Emerging Cooking Solutions Partnered with CCA to Analyze Pellet Production
Emerging Cooking Solutions (ECS) is a biomass pellet manufacturer and distributor, and distributor of cookstoves and solar home systems. Headquartered in Sweden, ECS has established operations in Zambia, Mozambique, and Malawi. ECS has been manufacturing pellets since 2013 and sold just over 1,000 tons of pellets in 2021.
The pellet sector has potential to contribute towards clean energy access for all by 2030 and beyond. Pellets made from forestry waste or agro-waste is a fuel. Combined with the most efficient stoves, pellets can burn almost as cleanly as LPG whilst remaining affordable to low-income households. Based on company information, customers are able to spend 50% less on pellets than they do with charcoal over a year.
However, the cost of pellet production is not well understood. This is true especially for the clean cooking sector where the scale of production is micro- or small-scale compared to industrial manufacturing in US and Europe. Pellet-based clean cooking companies have often considered questions around the cost of local production versus that of importation, cost of alternate raw materials, and other factors. Unit economics around pellet production gained more relevance after the shutdown of Inyenyeri in 2020 and the emergence of new pellet-based companies.
With this context, ECS aimed to have a better understanding of its unit costs in order to develop and maintain ongoing operational insights in its pellet manufacturing and distribution business, and to address gaps in cost efficiencies.
For this purpose, CCA supported ECS with a grant to implement cost management systems and analyze various costs related to the pellet business. Under this project, ECS carried out the following activities:
- Streamline and analyze financial accounts in fuel manufacturing, distribution, and sales;
- Develop an elaborate chart of accounts to comprehensively capture the costs and value associated with the fuel supply business;
- Update the accounting systems with a reliable technology platform that will enable us to capture the costs and value associated with the fuel division;
- Integrate accounting systems and data analytics tool (PowerBI) for management reporting and decision making on fuel business.
Implementing cost management systems has enabled ECS to generate actionable insights for pellet operations.
Pellet production requires high fixed costs that only make economic sense when there is a high and consistent demand for pellets. This presents a struggle for companies starting up and during times of uncertainty like the pandemic. The other key impact on pellet unit cost is raw materials. The consistency and quality of the raw material is one necessity to ensure quality pellets and seasonality impacting the moisture of raw materials and need for additional and costly production steps with a mechanical dryer. ECS can ensure consistency in their raw materials through relationships established with local sawmills and pine plantations giving them access to offcuts, sawdust, and branches.
An additional opportunity reviewed as part of this project was to scale through import of pellets through the established mass production in other markets, including Asia. Importing pellets enables smaller quantities when a smaller company cannot create the demand to ensure pellet manufacturing makes economic sense. In the case of ECS, a key limitation for importing pellets is the location of their operations in Zambia. As a landlocked country, the additional costs once pellets are landed prevents saving potential for ECS at their stage of growth as a company.
This project focused on the pellet production side of a clean cooking business, which is one part of the challenge of building a sustainable business enabling access to clean cooking opportunities. These insights and opportunities feed into ECS’ overall business and plans as they focus on growth as a utility model across their three markets. As ECS looks to scale, the challenge would be in continuing to ensure raw material and review the opportunity for pellet manufacturing versus importing to each market that they enter.
“At this nascent stage of the advanced biomass cooking sector, there are still many levels that have to be addressed by the distribution companies. Our model is deeply vertically integrated. Building a profitable, scalable, and replicable energy service subscription business requires precise understanding of unit-economics, on all levels. This starts with understanding input costs for pellet production (fixed and variable) and how to optimize these, followed by pricing, distribution, and after-sales service costs. Building on our own data, this project has given us invaluable insight into the actual unit economics of making pellets and has helped inform us in further refining our model. The cost management systems have enabled regular tracking of costs and already started to pay off in terms of greater efficiencies and savings.”
– Mattias Ohlson, CEO, Emerging Cooking Solutions