Jim Ayala, Founder & CEO, Hybrid Social Solutions, Philippines
Jim Ayala, Founder & CEO of Hybrid Social Solutions, Philippines, discusses the evolution of the company since its foundation, challenges that it has overcome along the way, and why he thinks the Philippines is currently an exciting place in which to build a company.
Government support is often crucial to the success of social initiatives like that of rural electrification. The Philippines Energy Plan (PEP) aims to triple renewable energy capacity by the year 2030. How would you rate governmental support for RE investments in the Philippines?
There is a great deal of desire for environmentally and socially sustainable development. This desire means that the conventional paradigm has changed: no longer is environmentalism portrayed as crazy people hugging trees. The new approach, however, to development has yet to become entirely clear. The government is central to unraveling this conundrum, but as yet does not have refined policies to improve the sustainability of the supply chain, top to bottom. The basic instinct when it comes to marginalized groups is still charity; for example, free photovoltaic systems. Such solar systems are almost invariably the lowest specification, cheapest panels available, are frequently prone to breaking and are technologically backward in the rapidly advancing solar industry. The inadequacies of the charitable approach in providing poor quality equipment does nothing for the reputation of solar power, and, in doing so may actually impede long-term progress for this industry.
The task of sustainably growing the Philippines’ access to electricity can only happen in a profitable manner. The only tenable solution is a value chain that will allow business to upscale and secure the market. It is easy to sell a single light, but repeat sales are what is needed to ensure that solar power continues to offer huge benefits to rural Filipino communities.
What is your outlook on Hybrid Social Solutions (HSSi) today compared to your vision at the outset? What have been some of the major challenges along the way and the strategies for overcoming them?
HSSi’s principal goal is to provide solutions to customers lacking resources, often in rural areas. Lack of electricity, water or education seriously retards an individual’s ability to escape poverty. Manila in the Philippines may appear very modern, but in close proximity exist areas where subsistence farming represents the basis of the local economy. These communities are relatively isolated, and around two thirds of the populace there do not have access to running water or die without seeing a doctor. These problems are access problems because in the Philippines there are many fine, qualified doctors. It is a travesty that such a great proportion of the populace does not have these facilities.
Around a quarter of the population does not have access to electricity and the power grid is unlikely to reach these groups in the immediate future. This is in part due to geography, as remote islands and mountainous regions are difficult to connect. The Philippines is a poor country yet has exceedingly high electricity rates and reaching these communities would require heavy subsidies, which the country cannot afford. Connecting these communities to the grid is not technically, logistically or financially feasible. However, there are solutions that can guarantee a reliable source of power for remote communities. HSSi views the issue of rural electrification in a similar manner to the way cell phones transformed the telecommunications market. The historic need to install terrestrial landlines for phones disappeared as cell phones requiring less infrastructure became more common. In a similar manner, stand-alone power systems are already practical, cost effective and larger projects particularly can see a solid return on investment. Hurdles include financing and maintenance so a comprehensive system, which is connected and self-sustaining, is essential. The work that HSSi has undertaken has a profound impact on our customers as once people have access to our solar lights, their income rises typically by 25 percent and children are able to study 45 percent longer. Significantly, 97 percent feel safer and 40 have been able to replace a fire. These stoves were frequently powered by kerosene, a substance often subject to abuse. The replacement of these stoves has seen a drop in instances of children drinking kerosene. The benefits, solely from a simple light, are tremendous and further power for pumps and motors can see production multiplied many times over.
Communities are empowered and livelihoods are improved by these developments. Many of these communities engage in cottage industries, typically handicrafts, and access to electrical power allows a substantial increase in productivity as they can work at night. A farmer in Mindoro growing fruit, for example, has been able to prevent fruit bats consuming her crop at night using lights. As a result, the crop improved so much she was able to buy a motorcycle. Fishermen attracting their catch using lights have been able to dispense with the cost of kerosene, a figure that can approach $150 per month. For rural workers, this figure can be transformative.
What have been the outcomes from your results?
These positive results have encouraged HSSi to further investigate what qualities a technology needs to be practical and useful. Most solar technology is either high tech, fabricated in the USA or in Europe and is expensive and or is cheap and produced in China. Robust equipment is required for fishermen attracting squid, or driving away bats. We have a unit that procures technology appropriate for each niche, for example penetrating lights for fishermen using lines sunk deep into the water and scattering lights for fishermen seeking to attract squid and anchovies to the surface. Appropriate technology must be customized to the consumers’ needs.
The secondary challenge for HSSi is ensuring our technology is accessible to customers. Across mountains, over rivers and on remote islands, marketing products can be difficult. These same obstacles create distribution challenges as supplying solutions to consumers is logistically testing. Thirdly, these technologies must be affordable so HSSi has options including payment by installment to ease the fiscal burden. This financing deal is even more attractive in rural areas as alternatives to solar are dirty and polluting, such as kerosene or are expensive like battery power. Battery power can cost as much as 4,000 times the price of electricity supplied on the grid here in Manila. That is why the HSSi’s solar technologies are so attractive from a financial perspective.
How extensive is this rollout; how many villages are you empowering and to what extent?
HSSi currently has operations in a few hundred villages, but there are about 70,000 needing access to solutions like those provided by HSSi. The key challenge is scalability: off-grid solar solutions need to be produced on an industrial scale. This requirement for extensive infrastructure and the sheer number of villages awaiting electrification means we need to work with policy makers and other industry players to open up the market.
Development (educational and economic) is the key to successful projects. What role do you believe businesses and financial institutions should play in intervening in social problems and uplifting communities?
The scale of the rural electrification conundrum is enormous and this is not helped by the fact the energy industry is gargantuan and subsidies directed towards it are often poorly targeted. Any solution requires a sound economic underpinning, and cannot be fixed by subsidies alone. As the resources required will be significant, they will be best mobilized by business, not the government. Businesses however, can only operate in this field if they cover costs and for this reason it is essential to ensure that companies in the value chain supplying electrical solutions to rural areas benefit from their efforts. Activities that are not profitable will stop.
To guarantee progress in rural electrification a wide array of stakeholders are required to collaborate and cooperate with a common goal in mind: that of providing access to power. These stakeholders include actors from government, private companies and civil society. There is a dual nature to the value chain in this market: it is social, but simultaneously commercial and whilst the various players all have different objectives, they can all achieve these through the common act of providing rural electrification.
You have been speaking extensively about the need for long-term fiscal sustainability, but how did you attract, or how are you attracting investment to provide the business with a degree of initial impetus?
HSSi itself is already beyond the breakeven point. The challenge now is to grow the business and this will require investors, which we are seeking in both the local and international context. HSSi ‘s mission is an attractive one, and a great number of investors already wish to become involved because as this business has laudable aims, and it is profitable, it is an easy sell for investors.
What will be HSSi’s role in fuelling the sustainable growth of the Philippines during these defining years?
Our role is to create a differing road to electricity access. Depending on the context, some solutions will make more sense than others; for example, it does not make sense to extend the grid all over the Philippines. Whilst microgrids are useful for villages larger than 1,000 households, many villages are smaller and a more appropriate model is one which will empower individual houses with a small but useful amount of energy. Lights and the ability to charge small gadgets is a much more important threshold. Small gadgets can provide Internet access, video and a plethora of useful services; there is no need to provide every household with access to a 60-inch plasma television! We are breaking into new territory by installing solar access centers that provide the initial powered system in the village. This center will have computers and other equipment so the local community can gain an appreciation of the technologies potential. We can then adapt our model to the community’s local requirements. By connecting these communities to the market and integrating them more effectively into the wider economy, we create a wealth of opportunities for rural communities and allow them to fulfill their potential.
I would encourage individuals who want to see this new paradigm with business delivering social benefits to come to the Philippines. We are on the cusp of taking huge steps forward in improving our economy and the livelihoods of our populace. The dynamism is hugely exciting and people are already visiting from around the world to see this change.
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