One area where this is desperately needed is access to electricity. In the age of the iPad, it's easy to forget that roughly a quarter of the world's population -- about a billion and a half people (pdf) -- still lack electricity. This isn't just an inconvenience; it takes a severe toll on economic life, education and health. It's estimated that two million people die prematurely each year as a result of pulmonary diseases caused by the indoor burning of fuels for cooking and light. Close to half are children who die of pneumonia.
In vast stretches of the developing world, after the sun sets, everything goes dark. In sub-Saharan Africa, about 70 percent of the population lack electricity. However, no country has more citizens living without power than India, where more than 400 million people, the vast majority of them villagers, have no electricity. The place that remains most in darkness is Bihar, India's poorest state, which has more than 80 million people, 85 percent of whom live in households with no grid connection. Because Bihar has nowhere near the capacity to meet its current power demands, even those few with connections receive electricity sporadically and often at odd hours, like between 3:00 a.m and 6:00 a.m., when it is of little use.
This is why I'm writing today about a small but fast-growing off-grid electricity company based in Bihar called Husk Power Systems. It has created a system to turn rice husk into electricity that is reliable, eco-friendly and affordable for families that can spend only $2 a month for power. The company has 65 power units that serve a total of 30,000 households and is currently installing new systems at the rate of two to three per week.
What's most interesting about Husk Power is how it has combined many incremental improvements that add up to something qualitatively new -- with the potential for dramatic scale. The company expects to have 200 systems by the end of 2011, each serving a village or a small village cluster. Its plan is to ramp that up significantly, with the goal of having 2,014 units serving millions of clients by the end of 2014.
Husk Power was founded by four friends: Gyanesh Pandey, Manoj Sinha, Ratnesh Yadav and Charles W. Ransler, who met attending different schools in India and the United States. Pandey, the company's chief executive, grew up in a village in Bihar without electricity. "I felt low because of that," he told me when we met recently in New Delhi. He decided to study electrical engineering. At college in India, he experienced the Indian prejudice against Biharis -- some students refused to sit at the same table with him -- which contributed to his desire to emigrate to the US. He found his way to the Rensselaer Polytechnic Institute, in Troy, NY, where he completed a master's degree before landing a position with the semiconductor manufacturer International Rectifier in Los Angeles. His job was to figure out how to get the best performance from integrated circuits at the lowest possible cost. This helped him develop a problem-solving aptitude that would prove useful for Husk Power.
He was soon earning a six-figure income. He bought his family a diesel-powered electric generator. As a single man living in Los Angeles, he enjoyed traveling, dining out and going to clubs. "I was basically cruising through life," he recalled. "But along with that pleasure and smoothness was a dark zone in my head." He began meditating -- and he realized that he felt compelled to return home and use his knowledge to bring light to Bihar.
Back in India, he and his friend Yadav, an entrepreneur, spent the next few years experimenting. They explored the possibility of producing organic solar cells. They tried growing a plant called jatropha, whose seeds can be used for biodiesel. Both proved impractical as businesses. They tested out solar lamps, but found their application limited. "In the back of my mind, I always thought there would be some high tech solution that would solve the problem," said Pandey.
One day he ran into a salesman who sold gasifiers -- machines that burn organic materials in an oxygen restricted environment to produce biogas which can be used to power an engine. There was nothing new about gasifiers; they had been around for decades. People sometimes burned rice husk in them to supplement diesel fuel, which was expensive. "But nobody had thought to use rice husk to run a whole power system," explained Pandey.
In Bihar, poverty is extreme. Pretty much everything that can be used will be used -- recycled or burned or fed to animals. Rice husk are the big exception. When rice is milled, the outside kernel, or husk, is discarded. Because the husk contains a lot of silica, it doesn't burn well for cooking. A recent Greenpeace study reports that Bihar alone produces 1.8 billion kilograms of rice husk per year. Most of it ends up rotting in landfills and emitting methane, a greenhouse gas.
Pandey and Yadav began bringing pieces together for an electric distribution system powered by the husk. They got a gasifier, a generator set, filtering, cleaning and cooling systems, piping and insulated wiring. They went through countless iterations to get the system working: adjusting valves and pressures, the gas-to-air ratios, the combustion temperature, the starting mechanism. In they end, they came up with a system that could burn 50 kilograms of rice husk per hour and produce 32 kilowatts of power, sufficient for about 500 village households.
They reached out to people in a village called Tamkuha, in Bihar, offering them a deal: for 80 rupees a month -- roughly $1.75 -- a household could get daily power for one 30-watt or two 15-watt compact fluorescent light (CFL) bulbs and unlimited cell phone charging between 5:00 p.m and 11:00 p.m. For many families, the price was less than half their monthly kerosene costs, and the light would be much brighter. It would also be less smoky, less of a fire hazard, and better for the environment. Customers could pay for more power if they needed it -- for radios, TVs, ceiling fans or water pumps. But many had no appliances and lived in huts so small, one bulb was enough. The system went live on August 15, 2007, the anniversary of India's independence.
It worked. Back in the United States, their colleagues Sinha and Ransler, who were pursuing MBAs at the University of Virginia's Darden School of Business, put together a business plan and set out to raise money. They came first in two student competitions, garnering prizes of $10,000 and $50,000. The company received a grant from the Shell Foundation and set up three more systems in 2008. It has since raised $1.75 million in investment financing. In 2009, they had 19 systems in operation; in 2010, they more than tripled that number.
Technically, most of the problems were solved by 2008. But to make the business viable has required an ongoing process of what has been called "frugal innovation" -- radically simplifying things to serve the needs of poor customers who would otherwise be excluded from basic market services due to their limited ability to pay.
In order to bring down costs, for example, the company stripped down the gasifiers and engines, removing everything non-essential that added to manufacturing or maintenance expenses, like turbocharging. They replaced an automated water-aided process for the removal of rice husk char (burned husk) from gasifiers with one that uses 80 percent less water and can be operated with a hand crank. They kept labor costs down by recruiting locals, often from very poor families with modest education levels (who would be considered unemployable by many companies) and training them to operate and load machines, and work as fee collectors and auditors, going door-to-door ensuring that villagers aren't using more electricity than they pay for. (Electricity theft is a national problem in India, resulting in losses to power companies? estimated at 30 percent. Husk Power says it has managed to keep such losses down to five percent.)
When the company noticed that customers were purchasing poor-quality CFL bulbs, which waste energy, they partnered with Havells India, a large manufacturer, to purchase thousands of high quality bulbs at discount rates, which their collectors now sell to clients. They also saw that collectors could become discount suppliers of other products -- like soap, biscuits and oil -- so they added a product fulfillment business into the mix.
And they found ways to extract value from the rice husk char -- the waste product of a waste product -- by setting up another side business turning the char into incense sticks. This business now operates in five locations and provides supplemental income to 500 women. The company also receives government subsidies for renewable energy and is seeking Clean Development Mechanism benefits.
With growth, human audits have proven inadequate to control electricity theft or inadvertent overuse. So the company developed a stripped-down pre-payment smart-card reader for home installation. The going rate for smart-card readers is between $50 and $90. Husk Power is near completion of one that Pandey says will cost under $7.
Alone, none of these steps would have been significant. Taken together, however, they make it possible for power units to deliver tiny volumes of electricity while enjoying a 30 percent profit margin. The side businesses add another 20 percent to the bottom line. Pandey says new power units become profitable within 2 to 3 months of installation. He expects the company to be financially self-sustaining by June 2011.
From a social standpoint, there are many benefits to this business model. In addition to the fact that electricity allows shop keepers to stay open later and farmers to irrigate more land, and lighting increases children's studying time and reduces burglaries and snakebites, the company also channels most of its wages and payments for services directly back into the villages it serves.
For decades, countries have operated on the assumption that power from large electricity plants will eventually trickle down to villagers. In many parts of the world, this has proven to be elusive. Husk Power has identified at least 25,000 villages across Bihar and neighboring states in India's rice belt as appropriate for its model. Ramapati Kumar, an advisor on Climate and Energy for Greenpeace India, who has studied Husk Power, explained that the company's model could "go a long way in bringing light to 125,000 unelectrified villages in India," while reducing "the country's dependence on fossil fuels."
It's too soon to say whether Husk Power will prove to be successful in the long run. As with any young company, there are many unknowns. To achieve its goals, it will need to recruit and train thousands of employees over the next four years, raise additional financing, and institute sound management practices. Many companies destroy themselves in the process of trying to expand aggressively.
But the lessons here go beyond the fortunes of Husk Power. What the company illustrates is a different way to think about innovation -- one that is suitable for global problems that stem from poor people's lack of access to energy, water, housing and education. In many cases, success in these challenges hinges less on big new ideas than on collections of small old ideas well integrated and executed. "What's replicable isn't the distribution of electricity," says Pandey. "It's the whole process of how to take an old technology and apply it to local constraints. How to create a system out of the materials and labor that are readily available."