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Step 2 - Mapping an energy market system

The first activity is to produce a preliminary map of the energy market system that was selected in Step 1. To try and reduce the inherent complexity of an energy market system it is useful to map it against a defined standardised framework. This allows a complex energy system to be visualised in an intuitive way, to allow it to be analysed so that the actions of the market actors can be effectively supported.

This involves identifying the market actors in each of the 3 levels of the market system, as well as the roles they plan, and how they interact with each other. The framework defines each energy market system divided into three functional levels, each of which are further subdivided into several critical functions and factors, as follows and in Figure 1.

Level 1 Energy market chain actors

Level 2 Inputs, services and finance

Level 3 Enabling environment factors

Figure 1 Generic Energy Market Map

As the market chain involves the actors who own the energy products and services it has been chosen as level 1, whilst the inputs, services and finance, which directly support the market chain actors constitute level 2. The overarching enabling environment factors which impact all the other market actors are in level 3.

Note: The level numbers do not refer to their importance - all three levels need to function for the energy services to be provided! It is also useful to identify the sub-components of each level with a different colour coding.

When developing a preliminary market map it is important for facilitators to identify any gaps in their understanding, as these will need to be further investigated, particularly during the participatory mapping in Step 4 of the roadmap.

  • Mapping Level 1: Market Chain +

    At the centre of the market system is the market chain.

    It describes the channels through which the conversion equipment and products (e.g. the solar PV systems that convert sunlight to electricity and the processed fuels) or the appliances (the improved cook stoves or light bulbs etc.) move from the primary generators, or manufacturers, to the final end users.

    Market Chain Functions: The market chain is divided into broad functions, which are the most important stages of delivery of each energy product or service:

    Function 1 Project development: This involves the preparatory activities that are required before the energy generation or manufacturing can start and which are of particular importance for mini-grid electricity supply. This largely entrepreneurial activity is focused on developing the structure of an energy market chain, including its business plan and bankability.

    Function 2 Manufacturing or generation: This involves the conversion of energy from a range of resources (sunlight, flowing water or diesel) to electricity for mini-grid technologies, or the production of products for energy generation and conversion.

    Function 3 Distribution: This involves the establishment of new, or use of existing, distribution networks to allow the energy services or appliances to be transported throughout a country or region, or even internationally (of particular importance for solar PV products). This often involves various transportation methods and logistical arrangements including their storage.

    Function 4 Retail: This involves the retail of energy services directly to the end users, through a variety of formal and informal retail outlets and channels, employing various retail and marketing strategies.

    Function 5 Energy consumption: This involves the use of energy or appliances by end users, from households, community services and companies to acquire the required services from lighting to heating and motive power to improve people’s well being and livelihoods.

    Each function is delivered by one or more market chain actor(s) who are the individuals and companies (large and small, formal and informal) that operate within each energy market. These actors own the energy product, service or appliances being delivered at any point in time and are in charge of the operation, management and maintenance as highlighted in Box 1.

    Operation, Management and Maintenance


    The operation, management and maintenance of energy systems need to be effectively prioritised and delivered by specific market actors or service companies. Experience has identified this as a common shortcoming of many energy programmes, which could result in their failure if not addressed effectively.

    Once the functions of the selected energy market chain have been clearly defined, it is important to identify which market actors are involved in delivering each of them. It is also important to map out how these actors interact with each other to manufacture, distribute and retail the energy products and appliances the end users.

    Note: Some market chain actors deliver more than one function.

    Typically each energy product or appliance is transformed in some way as it travels along the market chain. This transformation might be more obvious for physical products such as processed fuels and energy appliances, and the construction of a solar lantern or a cooking stove from its component parts. Other transformations of the energy services are less visible, such as regulating voltage for a mini-grid system, but are often equally as important.

  • Mapping Level 2
: Inputs, services and finance +

    In order for each of the energy market chain actors to carry out its function, or functions, effectively and efficiently, they need to access a variety of specific secondary inputs, services and finance, which are grouped into Level 2 of the market system. These inputs and services may have their own value chains, including the actors and organisations that provide each one of them. However, as they are secondary to the energy market chain they are not mapped in detail in order to limit the complexity of the map. If these secondary markets are identified as being of critical importance to the success of a particular energy service market, they could and should be mapped as well.

    It is useful for the facilitators to work their way along the market chain asking what inputs, services and advice each market chain actor needs to implement their role in the market system. The facilitators should include what the actors currently have access to, and what they don’t, but need to, to become more efficient. These preliminary observations can be verified during the later steps of the roadmap.

    Inputs: Many of the market chain actors require a range 
of specific inputs, including the physical materials and products required to effectively deliver their function and further develop the energy products or services. Such inputs include the electrical equipment for mini-grid developers, hired labour for manufacturing improved cook stoves or wood for the production of charcoal.

    Services: Wide ranges of services are also needed by the market chain actors to better produce, distribute and sell their energy services and appliances. Different actors, including private sector companies, government departments and community-based organisations, provide these services. They may include product design, market research and quality control and product testing procedures and need to be delivered sustainably and effectively. Educational services are also required to increase knowledge and technical understanding of a range of energy service markets.

    Finance: Different financial services are needed across the market chain to enable the market chain actors to produce the products and services to a high quality and deliver them widely throughout each country or region. Other financial services are required by the end users in order to allow them to purchase the energy products and services. This applies in particular to higher cost production systems such as solar home systems (SHS) as well as highly efficient improved cook stoves (ICS) that are relatively expensive for poor consumers.

    It is also important to note that finance can be provided over different time periods. While some finance might be required for very short term periods (e.g. to pay for an appliance such as a solar PV lantern), other finance is required over much longer periods, such as loans and equity for mini-grid systems which might have 10 or 20-year pay-back periods.

    In every energy market system, these inputs, services and finance are provided by a wide variety of actors and through different mechanisms, varying considerably in the effectiveness of their delivery. The following are some example questions to help explore them more fully:

    • Effective Access, Partial Access, or Absence: How effective is the access to and delivery of each supporting input and service for the different market chain actors?
    • Providers: Who is delivering each input, service and finance? They are likely to include private enterprises, government agencies, and non-governmental organisations.
    • Delivery Mechanisms: How is each input, service and finance accessed? Are there free markets operating, controlled and/or subsidised markets or fully controlled delivery mechanisms?
    • Formality: Are the supporting inputs and services accessible through formal, informal or illegal mechanisms?
    • Poverty and Gender: How can the inputs, services and finance be supplied to support poverty reduction and gender equality? 


    Note: It is possible to map the market for an input, service or finance if it is considered important enough. To do this, the supporting function then becomes the subject of the market chain and map.

    
It may be desirable to map out a supporting function if it becomes clear it is a priority issue for the primary market system. However, be aware of the additional time and resources required to carry this out.

  • Mapping Level 3
: Enabling environment factors +

    Level 3, the enabling environment, covers the diverse set of factors that act as the “rules of the game”, shaping how the market chain functions, and inputs, services and finance operate. Such an environment is often generated by institutions (national and local authorities and research agencies), as well as policies, regulations and cultural practices.

    These enabling environment factors often directly affect the specific functions and market chain actors within the energy market system. However, external facilitators and specific market system actors can influence them through targeted interventions. It is important to note that achieving poverty reduction and gender equality often depend on supportive enabling environment factors.

    The enabling environment is structured into three types of factors:

    Factor 1: Political and Regulatory Factors

    These include the specific political and regulatory factors that affect the energy market chain and inputs and services, such as:

    • National rural electrification plans
    • National forestry and agricultural development plans
    • Energy tariff and electricity concession regulations
    • Quality control regulations
    • Regulatory permits and licences

    • Fiscal regulations, including VAT (or conversely VAT exemption) on appliances and fuels, such as ethanol or LPG
    • Economic regulations, including subsidies on fuels and appliances
    • Trade regulations, including import taxes on energy goods such as solar PV equipment, batteries and imported improved cook stoves

    Factor 2: Social and Cultural Factors

    These include the social and cultural factors that affect the effective exploitation of particular energy services and appliances as well as their demand by the end users:

    • Lack of awareness and specific knowledge about the benefits or negative impacts of energy use
    • Informal community ownership rules of resources such as rivers and forests
    • Social norms concerning cooking habits, such as the use of smoke from stoves for eliminating insects
    • Misconceptions around the performance of energy technologies, such as the level of lighting from solar PV systems

    Note: It is important to note that awareness raising is often considered a “public good” which individual market actors are often unable or unwilling to invest in sufficiently (as their competitors may well benefit rather than themselves). It often needs to be overseen by various government ministries as it supports important impacts including increased energy access, health, education and agricultural production.

    Factor 3: Financial and Economic Factors

    This includes the financial and economic factors that influence the delivery and affordability of a range of energy products and appliances, such as:

    • Income levels and livelihood strategies of end users
    • End users’ ability to pay

    • Formality of payment systems
    • 
Level of local economic activity

    It is also important to note that there are wider aspects of the enabling environment of an energy system that may take a very long time to overcome and may require extensive resources beyond the ability 
of most market actors and stakeholders. While they may
be influenced by long term engagement with planned interventions, they are generally difficult to overcome in the short term, such as:

    • Global market trends: Global technology development trends as well as the demand for,
 and costs of, materials and energy goods clearly affect the availability and affordability of energy services. However, it is typically beyond the ability of stakeholders in any individual energy market system at national level to influence them to a meaningful extent.
    • Macro-Economics: Political and economic stability and levels of macro-economic indicators such as growth, inflation and exchange rates need to be given significant considerations with respect to potential market actors’ willingness to engage in specific energy market systems. Yet, they are largely beyond the control of those focused on energy access provision.
    • Social and Cultural Norms: The collective beliefs of consumer groups within urban or rural settings of developing countries are important in influencing their decisions with respect to the consumption of
 a range of energy services. However, they are often quite complex or deeply-rooted and resistant to change. Similarly, while ease of doing business will affect the development of energy market systems, complex factors, which facilitate or obstruct business processes (e.g. general levels of corruption and bureaucracy) are difficult to change. Therefore, it is usually better to focus on social and cultural norms, which can be overcome through feasible interventions.
    • Major Infrastructure: This includes roads, telecommunications, aqueducts, etc., which are typically beyond the scope of a particular energy project. Certain infrastructure, such as mini-grid electricity cables of a specific energy project, is included as part of the service provided by the market actors. However, other infrastructure is included as part of the overall national infrastructure and can only be developed as part of a wider infrastructure improvement programme.
    • Environmental and Ecosystem Factors: This includes rain regimes, quality of soil, presence or absence of minerals or plants for fuel, etc., which are beyond the capacity of the development agents and market actors to influence.
    • Legal System and Enforcement: The robustness
of the legal system, confidence in contractual enforcement, clarity in relation to issues such as land ownership, and a business-friendly environment in relation to factors such as repatriation of earnings, are all considerations for investment decisions by prospective market actors. These can be overcome through market facilitation, but often require significant resources and tailored technical interventions.
  • Using a Preliminary Market Map +

    A preliminary Market Map can be used in the following three ways:

    Aiding Analysis: The preliminary map provides a helpful framework to steer questions and organise information for use during the facilitated participatory and detailed analysis with other stakeholders during the later roadmap steps.

    Increasing Market literacy: The market map can also be used to help each market actor understand how their market operates as a system, and to appreciate how the connections and relationships between different actors shape how efficiently the system operates, in particular marginalised actors (low income and female actors).

    Catalysing Action: When the groups of market actors map out the market system in a participatory way, it becomes a relationship-building activity in its own right. It supports market actors to develop a shared understanding of their market system and a vision for change for the future, which is discussed in more detail in Step 4: Participatory Market Mapping.

    When mapping any energy market it is always important to highlight the inherent role of the end user or customer as the markets success and long-term sustainability depends on the creation and maintenance of demand for the energy products or services. It is important to concentrate on the reality of the particular geographical region you are focusing on and the target population you are ultimately aiming to impact. The facilitators also need to make sure they place this local context within the broader district, regional and national level context in which their chosen region fits, in particular the end markets - local, national, regional and international.

    The facilitation team should start to map their selected energy market system using the templates and guidance provided in Annex 1. When developing their preliminary market map the level of detail obtained will depend on the availability of time and resources and the research methodology used. It often also depends on the local context and formality of the energy market system, with more informal and rural energy markets being more difficult to map. However, it is important to make the analysis as specific and detailed as possible in order to allow the most accurate predictions about how competitive, efficient and inclusive the energy market system is.

    Note: To ensure the facilitation team is able to address gender equality, it is important that it is also gender balanced, with members who are experienced in gender equality and poverty reduction.

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