One company’s quest to serve hot stoves to the Bottom Of the Pyramid

We’ve been scratching our heads wondering why energy-efficient stoves have not caught on among the world’s 2.4 billion energy poor. Stove prices are relatively affordable, the advantages seem fairly obvious, and the technology is simple, proven, and effective.

So what’s the hold up?

Is it a social marketing problem? Is it a question of distribution and availability? Is it a lack of markets? Is it because this is not yet a priority for energy-advanced societies? Is it all of the above?

These are all heady questions with no simple answers, which is why we’re punting and promising to revisit these questions in another post.

In the meantime, we thought we’d look to see who out there is considering the 2.4 billion market of energy poor as a business opportunity. Can a third, to half, of the world’s population that depends on biomass as their primary fuel be considered “emerging consumers” of “clean-tech” and “green fuels?”

Ron Bills thinks the answer is definitely, yes.

Bills is the CEO and Chairman of the Board of Envirofit, a Colorado-based company that manufactures and sells around the world a line of energy efficient stoves.

Founded in 2003, Envirofit is a spin off of research work carried out by Colorado State University’s Engines and Energy Conversion Laboratory (EECL), a world leader in designing energy efficient, low emissions engines.

The company operates as a U.S. tax-exempt corporation and utilizes initial donations and institutional support to fund product development and early stage product commercialization, and then uses operating income to develop and expand its businesses.

Evirofit’s principal market right now is India, where it has sold more than 100,000 stoves over the past year.

The Charcoal Project: If half the world’s population is burning wood or charcoal in inefficient ways and suffering from indoor air pollution, how come people haven’t built these stoves like crazy and why aren’t they making a fortune?

Ron Bills: That’s a valid question but there’s no simple answer. Some people have a hard time changing social habits. People say, “gosh, my mom cooked on this open fire stove. This is the way we’ve done it. Why do we need to change?”

The Shell Foundation’s Breathing Space program should get credit for trying to change this perception. They’ve done tremendous work raising awareness around indoor air pollution, especially in India.

The issue is also around the affordability to the consumer, because if you look at that demographic that is burning biomass, they have very little disposable income. So the stove has to be a good value proposition for an emerging consumer who doesn’t have a lot of money

Another problem is that I think there have been a lot of products on the market that don’t do much for the consumer, that don’t reduce indoor air pollution, and that don’t last. These products have fostered a cautious approach in the market.

But the good news is that there have also been a lot of advances in material science over the last decade, too. Like our internal metal combustion chamber, which means our stove will essentially last forever. What we’re talking about, really, is a new generation of cookstoves.

I’m also very encouraged where the industry has gone over the last two years. If I take a snapshot in time back two years ago and now, it’s night and day. If we can keep this level of acceleration over the next few years we’re going to see massive deployment of products on the market.

TCP: Tell us in your own words what is Envirofit’s goal.

RB: To create a sustainable stoves business that is healthy and continues to grow. When you look at the difficulties of sustainability, we need to be able to produce things that people want, and create value proposition through the channel, including manufacture, sales and distribution, and the end-user experience of this piece of equipment.

TCP: What about selling to the Bottom of the Pyramid? Is that an issue? [NB: We use World Bank definition of poverty to be: $2 a day or less (poverty), and $1 a day or less (extreme poverty).]

RB: In India we’ve sold over 100,000 stoves. We have a very standard business model: sales, marketing and distribution, warehousing, cost-control, awareness building – all the standards you would find in a consumer durable business.

Selling energy-efficient stoves to the bottom of the pyramid, or “emerging consumers” as we like to call them, is just like selling any other product: consumers must learn about it, figure out “why do I want this?” “How much does it cost?” “Where can I buy one?” Is it really going to work? They have the same concerns as consumers in industrialized societies. It really is no different than selling white goods anywhere else in the world.

TCP: What does the future look like for Envirofit in India?

RB: Right now we have about 50 employees working in India, where we are currently selling about 7 to 10,000 stoves each month. In southern India alone there are about 60 million people that burn biomass and have indoor air pollution problems, so our plan is to continue expanding our operations there.

TCP: So you’ve got India covered, what about Africa?

Africa is a great market. It’s a great opportunity for this technology dissemination.

We have several pilot projects in Africa, including Uganda, Tanzania, Mali, and we’re setting up a distribution point in Kenya. We’re also getting ready to launch by the end of Q2 the new generation of charcoal stove.

Our business model for Africa is that we want to be a stove technology provider. This means we don’t see ourselves coming into Africa and setting up our own distribution network in every city, every village.

What we want to do is partner with key distributors where we can be the technology provider and they would do what they do best on the ground: coordinate with distribution and sales. We’re basically looking for local entrepreneurs who can create businesses.

TCP: Does this mean there will be opportunity for local manufacturing?

RB: Right now all of our stoves are an engineered product, so we manufacture them in China and India because there’s some specialized technology involved. Think about automobiles: you don’t build automobiles in every city. There are manufacturing and supply chain issues when you’re dealing with large quantities.

TCP: So what’s the plan for Africa?

RB: We look at it as a two-step process. We would initially ship the products in containers to various locations. And then once the market is established, you’re looking at transferring manufacturing and technology to a localized market. It could be as simply as an assembly operation or even as large as manufacturing operations in Africa.

TCP: Switching gears, what about the fuel for these stoves. Are you at all involved in alternative sustainable biomass fuels?

We have two types of products. A wood burning stove and a charcoal stove. There are lots of opportunities around pellitization. But right now we’re really focused on the stove side, not so much on the fuel-source side.

TCP: Wouldn’t there be an opportunity to integrate fuel manufacturing into the operation?

RB: I think, yes, there might be an opportunity in that space, but to me that’s a very localized function and the transportation costs are expensive. I would assume you’d have to shape your business model around how much are people currently paying today vs whether you could make the fuel in a cheaper way. And in the availability of the biomass and price point. I can only comment on this from a basic business standpoint but we haven’t done any research in that area.

TCP: What about energy efficient kilns? Any action there?

RB: We’re not currently involved in the charcoal kiln efficiency process, either.

TCP: Tell us about the stoves.

RB: We have about six models of stoves, so prices vary. We have stoves with pressure cooker attachments, LPG attachments, plancha-type stoves for Latin America. We feel we’ve got the market covered pretty well with our line of products. We have several more models on the drawing board.

TCP: What can you tell us about the pricing of the stoves?

RB: It’s a free market enterprise, when it comes to pricing.

TCP: What’s the actual cost of these stoves?

It depends on duties and tariffs and transportation costs but the manufactured cost is right around $15. Duties and tariffs might add $5 to $10 dollars to the product, depending on the location. Then you look at how you can reduce that cost to the distributor or the end user and that’s where carbon markets becomes a big potential.

TCP: Let’s talk about that, the role of the Carbon Market.

RB: There is a certainly a huge opportunity in carbon credits. We are actively selling stoves to people who are doing carbon projects and getting carbon credits in Africa.

It has an excellent potential to really be able to reduce the cost to the consumer of these stoves. And there are lots of ways to do that. Intuitively it means that more people and more projects could afford stoves. Which is what the carbon market was designed to do.

One of the key ingredients in carbon projects is the life of the stove. If you want to sell carbon credits over a period of time you need to make certain that the stove will last over five or six years. This is kind of a neat thing because it drives the requirement around quality and durability.

TCP: Any final thoughts, Ron?
RB: Our main goal is to get product into the hands of consumer. So we need the types of networks you’re building so we can ramp up our own deployments.

We need more distributors. We’re ready to serve them!

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For more information about Envirofit, please see the first comment below!