The prescribed policy reaction for the climate change crisis is to define a target in emissions reduction. The Paris Agreement aims to pursue international collaboration to limit temperature rise to 1.5 degrees Celsius. Individual countries would do this through Nationally Determined Contributions (NDCs). The NDCs put forward by countries often involve specific goals in renewable energy and electric mobility. The UN Secretary General António Guterres has called more ambition to set NDCs that close projected “emission gaps”. However, in our work with dozens of entrepreneurs in India and elsewhere we have concluded that smart clean technology entrepreneurs ignore these grandiose goal setting announcements. The reason is simple. Their customers do not care. Their customers care about a pressing problem that needs to be solved. They care about saving money. Most importantly they care about their own jobs. They want a high-quality solution which is not risky to implement.
Clean technology entrepreneurs enter an existing market
Entrepreneurs can only do business with customers that exist today. It is too risky to build a business with the assumption that a policy target would actually be implemented within the defined time frame.
Take the case of Prof. Shashikanth Suryanarayanan of IIT Bombay who founded Sedemac Mechatronics with his post graduate students. Sedemac develops engine controls for two and three-wheeler vehicles and diesel generator sets. It is India’s leader in this product category and business has been doubling every year. Sedemac did not always have it easy. Their initial product was a fuel injection system that helps the vehicles achieve higher emission norms. The product never took off as the date for emission norms enforcement shifted. The emissions norms were supposed to come into force in 2010 but are now coming into force in 2020. The company pivoted to develop an solution for a problem that its Original Equipment Manufacturer (OEM) customers did have. Its customers needed an ignition control system to control spark timing for every beat of the engine. Sedemac could develop the solution and could do so at a lower cost than competing solutions. The ignition control system did help achieve higher fuel efficiency but the reason it sold was that it allowed OEM customers cost advantages and design flexibility.
Clean tech entrepreneurs help customers make money
Entrepreneurs take pains to promote the cost saving aspects of their product. They hardly ever mention the “green” attributes of their solution. In most energy efficiency technologies this is relatively straight forward.
Saurabh Kumar, founder of Triton Synergies, offers technology to reduce energy losses in fertilizer industry by modifying the flow pattern of gases. His sales pitch is to help customers increase production with the same investment in plant and machinery, not even energy saving. He does so by removing bottlenecks that occur due to the lack of uniform distribution in gases or air in ducts and pipes.
It is often not easy to do this as the capital cost of clean technologies is high. Take the case of Kiran Morass who sold Promptec Renewables, an energy efficient lighting company, to Havells, a large electrical equipment company in India. In 2008, when he set up Promptec, LEDs (Light Emitting Diodes) were way too expensive. Promptec decided to focus on the very niche market of solar lighting for rural areas. In a rural solar system, the solar panel and the battery are the main components of cost. While lights contributed to only a small part of the system cost, replacing them with LEDs reduced the electricity consumed significantly. This brought down the panel size such that the total system cost came down by as much as 50% .
Clean tech entrepreneurs take great pains to customers of quality
Entrepreneurs work extra hard to ensure quality. They make sure that transitioning to a new cleaner technology does not create any risks for their customers.
Mohan Agarwal is the founder of Century Metal Recycling. Century Metal supplies liquid metal directly to the customer’s production line. In this way, it reduces the energy required to re-melt solid ingots. The company supplies liquid metal directly to the customer’s production line as many as hundred times a day. Customers can neither check the product quality nor manage supply logistics and so have outsourced these functions to Century. By doing so, customers now have greater expectations about product quality and service which Century must meet.
It is often not easy to assure quality of clean technology which is being plugged into old infrastructure. Energy efficient LED lights — when introduced in India — had very high rates of failure. NTL Electronics, a company founded by two brothers, Arun and Praveen Gupta, focused on solving this problem. The failure of LED lights was caused by the failure of drivers, electronic circuits which converted that the high voltage alternating current to low voltage, direct current that was used in the LED circuits. The power quality in India’s distribution infrastructure often fluctuates. The sensitive drivers would fail under these circumstances. NTL Electronics built driver components that could meet Indian power conditions within reasonable costs.
Our work indicates that innovation for clean technology markets starts with customer focus. The assumption that clean technologies are ready to come online if leaders set ambitious policy is too optimistic. While technologies may exist for a low carbon future, markets do not. Markets require both active buyers and sellers with adequate information. Grandiose goal setting announcements do not create markets; it only distracts entrepreneurs from the job of creating and maintaining markets.
The examples in this blog are based on the lessons from I did under the KfW SIDBI Innovation Finance Programme as a part of adelphi team (a Berlin based consultancy) that provided Technical Assistance for the line of credit
*Jaideep Prabhu of Cambridge helped me refine the argument in this blog.
