The Impact of Policy Strategies and Instruments on Business Model Innovation for Sustainable Transitions: Lessons from the Off-Grid Energy Sector

Meeting the sustainable development goals requires transformation across multiple systems from energy to food and mobility. In order for transformative change to be delivered, policymakers are challenged with directing innovation in much more proactive ways than they have been accustomed to in the past. They are also being challenged to intervene in the implementation phase of innovation and not just early support stages of technology invention and development. Supporting business model innovation (BMI), which is a concept that connects directly to implementation of technologies and new ideas, offers a means for policymakers to meet these goals. While the literature has focused on how to support rapid technological change, we know very little from existing literature on BMI and sustainability transitions about how policies should be designed in a way that enables BMI for sustainable development. Here, we draw on the policy mix and business model literatures to understand how BMI can best be supported by policy to enable transformative change. We study the context of off-grid energy in sub-Saharan Africa (SSA) where we observe the emergence of a business model innovation we refer to as Integrated Development (ID). Off-grid energy companies following the ID model have departed from the common primary focus of energy access provision. Rather, these companies integrate into rural agricultural and manufacturing supply chains to create energy-enabled productivity gains. The resulting high value-add per kWh yields additional commercial revenue streams, which, crucially, is used to cross-subsidise non-commercial electricity consumption. The increased affordability increases the uptake and impact of electricity compared to established business models. We analyse how the ID model has emerged by conducting semi-structured interviews with 50 off-grid energy stakeholders, mostly businesses but also selected civil servants, in Ghana, Nigeria, Sierra Leone, Tanzania, Uganda and Zambia (81 hours of recorded qualitative data). We analysed the context of these accounts by studying primary off-grid energy policy documents in these six countries. We find a profound impact of policy strategies and instrument mixes on BMI. We induce three core themes: Firstly, our case suggests the merits for policymakers of managing interactions between sectoral (e.g. developing the off-grid sector) and wider, society-level policy strategies (e.g. promoting inclusive rural development and affordability of public goods). Specifically, we find sector-specific policy strategies to create the context for broad BMI, while society-wide policy strategies impact their direction. Secondly, policy instruments, designed to implement policy strategies, can render these strategies ineffective for BMI if they allow for too few or too many degrees of freedom. The depth of BMIs can diverge significantly, or they can be made virtually impossible altogether if economic and regulatory instruments fail to balance guidance and space for creativity. Feedback processes between policymakers and businesses are crucial to mitigate such unwanted outcomes. Thirdly, timing and context determine whether certain types of policy instruments foster or hamper BMI. Ultimately, achieving transformations relying on BMI implies being able to manage complex interactions within and between policy strategies and instruments, and understand these interactions as highly dependent on their context.