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Business Models for Smallholder Solar-Powered Irrigation in Ethiopia

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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

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Business Models for Smallholder Solar-Powered Irrigation in Ethiopia

  1. 1. Business models for smallholder solar-powered irrigation in Ethiopia Dr. Miriam Otoo International Water Management Institute April 12th 2018, Rome
  2. 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. 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. 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. 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
  6. 6. Methodology Core: • Business model approach • Multi-criteria assessment framework  Suitability mapping  Environmental sustainability  Institutional, policy and regulatory context  Finance mechanisms  Technology supply chain  Economic sustainability
  7. 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. 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. 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. 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. 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. 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. 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. 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. 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
  16. 16. THANK YOU wle.cgiar.org

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