The Stove Auction: a new trading platform for clean cookstoves
SNV, with support from GIZ/Energising Development (EnDev) has launched the Stove Auction, an innovative approach to accelerate the market for advanced biomass stoves in Southeast Asia. The Stove Auction will operate in Cambodia, Laos, and Vietnam where over 65 million people still cook on traditional biomass stoves that contribute to local natural resource degradation and generate significant amounts of greenhouse gas emissions and smoke that pollutes kitchens and ambient air.
According to the WHO’s Global Health Observatory Data Repository report, over 60,000 people die each year in these countries as a consequence of inhaling smoke from cooking, which is almost as much as diarrhea, malaria, HIV AIDS and tuberculosis combined. This health hazard can drastically be reduced by advanced biomass stoves known as gasifiers. The Stove Auction focuses on facilitating the vital connection between suppliers of these high performance biomass cookstoves, called “Sellers” and local distributors and retailers, called “Buyers” through the establishment of a trading platform in each country. “The local production of advanced biomass stoves that are not only fuel efficient, but safe and significantly reduce household air pollution is very limited in Vietnam and non-existent in Cambodia and Laos. One of the benefits of The Stove Auction is to significantly reduce market entry risk for international suppliers by facilitating the link to local distributors to sell their products via the Stove Auction trading platform, says Jason Steele, previous Regional Programme Manager for the Stove Auction at SNV.
How does it work?
The Stove Auction pre-qualifies a number of stove models according to selection criteria determined by SNV and EnDev. The Stove Auction then reaches an agreement with Sellers for consigning their stoves to the Stove Auction at their own cost (including shipping and import). This agreement includes the price per stove that the Stove Auction is able to guarantee the Seller no matter what the stoves are sold for at auction. The difference between the guarantee price and the auction price, if less than the guarantee price is covered by a results-based financing (RBF) scheme funded by EnDev, and implemented by SNV. The RBF also covers a cash incentive to local distributors for every stove they sell to an end-consumer that can later be independently verified.
“EnDev is interested in testing new innovative ways, like the Stove Auction concept, to provide RBF to the private sector. By offering incentives for pre-defined results achieved, RBF aims at overcoming market failures that constrain private sector delivery of distributed renewable energy systems to the poor thereby accelerating the market development for technologies that increase modern energy access. For the Stove Auction, the market hypothesis is that local demand for these new products will increase over time leading to increased willingness of local distributors to pay higher prices at the auctions. Less and less RBF will be then be required to eventually reach a situation where the market is operating at full commercial prices” says Dr. Christoph Messinger, programme officer from GIZ/EnDev.
“We see it as a win-win for national and international suppliers and local distributors. We offer a guarantee price to stove suppliers no matter what their stoves are purchased for at auction, and we mobilize local distributors to participate in the auctions, so the level of investment and risk exposure is reduced for stove suppliers as they try to develop these new Southeast Asian markets for their products” explained Steele. The Stove Auction provides local distributors access to new high quality products in volumes that are affordable to them. Without the auction, local distributors and retailers, the majority of which are cash strapped, cannot afford to bring in container loads on their own, and there are currently no wholesalers. With the cash incentives, and competitive prices at auction, they can take on the risk of adding new innovative products to their existing sales channels.
“The auction model is a very new way of going about market development and may change the way we think about development aid, so we are excited to be the first ones doing so. Furthermore, it fits well with our current cookstove programmes as we not only have the market intelligence, but also the equipment and ability to properly test stoves” says Bastiaan Teune, SNV Lao PDR's Country Coordinator for the Stove Auction.
The regional focus of the programme allows for greater market opportunities for the stove suppliers to build economy of scale in their operations, and drive prices down. This will also happen through increased competition amongst suppliers, continued technological innovation, and through the eventual local production or assembly of these types of high quality cookstove products in the region. “There are already several stove manufacturers in Vietnam that are producing cookstoves close to the performance requirements and quality standards we are looking for in the programme. They are not there yet; however, the incentives provided by the Stove Auction should drive them to get to that point. Once they are there, Vietnam could potentially become the regional production hub for advanced biomass cookstoves in Southeast Asia” says Steven Von Eije, SNV Vietnam’s Country Coordinator for the Programme. “Regional market integration among ASEAN countries is becoming attractive, as trade for products like these stoves are duty free.” says Steele.
The Stove Auction has launched the call for interested stove suppliers for the Cambodia auction, with auctions expected to start in March 2016. For further information, please visit www.thestoveauction.org.