Why fund open knowledge and tools in energy access?

TL;DR: EnAccess is a nonprofit that’s trialing a new model of funding innovation in energy access: cash for open knowledge and tools.

EnAccess is a nonprofit that funds open source innovation in the energy access sector. We’re trialing a new model of funding innovation: cash for open knowledge and tools. We founded EnAccess in 2017, developed and piloted our approach in 2018, and launched earlier this year.

In this post, I explain where EnAccess came from and what inspired our approach.

Introductions

Fabio De Pascale and I co-founded EnAccess after about ten years each of working in energy access, and several years of collaboration as friends and colleagues. Fabio has been in the depths of innovation as a co-founder and the CEO of both Devergy (a solar mini-grid social enterprise that’s been operating in Tanzania since 2012) and NXT Grid (a solar mini-grids franchise in Nigeria), while I’ve worn hats as a researcher (VU University Amsterdam), early stage developer (CleanStar Ventures and FactorE), and consultant to ventures, funds, and DFIs. We have each been involved in several innovation experiments over the years, and have spent a good amount of time thinking about how innovation resources (e.g. time, capital, talent) are allocated at company and ecosystem scales.

Why EnAccess?

We started EnAccess because we saw an opportunity to streamline R&D and innovation efforts in the energy access ecosystem. Below are four observations that compelled us to think about how flows of both innovation funding and knowledge could be rearranged to both increase the efficiency of energy access funding and accelerate progress towards Sustainable Development Goal 7 (SDG 7).

1. Implementing R&D projects in the energy access industry is really hard

Whether you are a new team with a concept on PowerPoint, or a venture-backed company with years of operating experience, the process of designing, resourcing, implementing, evaluating, and learning from an R&D activity can be mindbendingly difficult.

Newcomers face several hurdles before being able to get up and running. Founder teams need to set up an organization, establish credibility, cultivate relationships with communities and authorities, identify and lock in partners, secure finance, and so on. Much of this needs to be done before being in a position to meaningfully and thoughtfully design an innovation activity.

Established teams don’t have it easier. While more mature organizations might have access to funding and execution capabilities (i.e. “boots on the ground”), these teams can be constrained by existing mandates or a lack of buy-in from their Board or shareholders. There may be limited appetite to allocate resources to non-revenue generating activities, the equity might be too expensive to risk, or there may be too many other fires to put out.

• In a dynamic and challenging industry that remains in its infancy, with limited precedents and massive uncertainty, shouldn’t it be easier for energy access innovators to try out and learn from new stuff*?

*I’m purposely using the word “stuff” as shorthand for any type of innovation: technology, business models, operational models, financing instruments, or new regulatory/market acceleration instruments.

2. Accessing and managing existing sources of R&D funds can be problematic

Several specialized sources of R&D funding in energy access — such as challenge funds, incubators, project preparation facilities, and others— have been and are instrumental for building both new organizations and markets. We consider these initiatives to be important, positive, and catalytic components of the ecosystem.

We’ve also noticed some limitations in how these sources interact with the landscape. Opportunities to access innovation funding can be sporadically available (i.e. only available through windows and calls); eligibility criteria can be unclear, too stringent, or too variable (i.e. from call to call) and difficult to plan for or meet; proposal processes can be arduous and/or ambiguous, and; financing agreements can require cumbersome administrative processes. These limitations are typically rooted in the procurement and funds disbursement policies of public organizations, as well as certain ideas about building markets with scarce and hopefully catalytic funding.

While these limitations are understandable, they ultimately result in energy access innovators having to contend with sources of funding that aren’t always tuned to the operating realities of energy access marketplaces.

Equity investment — a more conventional source of flexible funding for innovation in new ventures — can at times be equally challenged in this sector. Early stage equity is scarce (albeit growing) in energy access, is unequally available to innovators around the world, tends to be expensive, and can be treacherous. In an uncertain landscape in which entirely new industries are being created from the ground up, investment teams are often learning from their investees. Unlike other industries, in which investors are veterans of the vertical and have likely sold their own successful operating companies, the nascence of the energy access industry means that investors are roughly as new as the operating companies. This uncommon dynamic can introduce quite a bit of risk into equity investment agreements, and particularly those in which funding tranches are tied to specific and potentially misguided milestones.

This disconnect — i.e. between the modalities of innovation funding and the realities of the marketplace — creates a difficult path for innovators on the ground. Underfunded teams that are working in remote communities are simultaneously on global hunts for particularly friendly sources of funding, waiting for funds to come available through sporadic and convoluted calls for proposals, and hosting field visits/excursions for far away investors.

• Given that a majority of technological and business model innovation has been driven by small and under-resourced teams, shouldn’t it be easier for innovators to access and manage R&D funding?

3. The wider ecosystem isn’t always able to learn from disparate innovation projects

We’ve noticed that, although public and philanthropic funding is often relied on to kickstart energy access companies and marketplaces, a relatively limited amount of value is returned to the broader ecosystem as a result of this funding.

Let’s consider an example. EnergyAccess Corp. is awarded a USD 1 million grant from a public organization. The ecosystem might learn of the award through a press release or word of mouth. 18 months later, at the close of the project, a short summary is published that includes a few high level metrics: what EnergyAccess Corp. did, in what country, and how many households EnergyAccess Corp. reached. As a result of the grant, EnergyAccess Corp. is likely farther along in their development; they may have used the funding to close out a round, make critical hires, create core IP, or otherwise build traction in the business.

Apart from these two visible signals — i.e. the summary case study and public hints indicating the further organizational development of EnergyAccess Corp. — there is little actionable content that is intentionally shared with the ecosystem. This limited sharing means that when a future, similar company (“FutureCompany”) wants to trial out the same technology, model, or approach as EnergyAccess Corp., FutureCompany needs to spend time and money going through roughly the same learning curve as EnergyAccess Corp. FutureCompany will spend its scarce time and money making and learning from the same mistakes that Energy Access Corp. did, ultimately to arrive at a similar endpoint, with similar but different assets having been developed. While going through the process of trialing, failing, and learning is often more valuable than not for organizations, there are instances and certain R&D efforts for which this cycle might be considered wholly unnecessary.

Stepping back, we might ask: why should this be the norm? Aren’t public or philanthropic funds being used to fund much of this R&D work in the first place — and wouldn’t we achieve greater leverage on those funds if (part of) the learning from EnergyAccess Corp. had been recycled and shared with FutureCompany, as opposed to captured as part of its Intellectual Property (IP)? This sort of competitive behavior might be expected or anticipated when we are considering the development of market intelligence or IP that eventually becomes a company’s core source of sustainable competitive advantage. But what about solutions to business problems that take time, money, and frustration to develop, yet are not core to a long-term competitive position? (Also: Do or should our considerations of IP — perhaps particularly IP assets developed with philanthropic or public funding — change, given the scarcity, urgency, and impact-orientation of the sector we are operating in?)

Not sharing certain actionable lessons, insights, and tools across companies seems like a missed opportunity for the ecosystem and for families living in energy poverty. This opacity results in redundancies in the use of innovation funding (i.e. a financial inefficiency in an environment of scarce funding) as well as longer incubation cycles for new ventures to get up and running (i.e. a temporal inefficiency in a time of urgency).

• For all of the public and philanthropic innovation dollars that have been granted in energy access — which have funded a variety of technology development cycles, business model pilots, financial instrument pilots, and other innovation experiments — shouldn’t a greater volume of actionable and practical content be accessible to the ecosystem?

4. We don’t talk or write about innovation failures

For anyone working in impact investment, global development, or other domains of social change, the idea of sharing and learning from failure isn’t new. Yet despite knowing that we should talk about failure, we don’t. Funders and the aspiring funded are equally concerned with reputational damage and optics; track record, execution capability, and word of mouth are key to momentum — so why talk about failing?

Problems arise when this sentiment becomes endemic and creates a brittle or risk-averse ecosystem. Funders begin designing strange requirements into financing agreements, become KPI (Key Performance Indicator) hungry at the wrong stage or for the wrong KPIs, or become timid and begin favoring industry “darlings”. Founders create fantastical revenue projections, knowingly agree to unrealistic milestones in investment agreements, and avoid talking about the real challenges they are facing.

This fragile dynamic extends to companies and organizations that run into particularly hard times. We’ve noted that when an energy access organization collapses, speculation abounds for a period before the sector sort of trudges on without thoughtfully comprehending the experience. Each time this happens, years of operating know-how, tips, tricks, instincts, and the results of a million other experimental successes and failures also vanish.

We consider these periodic evaporations of field-worn know-how — without a consolidated or intentional reflection — to be a major opportunity cost for the ecosystem, and one that has sort of a compounding price tag: the cost of not talking about innovation failures only increases as we continue to fund new solutions (i.e. projects, technologies, models, companies, subsidy instruments, etc.) without fully understanding their precedents.

• Given how hard it is to get started in energy access, shouldn’t we make it easier for new organizations - both operating companies and funders alike - to learn from historical experience?

A New Model of Funding Innovation

Taking these four observations together, one might describe the energy access ecosystem, despite its dynamism and forward momentum, as fragile and unnecessarily secretive. This is unfortunate; achieving SDG 7 by 2030 will require billions of dollars in annual investment, and yet the roadmap to universal access remains uncertain.

Against this landscape, EnAccess is trialing a new model of funding innovation: cash for open knowledge and tools. In the same way that an organization might contract a consulting firm to provide research and analysis services, we contract operating energy access companies to provide innovation as a service to the ecosystem. The outputs of the projects that we fund are open source and freely accessible pieces of software, hardware, or knowledge that other operating companies and non-profits can immediately put to use. We’re experimenting with a workflow that is relatively lightweight, and importantly, we’re ok with funding ambitious R&D projects that might not work.

We see a few key benefits to this approach:

• Innovators can try out great ideas with flexible and inexpensive funds, and share tools or insight that can transform progress towards SDG 7;
• Early stage and under-funded teams can save valuable time and money by learning from peers and predecessors;
• Successive flows of R&D funding can be made more efficient, by reducing the need for future energy access companies to retrace steps or reinvent the wheel, and;
• Funders (public, philanthropic, or otherwise) can dramatically multiply the leverage and impact of their funding, by enabling the development of open source solutions which are freely available for reuse by the public — as opposed to hidden within corporate IP.

At a working level, EnAccess is all about being innovator- and innovation-friendly, funding ambitious and useful projects, and creating actionable content that can be shared with operating companies and non-profits in the sector. At an ecosystem scale, EnAccess aspires to reduce redundancies, optimize the flows of scarce innovation funding in the sector, and accelerate progress towards the achievement of universal energy access. We’re excited to test this “cash for open knowledge and tools” model and how it might contribute to accelerating energy access for all.