UNDERSTANDING MARKET-BASED SOLUTIONS AND ACCESS TO FINANCE OPTIONS FOR CLEAN-COOKING TECHNOLOGIES IN BANGLADESH © 2021 International Bank for Reconstruction and Development / The World Bank The World Bank World Bank Office Dhaka 1818 H Street, NW Washington, DC 20433 Plot- E-32, Agargaon, Sher-e-Bangla Nagar, Dhaka-1207 USA Bangladesh Tel: 1-202-473-1000 Tel: 880-2-5566-7777 Fax: 1-207-477-6391 Fax: 880-2-5566-7778 www.worldbank.org www.worldbank.org/bangladesh This work is a product of the staff of The World Bank with external contributions. The findings, interpretations, and conclusions expressed in this work do not necessarily reflect the views of The World Bank, its Board of Executive Directors, or the governments they represent. Graphic design and Illustration by M. Inamul Shahriar UNDERSTANDING MARKET-BASED SOLUTIONS AND ACCESS TO FINANCE OPTIONS FOR CLEAN-COOKING TECHNOLOGIES IN BANGLADESH ACKNOWLEDGMENTS The financial and technical support of the Energy Sector Management Assistance Program (ESMAP) is gratefully acknowledged. ESMAP is a partnership between the World Bank and 19 partners to help low- and middle-income countries reduce poverty and boost growth through sustainable energy solutions. ESMAP’s analytical and advisory services are fully integrated within the World Bank’s country financing and policy dialogue in the energy sector. Through the World Bank Group (WBG), ESMAP works to accelerate the energy transition required to achieve Sustainable Development Goal 7 (SDG7) to ensure wide access to affordable, reliable, sustainable and clean energy for all. It helps to shape WBG strategies and programs to achieve the targets of the WBG Climate Change Action Plan. This report is a joint effort between the Clean Cooking Alliance (herein “the Alliance”) and the Bangladesh Clean Cooking Program, co-funded by the World Bank and the Green Climate Fund (GCF) and implemented by Infrastructure Development Company Limited (IDCOL) as part of the Rural Electrification and Renewable Energy Development II (RERED II) Project. The report summarizes findings from an assessment of the current clean-cooking market in Bangladesh and identifies strategies and interventions to facilitate clean-cooking solutions. Innovision Consulting Private Limited was tasked with this assignment to capture findings from past research and from the experiences of different clean-cooking programs in Bangladesh. Subsequently, Jichong Wu (Consultant, World Bank) led the editing work, with inputs in the report based on secondary research, interviews, and field visits. This report amalgamates those findings and provides recommendations on scaling up clean cooking in the country and strengthening the market mainly through the IDCOL Improved Cookstove (ICS) Program. Inputs from Ms. Salima Jahan (Member, Sustainable and Renewable Energy Development Authority (SREDA), Bangladesh) helped to explain SREDA’s vision on possible development pathways for achieving clean cooking and contextualizing the findings from this assessment. We would like to acknowledge the support of IDCOL and in particular the IDCOL ICS team – A. F. M. Shahed (AVP and Unit Head, ICS Program, IDCOL) provided detailed information on the implementation mechanisms of the ICS program across Bangladesh and shared valuable insights on the ground realities and nuances of the Bangladesh clean-cooking market. We would also like to thank Yabei Zhang (ESMAP) for her expert opinion, Joonkyung Seong (World Bank) and Asna Towfiq (the Alliance) for their support toward in making this report a reality. Finally, the editing and production support of Heather Austin is gratefully acknowledged. TANUJA BHATTACHARJEE SREYAMSA BAIRIGANJAN On behalf of Bangladesh Clean Cooking Program, RERED II CONTENTS ACKNOWLEDGMENTS 2 ACRONYMS 6 EXECUTIVE SUMMARY 8 STRUCTURE OF THE REPORT 13 1 INTRODUCTION 14 1. 1. 1. 2. Background 14 Objective 14 Methodology 14 1. 3. Limitations 15 1. 4. 2 THE COOKSTOVE MARKET IN BANGLADESH 2.1. Market Overview 16 2.2. Clean Cooking Initiatives 17 16 2.3. Natural Gas and Liquefied Petroleum Gas (LPG) 18 2.4. Improved Cookstove (ICS) 21 2.5. Others 22 2.6. Key Stakeholders 27 3 UNDERSTANDING CONSUMERS OF THE CLEAN COOKING MARKETS 3.1 Consumer Segmentation 28 3.2 Graduation process 31 28 3.3 Consumer willingness to pay and baseline situation 34 3.4 Economic and technical feasibility 37 4 IDCOL ICS PROGRAM 37 4.1. Cookstoves 38 4.2. Business model of the POs 39 4.3. Creating Sustainable Demand for ICS 43 5 ACCESS TO FINANCE 48 5.1. Investment and returns for households 5.2. Access to finance needed for both households and POs 48 49 5.4. Challenges for access to finance 49 COMMUNITY ENGAGEMENT 50 RECOMMENDATIONS 51 CONCLUSION 58 ANNEXES 59 Annex 1: IWA guidelines and ISO International Standard 59 List of tables Table 1: Bangladesh Natural Gas Production 19 Table 17: Production cost of one Portable Single Mouth ICS. 45 Table 2: Annual LPG import permit data obtained from BERC (MT) 21 Table 18: Total return per month from distribution of 500 Portable Single Mouth ICS 45 Table 3: Import permit of LPG given by BERC and quantity of LPG imported 21 Table 19: Year on year return on distribution of ‘Portable single mouth’ ICS 45 Table 4: Biogas methane yield according to biomass utilized 26 Table 20: Time for return of investment 46 Table 5: Total number of biogas digesters Table 21: Cookstove high-performance criteria 58 installed and their capacities 27 Table 22: ISO Voluntary Performance Targets 58 Table 6: Biogas installation by different organization for the last 10 years (2008–2018) 27 List of tables Table 7: Willingness to pay for Portable 8” with Figure 1: Steps in methodology 14 insulation and lining cookstove 34 Figure 2: Sector wise gas consumption Table 8: Willingness to pay for Double mouth (2016-2017) 19 chimney stove 34 Figure 3: ICS types selected by the Table 9: Price comparison between Advanced beginning of ‘IDCOL Improved ICS and LPG 35 Cookstove (ICS) Program’ 23 Table 10: Willingness to pay for Advanced ICS 35 Figure 4: Latest list of IDCOL ICS 24 Table 11: Additional Stove according to Figure 5: Types of cookstoves according to consumer segment 36 number of households 28 Table 12: IDCOL ICS along with the approved Figure 6: Consumer Segmentation 32 selling prices 38 Figure 7: Energy Ladder (Perfect Substitution) 33 Table 13: Comparison between IDCOL approved price, selling price, production cost Figure 8: Energy Stacking (Overlapping) 33 and grant for promotion 39 Figure 9: Stove Stacking 33 Table 14: Summary data on private ICS designers Figure 10: Total Time from production to and manufacturers 41 reception of grant 39 Table 15: Annual fuel cost using traditional Figure 11 Stakeholder Map for ICS 40 mud stove with 15% thermal efficiency 44 Figure 12: Benefit trickle down map of Table 16: Annual fuel cost using a single mouth IDCOL-PO-customer 42 portable ICS with 30% efficiency 44 EXECUTIVE SUMMARY EXECUTIVE SUMMARY Together with air pollution, exposure to smoke from open fires during the burning of inefficient fuels – the primary means of cooking and heating for nearly three billion people in the developing world – causes almost 4 million premature deaths annually and contributes to a range of chronic illnesses and other acute health impacts such as early-childhood pneumonia, emphysema, cataracts, lung cancer, bronchitis, cardiovascular disease, and low birth weight. About 82 percent of Bangladesh’s population relies on traditional mud stoves and solid fuel such as wood, coal, dry leaves, and crop residue for cooking. The burning of plant or animal material used as fuel (biomass) leads to environmental degradation from increased pressure on natural resources and forces people, especially women and children, to spend many hours every week collecting wood and other biofuel materials. Additionally, inefficient cooking produces greenhouse gas emissions, such as carbon dioxide and methane, and aerosols such as black carbon, contributing to adverse climate change. The burning of solid fuel also puts a strain on animal life in the region and on other natural resources. Women and young children spend a significant amount of time near cooking areas, inhaling pollutants from traditional stoves. Women who use traditional stoves are particularly vulnerable to high levels of exposure to household air pollution (HAP): they are twice as likely to develop chronic obstructive pulmonary disease (COPD) than women who use cleaner stoves. Given the severity of the health and environmental problems associated with the overuse of biomass, several development partners and donor organizations have been working in Bangladesh with the government to promote cleaner, more efficient cooking solutions. Initiatives date back to the Bangladesh government’s efforts to develop improved cookstoves (ICSs) during the 1970s and 1980s. Subsequently, NGOs such as Village Education Resource Center (VERC), German Corporation for International Cooperation (GIZ), and Grameen Shakti started to popularize ICS technology and other clean-cooking solutions such as biogas. These efforts gained further momentum when Infrastructure Development Company Limited (IDCOL) launched its “ICS Program” in 2013. 10 # of hh 2020 # of hh 2030 - high range # of hh 2030 - low range Traditional Stove 29.0m (74%) Natural gas Stove 4.4m (11%) 5.5m (13-14%) Type of Stove LPG Stove 3.3m (9%) 23-27m (55-65%) ICS 2.7m (7%) 16-21m (38-50%) Electric Stove 1.0m (2%) 3-4.5m (8-10%) Other (Pellets, 0.1m (0%) biogas, etc.) 1m (2-3%) # of household (million) Figure A: Bangladesh cookstoves and fuels market overview, present vs 2030 targets The Clean Cooking Alliance (CCA) clean cooking in Bangladesh. The and cooking technologies. This has been active in Bangladesh market assessment examined common practice of stove and fuel since 2012. In 2013, they convened clean-cooking solutions across the stacking also makes ICSs a good stakeholder consultations to technology spectrum, including option in the transition to cleaner develop and launch the Bangladesh natural gas, liquefied petroleum stoves and fuels because most rural Country Action Plan for Clean gas (LPG), and ICSs given their households, which account for 80 Cookstoves (CAP) led by the Power popularity among Bangladeshi percent of Bangladesh’s population, Division of the government’s households. Other solutions include will continue to rely on biomass as Ministry of Power, Energy and biogas, solar cookers, and electric their primary fuel for cooking. Mineral Resources. In May 2018, stoves, including induction stoves, the government held a CAP rice cookers, and electric pressure ICS distribution is projected to grow review workshop to ensure the cookers. from its current level of 2.7 million realignment of CAP 2013 with the households to 16–21 million in new changes and developments in Today, 74 percent of the total 2030. LPG stoves, the second-largest Bangladesh. As a result, a renewed population of Bangladesh still rely potential market, is estimated CAP – the National Action Plan for on traditional stoves, followed to increase from 3.3 million to Clean Cooking (2020–2030) – was by natural gas (11 percent), LPG 23–27 million households in the launched with the goal of achieving (9 percent), ICSs (7 percent), new National Action Plan for Clean 100 percent clean-cooking adoption and electric stoves (2 percent). Cooking 2020–2030. throughout Bangladesh by 2030 Considering the higher costs and the need to further develop the supply Despite a smaller market share, (SREDA 2019). infrastructure of other clean-cooking electric stoves, including induction This assessment brings together technologies, ICSs have the largest cookers, rice cookers, and pressure learning from recent studies and market potential and should be cookers have a good opportunity experiences and expects to help prioritized for policy makers. because of their convenience and CCA and the World Bank look high popularity among consumers. at prospective strategies with a Recent studies have found that 74 With Bangladesh very close to 100 focus of access to finance and percent of ICS-adopter households percent electricity coverage, it will incentive options for scaling up are simultaneously using other stove not be a surprise if the adoption Understanding market-based solutions and access to finance options for clean-cooking technologies in bangladesh 11 EXECUTIVE SUMMARY Experimental Group (Current Customers) - cash Control Group (Potential Customers) - cash Experimental Group (Current Customers) - loan Control Group (Potential Customers) - loan 2500 2000 Stove Price (BDT) 1500 1000 500 0 0 5 10 15 20 25 30 35 40 Willingness to Pay (% of respondents) Figure B: ICS Consumer Willingness to Pay Analysis of electric stoves rises sharply. is the country’s largest. As of Dec The POs promote IDCOL-approved It may even extend well beyond 2020, over 2.46 million cookstoves ICSs to the rural community, projections because the availability have been distributed under and the program reimburses the and reliability of the country’s power the program. It has successfully POs for their marketing and supply continues to improve, and attracted the involvement of 61 promotional costs. electric stoves prices are expected to partner organizations (POs) in drop over the next decade. the cookstoves sector, generating Technological progress has been employment in decentralized stove impressive. At the start of the IDCOL The World Bank-funded ICS production facilities in 300 upazilas ICS program, in 2013, the thermal program implemented by IDCOL (subdistricts) of Bangladesh so far. efficiency of most available stoves Cash vs Loan 2500 2000 Stove Price (BDT) 1500 1000 500 0 Experiment Group (Current Customers) Control Group (Potential Customers) Figure C: Bubble chart of payment preferences, cas vs installment loans 12 in Bangladesh was Tier 1. With a enough that they can be aims to provide access to clean- total tax incidence of more than manufactured in decentralized cooking solutions to 5 million 58 percent, the high prices of Tier subdistrict level production centers additional households by 2023 in 2 or better stoves from abroad put using local resources. Prices vary part fulfillment of the country’s new them out of reach for many. But from BDT 375 to BDT 1600 (USD 4 2030 target of universal adoption of through IDCOL’s committed R&D, the to USD 19), offering a wide range of clean-cooking technologies. efficiency of the program’s stoves has affordability. impressively risen from Tier 1 to Tier 3 Consumer segmentation is a in a matter of seven short years. With new joint funding from the helpful tool to better understand World Bank and the Green Climate customer preferences and market Furthermore, the engineering design Fund (GCF), a four-year clean- potential so that tailored marketing of these stoves is straightforward cooking program is underway. It and intervention strategies can be Less smoke Shape of the stove opening isn’t feasible/suitable faster cooking time Cannot cook in large pots Fuel saving Certain foods take longer to cook Less enironmental polution Cannot use large pieces of firewood Other liked Requires too much maintenance Produce smoke Food does not taste good Ash and residues formed under the pot Too expensive Didn’t like ...... or not convenient Already using a clean stove Chimney is missing - PO didn’t provide Other-disliked 100 75 50 25 Households % 0 -25 -50 -75 -100 Current user Current user Lost customer Non-adopter Non-adopter - liked - issues in IDCOL in non-IDCOL Program Program villages villages Figure D: Consumer feedback of the problems of ICSs (by consumer group) Understanding market-based solutions and access to finance options for clean-cooking technologies in bangladesh 13 EXECUTIVE SUMMARY developed to effectively drive sales customers outside IDCOL’s 4. Strengthen awareness building and adoption, and scaled up in ICS Program village coverage and marketing interventions. other regions. Using consumer data (18 percent). Other common 5. Build a reliable and sustainable from recent studies, households complaints and issues included ICS supply chain in rural have been grouped into current ICS “can’t cook with large pot,” “longer Bangladesh. users and potential customers in a cooking time,” “ash residues after bubble-chart analysis, below. The cooking,” and “require too much 6. Develop a diverse and size and position of the bubbles time on maintenance.” Stove innovative financing ecosystem represent customers’ purchasing businesses should collect more of for the clean-cooking sector to power and interest in selected these data and use the findings to enable community-driven market stove products. The data can address product design defects. penetration at scale. help businesses develop pricing strategies and identify financing and On marketing and promotional Access to finance is the biggest incentive options. activities, door-to-door (90.9 challenge hindering large-scale percent), word-of-mouth (84.5 distribution of clean-cooking To understand customers’ percent), billboards or posters technologies and products. On the willingness to pay, we looked at (61.1 percent), and brochures (60.5 supply side, manufacturers and a baseline survey undertaken by percent) were the most effective dealers/suppliers/distributors are IDCOL. The trend of preferring cash marketing strategies that have reportedly experiencing a cash payment for portable single-mouth convinced ICS purchasers (among crunch and working capital deficits ICSs was similar within the survey’s ICS-adopters), while word-of- because their payments from treatment and control groups. The mouth, billboards or posters, and IDCOL take around three months highest percentage of willingness to brochures were the top-3 most to realize. POs of IDCOL with high pay in installments was for high- effective marketing activities for upfront investments are also facing end ICSs for both the treatment potential customers, the so-called liquidity crisis. The increase of raw and control groups. For example, control group in this study. material prices over the past year this chart below shows clearly that has made things even worse. The for a more expensive stove model, Based on a literature review and typical financing options available surprisingly, both ICS-adopters the latest data, four consumer in rural household markets are and non-ICS adopters favored an segments were identified with often unattractive to commercial installment payment plan to buy it high market potential, and specific banks and microfinance institutions (top line, orange circle size larger intervention strategies were because of the low loan amounts than blue circle) while for cheaper provided for each, including stove and high transaction costs. Some stoves they all preferred paying and fuel product and segment financial institutions even do with cash. Similar data should be characteristics. Echoing the above- not believe in the clean-cooking collected on a large scale; this will mentioned conclusion, ICS has the business model. provide useful insights for policy largest opportunity, and middle- makers to develop consumer class rural households form the A lack of financing would affect financing mechanisms for the clean- largest market size, representing 7 the long-term sustainability of cooking sector. million households. the sector, so there is a great need for financing mechanisms On user and potential customer Six recommendations were designed particularly for this feedback, among current ICS provided as following: sector, and supported by donors users, fuel-saving (32 percent) and and the government both for stove 1. Call for greater clean-cooking timesaving (32 percent) were the businesses and for consumers. ambitions and a shared vision of top-two “most liked” options for universal adoption by 2030 across A number of innovative financing using ICSs with the most positive the entire sector. mechanisms were suggested feedback, followed by less smoke (19 percent) and health benefit (6 by this report including liquidity 2&3. Recognizing the “stove and percent). “Can’t use large piece of facilities, advance payments for fuel stacking” phenomenon and firewood” was a common complaint cluster network expansion, and prioritizing ICS in the transition across all four consumer groups, a loan guarantee scheme for to higher economic development across potential customers within businesses. Consumer financing stage and a cleaner future of IDCOL’s ICS Program village coverage option considered in this report household energy use. (34 percent), and across potential included a free trial program for 14 Door-to-door 90.0 13.2 Listened to neighbors, friends, relatives 84.5 57.2 Billboard or poster/wall in village 62.1 ICS Promotional Activities 28.9 Brochures/ leaflets 60.5 25.0 Listened to radio programs 34.5 17.9 Attended demonstration by PO 28.0 2.2 Attended demonstration by other NGOs 24.1 2.1 Watched documentaries, commercials 16.4 Control 1.8 Treatment Households (100%) Figure E: ICS Promotional Activities products, cash vouchers, trade-in Community engagement is community members are saying programs, microfinance loans, and a central to driving the adoption about their experience with pro-poor strategy for lower-income clean-cooking practices, and ICSs. In addition, promotion and households. recommendations were mentioned educational programs at school can under the awareness section. One influence parents when students Beyond these, we also recommend example was to create entertaining come home and talk to their parents increasing capacity-building support for videos screening “Uthan boithok” about what they have been learning businesses and launching nationwide community engagement courtyard about. consumer-facing awareness campaigns meetings to disseminate what on the ICS concept. Figure F: Mekko chart of cooking market sizes by income thresholds and urban-rural divide Understanding market-based solutions and access to finance options for clean-cooking technologies in bangladesh 15 STRUCTURE OF THE REPORT In chapters 1 and 2, the report first reviews the current state of the clean-cooking market in Bangladesh, covering a variety of fuels and technologies based on the significance of market penetration in Bangladeshi households, including natural gas, LPG and Improved Cookstoves (ICSs). Other solutions discussed in the report include electric/induction stoves, solar cookers, and biogas. The chapters also present distribution data on the total number of households by type of solutions. Chapter 3 discusses the stakeholders who played important roles in moving the 2013 Country Action Plan forward, the consumer segmentation, and the prevailing culture of stove stacking within the segments. It also maps the graduation process evident in consumers’ stove usage patterns against their socioeconomic standing. The chapter concludes that, even though it is a transitional technology, ICS still has an important role to play, given the current economic realities of the country. The subsequent chapters (chapters 4–6) then explore strategies and business models in which ICSs can be distributed across the country following a market-based approach through IDCOL’s ICS program, with a focused discussion on access to finance and community engagement. Finally, chapter 7 puts forward specific recommendations to address ways in which the IDCOL ICS program can be improved and optimized. Regarding the Terms of Reference, this report is intended to focus on analyzing the IDCOL ICS program. Other clean-cooking solutions or other ICS distribution programs are therefore beyond the scope of this study. 1 INTRODUCTION 1 INTRODUCTION 1.1 BACKGROUND Traditional cookstoves and open fires are the primary means of cooking and heating for nearly three billion people in the developing world. Exposure to smoke from such means of cooking and heating contributes to some four million premature deaths annually, of which 106,900 occurs in Bangladesh every year. More than 80 percent of the Bangladesh population relies on solid fuel for their household cooking and heating needs. Women and young children are the prime victims of household air pollution (HAP) from the use of solid fuels, which causes more than 7,000 child deaths in Bangladesh every year (CCA n.d.). The Bangladesh Clean Cooking Program, financed by the World Bank, is aimed at supporting a sustainable market for the adoption of improved cookstoves (ICSs). Infrastructure Development Company Limited (IDCOL) has been implementing the ICS program as part of the household energy component of a larger World Bank program called the Bangladesh Rural Electrification and Renewable Energy Development II (RERED II), approved by the International Development Association (IDA) in 2012. The IDCOL ICS program under RERED II aims to support a sustainable market for adoption of ICS that will contribute to the improved well-being of people living in rural Bangladesh by reducing GHG emissions and the impact of HAP. This program also aims to support the achievement of 100 percent adoption of ICSs throughout the country, a target under Bangladesh Government’s Country Action Plan for Clean Cookstoves, by strengthening the supply chain and creating demand for ICSs in rural Bangladesh. Beyond Bangladesh, the World Bank and the Clean Cooking Alliance have been working together globally as partners to advocate for clean-cooking solutions. The Alliance is also supporting the World Bank to strengthen the ongoing Bangladesh Clean Cooking Program. As a part of the collaboration between the World Bank and the Alliance, a Secondary Research and Market Assessment Needs has been conducted by Innovision Consulting Private Limited (ICPL) to develop strategies and interventions for an inclusive market- based approach to promoting the distribution of clean-cooking solutions in Bangladesh. 20 1.2 OBJECTIVE reviewed to arrive at a comprehensive overview of the global and Bangladesh clean-cooking sector. These Developed in consultation with the Alliance, the World materials include reports shared by the Clean Cooking Bank and IDCOL, the report brings together: Alliance and by IDCOL, but also publicly available reports. - Findings of past studies, assessments, and resources b. IN-DEPTH INTERVIEWS on consumer segmentation, preferences, and The team conducted in-depth interviews with IDCOL willingness to pay – to identify the optimal strategy to and their partner organizations (POs), cookstoves target various market segments in Bangladesh manufacturers, LPG companies, distributors and retailers, - A comprehensive sector mapping and relevant government officials, and development partners recommendations from sector players about future in Bangladesh. The interviews helped fill in the literature strategies review gaps and provided updated information during - A range of clean-cooking solutions and their business the secondary studies. They also helped the team to models in Bangladesh, and conduct comprehensive sector mapping, understand - Suggestions that IDCOL to consider for scaling up current tax and tariff implications for the sector, and clean cooking in Bangladesh, and a roadmap for future assess recommendations offered by major sector players strategies. on the best strategies. c. ANALYZING FINDINGS AND GAPS AND 1.3 METHODOLOGY IDENTIFYING STRATEGIES The consulting team used their understanding of market- The consulting team devised this assessment approach based approaches to identify information gaps, data, and by leveraging the knowledge that the Alliance, its so on based on the secondary research and interviews. partners, and other actors have acquired by working This helped the team to suggest recommendations for on clean cooking issues over the years. The following scaling up clean cooking in Bangladesh and outline a research tools and analysis approaches were undertaken roadmap for future strategies for IDCOL to consider. to ensure a deep understanding of the barriers and opportunities of the market (figure 1): a. SECONDARY RESEARCH 1.4 LIMITATIONS The consulting team has rigorously reviewed previous The limitations of the assessment include: studies, assessments, and resources that are available - Contradicting data within the literature review on consumer segmentation, preferences, and willingness to pay in order to identify the optimal strategy to target - The fact that the number of households in Bangladesh various Bangladesh market segments. Resources with access to different clean-cooking solutions is available on impact, multiple technologies, business based on data from different sources, and the accuracy case studies, standards, and so on, have also been of data cannot be verified. a. Secondary b. In-depth c. Analyzing Findings and Research Interviews Gaps and Identifying Strategies Figure 1: Steps in methodology Understanding market-based solutions and access to finance options for clean-cooking technologies in bangladesh 21 2 THE COOKSTOVE MARKET IN BANGLADESH 2 THE COOKSTOVE MARKET IN BANGLADESH To better understand the current status of the cookstove market in Bangladesh, the following analyses were conducted: consumer segments, clean-cooking initiatives implemented to date, the cookstove and fuel options currently available on the market, and a mapping of key stakeholders that are critical to driving the development of a clean-cooking market in Bangladesh. 2.1 MARKET OVERVIEW The total number of households currently in Bangladesh is estimated at about 39 million. According to the National Country Action Plan for Clean Cooking 2020–2030 (CAP), 81 percent of the population rely on biomass for cooking. Of these, 29 million households use traditional stoves and 2.7 million use ICSs. Piped natural gas and LGP stoves have the second- and third-largest consumer bases, totaling 4.4 million and 3.3 million, respectively. Electric stoves, including induction cookers and rice cookers, have a relatively small market share – 1 million households, or 2 percent – but present great potential for growth as Bangladesh achieves universal electricity access. Pellet stoves and stoves fueled by biogas currently have the fewest users – a combined total of only 100,000. The Government of Bangladesh has launched a goal of achieving universal adoption of clean-cooking solutions by 2030. In the blueprint, LPG stoves and ICSs are the top-two options, with an estimated growth target of 23–27 million households and 16–21 million, respectively. Electric stoves also have a promising market outlook, with a projected growth of 2–3.5 million households in the next decade (SREDA 2019). The adoption of LPG, natural gas, biogas, electric stove, and pellet stove technologies is constrained by price and infrastructure development. By comparison, it is evident that ICS is the low-hanging fruit and has great scaling up opportunity to achieve clean cooking for all in Bangladesh by 2030. 24 # of hh 2020 # of hh 2030 - high range # of hh 2030 - low range Traditional Stove 29.0m (74%) Natural gas Stove 4.4m (11%) 5.5m (13-14%) Type of Stove LPG Stove 3.3m (9%) 23-27m (55-65%) ICS 2.7m (7%) 16-21m (38-50%) Electric Stove 1.0m (2%) 3-4.5m (8-10%) Other (Pellets, 0.1m (0%) biogas, etc.) 1m (2-3%) # of household (million) Figure 2: Bangladesh cookstoves and fuels market overview, present vs 2030 targets 2.2 CLEAN-COOKING other clean-cooking solutions such as biogas to Bangladeshi households. INITIATIVES In 2013 the Clean Cooking Alliance (formerly the Global Recognizing the scale and severity of the health Alliance for Clean Cookstoves) convened a group of key and environmental problems associated with the stakeholders to develop and launch the Country Action overuse of biomass, several donor organizations Plan for Clean Cookstoves (CAP). These efforts gained and development partners have been working further momentum when IDCOL launched its “Improved alongside the Bangladesh Government to promote Cook Stove Program” in 2017, and eventually led to the cleaner and more efficient cooking solutions. development of a new CAP in 2019. Table 1 summarizes Notable initiatives include early government efforts key milestones of the clean-cooking sector in Bangladesh. to develop improved cookstoves during the 1970s and 1980s. NGOs such as Village Education Resource The upcoming sections will examine clean-cooking Center (VERC), German Corporation for International solutions currently employed in households and the Cooperation (GIZ), and Grameen Shakti have also extent to which they have played a role in Bangladesh’s launched programs to deploy ICS technology and pathway toward a clean-cooking future. Table 1: Major events in the history of clean cooking in Bangladesh Year Key Events 1976–1987 • Bangladesh Council for Scientific and Industrial Research (BCSIR) initiated working on ICSs • Clean-cooking initiatives started with the Government of Bangladesh introducing ICS • VERC launched its ICS program • EnDev launched its ICS program Understanding market-based solutions and access to finance options for clean-cooking technologies in bangladesh 25 Year Key Events 2004–2006 • Grameen Shakti started its ICS program • Bangladesh Bondhu Chula Foundation started its ICS program 2010–2012 • GIZ/EnDev introduced concrete-made ICS by GIZ/EnDev • Inauguration of IDCOL’s Improved Cookstoves Program • Clean Cooking Alliance started operations in Bangladesh • Country Action Plan for Clean Cookstoves launched • LPG sector liberalized; a number of LPG companies started bottling and marketing LPG gas in cylinders 2017 • One million ICSs distributed by IDCOL 2019–2020 • Electricity coverage throughout the country nearly complete (95 percent) • National Action Plan for Clean Cooking 2020–2030 launched, with a new target of achieving 100 percent clean-cooking adoption by 2030 • IDCOL launched a new target of distributing 5 million ICS by June 2023. Source: SREDA 2019 2.3 NATURAL GAS AND LIQUEFIED PETROLEUM 15.3% GAS (LPG) 15.8% Industies Domestic Natural gas has for long been a popular cooking option 4.1% with Bangladesh’s urban dwellers, but has recently gone 5.5% CNG Fertilizer beyond urban households and is becoming a choice 0.1% among peri-urban and rural households. Tea 2.3.1 NATURAL GAS Piped Natural Gas (PNG) is offered to households in the capital city and a few other urban cities in Bangladesh. 15.1% Captive Bangladesh is one of the few countries in the world that provides PNG connections in homes for cooking. 0.8% 43.3% About 4.1 million households are connected to PNG in Commercial Power Bangladesh (Khan, M.F.R. 2018, Rahman, M.M. 2018). Figure 2 illustrates the consumption of natural gas by sector in fiscal year 2018–19. Currently, the highest consumption of natural gas is in power production (43.28 Figure 2: Gas consumption by sector in Bangladesh percent), followed by industries (15.79 percent). Domestic (fiscal year 2018–19) consumption (household consumption), at 15.25 percent, is the third-largest share of natural gas usage (Petrobangla 2019). for Power, Energy and Mineral Resources, Nasrul Hamid, Over the last decade, there had been a steady increase in announced that homes would no longer be provide with natural gas production (figure 3), but during fiscal year any gas connections (Tribune Desk 2019). Fiscal year 2016–17, production fell by 2.4 billion cubic foot (bcf) to 2018–19 was the third consecutive fiscal year of reduced 971.6 bcf. This shortage led the government to prioritize production but it had 116 BCF gas from regasified LNG industrial use over household in 2019. The State Minister (RLNG). 26 Total production Total household consumption Total consumption 751.7 751.7 751.7 1000 751.7 751.7 751.7 751.7 800 751.7 Billion Cubic Foot (BCF) 600 154.4 (15.64%) 158.0 (16.09%) 158.9 (15.25%) 141.5 (14.63%) 118.2 (13.47%) 400 101.5 (12.26%) 89.2 (11.87%) 89.7 (11.24%) 200 0 2011/12 2012/13 2013/14 2014/15 2015/16 2016/17 2017/18 2018/19 Source: Petrobangla 2019 Figure 3: Bangladesh natural gas production, total consumption, and household consumption, 2011–2019 If the government were to attempt to fulfil the national than fourfold from 2015 to 2019 (tables 2 and 3). demand for clean cooking just by using natural gas, it would require significant spending on importing LPG bottles or cylinders have been available for sale liquefied natural gas (LNG) and extensive infrastructural since the 1980s, supplied by the state-owned Bangladesh sunk costs to build pipelines. Importing LNG and building Petroleum Company. However, this was done on a the necessary infrastructure has already started, which limited scale. Currently, the LPG sector is import- makes natural gas a costly solution for clean cooking. dependent and dominated by large private companies. In line with the government’s longer-term vision, urban Importers of LPG need an import permit from the usage of natural gas for cooking is not expected to Bangladesh Energy Regulatory Commission. Companies increase. then import LPG, package it in bottling plants, and distribute through their nationwide network. 2.3.2. LPG Based on information gleaned from the private sector, Liquefied Petroleum Gas (LPG) is a flammable gas LPG-importing companies obtained permits to import consisting of propane, butane, or a mixture of both. LPG a total of 1,216,000 metric tonnes (MT) for the financial is obtained from natural gas processing or oil refining year 2018–2019 . During the same period, the actual facilities, then liquefied through pressurization. LPG import quantity recorded by the National Board of is one of the cleanest energy sources: LPG burners fall Revenue (NBR) was 760,920 MT. This indicates that over in tier 4 on the International Water Association (IWA) 20 percent of the stipulated import quantity remained performance indicator (Putti et al. 2015). unutilized. There is a decelerating trend in LPG import permit provision. In the year 2018–2019, the permit for The government’s suspension of households’ PNG supply LPG imports increased but only by a modest amount of starting fiscal year 2016–17 has led to an increase in 26 percent, whereas the rate of increase in the previous demand for LPG consumption in order to meet daily year was 107 percent (table 3). The deceleration of cooking needs. As a result, the LPG market grew more permit provision by the Bangladesh Energy Regulatory Understanding market-based solutions and access to finance options for clean-cooking technologies in bangladesh 27 Table 2: Annual LPG import permit data obtained from BERC (MT) No. Company 2015–2016 2016–2017 2017–2018 2018–2019 1 Bashundhara LPGL 68,500 150,000 150,000 300,000 2 Jamuna 30,000 30,000 130,000 100,000 3 Omera 100,000 100,000 100,000 100,000 4 BM 0 30,000 180,000 310,000 5 Laugfs 40,000 40,000 80,000 80,000 6 Total 50,000 50,000 50,000 50,000 7 Beximco 0 36,000 36,000 36,000 8 Sena 0 30,000 30,000 30,000 9 G Gas 0 0 30,000 30,000 10 Navana 0 0 30,000 30,000 11 Orion 0 0 80,000 80,000 12 Petromax 0 0 40,000 40,000 13 Eurogaz 0 0 30,000 30,000 Total 288,500 466,000 966,000 1,216,000 Source: Rahman. M.M 2018 Table 3: Import permits for LPG given by BERC vs. quantity of LPG imported Financial Import Permit Percentage increase LPG Import Percentage increase Percentage of Years of LPG given in import permit of Quantity by in LPG import import permit by BERC (MT) LPG given by BERC NBR (MT) quantity by NBR of LPG given by (compared to previous (compared to BERC remaining financial year) previous financial unutilized year) 2015–2016 288,500 – 246,846 – 14% 2016–2017 466,000 62% 439,243 78% 6% 2017–2018 966,000 107% 760,920 73% 21% 2018–2019 1,216,000 26% – – – Source: Innovision analysis Commission (BERC) may suggest that the LPG companies retail price). In total this household would need to spend have captured the easily accessible demand for LPG in BDT 1,800 (USD 21) per month on cooking fuel. These the market but are struggling to capture the secondary costs are incurred in addition to the initial fixed costs, markets – price-sensitive rural households and roughly equal to BDT 3,500–7,000 (USD 41 – USD 83) for a businesses. cylinder, full tank of gas, a stove and accessories. From our field visits, we found that an average According to “Bangladesh Modern Kitchen Marketing 5-member household using only LPG for cooking uses and Behavior Change Strategy” (Global Alliance for Clean approximately 18 kg (1.5 cylinders, 12 kg each) a month. Cookstoves, WASHplus, 2015) the urban and peri-urban Currently, each cylinder costs around BDT 1,200 (USD 14, middle class, with an average monthly income of BDT 28 17,000 to BDT 25,000 (USD 201 to USD 295), use LPG Shakti promoted Tier 1 efficiency ICSs developed by for all or some cooking. To help consumers with fuel BCSIR. expenses, the Government of Bangladesh proposed the rationalization of duty and VAT in the financial year IDCOL entered the clean-cooking market relatively late, 2016–17. in 2013. By 2013, about 1 million improved stoves were estimated to be in use, indicating a 3 percent market Information from the field further indicates that penetration rate (Bangladesh Ministry of Power, Energy households that using LPG burners alongside mud and Mineral Resources 2013). As of 2018, over 2 million stoves tends to prolong the use of an LPG cylinder by up ICS have been distributed; by 2023, IDCOL expects to 2 to 6 months. Such households limit their usage of to have increased this number to 5 million (IDCOL LPG to warming food and occasional cooking. Though 2018). IDCOL also started the program with BCSIR- LPG is now widely available in Bangladesh it remains an developed ICS stove models that followed a tier-based expensive option for rural populations, especially those system. IDCOL appointed the Department of Chemical living in extreme poverty. Engineering of Bangladesh University of Engineering and Technology (BUET) to develop affordable higher- As Bangladesh’s economy continues to grow, over time tier stoves that can be manufactured using local raw more and more households are likely to graduate to materials. As a result, several Tier 3 stove models were higher-income segments, leading to more households introduced under the program. These stoves were opting for LPG as a primary or secondary source of fuel. significantly more affordable compared to similar quality stoves available worldwide (BDT 375–BDT 1,600/USD 4 – USD 19). 2.4 THE IMPROVED According to the “Country Paper on Improved Cooking COOKSTOVE (ICS) Stoves” by IDCOL Grameen Shakti had monthly average sales between 15,000 to 18,000 and as of 2010, had Chimney stoves are among the best-known and achieved a total distribution of 630,289 ICS stoves. Of commonly used ICSs in Bangladesh. Such stoves these, 579,547 (92 percent) were made of concrete, the include Bondhu Chula, Unnatho Chula and IDCOL ICS. rest of mud. Grameen Shakti also provided after-sales The Bangladesh Council for Scientific and Industrial services, including maintenance and repairs and sending Research (BCSIR) has worked on promoting improved their technicians to consumer’s kitchens for regular cookstoves since 1970s and the early 1980s. The BCSIR monitoring of ICS stove performance. ICS is made with an iron grate and a chimney to channel emissions out of the house through an opening in the GIZ has been operating its ICS program since 2005 roof. In research conducted in 2012, the BCSIR improved distributing BCSIR ICS stove models. GIZ has worked stove had a mean PM2.5 of 1.38 (mg/ m3) while the mud with more than 200 partner organizations (POs); each stove’s mean was 1.92 (Chowdhury et al. 2012). Similarly, PO managed their own manufacturing and selling of ICS the BCSIR stove had a mean carbon monoxide (CO) stoves, with training support from GIZ. As of July 2013, concentration of 2.97 mg/m3, compared to 4.90 mg/m3 GIZ had installed about 600,000 ICS stoves in Bangladesh for the mud stove. This shows improvement compared to (IDCOL 2013). GIZ later supported the formation of mud stoves, but not significant enough to be considered Bangladesh Bondhu Foundation (BBF) to promote one of the best solutions. Bondhu Chula ICSs in the market. BBF operates in partnership with 5,000 partners/entrepreneurs across the GIZ and Grameen Shakti both started their ICS initiatives country and is currently implementing an ICS program in 2006. The two organizations operated the largest supported by the Republic of Korea through a Clean ICS programs in the country and are projecting further Development Mechanism (CDM) project which aims to growth in the years to come. Both GIZ and Grameen scale up Bondhu Chula significantly in the market. Table 4: Total ICS Installation from 2014–2018 (IDCOL and BBF) 2014 2015 2016 2017 2018 Total IDCOL 7,453 231,363 729,905 436,723 244,216 1,649,660 BBF 154,765 190,034 105,509 82,508 532,816 Understanding market-based solutions and access to finance options for clean-cooking technologies in bangladesh 29 In 2014, IDCOL signed an agreement with BUET to 2021., with April 27 witnessing the highest electricity redesign their existing models to achieve Tier-3 efficiency generation in Bangladesh’s history so far. Generation (see annex for details on IWA and ISO standards and the capacity has increased to 25,227 MW in 2021. Today, 99 tier system). Our field studies reveal that IDCOL POs have percent of households are connected to the power grid developed variations of the three major ICS models, according to the government (Bangladesh Ministry of according to market needs: single-mouth portable Power, Energy and Mineral Resources 2021), and recent stove, single-mouth chimney stove and double-mouth studies indicate that 3–4 percent of households have chimney stove. Both single-mouth and double-mouth installed solar home systems (SHSs) (Hossain and Azreen chimney stoves have two different submodels based on 2020, Practical Action 2017). The government is close to the mouth diameter of the stove. The thermal efficiency achieving its target of universal access to electricity by of the stoves was verified by metrics used in a Clean 2021. Development Mechanism (CDM program monitoring report in December 2020 as part of the validation and Recent studies (Bhattacharjee 2021) show that, as of verification process of the United Nations Framework 2019, about 891,700 households have adopted electric- Convention on Climate Change (UNFCCC). The results cooking technologies, including induction cookers, showed that the efficiency of the portable stoves was infrared cookers, and rice cookers. There has been 35 percent, and the efficiency of single-mouth and a significant upward trend in induction and infrared double-mouth chimney stoves ranged between 30 cookers, based on sales data from five local electronics and 39 percent. Stoves being tested had a duration of retailers who represent a large share of the market for use between one to three years, all with continuous these electric-cooking products. Their combined sales operation since their installation (UNFCCC 2020). increased from 37,186 in 2017 to about 50,000 in 2019 and are expected to reach 80,000 in 2024. Rice cookers have a considerably higher baseline of 500,000 in 2017, leaping sharply in 2018 and bringing total sales to 2.5 OTHERS 842,000 in 2019. Again, based on sales data from leading local retailers, rice cookers are projected to reach 1.67 Besides ICSs, there are a few other cleaner-cooking million in 2024 if the current rate of market growth solutions available on the market, including biogas, persists. electric cooking solutions such as rice cookers, induction stoves, and solar cookers. This chapter will provide a brief overview of those solutions. 2.5.1 ELECTRIC STOVES Induction and infrared cooker 842,000 Rice Cookers With a growing working population, electric rice-cookers are becoming more and more popular in both urban and rural households in Bangladesh. It also provides an 596,600 alternative cooking method when the supply of gas or 500,060 other fuels is unavailable or irregular. Electric rice-cookers are made to cook short-, medium-, or long-grain rice with little intervention from the cook (Hexa Research 2018). Depending on the heating method, the electric rice- Sales cookers use simple-coiled electric heating or induction heating. High-income urban households in particular prefer 49,700 37,186 35,990 induction stoves to LPG or natural gas because of unpredictable and irregularly piped natural gas (PNG), although the situation has improved after LNG importation started. The frequency of power outages 2017 2018 2019 and shortages has dropped significantly compared to ten years ago. In rural areas, electricity is now available for increasingly longer hours. This indicates that the national Source: Petrobangla 2019 electric grid is becoming more reliable over time. There has been a rapid growth in electricity production, from Figure 3: Bangladesh natural gas production, total 3,268 megawatts (MW) in 2009 to 13,792MW in April of consumption, and household consumption, 2011–2019 30 Table 4: Biogas methane yield according to biomass The current rate of electricity access supports the utilized widescale distribution of electric cookstoves as a clean- cooking solution especially for the peri-urban and Biogas Feedback per Biogas methane yield higher-income rural populations. At present, electric source year per year (nm3)5 cooking has a small penetration in remote areas and at 1 cow 20 m3 liquid 500 the bottom of the pyramid (BOP) markets. Further cost (milk) manure reductions as well as behavioural change interventions are needed to address these segments. 1 cow 2–11 tons solid 42–168 (beef) manure 2.5.3 BIOGAS 100 1.8 m dry litter 3 242 Biogas is one of the most environmentally friendly chickens clean-cooking fuel options (Putti et al. 2015). It is Source: IRENA 2017 primarily a mixture of carbon dioxide and methane. Biogas is produced through the anaerobic digestion of In addition to electricity availability, reliability and biodegradable organic material such as manure, food- affordability also play critical roles in clean-fuel switching. processing residues, energy crops, and wastewater As seen, households’ inclination to use electricity for treatment sludge (IRENA 2017). cooking depends to a large extent on the consistency and There are two types of biogas digesters available in reliability of the supply. If households are ensured only a Bangladesh: fixed-dome digesters and prefabricated few hours of electricity a day, or they perceive electricity fiberglass digesters. In Bangladesh, biogas is mainly rates as high, then they are likely to limit electricity usage produced from cow and chicken manure. The table to the most important home applications – for example, below shows the annual biogas methane yield from each lights, fans, or charging phones. Such households will source (table 4). choose to use firewood or other traditional, lower cost fuels for cooking. Biogas stoves are similar to LPG stoves or natural gas stoves. Stoves are connected to the digesters with plastic Depending on the brand, a single burner induction pipes. Biogas combustion produces emissions at a cooker currently costs BDT 3,000 – 6,000 (USD 35 – 71). A similar level to LPG. Since the first installations in the typical family of five in Bangladesh uses approximately 6 mid-1990s by the Bangladesh Council for Scientific and units (kWh) of electricity per day for cooking, or about 180 Industrial Research (BCSIR), 102,808 biogas digesters units (kWh) per month. The average price of electricity have been installed in the county as of 2018. Total biogas for a typical household is BDT 6.02 (USD 0.07) per unit production capacity is estimated to surpass 400,044 (kWh). Hence the cost of electricity to use an induction m3/day; this can potentially serve 200,022 households cooker would be around BDT 1,083.6 (USD 13) per (Rahman 2018) (table 5). This is equivalent to 800 MWh of month. Depending on household income and electricity electricity production, assuming 0.5m3/KWh for electricity availability, this could be an affordable option for many production. urban and rural consumers. Also, consumers’ rising concerns over the safety of LPG cylinders may help create Besides BCSIR, several other organizations have worked a gradual market shift toward induction cooking. to install biogas digesters for clean cooking. IDCOL Table 5: Total number of biogas digesters installed and their capacities6 Total Number of Installed Total Biogas Production Equivalent Electricity that Equivalent Number Units Capacity (m3/day) can be produced from the of households can be biogas (MWh) connected for cooking 102,808 400,044 800 200,022 Understanding market-based solutions and access to finance options for clean-cooking technologies in bangladesh 31 14,613 Total household consumption Total household consumption 13,821 Total household consumption Total household consumption Total household consumption Total household consumption Total household consumption 8,083 7,138 Biogas Installation 6,653 6,107 5,833 5,794 5,357 5,514 4,830 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 Figure 5: Biogas installations by organization, 2008–2018 has helped its partner organizations (POs) to develop end-user microfinance schemes to make biogas more 2.6 KEY STAKEHOLDERS affordable to households. After adopting the country action plan in 2013, several stakeholders played a crucial role in implementing the Local private companies such as Rahman Renewable action plan and ensuring rapid dissemination of ICSs Energy Co. have installed more than 500 household within the households. A brief on a few key stakeholders biogas digesters. NGOs such as BRAC and Proshika have has been compiled to understand their actions and also worked on biogas technology development in contributions better. Bangladesh. This indicates that established development organizations with a strong rural presence are both Household Energy Platform: The Household Energy interested and involved in the sector. Platform (HEP) was established in 2016 to bring all government stakeholders, donor agencies, and NGOs Figure 5 shows the number of biogas installations by together on a single platform. It is a public-private different organizations from 2008 to 2018. IDCOL has partnership hosted by The Sustainable Renewable installed the highest numbers of biogas digesters. Out of Energy Development Authority (SREDA) and functions as 85,410 biogas digesters, IDCOL accounts for more than per the sector’s changing needs, based on the broader 60 percent of installations, with a total number of 51,444, understanding and interest OF the stakeholders. HEP followed by the Department of Youth Development (DYD) has facilitated the Country Action Plan (CAP) 2013 review installing 24,971 biogas digesters (Rahman 2018). process in past years and is currently supporting SREDA to Setting up a biogas plant costs about BDT 30,000 to develop the new National Action Plan for Clean Cooking 35,000 (USD 354 to USD 413, The Daily Star 2011). Given 2020–2030. They have worked with the Bangladesh that Bangladesh has a significant number of low-income Council of Scientific and Industrial Research (BCSIR) households with monthly incomes ranging from BDT to establish a lab capable of testing cook stoves as per 6,000 to 10,000 (USD71 to 118), biogas for cooking remains ISO standards. HEP organizes workshops for different beyond the reach of many households. Therefore, the stakeholders of the sector to understand the prospects scale-up of this technology is still under way. and challenges of clean cooking. They are currently 32 researching developing biomass-briquettes on a larger produce, sell, and install Bondhu Chula stoves as a part of scale in the country. their business. So far, they have distributed over 2 million cookstoves. As one of the earliest contributors in the IDCOL (IDCOL ICS Program): The Infrastructure sector, BBF has played a significant role in popularizing Development Company Limited (IDCOL) started its ICS different types of ICS to various families in both rural and program in 2012. Currently the program has 61 POs to semi-urban areas. work with ICSs in 300 Upazilas of the country. Over the years, the program has successfully achieved its mandate Grameen Shakti: Grameen Shakti was established in on dissemination of ICS targets, sometimes even ahead 1996 to empower Bangladesh’s rural population with of schedule. As of December 2020, more than 2.46 million green energy and income access. They targeted 20 million improved cookstoves have been distributed. IDCOL cookstoves to be distributed by 2015, including 2 million has come a long way in improving its stoves in terms biogas plants. Under the program, the customers were of efficiency. They have upgraded their ICSs from Tier provided with affordable financing options instead of 1 to Tier 3 in thermal efficiency, and they have recently subsidies. Grameen Shakti is currently working as one of introduced a tier 4 thermal efficiency cookstove in the the partner organizations of IDCOL. program. IDCOL is playing a big role in helping the country to meet its vision of clean cooking for all by 2030. Clean Cooking Alliance: The Clean Cooking Alliance works with a global network of partners to build an inclusive GIZ: GIZ is a German organization that implements industry that makes clean cooking accessible to the three projects to promote sustainable economic development billion people who live each day without it. Established in on behalf of the German Government. Its ICS program 2010, the Alliance is driving consumer demand, mobilizing has been running since 2004. Its current “Bondhu Chula” investment to build a pipeline of scalable businesses, and model focuses on supporting around 100 NGO partners fostering an enabling environment that allows the sector and more than 5,000 sanitary shops to manufacture to thrive. Bangladesh is one of the focus countries of the and sell stoves. These NGOs and SMEs are trained and Alliance, which has been active in the country by supporting supported by GIZ. They are using a more robust concrete demand creation, strengthening supply chains, and version of a BCSIR model. creating an enabling environment. Bangladesh Bondhu Foundation: The Bangladesh SMC: A recognized leader in behaviour change Bondhu Foundation (BBF) was established as a nonprofit communication (BCC), social marketing, and community organization in 2015 to promote renewable energy mobilization in Bangladesh, the Social Marketing technologies, especially improved cook stoves. It started Company (SMC) has worked in the past with USAID in its journey as a GIZ/EnDev initiative to promote improved social marketing campaigns related to reproductive cookstoves designed in 2012–2014, under the project health. In collaboration with Purplewood, a top SBCC “Market Development Initiative for Bondhu Chula.” The consulting agency, SMC developed an extensive 1.5-year project aimed to create 5,000 entrepreneurs who will campaign in 2017–2018 with support from the Alliance. Understanding market-based solutions and access to finance options for clean-cooking technologies in bangladesh 33 3 UNDERSTANDING CLEAN-COOKING MARKET CONSUMERS 3 UNDERSTANDING CLEAN-COOKING MARKET CONSUMERS Understanding consumer characteristics and preferences is central for demand creation, especially for developing tailored, bottom-of-the-pyramid (BoP) market strategies. The upcoming chapters will look at consumer segmentations, consumers’ preferences in clean-cooking solutions, and the fuel-switching pathways needed to achieve the target of universal access to clean cooking codified in the new National Action Plan for Clean Cooking in Bangladesh (2020–2030). 3.1 CONSUMER SEGMENTATION The following segmentation conclusions were drawn from a review of the market segmentation analysis literature on Bangladesh household incomes and the market for cookstoves and fuels (Power and Participation Research Centre 2016, Bangladesh Bureau of Statistics 2018, Global Alliance for Clean Cookstoves 2015). Six consumer segments were identified by household income level and the urban-rural divide: • Middle-class segment (urban/peri-urban) • Middle-class segment (rural) • Lower-middle-class segment (urban/peri-urban) • Lower-middle-class segment (rural) • Low-income segment (urban/peri-urban) • Low-income segment (rural) With an average monthly income of BDT 17,000–25,000 (USD 201–295), the middle-class segment of urban and peri-urban area prefers to use LPG for a portion of their cooking. Many of them own electric rice-cookers to bring down cooking time and the level of supervision needed. With an average monthly income of BDT 11,000–17,000 (USD 130–201), the lower-middle class of the urban and peri-urban areas segment cook their meals with traditional clay stoves using purchased biomass fuel from wood sellers (wood, wood chips and sawdust). Some of the households in this segment also have access to piped natural gas. 36 With an income level of BDT 6,000–10,000 (USD 71–118), efficiency and savings. LPG can also be introduced as a the low-income population in the urban and peri-urban fuel for selective usage, for example, warming up food or areas are often found using traditional stoves for cooking. making light snacks. With an average monthly income of BDT 17,000–25,000 The low-income urban and peri-urban households have (USD 201–295), the middle-class segment of the rural major economic constraints. As a result, they continue areas mainly uses traditional stoves complemented with to use wood fuels. Low-cost portable IDCOL Chula stoves Bondhu Chula, two-pot chimney ICSs, portable IDCOL could be introduced to this segment. With this option ICSs, electric stoves and LPG stoves. they would be able to cook with less fuel and also reduce HAP exposure. Similar options are available for middle- The lower-middle-class and low-income households class rural consumers (figure 6). in rural areas are identified as non-target segments for market-based interventions, given their lower level of In the long run, as consumer spending patterns evolve willingness-to-pay and the habit of using free biomass with sustained economic growth, it is expected that LPG from their surroundings. It is not very likely that they will will become the primary cooking fuel in Bangladesh. make the switch to cleaner fuels or ICS in the short term. Currently, many rural households are adopting LPG as The assessed market segments and the essential findings their secondary fuel, while biomass stoves remain the of the segment profiles are summarized in figure 6. mainstay. These households often use LPG cylinders to reheat food or cook dishes that do not require a lot of The consumer segmentation from the “Bangladesh time. This is because they cannot afford LPG for full-time Modern kitchen Marketing and Behaviour Change cooking. This segment of consumers can gradually shift Strategy” is indicative of the great potential for ICS to full-time use of LPG. Even if prices remain the same, promotion in the Bangladeshi market. In the lower- there is the possibility that the segment will gradually be middle-class segment, we see an inclination toward the more receptive to LPG, thanks to increases in real income traditional stove. In those households, there is scope for stemming from broad-based economic growth. introducing inexpensive ICSs. Installation of relatively inexpensive ICSs, such as the portable IDCOL Chula, can bring much needed fuel RURAL URBAN AND PERI URBAN Low income Lower Middle Middle Class Low income Lower Middle Middle Class Class Class - - BDT BDT BDT BDT 17,000 - 25,000 6,000 - 10,000 11,000 - 17,000 17,000 - 25,000 Traditional Traditional Traditional Traditional Traditional clay Piped natural stove for stove for stove, ICS e.g. stove for stove , portable gas, LPG, rice cooking and cooking and Bondhu Chula cooking and traditional cooker and portable clay portable clay or portable portable clay clay stove* induction stove – part stove – part IDCOL Chula. stove – part (part time) or cooker time. time. Rice cooker, time. kerosene stove LPG – part time ** (part time) Figure 6: Bangladesh Consumer Segments by Household Income Threshold and the Urban-Rural Divide Understanding market-based solutions and access to finance options for clean-cooking technologies in bangladesh 37 Table 6: Percent distribution of the household population by wealth index quintile, 2019 Wealth Index Quintile # of households Total member Poorest Second-poorest Middle Second-richest Richest Total 20.0 20.0 20.0 20.0 20.0 100.0 260.959 Urban 6.0 6.8 11.4 21.7 54.0 100.0 56,700 Rural 23.9 23.6 22.4 19.5 10.6 100.0 204.259 Based on their purchasing power, the lower-middle-class effectively reduce the amount of firewood they require of the rural areas can be introduced to ICS solutions such and hence the amount of emissions they are exposed to. as chimney stoves and the portable IDCOL Chula. Using the wealth index and household percentages from For the lower socioeconomic category of rural the 2019 Multiple Indicator Cluster Survey (Bangladesh consumers, their dependency on firewood cannot be Bureau of Statistics and UNICEF Bangladesh 2019) reduced in a short time. However, they can be introduced (table 6), table 7 shows a summary of clean-cooking to low-priced portable IDCOL stoves, which can consumer segmentation with information on market size, Table 7: Cookstoves and fuels consumer segmentation Income Thresholds Urban | Peri-urban (100%) Rural (100%) + B2... Segment 1 (11.4%) Segment 2 (22.4%) traditional stove + ICS + purchased wood traditional stove + ICS + free biomass (primary) + pur- PNG chased wood electric cooker (partially) LPG LPG (partially) electric cooker • Living in areas with easy access to schools and local • Can afford to buy LPG for part-time usage market areas • Living in own house with sufficient space around the Middle Class • Well educated and well informed house BDT 17,000-25,000/month • Have bank accounts but not always familiar with MFI • Earning and decision-making members of the family (USD 201-269/month) loans are fairly educated and informed • Experience of buying consumer products using loan • Have bank accounts and small investments in a local and installments bank and have experience with microfinance institution • Highly influenced by community opinions (MFI) • Own TVs and computers • Own appliances such as TVs, radios, refrigerators etc. • Subscribe to newspapers and magazines • Are willing to invest in premium and durable products • Display high willingness to invest on premium and durable products • Aspire to improving lifestyle and social status Segment 2 (6.8%) purchased wood + traditional clay stove portable traditional clay stove (partially) kerosene stove (partially) • Living in clusters of rented houses, with easy access to school and local market areas Lower Middle Class • Have migrated with family and young children to Segment 5 (23.6%) BDT 11,000-17,000/month urban/peri-urban areas traditional stove + free biomass (USD 130-201/month) • Have membership in a recognized savings group/MFI/ NGO • Highly influenced by opinions of their relatives, friends and neighbors • Own appliances like TVs and/or radios and subscribe to local newspapers • Display slight willingness to invest in premium and durable products 38 Income Thresholds Urban | Peri-urban (100%) Rural (100%) + B2... Segment 3 (6.0%) traditional stove + free biomass (primary) + purchased wood clay stove (partially) Low Income • Living in housing cluster in informal or illegal settle- Segment 6 (23.9%) BDT 6,000-10,000/month ments traditional stove + free biomass (USD 71-118/month) • Rely on easy access to central market areas • Have membership in registered savings groups and NGOs • Highly influenced by community opinion income threshold, current cooking technology in use, socioeconomic status, it starts moving up the ladder to and segment characteristics. Marketing and intervention cleaner and more efficient forms of energy. strategies can be developed based on this and will be discussed in chapter 7. Also, a more in-depth consumer In the ladder model, there are three stages of fuel choice analysis on ICS users will be elaborated in chapter 4 (figure 7). In the first stage, households are dependent when the focus turns to the IDCOL ICS program and the exclusively on solid biomass fuels and derive energy ICS markets. from firewood and animal waste combustion. In the intermediate stage, the households move toward fuels that burn more efficiently but still have significant emissions, for example, charcoal, kerosene or coal. In 3.2 GRADUATION PROCESS the last step, the households start using the cleanest forms of energy available to them, for example, LPG or According to Schlag and Zuzarte (2008), many electricity. The crucial issue with the “energy ladder” is researchers use the “energy ladder” model, in which that it assumes a perfect substitution of one type of fuel various fuel types each represent a step in the ladder. for another – in other words, it assumes that households The assumption is largely that as a household gains will not mix fuel types (Schlag and Zuzarte 2008). Advanced Fuels Advanced Fuels - LPG - LPG - Electricity - Electricity - Biofuel TRANSITION TRANSITION tus tus FUELS FUELS - Charcoal - Charcoal c sta c sta - Kerosene - Kerosene - Coal omi omi econ econ o o PRIMITIVE PRIMITIVE Soci Soci FUELS FUELS - Firewood - Firewood - Animal Waste - Animal Waste - Agriculture - Agriculture Waste Waste The Energy Ladder Model The Energy Stack Model Figure 7: Energy Ladder (perfect one-to-one substitution) vs Energy Stacking (overlapping) Understanding market-based solutions and access to finance options for clean-cooking technologies in bangladesh 39 Although the “Energy Ladder” model assumes that (BIDS 2020) shows that, out of 1,000 surveyed ICS households do not mix fuels, empirical data shows that customers, over 71 percent were simultaneously using “fuel substitution” is not perfect. Households often use other stoves, and that, besides ICS, traditional mud multiple fuels simultaneously. Many researchers have stoves (74 percent), gas stoves (29 percent) and rice replaced the model with what is known as the “energy cookers (8 percent) were their top-three complementary stack” model, proposed by Masera et al. (2000), shown in fuel choices (Hossain and Azreen 2020). figure 7. ICSs are playing an important transitional role in The “Energy Stack” model suggests that households the lead-up to universal clean-cooking adoption in do not – at least not right away – completely abandon Bangladesh. While households are moving toward inefficient fuels in favor of efficient ones. Instead, modern advanced stoves, they can either use ICSs as a substitute fuels are integrated slowly into their energy usage for traditional stoves for the interim period until they pattern, resulting in the simultaneous use of different can afford advanced fuels and stoves; or use it alongside cooking fuels and gradual substitution. The assumptions cleaner stoves as a stove-stacking choice. This gives of this model include the notion that affordability is a lower-income households an intermediate clean-cooking uniquely important factor in determining a household’s solution. They do not need to be stuck with traditional fuel/cookstove choice. This model is supported by means of cooking until they can afford an advance stove empirical data presented by Masera et al. (2000) and has and fuel. ICSs, including the Bondhu Chula and various also been confirmed by further studies of fuel-switching types of IDCOL Chula, allow them to move to an efficient dynamics (IEA 2002; Pachauri and Spreng 2003). solution as an intermediate step. This discussion is relevant because a similar pattern has Even when households move from traditional to been noticed in Bangladesh. Field research has shown advanced cooking technologies, they often start with that Bangladeshi households do not move away from limited or controlled usage of advanced stoves such one type of stove to another in perfect substitution. as LPG and electric stoves. Full-time usage of LPG or Instead, they use different types of fuel stoves as they electric stoves is often a gradual process, depending advance in socioeconomic status (figure 8). A recent on the increase in their purchasing power. During this study by Bangladesh Institute of Development Studies transition, households should be provided with the option to choose ICSs for their regular cooking activities. Given the importance of ICSs, it is crucial to have a look at the extent to which ICSs are accepted and absorbed by consumers in terms of their lifestyle and taste. ADVANCED STOVE - LPG - Electric stove 3.3 CONSUMER - Electric rice cooker WILLINGNESS TO PAY AND TRANSITION STOVES BASELINE SITUATION - Chimney stoves - The baseline survey of the second phase of the IDCOL atus Bondhu Chula - ICSs without a project was conducted in 2017 by Bangladesh Institute chimney - portable ic st IDCOL Chula of Development Studies (BIDS), with 2,000 respondents - Advanced cookstoves nom – pellet-based stoves belonging to the treatment group and 1,000 to the control group. Treatment group signified “potential users oeco of the improved cooking stove,” and the control group PRIMITIVE Soci STOVES signified “nonusers.” - Traditional Stove The portable single-mouth ICS garnered the highest willingness to make cash payments for both the treatment group (35.9 percent) and the control group (34 percent). Only 2.2 percent of the treatment group, and an even lower percentage (0.02 percent) of the control group respondents, reported preferring paying in Figure 8: Stove stacking installments (table 8). Meanwhile, for the double-mouth 40 chimney stove, willingness to pay (WTP) in cash dropped, Hence, the willingness to pay in cash was found to be compared to single-mouth ICSs, by more than 10 percent inversely proportional to the price range of ICSs; the for both the treatment group (23.15 percent) and the lower the price of ICSs, the higher the willingness to control group (19.7 percent). pay in cash. However, preference for installments is proportional to the price of the ICSs; the lower the price Willingness to pay in installments increased significantly of ICSs, the fewer the number of people willing to buy it (20.41 percent) for treatment group but increased only on installment. 8.42 percent for the control group (table 9). This shows an overall increase in willingness to pay within the treatment Several private organizations are manufacturing group (+5.46 percent) and decrease for the control group advanced ICS models that use pellet fuel. In most cases, (-5.9 percent) for the double-mouth chimney stove. the cost of acquiring an advanced ICS is equal to the cost of buying LPG (table 10). The monthly recurring fuel cost is also close to current LPG prices. Table 8: Willingness to pay for Portable 8” with insulation and lining cookstove Portable 8” with insulation and lining cookstove; Types of Payment Price– BDT 300–500 (USD 3.5–6) Treatment Control Willingness to Pay (cash payment) 35.90% 34% Willingness to Pay (payment within 2.20% 0.02% 6 months at an interest of 1% per month) Total 38.10% 34.02% Source: Bangladesh Institute of Development Studies 2020 Table 9: Willingness to pay for double-mouth chimney stove Double-mouth chimney stove; Price– BDT 900–1000 (USD 11–12) Types of Payment Treatment Control Willingness to Pay (cash payment) 23.15% 19.70% Willingness to Pay (payment within 20.41% 8.42% 6 months at an interest of 1% per month) Total 43.56% 28.12% Source: Bangladesh Institute of Development Studies 2020 Table 10: Price comparison between Advanced ICSs and LPG Advanced ICSs LPG Initial cost of buying pellet-based ICSs BDT 2500–3400 Initial cost of cylinder and first BDT 3000–3500 (USD 29–40) month’s fuel cost Monthly fuel cost (2kg of pellet every day, BDT 900 Monthly fuel cost BDT 1100–1200 per kg price of the pellet is BDT 15/USD 0.2) (USD 11) (USD 13–14) Source: Bangladesh Institute of Development Studies 2020 Understanding market-based solutions and access to finance options for clean-cooking technologies in bangladesh 41 Apart from the price, there are additional steps in using Plotting these data on a willingness-to-pay (WTP) advanced ICSs to optimize performance and efficiency: analysis chart (figure 9), the vertical axis measures stove • Ignition: putting the pellet in the pellet chamber and price and the horizontal axis shows the WTP response spraying kerosene in order to ignite a fire. rate. Bubbles are colored by treatment/control and their preference on cash vs installment; bubble size • Heat control: electricity is needed in order to fan the indicates the proportion of households with that choice flames and get the pellets to burn properly. – the larger the bubble, the more households. For the • Disposing of the spent pellet: once burnt, pellets have portable 8” stove and double-mouth chimney stove, to be extracted (from inside the hot metal chamber), both treatment group (ICS adopters) and control group cooled with water, and disposed separately. (ICS nonadopters) are in favor of cash payment (blue and green bubbles), as the blue and green bubbles are far In addition to the extra steps mentioned above, the other away from the purple and orange bubbles on the right. challenge of using pellets is that supply in Bangladesh is very limited. A few years back the only pellet-producing The first key message from this visualization is that company stopped production following internal for all three ICS stove models, despite the bubble size management strife. Some pellet-based ICS producers difference, the blue (ICS adopters – cash) and green have advised their customers to use wood chips instead bubbles (ICS nonadopters – cash) overlap , which of pellets since then. indicates a small difference and likely homogeneity when purchasing. This means that those ICS nonadopters Recently, the trading company Rahimafrooz has initiated would likely make the same purchasing choices as those plans to set up a pellet-production plant to meet the ICS adopters for all three stove models, and should be demand from current users of their pellet-based ICS targeted with tailored interventions to create a clean model. But the company has not started operations yet. adoption shift. Compared to pellets, despite similar costs for end-users, the LPG distribution network is much more extensive to The second thing to notice is the orange bubble (ICS build, even though it covers most rural areas. Pellets and adopters – loan). In the portable 8” stove horizontal advanced stoves, of course, have two advantages: pellets corridor, the size of the orange bubble on the left is being a renewable source of energy and the positive much smaller than the green/blue bubble on the right, health impacts compared to other biomass stoves; but indicating the unpopularity of installment for this stove success and sustained usage ultimately depend on the type even for ICS adopters. For the advanced ICS stoves availability and affordability of pellets. (the top horizontal corridor), however, interestingly the majority households are in favor of taking a loan program From the baseline survey by IDCOL, respondents to purchase (the orange bubble on the far right is the expressing a willingness to pay are fewest in the case largest bubble) and this is also true even for the ICS of expensive (pellet-based) ICSs. On the other hand, nonadopters (purple bubble is larger than green bubble the highest percentage of respondents willing to pay in the top horizontal corridor). Microfinance programs in installments for both treatment (25.53 percent) and and interventions could be designed for this segment control groups (12.77 percent) was seen for high-end group to promote clean adoption. ICSs, compared to the two other types of ICS previously discussed (table 11). Table 11: Willingness to pay for Advanced ICSs (pellets-based) Agni Shikha/Shikha Chula, Shakti Chula, Life Cookstove, Types of Payment Venus Solar Burner, Muspana; Price– BDT1800–2400 (USD 21–28) Treatment Control Willingness to Pay (cash payment) 9.10% 9.50% Willingness to Pay (payment within 6 25.43% 12.77% months at an interest of 1% per month) Total 34.53% 22.27% 42 Experimental Group (Current Customers) - cash Control Group (Potential Customers) - cash Experimental Group (Current Customers) - loan Control Group (Potential Customers) - loan 2500 2000 Stove Price (BDT) 1500 1000 500 0 0 5 10 15 20 25 30 35 40 Willingness to Pay (% of respondents) Figure B: ICS Consumer Willingness to Pay Analysis 3.4 ECONOMIC AND rate might drop because the LPG sector appears to be turning into a red ocean from a blue ocean. While LPG TECHNICAL FEASIBILITY companies target untapped demand, LPG adoption will keep on growing. Additionally, with the rising income Currently, popular stove choices on the market are split levels of the rural middle class, more of them will acquire between the spectrum’s two extremes, consisting of LPG for their energy needs. the traditional stoves and LPG. There are a significant number of households who largely depend on traditional To tap even into untapped segments, LPG companies stoves. Most such households include lower-middle-class are investing heavily in physical distribution to make and low-income segments of urban and rural areas. LPG available in the most remote regions. Our field visits uncovered the fact that many dealers are selling both To design an inclusive approach to ensure the ICSs and LPG together in their shops. It is because LPG is involvement of the most vulnerable segments (lower not seen as a natural but a complementary alternative middle-class and low-income segments of urban and to ICSs. Instead, households have been keeping both rural areas), ICSs are a very important component, LPG and ICSs to meet their cooking needs as most rural especially for the long-run transition to cleaner-cooking households use LPG as a secondary source of energy. solutions. ICSs are still relevant to prevent traditional stoves from Given the stove-stacking tendency of households, it is persisting in the households as a primary source of likely that people will move toward cleaner solutions energy. Most importantly, based on the Energy Stack on their own, once the dependency on the inefficient model and consumer segmentation, stove stacking traditional stove is weakened. Moreover, the BIDS is inevitable and in fact quite common during market baseline survey indicates that once consumers are transformation and nationwide economic transition. introduced to the ICS solution, there is a higher likelihood ICSs currently have the largest market share and can that most of them will continue to use the solution be a short-term solution during this transition to than abandoning it altogether. Though price sensitivity cleaner stoves and fuels. In addition, given the financial remains a major challenge, organizations such as IDCOL constraints and local fuel availability of rural households are working to provide promotional grants and sales where traditional and ICS stoves are dominant, while training to overcome these barriers. other solutions such as LPG and induction stoves should be promoted too, ICSs present the greatest opportunity As we analyze the forecast figures estimated by Omera to rural households, which is the largest market and Bashundhara LPG in table 2, the robust growth segment given the strong dependence and preference of potential of LPG becomes evident. However, the growth traditional stoves they have. Understanding market-based solutions and access to finance options for clean-cooking technologies in bangladesh 43 4 IDCOL ICS PROGRAM 4 IDCOL ICS PROGRAM The IDCOL Improved Cook Stove (ICS) Program was inaugurated by the Honourable Prime Minister of Bangladesh in May 2013 with the aim of creating a sustainable market for higher efficiency cookstoves in the country. The initial target of 1 million ICSs installed by 2018 was achieved by IDCOL in January 2017 and since then, a total of 2.09 million ICSs have been installed as of December 2020 (table 12). IDCOL now aims to distribute 5 million ICSs by 2023 in support of achieving the 100 percent ICS coverage target by 2030 in the Bangladesh Country Action Plan for Clean Cooking 2020–2030. This ICS program is also registered under the Clean Development Mechanism (CDM) and is certified to earn emission reduction credits issued by the UNFCCC. To elaborate on the IDCOL ICS program, the assessment team has dived into the types of ICS sold by the POs, the business model they are following, and their capacity to promote and sell ICSs effectively. Table 12: Total ICSs Installed in Phase 2 of the IDCOL ICS Program, 2017–2020 Year Installation Installation Installation Installation (Tier 1) (Tier 2) (Tier 3) 2015 228,335 10,481 – 238,816 2016 517,013 20,331 192,561 729,905 2017 – 8,498 428,225 436,723 2018 – 5,501 238,715 244,216 2019 – 8,942 353,028 361,970 2020 – 9,518 441,607 451,125 Total 745,348 63,271 1,654,136 2,462,755 46 4.1 COOKSTOVES IDCOL’s POs sell three main types of ICS. Those are “Single-mouth portable stove”, “Single-mouth Chimney stove” and “Double-mouth chimney stove.” The prices of these ICS stoves are in table 13. From the consultation workshop held with the POs, we learned that 95 percent of the ICSs sold account for “Single-mouth portable” ICS stoves. The other two types are not popular because of their relatively high prices. These issues will be detailed in upcoming chapters. Table 13: IDCOL ICS stove models Single-mouth Double- Single-mouth portable mouth chimney chimney BDT375 BDT1450 BDT1350 (USD 4) (USD 17) (USD 16) 4.2 BUSINESS MODEL OF THE POs IDCOL has 61 POs working on promoting ICSs in 300 Upazilas of the country. IDCOL selects POs through a tendering process, where interested nongovernment organizations and private sector stakeholders have to submit proposals. Once selected, the POs start working on the production and marketing of ICSs, using the starting capital provided by IDCOL to establish manufacturing plants and set up initial distribution networks. From our field research at Jhenaidah, Satkhira and Barisal, we found that the selling price of ICSs differs among different POs. Understanding market-based solutions and access to finance options for clean-cooking technologies in bangladesh 47 Test report by Institute of Submission to Approval Dissemination Energy, Dhaka University of IDCOL over the from IDCOL by IDCOL POs Chemical Engineering, BUET year ICS Technical or BCSIR Committee Source: IDCOL Figure 11: ICS Selection Process of IDCOL ICS Program Among the various districts where IDCOL POs operate, 4.2.1 INTERACTION BETWEEN IDCOL AND POS Dinajpur, Rangpur, Bogura, Jhenaidah and Bagerhat A core support that IDCOL provides to its POs is training have many ICS installations. About 150,000 to 175,000 of different kinds. These include sales training and stove ICSs have been installed in each of these districts to manufacturing training. Enhanced capacity lets POs improve date, whereas Mymensingh, Netrokona, and Jamalpur their production and marketing processes. IDCOL also districts have a very low number of ICSs installed. organizes regional consumer awareness campaigns, giving Therefore, there is huge scope for further investments POs the window to follow up on initial leads. POs leverage and interventions in several districts where the such initiatives from IDCOL to manufacture stoves according traditional stove is still the norm, and ICSs are not yet to IDCOL’s specifications and then market them to customers. popular. Production: Selling: Monitoring: Processing of 80 to 100 1 month 20 to 30 days 15 to 20 days grant: 15 to 20 days days Figure 12: Total time from production to reception of grant Technical Assistance from IDCOL Conduct Demand IDCOL-Approved Creation Activities Manufacturers POs Source ICSs Local Entrepreneurs Install / Distribute POs’ Own Production IDCOL-Approved ICSs Centers Provide After-Sales Services Source: IDCOL Figure 13: PO activities under the IDCOL ICS Program 48 Product Selection by IDCOL IDCOL gives training to POs POs Manufacturing After-Sales by POs/Local Services Entrepreneurs Physical verification & call center supported by IDCOL Local Promotion Installation and Marketing of ICSs Activities by Nationwide POs promotion & tools provided by IDCOL Sales Source: IDCOL Figure 14: Distribution and supply chain in the IDCOL ICS Program It takes about a month for a PO to complete the 4.2.2 COMPETITION IN ICS MARKET production process for one batch of ICSs. ICSs produced There are a few viable competitors to the ICS that IDCOL in a particular month are then prepared for sale in the markets. The Bondhu Chula is available at a lower price: following month. It takes about 20 to 30 days for a PO BDT 600 (USD 7) for the double-mouth version with a to sell the batch of ICSs produced. After dissemination, chimney. Customers often prefer the Bondhu Chula over they submit to IDCOL their sales data and corresponding other solutions because of its lower price. The POs say bill for a “promotional grant”. At this point, a monitoring they often find it hard convincing consumers to choose team from IDCOL performs random checks by visiting the higher-priced IDCOL ICS models because the outward the customers. This process takes about 15 to 20 days or appearance of the two stoves is similar and consumers longer. Once the bill is approved, it takes another month do not have much awareness about higher efficiency. to process and disburse the invoice amount. IDCOL Given the availability of LPG cylinders and the social withholds a certain percentage from the invoice amount status attached to it, consumers with more purchasing to ensure that the dispensed ICSs are in continuous use. power often opt for LPG cylinders, though they may not However, the time lag in receiving a “grant for promotion” use it as their regular cooking solution. often leads to a liquidity problem in the POs’ production Besides the IDCOL ICS and the Bondhu Chula, process because they sell almost at production cost several private companies and manufacturers have (figures 12 and 13). According to the POs, this makes developed various improved and efficient cookstoves, them dependent on the IDCOL grants to reach break- some of which have been approved by IDCOL. These even point or realize a marginal surplus. IDCOL’s manufacturers sell stoves through their own distribution approved price was derived by considering the maximum networks. The consulting team interviewed and reviewed cost of making each type of stove. The production assessment reports of five such ICS manufacturers: cost decreased over time owing to increased volumes, Venus BD, Luxur Green Energy, Rahimafrooz Renewable, economies of scale, and improved labor efficiency. Understanding market-based solutions and access to finance options for clean-cooking technologies in bangladesh 49 Customers Partner Fuel Organizations Suppliers International Donors Improved Local Cookstoves Competitors Policy Makers Raw Financial Materials Institutions Suppliers R&D IDCOL Institutions International competitors Figure 15: Stakeholder Map for ICSs Filament Engineering and BD Vision. However, none of In our observations, the PO staff approached potential them has yet succeeded in creating a viable business. customers and households with fundamentally the same or similar sales pitch and offer, without tailoring the 4.2.3 IDENTIFYING KNOWLEDGE GAPS OF approach to the particular customer. IDCOL POS 4.2.4 STRENGTHENING THE SUPPLY OF IDCOL Consumer Market Segmentation POs The field study discovered that, because of IDCOL’s Given that the POs are heavily dependent on grant cluster-based approach, the POs approach the market money from IDCOL to produce and sell their cookstoves, using only geographic segmentation and do not there is a need to diversify the portfolio for the POs target households based on their needs and/or their and help them develop sustainable business models. socioeconomic backgrounds. They took the cluster- For IDCOL to achieve the goal of installing 5 million based approach because it reduces distribution costs cookstoves by …….., it is essential that the POs value and makes service provisions less costly. cookstoves as a viable business rather than just depending on donor grant money. 50 However, all the POs interviewed expressed their need for support from the donors on this matter. The IDCOL Alliance worked with the Social Marketing Company (SMC), a recognized leader in BCC, social marketing, and community mobilization in Bangladesh, and with a top IDCOL provides the Social and Behavior Change Communication (SBCC) partner organization with the necessary consulting agency, Purplewood, to develop an extensive training on stove 1.5-year campaign in 2017–2018. That campaign aimed manufacturing to increase awareness of the entire category of cleaner and sales, and cooking solutions and used the brand “Modern Stoves” provides them with a which intended to tap into a rapidly developing country’s promotional grant per stove. ambitions. The big idea was, “Times have changed; change your stove.” Partner The campaign used radio, print, billboards, interpersonal Organization communications (IPC), rickshaw branding, community theatre, movie screenings, and fairs to spread its The partner organization message. Bulk SMS, a helpline, and geo-targeted social manufactures and sells the stove to media marketing were also used. The campaign is customers. After a desginated sales estimated to have had an outreach of at least 1.6 million period they reach out to IDCOL to bill for promotional grants according to people, and evaluation results showed that it increased the number of stoves they sold. awareness 25-fold among the target population. Another crucial way ICSs get exposure to new customers is by “word of mouth”, that is, experiences customers Customer share with their friends and extended families. POs reported several incidents when there was an increase in demand from new customers who had been introduced to clean-cooking products by their neighbors, families Can purchase ICSs by providing production costs only. and friends. People who have been using ICSs for a certain period become accustomed to the ICS and prefer not to return to traditional stoves. These loyal customers actively spread positive reviews of ICSs and help build Figure 16: Benefit trickle-down map of IDCOL-PO- awareness and change behavior. customer Recent studies, summarized in figure 17, indicate that door-to-door (90.9 percent), word-of-mouth (84.5 percent), billboards and posters (61.1 percent) and 4.3 CREATING brochures (60.5 percent) are the most effective marketing SUSTAINABLE DEMAND FOR strategies that have successfully led to the purchase of an ICS (for ICS-adopters), while work-of-mouth, billboards ICSS and posters , and brochures are the top-3 most effective marketing activities for potential customers, or the so- 4.3.1 Awareness Creation and Behavior Change called control group in this study (Hossain and Azreen 2020). To create a sustainable demand for improved cookstoves, awareness building among end consumers Recommendations from POs on good awareness- is essential. Behavior change communication (BCC) is building programs include: a key factor for creating sustainable demand for such • Engaging health workers in explaining the health issues cookstoves in the market. The partner organizations we related to traditional stoves and alternative solutions visited during the fieldwork also emphasized the power (ICSs) of behavior change. With support from IDCOL, POs arrange several awareness-raising activities throughout • Celebrity endorsement of ICS issues the year, such as courtyard meetings, school programs, • Local government involvement in awareness-building leaflets distribution, street plays, and advocacy meetings. and distribution Understanding market-based solutions and access to finance options for clean-cooking technologies in bangladesh 51 Door-to-door 90.0 13.2 Listened to neighbors, friends, relatives 84.5 57.2 Billboard or poster/wall in village 62.1 ICS Promotional Activities 28.9 Brochures/ leaflets 60.5 25.0 Listened to radio programs 34.5 17.9 Attended demonstration by PO 28.0 2.2 Attended demonstration by other NGOs 24.1 2.1 Watched documentaries, commercials 16.4 Control 1.8 Treatment Households (100%) Figure 17: ICS Promotional Activities 4.3.2 CONSUMER SATISFACTION traditional stove. Our analysis based on fieldwork indicates that • Upgrading to a better product: Some current most consumers are on the whole satisfied with the customers are happy with the portable ICS but want performance of their ICS. They typically consider basic to upgrade their stove to a single/double-mouth with criteria such as time spent on cooking, stove price, fuel a chimney. Unfortunately, they cannot upgrade to the cost and maintenance. Positive customer feedback newer/better version of the ICS with the current price, include: which is significantly higher than in previous years. • Customers believe that less fuel is needed with an ICS Moreover, POs do not receive a promotional grant • More heat is generated compared to the traditional for selling multiple stoves to the same household. stoves Therefore, if a household wants to buy a second ICS, the price offered would be significantly higher. • The stoves with chimney efficiently keep smoke out of the house Studies from BIDS, displayed in figure 18, reveal more • The portable stove is reasonably priced detailed numbers. The left column above the x axis in figure 18 are features liked by ICS users, fuel-saving (32 • Less cooking time is required with an ICS percent) and time-saving (32 percent) are the top two To understand the mindset of different consumers, the followed by less smoke (19 percent) and health benefit (6 study team also interviewed several respondents who percent). “Can’t use large piece of firewood” is a common were aware of ICSs but not yet willing to invest in one. complaint across all four consumer groups and potential The two key problems mentioned were: customers outside the IDCOL ICS Program village coverage (18 percent). Other common issues include • Design of the cookstoves: The depth of the ICS, “can’t cook with large pot,” “longer cooking time,” “ash especially the portable one, is quite shallow. For this residues after cooking,” and “require too much time on reason, the fuel needs the constant supervision of the maintenance.” cook because the fuel burns out more quickly than in a 52 Taking out of the “likes” by current ICS users and focusing represent different user groups and bar height indicates on the problems, figure 19 look at this problem from the seriousness of the problem – the higher the bar, the another angle by grouping the feedback by issue. Colors more households with that issue. Less smoke Shape of the stove opening isn’t feasible/suitable faster cooking time Cannot cook in large pots Fuel saving Certain foods take longer to cook Less enironmental polution Cannot use large pieces of firewood Other liked Requires too much maintenance Produce smoke Food does not taste good Ash and residues formed under the pot Too expensive Didn’t like ...... or not convenient Already using a clean stove Chimney is missing - PO didn’t provide Other-disliked 100 75 50 25 Households % 0 -25 -50 -75 -100 Current user Current user Lost customer Non-adopter Non-adopter - liked - issues in IDCOL in non-IDCOL Program Program villages villages Figure 18: Consumer feedback of the problems of ICSs (by consumer group) Understanding market-based solutions and access to finance options for clean-cooking technologies in bangladesh 53 5 ACCESS TO FINANCE 5 ACCESS TO FINANCE 5.1 INVESTMENT AND RETURNS FOR HOUSEHOLDS According to POs and IDCOL regional field managers, many consumers using an ICS for the first time do not permanently make up their mind and choose it over a traditional mud stove until about 2–3 months of using it. The reason is that, with regular ICS use, customers start noticing a considerable reduction in the amount of fuel required for daily cooking. Using a traditional stove, each household needs about three maunds (120kg) of firewood per month. Annually that amounts to about 36 maunds. The cost of firewood is about BDT 200 (USD 2) per maund (table 15). Table 15: Annual fuel cost using traditional mud stove with 15 percent thermal efficiency Cost of stove None Firewood needed per month (kg) 120 kg to 160 kg Cost of firewood per month (BDT 5/ BDT 600 to 800 (USD 7 to 9) per USD 0.06 per kg) month Cost of firewood per year BDT 4,200 to 9,600 (USD 50 to 113) Total annual cost BDT 4,800 to 10,400 (USD 57 to 123) 56 Table 16: Annual fuel cost using a single-mouth portable ICS with 30 percent efficiency Cost of Stove (2 years lifetime) BDT 300 to 375 (USD 3.5 to 4.2) Firewood needed per month (kg) 1.5 to 2 maunds, or 60 kg to 80 kg Cost of firewood per month (BDT 5 per kg) BDT 300 to BDT 400 (USD 3.5 to 4.7) per month Cost of firewood per year BDT 2,100 to 4,800 (USD 25 to 57) Total annual cost (Stove + Firewood) BDT 2,250 to 4,950 (USD 27 to 58) Amount saved (including per year depreciation) BDT 1,950 to 4,650 (USD 23 to 55) compared to traditional mud stove Given the 15 percent efficiency of traditional stoves, by burning 120kg to 160kg firewood a month, the 5.2 ACCESS TO FINANCE energy that households obtain is actually equivalent to NEEDED FOR BOTH burning 18kg to 24 kg firewood with 100 percent thermal efficiency. To get the same amount of energy using a HOUSEHOLDS AND POs single-mouth portable ICS with 30 percent efficiency, Access to finance remains a major bottleneck for both households would need to burn only 60kg to 80 kg households and POs. Many extremely poor families firewood a month, representing a 50 percent reduction in cannot afford ICSs, and several POs have closed down or the amount of firewood required (table 16). slowed down their business to cope with low sales and the liquidity crisis. However, in rural Bangladesh most households cook with free biomass and do not buy all their firewood. Hence in Extremely low-income families still cannot afford to buy many cases consumers do not immediately realize the ICSs: From discussions with the POs, it has been learned cost savings due to the reduction in fuelwood usage. that health problems caused by the use of low-efficiency Additionally, the IDCOL stoves, while high in efficiency, stoves are still not a primary concern for the most are still quite low in emissions reduction, so households vulnerable consumer segments, the extremely poor, who are unlikely to realize any long-term health benefits. do not earn more than BDT 5000 to 6000 (USD 59 to 71) per month (BDT 250 to 300 or USD 3 to 3.5) per day). This It needs to be noted that for the purpose of calculation, is due to a couple of reasons: we estimated the full cost of firewood. In reality, many households either do not have to pay for firewood • Price sensitivity is very strong in this consumer or other biomass or pay a partial amount for the fuel segment. Spending BDT 300 to 375 (USD 3.5 to 4.4) required for their traditional mud stoves. In rural areas, requires them to spend a full day’s income or more people have various types of trees from which they on a stove. Given that they are used to constructing collect branches, twigs and dry leaves, dry dung from cost-free stoves from mud and using free biomass as cows, and use these as fuel. So the actual out-of-pocket fuel, ICSs are not yet an appealing investment for these fuel expense for households is quite low when using households. traditional mud stoves. Understanding market-based solutions and access to finance options for clean-cooking technologies in bangladesh 57 58 • It has also been learned that this consumer segment is not sensitized to the health-related risks of traditional cooking. Traditionally their forefathers used mud stoves and they continue to do the same. In their opinion, they did not see any immediate harm from using mud stoves. Liquidity crisis for POs in running production, dissemination, and promotional cycles: POs run into short-term liquidity crises until they receive grants from IDCOL. Breakeven or marginal surplus for POs are realized only when they receive grants from IDCOL. It takes three months for them to receive the grant from the date of production, compelling them to run operations with their own funds. Hence, if a PO wants to start production, they have to ensure liquidity for three to four months in advance for smooth operation. A significant portion of the money is typically spent on regular expenses. It is sometimes difficult for the POs to source raw materials in bulk or even pay their field workers on time. Some POs struggle to pay the salaries of their sales representatives due to this liquidity crisis, leading to demotivated sales teams. 5.3 CARBON FINANCE Carbon finance has been a common and popular source of funding for cookstove projects, especially in recent years as the prices of carbon markets have started coming back up. The IDCOL ICS Program has been registered as a Clean Development Mechanism (CDM) program of activities (PoA) under UNFCCC since 2019. Following CDM methodologies, each ICS under the IDCOL program will save 1.54 tons of biomass fuel and reduce CO2 emissions by 1.22 tons per year. This means a reduction of 6.1 million tons of CO2 emissions per year in the lead-up to 2023 if the 5 million ICS target were to be achieved, and a reduction of CO2 emissions by 36.6 million tons per year by 2030, if 30 million ICSs are distributed by then (UNFCCC 2019). To address low-income households, the Results-Based Finance (RBF) plus carbon finance approach that the World Bank recently launched in Rwanda has set a successful model. Under the Rwanda Energy Access and Quality Improvement Project (EAQIP), the World Bank Clean Cooking Fund (CCF) will provide $20 million for developing a sustainable market for affordable clean-cooking solutions in Rwanda, with $10 million provided as a grant and $10 million extended as a loan. The project targets 2.15 million people, leveraging an additional US$30 million in public and private sector investments. The carbon facility Carbon Initiative for Development (Ci-Dev) Trust Fund will purchase certified emission reductions (CERs) from two Rwanda stove companies, Inyenyeri and DelAgua (World Bank 2020). Leveraged by this effort, the Development Bank of Rwanda Plc (BRD), in partnership with Energy Development Corporation Ltd (EDCL), has also launched a Clean-cooking Results-based Financing (CC-RBF) subsidy scheme, designed to address the affordability of clean-cooking technologies through the reduction of system prices and aiming to reach to the lowest-income population in Rwanda (Rwanda Energy Group 2018). 5.4. CHALLENGES FOR ACCESS TO FINANCE Difficulty in acquiring bank loans: In Bangladesh, government-owned banks offer loans at an annual interest rate of 9 percent. However, loan officers tend to discard loan applications for ICSs as they consider them an unsustainable business. The result is that most POs are unable to avail themselves of bank loans. Given the thin profit margin of ICS production and promotion, accessing loans from private banks is not an option because of the high annual interest rates (generally 12 to 14 percent). Cash sales vs credit sales: POs have a hard time following up on credit sales of affordable single-mouth portable ICSs. It has been difficult for them to target low-income families and set installments of BDT 100 (USD 1) for three months. Customers too tend to get upset or annoyed when repeatedly being asked for a very small amount of money and sometimes ask POs to take back the ICS instead. POs have also expressed difficulty in managing collection or recovery costs, especially if the cheaper ICS is the model bought. In the case of the one-mouth chimney and two-mouth chimney ICSs, sales are relatively low. Several POs reported that these two types of ICS accounted for only 5 percent of their sales. Understanding market-based solutions and access to finance options for clean-cooking technologies in bangladesh 59 COMMUNITY ENGAGEMENT Most of the POs deploy a similar distribution model for various customer segments. Some POs engage in “Uthan Boithok” courtyard meetings as part of their community level engagement. Similar distribution models for all segments of consumers: IDCOL POs do not have a different marketing model for different customer segments. Instead they employ a one-size-fits-all, blanket distribution model for all segments. From discussions with POs from different regions during our field study, it was clear that door-to-door sale is still the primary method across the board. In a few cases, POs have tried to use “multi-level marketing” (MLM) mechanisms to encourage existing customers to refer others. However, this has accounted for a very small percentage of sales. Uthan boithok–Courtyard meetings: In addition to door-to-door sales, arranging “Uthan boithok” (courtyard meetings) act as a “push factor” to introduce a “community-based approach” to inform customers and increase sales. As reported by POs, the initiative has been effective in increasing sales. Typically, the local sales team visits several household clusters with low sales rates, and seeks permission from the households for an “Uthan boithok” session. If they agree, a date is set according to their convenience. Usually the portable single-mouth ICS is demonstrated because it can be transported easily. The sales team demonstrates the usability of ICSs and discusses the benefits. In most Uthan boithok’s, about 20 participants and the team can generate about one to three instant ICS sales per session. 60 Understanding market-based solutions and access to finance options for clean-cooking technologies in bangladesh 61 RECOMMENDATIONS 7.1 Calling for greater clean-cooking ambition. Despite strengthened momentum and actions at the individual level, the current levels of clean- cooking ambition are still far from achieving the goal of 100 percent clean- cooking adoption by 2030. The cooking sector in Bangladesh needs to agree on a shared 2030 vision for universal access and adoption of clean-cooking solutions and take a coordinated, inclusive and holistic approach among key stakeholders to inspire action and drive widespread adoption. An increase in ambition must be accompanied by increased support to develop or improve scalable clean-cooking initiatives, including the successful IDCOL ICS Program. 7.2 Recognizing the “stove stacking” phenomenon. Cookstove and fuel stacking, a terminology for households that use different combinations of old and new technology at the same time, is a worldwide common practice, particularly in developing countries, to meet different cooking purposes and minimize risks from fuel price fluctuation and the reliability of supply. As mentioned in the “energy ladder” vs “energy stacking” discussion in chapter 3, this is certainly the case for Bangladesh as well. As the choice of cooking solutions gradually evolves with economic growth, households rarely switch instantly, or completely, from one stove-fuel combination to another. Consumers’ need for, and practice of, stove and fuel stacking should be recognized as they move upwards the clean-cooking ladder. The mixed usage of multiple cooking technologies, including traditional and primitive ones, because of costs and supply challenges during this transition is a pressing development challenge but the reality. Studying local cooking culture and habits, understanding consumer needs and preferences by segment, and developing tailored technological solutions to addressing product design deficiencies that limit the use of modern cookstoves are all temporary solutions to the stacking issue, if the economic factors of households remain unchanged. Ideally, if a cookstove can be designed to meet various cooking needs and is within an affordable range, the reliance on using multiple stoves and fuels would be reduced. 7.3 Prioritizing ICSs during the transition to higher economic levels and to cleaner stove and fuels. Applying consumer segmentation to target high-potential markets that have large shares of population and developing tailored product and marketing interventions, constitute an effective way of 62 promoting widespread clean-cooking adoption. Based sales stand at 40,000 ICSs per month. Companies should on the segmentation analysis from chapter 3, four focus on the single-mouth portable ICS and leverage its household segments (segments 1–4) were identified popularity to increase sales. as the “lower hanging fruit” target and suggested stove and fuel solutions were provided. Projecting them to A market-based approach might not work for the a Mekko chart, where each segment size is measured other two segments in the rural areas, given their low proportionally by its relative area of the box, provides an willingness-to-pay and low awareness level of HAP intuitively clear picture of market potential. The middle- impacts. A different approach, for example, the pro-poor class rural segment, which has the largest population, model, is needed for these families. close to 7.06 million households, relies primarily on 7.4 Strengthening awareness building and biomass cookstoves and partially uses induction and marketing interventions. As mentioned in chapter LPG stoves. This group has demonstrated its purchasing 4, given the low level of awareness of household air power and should be the top target market for clean- pollution (HAP) impacts, especially in rural Bangladesh, cooking transformation, including ICS and induction strengthened awareness-building programs are needed stoves. The three segments in the urban/peri-urban to popularize ICSs, and there is great demand from area also represent great clean-cooking adoption POs for support on awareness raising and marketing opportunities, given their location and education level, activities. Below are some ideas and recommendations and ICSs have a big market potential among them. based on our field studies and interviews with POs: In terms of specific stove models, according to the latest • Launch a nationwide awareness campaign: The data from POs and IDCOL, single-mouth portable ICS IDCOL project provides grants to POs for promotional accounts for about 95 percent of all sales. The success activities based on ICS sales. Most POs sponsor of scaling up the sales of this stove model is key to some low-cost events to promote ICSs. However, in reaching IDCOL’s target of 5 million households by 2023 recent times, there has been no national awareness (2.5 million have thus far been reached). This means that, campaign to promote ICSs. A well-thought-out within the next two years, POs will need to sell 1.4 million nationwide awareness-raising event or promotional ICSs, or 85,000 each month, to reach the target. Current Figure 20: Mekko chart of cooking market sizes by income thresholds and urban-rural divide Understanding market-based solutions and access to finance options for clean-cooking technologies in bangladesh 63 activity could play a major role in changing customer MFIs could also create awareness and boost sales. mindsets about ICSs and make POs’ work more POs are struggling to acquire such contacts. This can effective. For example, Bondhu Chula has used media be changed if there is a coordinated approach by the communications, including celebrity endorsements, government, IDCOL or other development partners to to promote their stoves. Learning from the Social and make such connections and pursue this strategy at an Behavior Change Communication (SBCC) activity by organizational level. SMC and Purplewood can provide key insights on Do’s and Don’ts in launching such a national awareness 7.5 Building a reliable and sustainable ICS supply campaign. chain in rural Bangladesh. • Uthan boithok – Courtyard meetings with • Revisiting IDCOL’s cluster-based approach: The promotional video screening: As previously current cluster-based approach tends to lead POs to mentioned, POs typically arrange “Uthan boithoks” assume that all the households that live in a cluster (courtyard meetings) as a push-selling strategy at are homogeneous and can each be approached the community-level. POs have suggested using with the exact same marketing strategy. However, entertaining videos and drama to better engage households in a cluster can be very diverse in their the audiences. Presenting visual messages to large income levels, preferences, cooking needs, and family groups of households at clusters is often effective size. There is an urgent need for POs to take a more in increasing sales. IDCOL could produce such differentiated and tailored approach to meeting promotional videos for POs to use in their Uthan households’ unique needs. This will also allow POs Boithoks, or provide the financial support for making to better understand the market potential within such videos. each cluster. Tailored pricing strategy, promotional activities, and aftersales service based on consumer • Local marketplace mobilization: The mobilization segments should therefore become more demand- undertaken at the courtyard level needs to be driven than program-driven. After years of operations, replicated in other public spaces as well. For example, it might be a good time to revisit the cluster-based the videos shown at Uthan boithoks could also be approach with a view to updating and improving it. shown at local market places as part of an overall community-based promotional strategy. • Performance incentives for the POs: IDCOL is providing grant support based on the stove categories • Clean-cooking education at school: Knowledge and minimum sales units. To expedite the growth of gained by children at school can influence their ICS sales, a second layer of performance incentives parents through daily conversation. Time-specific could be introduced for the best-performing POs. rallies, sponsored games, school debates, and Such performance-based incentives would spur contests can be arranged with schools and other competition among the POs from time to time. education institutions. They could be based on overall sales performance, categories of product sold, and other factors. • Recruiting local volunteers for referral sales: To conduct successful referral sales, local volunteers • Developing a more diverse supplier base for raw could be hired to demonstrate ICSs and distribute materials: It was learned that several vital raw promotional materials autonomously in return for a materials, including rock wool and metallic sheet, are small commission. Village-level housewives could play sourced from only a handful of selected traders who the role of volunteers. Currently, referral marketing work out of specific locations in the Chittagong and does not account for a significant amount of sales for Dhaka areas. In the case of the IDCOL ICS Program, the the POs. If strategies to recruit dedicated volunteers metallic sheet is available only in Bogura and Rangpur could be put in place, that might be a game changer and produced by Rangpur Foundry. The associated and enhance effective community engagement. transportation costs, and the capital tied up in stocking raw materials, create a financial challenge • Partnering with health workers for joint ICS for POs. Since POs order in bulk to minimize transport advocacy efforts: Local social groups can be costs, a considerable amount of capital is invested in engaged to facilitate district-level and Upazila-level raw material procurement. In addition, raw materials discussion sessions and promote the health benefits costs have significantly increased over the past year of ICSs. This can also be duplicated by arranging (2020). Developing new suppliers of key materials in workshops in clubs and NGOs working on health major business clusters could help reduce the upfront issues. Microfinance institution (MFI) offices could costs for POs. This way, POs do not need to stock up be another avenue. Accessing group meetings of the because the suppliers’ locations would be closer. 64 IDCOL could support the effort of strengthening the raw material supply chain by providing match-making Enterprise financing support between POs and raw materials suppliers. • Launching a clean-cooking liquidity facility to provide short-term loans to address liquidity • Strengthening capacity and talent building for and production costs: The liquidity struggle faced ICS businesses: Skills trainings can be provided to by stove businesses and POs could be eased ICS business and POs on market segmentation and by introducing a short-term, interest-free loan development of sales strategy to better serve the program that applies only to businesses that are in complex ICS markets. Sales can improve significantly liquidity crisis. Applicants would have to submit the if businesses focus on potential customers who can required financials for validation. Once approved, be convinced to try ICS technologies. As households disbursements would be provided during this cash are usually well connected with the local community, crisis and loans allowed to be repaid within a mutually local PO staff can maintain a master data sheet to agreed period of time. Similarly, a “raw materials loan” map the potential households and regularly reach could be created to help businesses offset some of the out to them. The capacity of POs to ensure successful price fluctuation risks of raw materials. expansion into these untapped market segments is crucial. In such circumstances, successful POs can In partnership with the government and international be encouraged to expand their operations to other development agencies, a Liquidity Facility for the regions, instead of focusing only on a particular clean-cooking sector could be created to run and geographic cluster or Upazila. manage the above-mentioned loan programs. In addition to stove producers and distributors, the The scarcity and high turnover rate of skilled human facility could also finance loans to targeted end-user resources, especially technicians, was the other major segments by income level. challenge of the ICS sector. In addition to arranging training to develop skilled staff and technicians, • Advance payments for cluster network expansion: businesses and project developers should also create Making advance payments to distributors and POs career development programs and explore how to inspire for expanding to new clusters could create monetary and retain talented staff who have substantial experience. incentives for them to broaden their distribution It would also be worthwhile exploring partnership channels and increase their ICS sales. The amount and opportunities with schools and higher education terms of advance payments could be determined by institutions (HEIs) for providing clean-cooking related proposed distribution business plans and based on curricula to both students and working practitioners. This the track record of the applicant. would be not only a talent-development effort but also an awareness-raising opportunity among the younger • A three-way partnership loan guarantee scheme: generation. Donor agencies or the government could, as a third party, provide a credit guarantee to credible service 7.6 Developing a diverse and innovative financing providers, for example IDCOL, to enable them to ecosystem for the clean-cooking sector to enable provide upfront capital to POs and stove businesses. community-driven market penetration at scale. Chapter In the event of a failure of the PO or stove business 5 mentioned that it typically takes three months for POs to pay off the loan, the third party would inherit the to receive grants from IDCOL from the time production debt obligation. The guarantee could be either limited starts, which often causes severe liquidity challenges. or unlimited, making the guarantor liable for only a For both the demand and the supply sides, providing portion or for all of the debt. Guarantee mechanisms access to finance is a key factor in enabling household- for loans could also help build relationships and trust level purchasing of modern cooking energy devices, between cookstove businesses and banks. especially among lower-income and poor families. However, the financing options typically available in these markets are often not attractive to commercial banks and microfinance institutions (MFIs) because of Consumer financing the low loan amounts and high transaction costs. Some financial institutions do not even believe in the clean- • The product “Free Trial” program: In our consumer cooking business model. The clean-cooking sector analysis in chapter 3, we observed that many therefore needs its own financing mechanisms that can consumers who are using an ICS for the first time take be supported by donors and the government for both some time to decide and do not permanently switch stove businesses and consumers. to it until after 2–3 months of trying it. To capture this group of customers, businesses and POs can create Understanding market-based solutions and access to finance options for clean-cooking technologies in bangladesh 65 “free trial” programs that allow customers to use an developing countries. Trainings and employment ICS or clean-cooking product for a short period for opportunities can be provided to households for ICS- free (for example one week). At the end of this period, related jobs such as sales agent, stove engineer, and customers have the option to return it at no cost, installation technician. This would give participants pay in full to own it, or pay for it in installments. The the opportunity to make income by working in the risks and costs of customers not returning the stoves clean-cooking sector. should be minimal and manageable, and could be covered by the financing programs mentioned above. • Stove trade-in program: Households can bring in One advantage of a free trial or 100 percent money their eligible old stove (which does not have to be an back guarantee program is that customer frequently ICS) if it is in workable condition for credit toward a choose to simply keep the item because of the sheer new ICS or more advanced stove. Current ICS users inconvenience of packaging it up and returning it to trading in an old ICS stove would get higher credit. the place of purchase. The larger or heavier the item, • Working with MFIs to provide installment options and the most steps required in assembling it, the less for targeted consumer segments: Back in the likely that it will be disassembled and returned. bubble charts analysis in chapter 3, this time let • Cash voucher program: Design a program where us focus on consumer preference between cash households can earn cash vouchers to purchase vs loan by treatment and control groups. The certain clean-cooking products including ICSs; visualization shows clearly that for the advanced eligible voucher-earning activities can be creative ICS, both treatment (ICS adopter) and control (non- and require partnerships with other organizations. ICS adopter) groups have a larger orange circle (in Government, donor agencies, or IDCOL could organize favor of installment) than blue circle (in favor of clean-cooking related income-generation programs, paying cash), meaning that installment might be a where participants can earn can vouchers for ICS real option for both ICS-inclined users and potential purchase or gain knowledge and skills they can apply customers even though it is often widely believed in their future careers. Recent studies show that only that this segment in rural Bangladesh has a low 0.3 percent of surveyed households reported being purchasing power and would not take installments. involved in ICS-related businesses (Hossain and As previously mentioned, a consumer segmentation Azreen 2020), which is much lower than in many other approach should be adopted and more data should Cash vs Loan 2500 2000 Stove Price (BDT) 1500 1000 500 0 Experiment Group (Current Customers) Control Group (Potential Customers) Figure 20: Bubble chart of payment preferences, cash vs installment loans 66 be collected to identify matched financing tools to Based on literature review (Ministry of Local Government, unlock clean-cooking adoption potential. The results Rural Development & Cooperatives, June 2020; OECD, may bring opportunity for pellet-based technologies 2008), there are four elements in a pro-poor program and products if consumers are interested and would strategy framework: (1) Develop an operational definition accept taking loans to buy the more expensive pellet of hard-core poor households who are eligible to ICSs. Installment loan programs can be created in participate; (2) define a basic minimum service level; (3) partnership with microfinance institutions (MFIs). identification and organisation of the poor households; and (4) development of the subsidy-based pro-poor The project baseline report also supports the conclusion mechanism. The product or ICS stove will be 100 percent that some consumers prefer installment payments subsidized by the pro-poor program, participating for more expensive ICSs and cash payment in case of consumers will need to pay a small Operational and cheaper ones. However, the other issue reported by Maintenance fee (O&M) for the community or contribute POs is the installment collection cost due to low sales of by labor services. Microcredit support, capacity building expensive ICSs. An inexpensive collection method should support, and priority of employment opportunities are be developed. One solution is to pay installments using other benefits of this pro-poor program provided by the mobile banking services with follow-ups over the phone organizer (normally the government). instead of in-person with salesperson involved. This will save the salesperson’s time and reduce transaction costs 7.7 Supporting market research for better when there is little on transportation expenses. understanding target markets and developing effective policies and business strategies: A major It can also create opportunity for pellet-based solutions challenge and limitation of this report was the substantial as these are relatively expensive and the system can research gap on clean-cooking market intelligence achieve its market potential if installment mechanisms and consumer data in Bangladesh. Despite progress are introduced for consumers. in currently available studies, there is a strong need for more up-to-date data and consistent data collection • Developing a pro-poor program for clean cooking to methodologies within the research community. As figure engage the low-income segment: While many of the 21 shows below, good data on customer profiles and market-based interventions will likely not work for the preferences are the first step in the intervention chain, rural poor segment, a pro-poor strategy and program and the key to success in identifying appropriate finance can be created to cover the last mile and ensure no incentives and options for policy makers and stove one is left behind. businesses. Grants should be provided to catalyse market research and consumer studies. Understanding market-based solutions and access to finance options for clean-cooking technologies in bangladesh 67 CONCLUSION A significant number of Bangladesh’s population are still using traditional stoves, it is very important to formulate a strategy that will lead to a sustainable transition toward 100 percent adoption of ICSs by 2030 in Bangladesh. With economic growth and the increased purchasing power of households, demand for clean-cooking energy will continue to grow over time. However, till that future arrives, Bangladesh would do well to keep pushing consumers to move toward cleaner stove and fuel options, especially in view of the cultural tendency for stove stacking. Change in consumer perception is very important if we are to decrease the dependency on mud stoves and free fuel, which would lead consumers toward cleaner cooking solutions. Once convinced of clean-cooking conveniences, consumers might slowly move toward part-time usage of advanced fuel such as LPG and electric stoves. To turn this vision into a reality, the market- enabling mechanisms would require significant improvement in financing, awareness building, and supply chain and a coordinated approach among key stakeholders is needed to mobilize more coherent and sustainable actions. There is no doubt that the IDCOL ICS Program has been a huge success and has been able to achieve high penetration among rural households. However, more needs to be done to close the gap in order to achieve IDCOL’s 5 million target by 2023, and Bangladesh’s goal of clean-cooking for all by 2030. Provided customized options of access to finance is the centerpiece of the challenge of reaching the clean-cooking sector, getting more data on a large scale from both consumers and businesses will help decision makers to develop the right tools and policies. Given the complexity and fragmentation of this sector, building a financing ecosystem that (i)includes difference mechanisms that serve different demographic groups, are (ii) appropriate for customers who are developmentally at different economic stages, but (iii) complement each other as a single ecosystem, is worth continued research and discussion. 68 Understanding market-based solutions and access to finance options for clean-cooking technologies in bangladesh 69 ANNEXES Annex 1: IWA guidelines and ISO International Standard In February 2012, through a collaboration between the Clean Cooking Alliance and the International Organization for Standardization (ISO), more than 90 stakeholders from 23 countries came together to form a support group for an International Workshop Agreement (IWA) – a technical document developed through a workshop meeting outside the normal ISO committee process. The 2012 publication worked as a set of interim guidelines to assess cookstove performance on thermal efficiency, total emissions, indoor emissions, and safety and to define the parameters of what constitutes a clean cookstove. It was a significant way forward in the development of international standards for clean cookstoves. The document contains recommendations for laboratory testing and cookstove performance evaluation, with performance tiers proposed for products tested in both high- and low-power modes. safety (table 13). As IWA guidelines have helped define “cleaner cookstoves,” the lessons learned have been used to develop an international standard for the assessment of cookstove performance (CLASP 2019). In 2018, ISO released ISO International Standard 19867-1 and ISO Technical Report 19867-3, which provide harmonized standards for testing cookstoves, and voluntary performance targets that governments and other programs can apply or adapt when formulating requirements for small-scale residential cookstoves (table 14) (CLASP 2019). In comparison with the IWA guidelines, the ISO standard has 5 tiers instead of 4 and includes testing for durability. It has improved testing for efficiency and emissions across firepower. The ISO standard contains improved harmonization of testing protocols, which has facilitated the process of comparing results across laboratories. It also applies to a wider range of stoves and fuels. However, it does require an upgrade in procedures, equipment and quality assurance (CLASP 2019). 70 Table 21: Cookstove high-performance criteria Tier Carbon Monoxide 2.5 microgram Indoor emissions Fuel use efficiency Safety (CO) Emissions particulate emissions High Low High Low CO (g/ PM2.5 High Low Scale power (g/ power (g/ power power min) (mg/min) power power of MJd)* min/L)** (mg/ (mg/ efficiency efficiency 0-100) MJd)*** min/L) (%) (MJ/ min/L) 4 ≤8 ≤0.09 ≤41 ≤1 ≤0.42 ≤2 ≥45 ≤0.017 ≥95 Better Performance 3 ≤9 ≤0.10 ≤168 ≤2 ≤0.49 ≤8 ≥35 ≤0.028 ≥88 2 ≤11 ≤0.13 ≤386 ≤4 ≤0.62 ≤17 ≥25 ≤0.039 ≥75 1 ≤16 ≤0.20 ≤979 ≤8 ≤0.97 ≤40 ≥15 ≤0.050 ≥45 0 >16 >0.20 >979 >8 ≤0.97 >40 <15 >0.050 <45 *g/MJd is gram per mega joule delivered to the pot. **g/min/L is grams per minute per liter at (near) minimum energy use. *** mg/MJd is milligrams per megajoule delivered to the pot. Source: WBA (2016); Alliance (2016a); CLASP (2019) Table 21: Cookstove high-performance criteria Emissions Tier Thermal efficiency (%) Safety (score) Durability (score) CO (g/MJd) PM2.5 (mg/MJd) 5 ≥50 ≤3.0 ≤5 ≥95 <10 4 ≥40 ≤4.4 ≤62 ≥86 <15 Better Performance 3 ≥30 ≤7.2 ≤218 ≥77 <20 2 ≥20 ≤11.5 ≤481 ≥68 <25 1 ≥10 ≤18.3 ≤1030 ≥60 <35 0 <10 >18.3 >1030 <60 >35 *g/MJd is gram per mega joule delivered to the pot. **g/min/L is grams per minute per Liter at (near) minimum energy use. *** mg/MJd is milligrams per mega joule delivered to the pot. Source: WBA (2016); Alliance (2016a); CLASP (2019). Understanding market-based solutions and access to finance options for clean-cooking technologies in bangladesh 71 REFERENCES “National Action Plan for Clean Cooking 2020–2030”: Is there a citation for this? http://bangladeshcustoms.gov.bd/beta/trade_info/duty_calculator (HS Code:73211900, Cooking Appliances) ←link not found on Google] M Azizur Rahman Bhattacharjee, Utpal. 2021. 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I did come across: 72 “The presentation will be given by Jim Jetter at the WHO (World Health Organization) stakeholder consultation entitled “Building country capacity for adoption and implementation of standards and voluntary performance targets for clean cookstoves and clean cooking solutions” in Kathmandu, Nepal on December 10-14, 2018 and at an associated CLASP (Collaborative Labeling and Appliance Standards Program) workshop entitled “Building a Foundation for National Cookstoves Standards Implementation in Bangladesh - Final Recommendations and New ISO Standards” in Dhaka, Bangladesh on December 8, 2018.” https://cfpub.epa.gov/si/si_public_record_ report.cfm?Lab=NRMRL&dirEntryId=345165. Clean Cooking Alliance (n.d.). Bangladesh website. https://www.cleancookingalliance.org/country-profiles/focus- countries/6-bangladesh.html. Clean Cooking Alliance. 2016b. “Cookstoves and Fuels”, United Nations Foundation.http://carbonfinanceforcookstoves. org/about-cookstoves/cookstoves-and-fuels/ . Not clear what this citation is referring to. It does not appear that there is a group or website linked to the name carbonfinanceforcookstoves.org or .com. Global Alliance for Clean Cookstoves, WASHplus. 2015. Bangladesh Modern Kitchen Marketing and Behavior Change Strategy. Hexa Research. 2018. Electric Rice Cooker Market Analysis, Market Size, Application Analysis, Regional Outlook, Competitive Strategies and Forecast, 2016 To 2024. Retrieved from: https://www.hexaresearch.com/research- report/electric-rice-cooker-market. IDCOL. 2018. CAP Review Data Info Report. ←I could not find this online. Hossain, Monzur, and Karim Azreen. 2020. Final Report: Impact Assessment of Solar Mini-grid, Solar Irrigation and Improved Cooking Stove Projects of IDCOL. Dhaka, Bangladesh: Bangladesh Institute of Development Studies (BIDS). https://bids.org.bd/uploads/research/completed_research/FINAL-IDCOL.pdf. IEA, 2002. World Energy Outlook 2002. International Energy Agency (IEA), Paris IRENA. 2017. Biogas for Domestic Cooking: Technology brief, International Renewable Energy Agency. Technology Brief. Abu Dhabi: IRENA (International Renewable Energy Agency). https://www.irena.org/-/media/Files/IRENA/Agency/ Publication/2017/Dec/IRENA_Biogas_for_domestic_cooking_2017.pdf. Masera, Omar R., Saatkamp, Barbara D., Kammen, Daniel M., 2000. From linear fuel switching to multiple cooking strategies: a critique and alternative to the energy ladder model. World Development 28 (12), 2083–2103 Khan, M.F.R. 2018. BPC Study Report. Can’t find this on Google. The Basic Principles Committee (BPC) seems to be associated with Pakistan rather than Bangladesh. Shonali Pachauri & Daniel Spreng, 2003. “Energy use and energy access in relation to poverty,” CEPE Working paper series 03-25, CEPE Center for Energy Policy and Economics, ETH Zurich. Practical Action. 2017. Poor People’s Energy Outlook 2017: Financing Practical Energy Access: A bottom-up Approach. https://infohub. practicalaction.org/bitstream/handle/11283/620677/PPEO%202017%20Web%20PDF.pdf?sequence=1. Petrobangla. 2019. Annual Report. http://petrobangla.org.bd/sites/default/files/files/petrobangla.portal.gov.bd/ annual_reports/f734b418_c1fc_4913_8197_35f2db29cff1/2021-01-10-14-49-fd5f00a3f1babfa8f051d2d335c04 5b7.pdf. Power and Participation Research Centre (PPRC). 2016. Bangladesh 2016 – Politics, Governance and Middle Income Aspirations: Reality and Challenges (An Empirical Study).” file:///C:/Users/Franklyn/Downloads/ policy%2520brief.pdf. Understanding market-based solutions and access to finance options for clean-cooking technologies in bangladesh 73 Power Cell, Ministry of Power, Energy and Mineral Resources, Government of Bangladesh. 2021. Bangladesh Power Sector at a Glance. Last updated June 3, 2021. http://www.powercell.gov.bd/site/page/d730f98d-8912-47a2- 8a35-382c4935eddc. Power Division, Ministry of Power, Energy and Mineral Resources, Government of the People’s Republic of Bangladesh. 2013. Country Action Plan for Clean Cookstoves. https://www.cleancookingalliance.org/binary-data/ RESOURCE/file/000/000/235-1.pdf; or https://policy.asiapacificenergy.org/sites/default/files/CAP%20for%20 clean%20cookstoves.pdf. Putti, V. R., M. Tsan, S. Mehta and S. Kammila. 2015. “The State of the Global Clean and Improved Cooking Sector”. ESMAP (Energy Sector Management Assistance Program). Technical Paper No. 007/15. World Bank. Washington, D.C. https://openknowledge.worldbank.org/handle/10986/21878 License: CC BY 3.0 IGO Rahman, M.M. 2018. Collection of information and data to support the revision of the Bangladesh Country Action Plan for Clean Cookstoves (CAP) Can’t find this on Google. Rwanda Energy Group (REG). 2018. “Clean Cooking Results Based Financing.” REG: What We Do. https://www.reg.rw/ what-we-do/rbf-programs/rbf-clean-cooking. Schlag, Nicolai and Fiona Zuzarte. 2008. Market Barriers to Clean Cooking Fuels in Sub-Saharan Africa: A Review of Literature. Working Paper. Stockholm: Stockholm Environment Institute (SEI). https://www.sei.org/ publications/market-barriers-clean-cooking-fuels-sub-saharan-africa-review-literature; or https:// mediamanager.sei.org/documents/Publications/Climate/market_barriers_clean_cooking_fuels_21april.pdf. Sustainable and Renewable Energy Development Authority (SREDA), Ministry of Power, Energy and Mineral Resources, Government of Bangladesh. 2019. The Draft of the National Country Action Plan for Clean Cooking in Bangladesh. http://www.sreda.gov.bd/sites/default/files/files/sreda.portal.gov.bd/ download/0789a502_44ee_4c0a_9a8d_e95a11be2e57/2020-06-02-16-47-e5a8d4e255f55235e6173ab2659cb ba8.docx. The Daily Star. 2011. “IDCOL to Install 1.5 Lakh Biogas Plants: Biogas Week Begins with a Call for Clean Fuel.” Business Report. The Daily Star December 19, 2011. Last accessed June 16, 2021 www.thedailystar.net/news- detail-214675. Tribune Desk. 2019. “Nasrul Hamid: No More Household Gas Connection.” Dhaka Tribune, April 25, 2019. https://www. dhakatribune.com/bangladesh/2019/04/25/nasrul-hamid-no-more-household-gas-connection. UNFCCC. 2019. PoA 10512: IDCOL Improved Cook Stove Program. https://cdm.unfccc.int/ProgrammeOfActivities/poa_ db/TDF17CHYRMOLQ368IJN9GZE2S4UB5A/view. UNFCCC. 2020. Monitoring Report Form for CDM Program of Activities. https://cdm.unfccc.int/PoAIssuance/mon_db/ poamon842566228/viewMR. World Bank. 2020. Rwanda Improved Cookstoves Project. Last updated October 30, 2020. https://projects.worldbank. org/en/projects-operations/project-detail/P158411. 74