Malawi: Improved stove and kilns program cashes in on carbon offsets

So you think you can’t reduce energy poverty, cut greenhouse emissions, create jobs, and turn a profit at the same time in one of the world’s poorest countries?

Conor Fox thinks otherwise.

It takes a great vision — and probably nerves of steel — for foreign investors to find a business opportunity in a country like Malawi, where about 85% of the population lives in rural areas, more than 50% of the people live below the poverty line, and per capita GDP hovers around $900.

What’s more, Malawi has suffered 57% deforestation from 1972 to 1992 and is carrying an ongoing annual deforestation rate of 2.8%.

Conor Fox is the country representative for Hestian Innovation, an eco-securities firm who sees a business opportunity in the country’s heavy dependence on biomass for home and commercial use.

The business premise makes sense on paper: introduce energy efficient technology – mainly in the form of stoves and kilns that reduce woodfuel consumption by up to 80% and 70% respectively — and then sell the Voluntary Carbon Standards-certified carbon credits on the world’s  carbon market. Sounds simple, no?

Maybe. But how does that square with the reality on the ground?

We caught up with Conor Fox in Malawi to find out how the business is doing.

The Charcoal Project: How did Hestian Innovation settle on Malawi as a test market?

Conor Fox: We wanted to develop a project in an African country that had not yet accessed funding through the carbon market and for various reasons Malawi was the best fit. We’ve been involved in this project for over two years now.

TCP: What is your background and what’s your relationship to Malawi?

CF: I worked as a consultant on climate change in South Africa and Malawi on a short-term basis. Apart from that, we had been advised by friends and colleagues that Malawi would be a good place to have a base. Professionally I am an environmental economist and have worked with civil society and government in Latin America and the Caribbean and more recently in Africa.

The Project:

TCP: What has surprised you most between what you planned on paper and the reality on the ground?

CF: What we are doing on the ground is surprisingly close to what is reflected in the PDD (Project Design Document, which is the business plan, essentially), albeit in a more technical matter-of-fact way. One nice piece of feedback we got from a validator was that our project on the ground is better than how it is reflected in the PDD, something that is very often the opposite way around, in his experience.

TCP: Where are you in terms of your projected roll-out? Are you on target?

CF: In general we are on target, although with more investment we could surpass our target and bring more sustainable development benefits to more people.

TCP: How difficult or easy has it been to get people to adapt and adopt the new technology? With regard to the cookstoves or the tobacco curing barns/kilns?

CF: Early adopters tend to be our best source of marketing via word and mouth and now our challenge is to up-scale operations to meet very high demand. The technologies we are promoting have evolved over time and are now at a stage where we believe they have reached a happy medium between price and performance.

The Technology

TCP: Let’s talk about the stoves. Who designed or advised you on the types of stoves and kilns to be used?

CF: The stoves and barns have evolved over years and many people have been involved at various stages, not least the end-users who give us important feedback. Perhaps it is best not to list those involved for fear of omitting important actors along the way. Suffice to say that the design of both the stoves and barns take into consideration the availability of materials, tools and skills at a village-level and the preferences of the people that use the technologies on a day-to-day basis.

TCP: How are the stoves performing?

CF: The stoves are performing well. The proof is in the pudding – the feedback we are getting throughout the country is really positive.

Only after proving that the technologies are accepted and demanded on the ground have we disseminated them. Their design takes into consideration realities on the ground.

All of our tests are field-based, as this is where we believe it counts. Where lab tests can help at the initial stages in the research and development, it is only in people’s homes and farms can the meaningful results come in.

Our tests are based on kitchen and barn performance tests in people’s homes and farms before and after the adoption of the improved technologies over extended periods of time. In the case of stoves the tests are based on two 72-hour periods before and after adoption, while the barns are tested over a three-month curing season.

The results of our tests are likely to be conservative as tests are often conducted soon after adoption. With time it is likely that the users will master how their new technologies perform best, resulting in improved efficiencies and lower fuelwood consumption.

TCP: You settled on a five-year working life for the Esperanza stoves, two years for the portable ceramic, and ten years for the rocket barns. Why?

CF: Again these estimations are based on feedback from users. An independent assessment of portable stove users estimated that they can last between two and three years, so we have estimated two year although we have developed a replacement system for stove that may not last that long.

The Esperanza stove has a longer life as it is fixed and built into the kitchen and it can be maintained indefinitely. A spare parts and maintenance component has been set up to enhance the durability of the Esperanza.

The Rocket Barn is built with locally available materials without any exotic or hard to find parts. We believe that it can last as long as a house, as it is built with brick and has a corrugated iron roof. The estimated ten-year life span is likely to be conservative and maintenance and repairs offered by the project can extend the life span of the barn.

Carbon Finance

TCP: How important is the carbon finance component to the project?

CF: The products on offer would in most cases be beyond the reach of our customers in the absence of the project, which is only viable with carbon finance. In other words without carbon finance, we would not be able to bring improved technologies to thousands of households.

TCP: How hard or easy is it to sell these eco-securities on the voluntary emissions reduction market?

CF: The major challenge of monetizing emission reductions is the speed of the certification process. Prior to validation and registration, interested investors are wary of the risks. But once a project is registered it becomes increasingly attractive for investors.

TCP: Have the sales of the offsets generated the kind of revenue you anticipated? How is this working on your bottom line? How is it affecting the scope and timetable of the rollout of the project?

CF: The challenge of many carbon projects is that many of the costs are felt up-front while the revenues start at zero and activities are financed from initial investment. As our project progresses more and more people will be benefiting from the technologies and revenues are likely to be significant but during the start-up period the cash-flow management is challenging. All going well for our next project we will be in a better position to invest in a system that has been tried and tested and we can hit the ground running.

TCP: How are you doing in terms of hitting your targets w regards to stoves and barns sold?

CF: We have set ourselves very ambitious targets. For the barns we are playing catch-up at the moment but are comfortably doubling our annual productivity and targets are very much reachable. For the stoves, we had a late start but are firmly on target. In our first 7 years we are targeting up to 150,000 customers, but we know there are at least 2 million potential customers in Malawi alone.

TCP: Is the cost of the stove subsidized to the consumers? What is the cost? How was this cost basis arrived at?

CF: All our technologies are subsidized, with levels varying from technology to technology. Where micro-financed, payback periods are usually under one year as interest rates are high.

Sustainability Analysis Assessment

TCP: How many people are directly and indirectly employed by the project on the ground?

CF: The project has a network of implementers that generate income for well over 400 people including staff, stove production groups, stove promoters, builders, carpenters and metalworkers.Over half are women.

Carbon Emissions Reductions

TCP: You have projected a reduction of almost 200,000 tons of CO2 for the seven years ending November 2015. Are you still sticking to that figure?

CF: Our projections are estimates, but we can surpass targets.

Kicking the tires of the Carbon Market.

The Kyoto Protocol-sponsored CDM (Clean Development Mechanism) and the VCS (Voluntary Carbon Standard) represent the two most widely accepted certification programs for carbon offset projects that generate credits for sale on the carbon market. Each scheme has its supporters and detractors.

(For a primer about the Carbon Market Overview, check out this presentation prepared by the World Bank and presented at the March 2009 PCIA meeting in Uganda.)

Either way, foreign investors continue to invest in carbon credits generated from energy efficient stove and kiln programs located in Africa in places like Ghana, Mali, Senegal, Kenya, Tanzania, and Rwanda, among others.

But although the prices of various types of carbon credits have seen a decline on the international carbon market as a result of the logjam in Copenhagen in December, investors are still betting on the emergence of legally biding international treaty that will lay the financial foundations for a robust carbon market.

Finding a sustainable and reliable funding stream for energy efficient programs in Africa and elsewhere around the world will be critical to the accelerated adoption of energy efficient technologies by the world’s energy poor.

We wish the folks at Hestian the best of luck!