff beforehand. After a 6 week waiting period, PelletIndo s stove is approved and they sign a performance contract with CSI Indonesia. Pak Dodi has some manufacturing and distribution capacity at his established plant and in Yogyakarta, but he is unsure about how to connect with the potential customers in remote islands including Sumba. The Market Facilitator introduces Pak Dodi to an NGO that is a potential distributor and retailer with experience working in remote islands and with an interest in establishing operations in Sumba. Through negotiation, the partners agree on a business model that includes PelletIndo as a manufacturer shipping to Sumba and transporting to Central Java. The NGO has full rights of distributing the cookstoves in Eastern Indonesia, starting with Sumba and PelletIndo maintain the right to distribute and sell the cookstoves in the rest of the country west of Bali. The two partners agree on payment-terms and all CSI subsidies are paid directly to PelletIndo. The partners prepare and implement a market penetration strategy with support from the Market Facilitator. The sales start and the first three sales are made to a large household in Waingapu, Sumba Island. Each sale is recorded along with basic customer information in a sales-report that is submitted to CSI Indonesia, the receipt of this report triggers a 70% payment of the subsidy available per sale. Simultaneously a local NGO, Yayasan Abadi, is engaged by CSI Indonesia to conduct health awareness rising activities in Sumba and as a result of this work, and the marketing grassroots work of the local NGO, PelletIndo sells 55 units in the following month. 6 months after the first sale was made, CSI Indonesia has engaged an independent organisation to verify the continued use of PelletIndo s cookstoves and has submitted this report to the PMO at CSI Indonesia. The continued use of PelletIndo s cookstoves was verified and the final 30% of the subsidy was approved and dispersed to the company 2 weeks later. The Apex Consulting Group 26

27 How a Local NGO Could Engage with CSI Indonesia CASE Clean Stove Initiative Indonesia study Yaysan Clean Cooking Indonesia (YCCI), a local NGO based on the island of Sumba, NTT has been implementing small scale stove programs with donor support since YCCI has a small team of 6 staff with additional part-time field personnel who travel to local villages across Sumba training local tradesmen on how to build fixed biomass cookstoves made from concrete. Ibu Maria is the head of YCCI, the YCCI team was invited to attend an outreach event organised by Yayasan Dian Desa and the World Bank to explain the CSI Indonesia program and how local NGOs can get involved. As the head of the local NGO, Ibu Maria thought attending the event would be a good opportunity to see if there was any possibility for additional funding to expand their clean stove work in Sumba While enjoying a coffee break at the workshop, Ibu Maria starting talking to the Market Facilitator and learned that local NGOs with an eligible stove could indeed apply to be a Market Aggregator; both swap cards and are excited that there may be an opportunity to work together to provide clean stoves to the community in Sumba and YCCI could possibly expand their work. Ibu Maria has always been keen to try the Thai Bucket design in Sumba but has never had the opportunity to do. After the event, she is excited and immediately submits an expression of interest on the Market Facilitator s website. A week later, Ibu Maria receives a phone call from the CSI Indonesia Market Facilitator and after some face-to-face meetings and s she is ready to commit to a target of 500 Thai Bucket Stoves for the one year duration of the Pilot. Ibu Maria is not sure where she should source the stoves from, she asked for assistance with this from the market facilitator and it is agreed the Program will provide business support to source a quality and reliable supplier. Ibu Maria also requests assistance in developing a business plan and logistics strategy for this additional business activity and CSI Indonesia agrees to provide probono support to assist YCCI. After sourcing a quality Thai Bucket from a producer in Jogjakarta, Ibu Maria refines the design with her field colleagues and the producer from Jogjakarta teaches the YCCI how to make the design locally. Once they have got the quality and reliability right, she sends it to the CSI Indonesia testing facility, after making an appointment with the staff beforehand. After a 6 week waiting period, YCCI s stove is approved and they sign a performance contract with CSI Indonesia. YCCI have strong ties to the community and know how to sell the stoves locally. With support from the Market Facilitator, they incorporate this knowledge into the business plan that the team feels will work well. The sales start and the first three sales are made to a small village one hour outside of Waingapu, Sumba Island. Each sale is recorded along with basic customer information in a sales-report that is submitted to CSI Indonesia, the receipt of this report triggers a 70% payment of the subsidy available per sale. Simultaneously another local NGO, Yayasan Sehat Indonesia, is engaged by CSI Indonesia to conduct health awareness rising activities in Sumba and as a result of this work, and the grassroots work of YCCI, they sell another 15 units in the following month. 6 months after the first sale was made, CSI Indonesia has engaged an independent organisation to verify that the stoves sold by YCCI are still being used in the community. A report is submitted to the PMO at CSI Indonesia. The report was approved and the final 30% of the subsidy was approved and dispersed ten days later. 27 The Apex Consulting Group

28 How an Enterprise Business Network Could be Formed and Engage with CSI Indonesia CASE study In order to maximise the likelihood of successful, CSI Indonesia has engaged a competent Network Facilitator to drive and guide the process. The CSI Indonesia Market Facilitator (MF) has been actively looking for potential participants to set up an Enterprise Business Network (network). The MF is looking for 3-5 organisations to work together in a formalised relationship to respond to the Cookstove opportunity in Indonesia. Now that the types of organisations that will be needed have been identified, the Network Facilitator goes about the task of seeking specific organisations and meeting with them to sell the benefits of participation with the objective of getting a senior decision maker to attend an initial meeting with the other potential participants. After doing a lot of desktop research and conducting meetings to explore existing and potential players in the local and international market, the MF found a clean stove manufacturer from China who has large scale capacity and experience in similar projects in Hubei Province. Kang Da Enviro Technology Co. Ltd. has an annual production capability of 100,000 units and supplies stoves across provinces in East and South China from their Hubei manufacturing facility. The MF also has identified PT XESA Indonesia, a 3PL organisation with the capability to move the stoves from point of manufacture to point of local distribution. Finally, the MF has also previously identified a JavaMart, a retail outlet that has a chain of stores across Java Island. They have approximately 30 stores in Central Java. The three firms agree to hold an initial meeting lead by the MF in Jakarta and during this meeting the Network Facilitator outlines the business opportunity in detail and provides a roadmap of the way forward. The potential partners have detailed discussions on the viability of such a network being formed. They agree that some of the benefits include the ability to develop accurate forecasts based on the known business model and participants and reduced risk because of the partnership model. After several hours of discussion commitment is gained from the participants to form the network. Each member signs a letter of intent that states they are willing to participate in the network and the network develops a mutual internal network participation agreement with the assistance of the MF. The members agree momentum is important and begin to develop the business plan the next day. The completed plan includes the business model and how it would work, what input each participant would provide; how the relationships between each member would work and financial arrangements including a detailed financial model (and subsidy allocation). The Network appoints JavaMart as the Lead Firm for the Network and they agree they can commit to a target of 10,000 units during the one year Pilot. JavaMart then sends the Network s stove to the CSI Indonesia testing facility. After a six week waiting period, the Network s stove is approved and JavaMart signs a performance contract with CSI Indonesia on behalf of the Network. With ongoing support from the Network Facilitator, the Network begins production and sends the first container of stoves to Indonesia which arrives at the International Port in Surabaya. The sales strategy is executed and sales of 350 units are generated in the first month. Basic customer information is collected in a sales-report that is submitted to CSI Indonesia, the receipt of this report triggers a 70% payment of the subsidy available per sale. Simultaneously the Program s demand stimulation initiatives around health awareness have been conducted over the past 3 months and the following two months generate sales of 1,600 units. Six months after the first sale was made, CSI Indonesia has engaged an independent organisation to verify that the stoves sold by the Network are still being used in the community. A report is submitted to the PMO at CSI Indonesia. The report is approved and the final 30% of the subsidy is dispersed fourteen days later. The Apex Consulting Group 28

29 Why Act Now? 29 The Apex Consulting Group

30 Acting now will allow first movers the opportunity to benefit from early Program interventions that will create the opportunity for rapid understanding of the market and access to support and enabling environment activities to maximise community impact and commercial profitability. Leveraging CSI Indonesia Benefits The World Bank in collaboration with the Bioenergy Department of the Ministry of Energy and Mineral Resources (MEMR) launched the Clean Stove Initiative Indonesia in early 2012 in order to scale up access to clean and efficient cooking solutions. For more information on the Clean Stove Initiative Indonesia and the work completed to date, download the Phase 1 report. This holistic approach taken by CSI Indonesia tackles enduser awareness and policy change in a simultaneous effort to provide an ideal ecosystem for the development, manufacture and distribution of clean biomass cookstoves. CSI will enable the following benefits for eligible early Market Aggregators: International Exposure at Events an Global Best Practice Case Studies CSI Indonesia will provide the opportunity for successful Market Aggregators with accredited stoves that participate in the Pilot to be included in Global Best Practice Case Studies to be disseminated as part of the lessons learned from the pilot program. Global outreach efforts will also include being invited to attend international conferences and events to promote your business and technology. Demand Stimulation CSI Indonesia survey results and inquiries in the field reveal that there is extremely little public knowledge about the damaging health effects of inefficient indoor cooking, or about how to combat these effects with clean cooking technology. A market-based intervention will only be sustainable in the longterm if consumer demand for clean cookstoves can come to permanently influence clean cookstove supply in Indonesia s stove market. CSI Indonesia intends to conduct a concentrated program of demand stimulating activities to raise awareness of the benefits of a transition to clean cookstoves by Indonesian households. Interventions are likely to include road shows and The Apex Consulting Group 30

31 public campaigns released through various media channels to draw consumer awareness to the existence of clean cooking technologies and will emphasize the consistent use of quality stoves. It is likely to also include public health promotions to spread awareness about the detrimental effects of inefficient fuel technologies on family health. Other possibilities for the campaign include organizing promotional events such as competitions, exhibitions and seminars, all of which will increase the public s education about these topics. Business Support for Entrepreneurs Market Aggregators will be eligible to receive business support over at no cost. CSI Indonesia will engage Market Aggregators of different sizes with different roles within the clean biomass cookstove value chain. Smaller Market Aggregators will be eligible to receive tailored business support to improve their business processes and capability in areas such as business planning, logistics management and inter-firm cooperation. Larger Market Aggregators will be eligible to receive tailored support in areas such as identifying and engaging potential local partners, hand-holding to enter the Indonesian Market and access to international suppliers and manufactures. Facilitating the Establishment of Enterprise Business Networks CSI Indonesia will facilitate the establishment of multiple Enterprise Business Networks. A Network consists of a group of three or more organisations working together in a formalised relationship to respond to a particular market opportunity. Each Network will be supported by a Network facilitator with the expertise to guide network members to outline the business opportunity in detail and provide a roadmap of the way forward. The network would act as a consortium of firms in order to maximise the commercial benefits of entering the clean cookstove industry in Indonesia. This network approach will allow CSI Indonesia to provide business support and facilitate cooperation across the value-chain to achieve pre-agreed targets and objectives. The establishment of lasting relationships will enforce commercial sustainability independent organisations that agree to collaborate. Stove Testing and Certification CSI Indonesia will provide testing and certification services at no charge to potential Market Aggregators. CSI approved testing centres will evaluate stove performance (i.e., whether stoves meet standards) and recommending continuous improvements in stove design and development. The certification system will be open, fair, and transparent to ensure stove quality. Testing centres that are qualified to conduct stove certification will be accredited. Results Based Financing (RBF) The Project Management Office (PMO) of CSI Indonesia pilot program will agree with each individual Market Aggregator on Key Performance Indicators and their timeline for progress towards meeting these KPI s. Market Aggregators will provide updates via RBF reports, upon approval of the reports, the PMO will inform the financial institution partner who will disburse payments to the Market Aggregators as requested. Results-based financing disburses public resources against demonstrated, independently-verified outputs or outcomes instead of project inputs. To succeed, Market Aggregators must design stoves that fit local conditions and meet certification criteria. More information about the RBF subsidy mechanism can be found on our website. 31 The Apex Consulting Group

32 The Apex Consulting Group 32