Solar Energy Fosters Social DevelopmentMon, 02/24/2014 - 12:37
Access to electricity has a significant impact on social and economic development. As of today, roughly 3% of Mexico’s population lacks access to the national power grid. Most of the 3 million people affected by this live in rural communities located in remote and highly marginalized areas. Electricity services do not reach their homes because of the high costs of grid expansion, low population or dispersion, or complex geographical conditions within these regions. Previously, a group of young entrepreneurs shared a common notion of developing a project to impact and foster social and community development, promote renewable energies, and fight climate change in locations without access to electricity through technological innovation. With this in mind, ILUMéxico was founded in 2010. “I used to work in wind projects for GE. Being a student at the time, I was constantly asking myself how I could make a meaningful contribution to Mexico. My associates and I share the notion that Mexico’s potential for renewable energy is not fully taken advantage of,” tells Manuel Wiechers, co-founder and CEO of ILUMéxico.
ILUMéxico develops its own technology to provide solar powered generators to marginalized rural communities with no access to electricity through tailored microfinancing schemes. “Families can spend up to US$12 per month on candles or diesel lamps. In addition to being expensive, they are dangerous because they are fire hazards, and the smoke they emit contributes to lung diseases,” explains Hugo Ham, ILUMéxico’s co-founder and CIO. The solution ILUMéxico offers has an impact on households savings and income generation capacity, as having electricity at night helps people perform activities that could lead to an increased income. Wiechers claims the impact his company has on its target population is aligned with the UN’s development plan.
It was with the help of an NGO that ILUMéxico gained access to the rural community, and it launched its pilot program in Veracruz in 2010. Wiechers points out that his company has always prioritized local support, be it from an NGO, any government entity, or a socially responsible enterprise willing to create a partnership. “It is hard to convince communities, as there is not a one-size-fits-all solution for this kind of situation. Each community will have its own concerns and objections. It is all about making them understand that charging for our services compels us to give them high-quality services,” explains Wiechers.
The pilot program proved ILUMéxico’s solution to be successful, and since then the company has worked with almost 3,000 households in 11 states with a total installed capacity of 75kW. Even though having the correct partners eased the acceptance process when entering communities, ILUMéxico has faced considerable challenges and obstacles when scaling up the business. “We started four years ago and our model depended on subsidies, grants, and non-profit donations. When the government changed in 2012, we realized that we could not depend on administrative cycles for funding. We started our own microfinance model with the goal of making solar systems accessible; this allows financial sustainability that benefits costumers and ensures the durability of our programs over time,” says Wiechers.
Another obstacle involves logistics, considering ILUMéxico is working in regions beyond the reach of conventional transportation and logistics companies. For this reason, it had to create its own distribution channel internally by integrating the whole value chain, from manufacturing to distribution and financing. ILUMéxico implemented a decentralization strategy that led to the creation of ILUCentros, which are rural branches staffed by young engineers from the region that are in charge of marketing, sales, training, and installation and maintenance operations. “Right now we have four branches for logistics management. Once we scale up, however, we will have to modify the strategy and mechanisms to make them work correctly,” says Ham. “Even if you have the best technology, the chances are the systems will stop working if left unattended in a rural community,” contributes Wiechers. ILUMéxico also provides free evaluation, system repairs, and tailored maintenance plans for people with solar equipment from other programs. These people, says Wiechers, eventually become long-term clients.
ILUMéxico’s plan in the short-term is to establish, consolidate, and structure the ILUCentros model to seek and enhance investment. The mid-term goal is to reach 50,000 households in the next five years through 50 different ILUCentros or regional offices. The company also wants to strengthen bonds with the government to continue working together and even influence public policies. “If we manage to provide electricity to communities, then their living conditions improve. If we can get other actors on board, the communities have a bigger chance of overcoming poverty,” affirms Wiechers.