Presented by Miriam Otoo of IWIM on April 12, 2018 at FAO headquarters at the International Forum on Solar Technologies for Small-Scale Agriculture and Water Management. Based on the report, Business model scenarios and suitability: Business Model Scenarios and Suitability: Smallholder Solar Pump-based Irrigation in Ethiopia: https://cgspace.cgiar.org/handle/10568/91939
Business Models for Smallholder Solar-Powered Irrigation in Ethiopia
1. Business models for
smallholder solar-powered
irrigation in Ethiopia
Dr. Miriam Otoo
International Water Management Institute
April 12th 2018, Rome
2. Solar pump-based irrigation in Africa
• Significant potential for
small-scale irrigation in
sub-Saharan Africa for
improved food security
• Increased farmer
investments in irrigation
technologies
• Limited access to energy
for pumping water –
barrier
• Solar energy-based pumps
– ‘cost-effective’ and
‘clean’ approach for
irrigation in Africa
3. State of solar-powered irrigation
Increased government and
donor investments – pilot scale
Projects limited to a few
farming communities who
benefit
Limited technology uptake and
scaling up:
Unsustainable impact
Figure 9: Farmer with improved dual
purpose cowpea.
4. Business thinking: Why?
Most donors envision investment plans which do
not require their continuous support for large-scale
impact.
Donor
Support
$
Intervention
Sustainable
impact
$ $ $
Sustainable
impact
Donor
Support
Market-
driven
Mechanisms
$
Intervention
$ $ $
5. How do we achieve this?
– Leveraging donor investments for up-
scaling necessitates the leveraging of
(local) private sector capital (incl. farmers)
– Incentives for private sector participation
– Development and promotion of
innovative business models that
represent sources of revenue
generation and benefits for all relevant
actors
7. Application: Case of Ethiopia
Mapping suitability of solar
energy-based irrigation with
GIS:
Constraint analysis based on
multiple variables (e.g., slope,
irradiation, rainfall, etc.)
Scenario development to
assess suitability (depending
on threshold values) for
groundwater and surface
water
Based on water source and
technical constraints,
potential suitable area
estimated
Method allows tailored
mapping to different priorities Figure 1: Suitability based on groundwater depth up
to 25 m.
8. Financing
• Access to financing continues to be a major challenge to
scaling-up agricultural technologies.
• Incentives available to private entities for investing, but
details are not widely known as information often
communicated to limited group of institutions and
organizations rather than as regulations.
• Rural MFIs may be most suitable financiers however do not
reach all regional states (e.g. Somali and Afar states).
• Borrowers face:
High interest rates of 15 – 24% per annum
High transaction costs
Unfavourable repayment terms
9. 0
50,000
100,000
150,000
200,000
250,000
Drip-Pepper Furrow-Pepper Overhead-Pepper Overhead-Cabbage Overhead-Carrot Overhead-Fodder
NPV
Discount rate (15%)
Discount rate (18%)
Discount rate (24%)
• Investments in solar irrigation pumps can be profitable, depending
on crop type, type of water delivery system and cultivated area
• Investment in a solar pump will be more profitable and effective
when used in combination with a drip irrigation system
• Increased returns with increased cultivated area under pepper
production
Economics
10. 1: On grid: SPICE – Dhundi, Gujarat, India 2: Off grid: Irrigation Service Provider (ISP
Model)– Bihar, India
4: Decentralized grid: Solar Irrigation +
Home enterprise
3: Off grid: Solar Micro-irrigation – Ethiopia,
Ghana, Africa
Range of solar power irrigation business models
11. 1. Out-grower or insurer scheme model
• Challenge
- High risk of crop failure due to changing weather patterns
- Limited technology adoption to mitigate risk as most
farmers are poor
• Solution
- Investment in technologies by other stakeholders
interested in smallholder success – out-grower companies,
crop insurance companies, governments…
Business model scenarios for solar pumps
12. Success drivers
• Farmers: Lower risk of crop failure, increased
water-use efficiency and cost savings
• Contract farmers/Out-growers: More reliable
crop supply incentivizes provision of free or
subsidized pumps to associated farmers
• Insurance providers: Lower risk or insurance
cases incentivizes investment (pump at a
subsidized rate to clients)
Out-grower or insurer scheme-based business model
13. 2. Technology supplier business model
• Challenge
– Limited access to financing stunts technology
adoption
• Solution
– Technology suppliers offer solar pumps coupled
with financing (via cooperation with financiers)
– Back-ended credit guarantees to mitigate risk to
technology suppliers.
Funded schemes operated by independent entities lead
to higher success rates
Partial guarantee funding
– Lease-to-own: mitigates prohibitive upfront costs
14. Technology supplier business model
Success drivers
• Reduced prohibitive upfront costs
• Loan recovery
• Tailored financing to farmers’ needs
(e.g., repayment schedules)
• Relatively equal distribution of risk
amongst scheme (government), lender
and borrower
15. • Feasibility potential for additional business
model scenarios
• Articulating research results in a way of interest
to key stakeholders (particularly private sector)
• Business model piloting with private sector
(solar irrigation technology suppliers) and
monitoring
• Mapping and analysis of solar irrigation supply
chain and model development for other
countries
Ongoing and future work