Business Case and Intervention Summary
Intervention Summary
Title: Innovation Prizes for Environment and Development (IP4ED)
What support will the UK provide?
DFID will provide £15m over five years to a new innovative programme, supporting research
and development (R&D) on climate technologies in developing countries. The programme will
launch a number of innovation / incentive prizes to encourage further research to develop and
deploy technologies for low income consumers. These technologies will improve poor people’s
access to affordable clean energy, safe drinking water and other climate/environmental
services.
Prize competitions have been used as a mechanism to spur innovation for centuries – dating
back to the Longitude Prize in 1714. Innovation prizes offer a prize pot (money) to successful
teams that achieve a pre-defined outcome. They focus on a well-defined ‘problem statement’ –
a problem with no existing solution, or a requirement for a new product that may use a
combination of existing technologies. They are considered an efficient and effective
mechanism for promoting innovation, and ‘crowd in’ much larger investments than the original
amount offered in prize money (for example, the Ansari X-Prize worth $10m is credited with
leveraging $100m in R&D finance from twenty six organisations 1). This ‘crowding in’ of private
investment into a specific, unsolved problem is one of the biggest strengths of the prize
approach.
By offering a financial and reputational reward (on successful achievement of results), the
programme aims to encourage new, private investment in environmental technologies that will
benefit the poor, while simultaneously helping to build developing country capacity to innovate
by actively encouraging participants from developing countries.
DFID support will go towards the design and establishment of the prize programme, including
research on problem statements and the launch of 5 innovation prizes associated with finding
solutions to poor people’s access to affordable clean energy, safe drinking water and other
climate/environmental services.
Why is UK support required?
1.29 billion people live on less than US$1.25 a day and lack access to basic services including
energy, water and sanitation. A number of interconnected global and local challenges are
likely to exacerbate their situation further:
 resources are becoming more scarce and expensive;
 climate change is threatening communities and livelihoods;
 population is growing, placing greater demands on the environment;
 the global economy is becoming more volatile, with more frequent shocks and stresses.
1
http://space.xprize.org/ansari-x-prize
1
In all the above, the poor generally suffer first and most.
The scale and urgency of this challenge means a step-change in our response is required –
‘business as usual’ is insufficient to tackle poverty in the face of a rapidly changing world.
Step-changes are often driven by innovation. Successful innovation (creation and
implementation of new or improved processes, products, methods) can result in significant
improvements in impact, outcomes, efficiency, effectiveness or quality. This includes
innovation in technologies, business models and policies.
However, innovation efforts targeted at solving or addressing the problems of the poorest and
most vulnerable often do not happen as they are not a priority for private finance. There are
broadly two ways to address this:
a. direct intervention – providing direct R&D grants to researchers ex-ante to develop
these technologies and business models;
b. indirect interventions – to stimulate the market into producing innovative technologies
and business models. Innovation or incentive prize competitions are one way of doing
this.
At present DFID’s approach largely utilises (a) above - the standard approach for
commissioning research. This business case illustrates the value in adding a new, marketbased approach to the way we promote R&D for technology development – particularly given
the need to effect a step change in addressing poverty.
Evidence from previous prize competitions illustrated that the return on investment for prizes
has the potential to be impressive. It is therefore deemed good value for money to add prizes
to the portfolio of tools DFID uses to stimulate innovation, reaching large numbers of poor
beneficiaries and bringing in new socially orientated innovators.
The UK is recognised as a leader in climate technology innovation, through our support
domestically for innovation and our international efforts in pushing the climate technology
negotiations to deliver more for developing countries. The UK is well placed to fill this current
gap in support of innovative solutions that address poor people’s needs, build resilience and
support wealth creation, through the use of climate technologies.
This programme will support UK and DFID commitments, including the UK’s International
Climate Fund (ICF) priorities: creating and using new technologies; building knowledge and
innovation through research and development; influence the architecture and delivery of
finance by piloting new innovative mechanisms; promote private sector investment in low
carbon infrastructure and service delivery; and help demonstrate a range of approaches, with
a rigorous focus on lesson learning and learning by doing.
DFID’s Secretary of State has also highlighted the opportunity of programmes to support
technology in a speech in October 2012 saying, “I want to make sure that DFID is at the heart
of this technology debate, and doing all it can to pioneer innovation and the use of technology
to improve development.”
What are the expected results?
The expected impact is that 12 million people will have improved access to energy and water
services through innovative, affordable technologies and business models for ‘bottom of the
2
economic pyramid’ consumers by 2025. This programme will lead to a range of affordable and
accessible technologies being developed, and to business models being researched and
tested that will improve the access of poor people to these technologies. The programme will
also ‘crowd-in’ new investment. In practical terms, the programme aims to deliver the following
results by the end of 2016/17:
1. At least £35m of new private investment in technologies and business models
attracted in
2. At least 7 new, affordable and accessible climate technologies developed for poor
people
3. At least 5 affordable and accessible climate technologies deployed to poor people
4. At least 50% of entrants applying for prizes are new teams/organisations to DFID’s
funding for research in this area
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Business Case
Strategic Case
4
A. Context and need for a DFID intervention
What is the problem we are trying to address?
1.29 billion people live on less than US$1.25 a day2 and lack access to basic services
including energy, water and sanitation. Global and local challenges exacerbate the problem:
 resources are becoming more scarce and expensive3
 climate change is threatening communities and livelihoods4
 population is growing5
 the global economy is becoming more volatile, with the poor suffering more frequent
shocks and stresses6
Particular needs which require greater attention are:
 Energy – modern energy services are crucial to human well-being and to a country’s
economic development. However globally over 1.3 billion people are without access to
electricity and 2.7 billion people are without clean cooking facilities7. The recent launch
of the UN’s Sustainable Energy for All targets and goals for 2030 8 provide an
opportunity to build on international interest in this field and incentivise innovation and
investment in developing countries aimed at addressing the needs of the poor.
 Water, sanitation and hygiene (WASH) - while major gains have been made, with the
MDG drinking-water target being met in 2012, challenges remain, particularly in the
area of sanitation. There are likely to be about 800 million people with unimproved
water supplies and more than 2 billion lacking sanitation facilities by 20159.
 Climate change adaptation - the world is already locked into some warming due to past
emissions and projected impacts of climate change are severe10. Adaptation solutions
are urgently needed in developing countries, particularly areas already prone to erratic
rainfall, droughts, floods and cyclones, as climate change will further exacerbate
ongoing challenges.
The scale and urgency of this challenge means a step-change in our response is required
– there is value in adding new tools to the way we help alleviate poverty in the currently
rapidly changing world. Step-changes are normally driven by innovation. Successful
innovation (creation and implementation of new or improved processes, products, methods)
can result in significant improvements in impact, outcomes, efficiency, effectiveness or quality.
2
The World Bank Development Research Group, Global Poverty Indicators 2010. Available at:
http://povertydata.worldbank.org/poverty/home
3 Evans, A. & Evans, J. (2011) Resource Scarcity, Wellbeing and Development. NYU Center on
International Cooperation, New York and Centre for the History ofthe Emotions, Queen Mary
University of London, London.
4 UNFCCC (2007) Climate Change: Impacts, Vulnerabilities and Adaptation in Developing Countries.
UNFCCC, Bonn, Germany.
5 UN Department of Economic and Social Affairs (2011) World Population Prospects The 2010
Revision.
6 Farhad, M. (2011) The Global Economic Crisis, Contemporary Protectionism, and Least Developed
Countries (LDCs). World Trade Institute, Switzerland.
7 IEA (2011) World Energy Outlook 2011. International Energy Agency, France.
8
More information on the Sustainable Energy for All agenda can be found here:
http://www.sustainableenergyforall.org/.
9 Bradley, D. (2012) Water Security and Health Brief No. 3 Oxford University Department of Zoology,
London School of Hygiene and Tropical Medicine.
10 All from World Bank 2010 World Development Report - 1-2 billion more facing water shortages p.5
(citing Parry and others 2007, table TS.3, p.66); more frequent and intense extreme events p.5.
5
This includes innovation in:
 technology (e.g. developing new technologies or modifying currently available ones)
 service delivery (e.g. new ways of providing health services, like doctors, to people)
 business models (e.g. new payment plans for consumers)
 policies and regulations (e.g. tax breaks, intellectual property laws)
Whilst the market (including for-profit companies, social enterprises, and civil society
organisations) can be expected to respond to some of this challenge, experience indicates
that it will not respond to those areas and issues that are of most relevance to the poorest and
most vulnerable11.
The market for new information (e.g. research and knowledge) is characterised by pervasive
market failures. New information is non-rivalrous, meaning that one person’s use of it doesn’t
prevent another person from using it, and it is difficult, though not impossible, to stop people
accessing new knowledge once it has been created. These public good properties mean
private firms are likely to undersupply new knowledge, as they can’t capture all of the benefits.
This is exacerbated by the special problem that information is hard to evaluate: you don’t
know how much it is worth until you have it.
In this case the intended users of new technology are poor. This is important for two reasons.
First, the poor have limited purchasing power, leaving firms with little incentive to develop
technologies for them. Therefore, there is a distributional argument in favour of incentivising
the development of technologies that address the needs of the poor. Moreover, the fact that
the poor are a user group that firms are less familiar with means it is difficult to assess the
potential demand for new technologies (uncertain/unknown demands and returns),
exacerbating the risk involved in developing new products for them. Incentivising and
introducing new players into this thin market will reveal more information about poor
consumers, reducing risks and potentially encouraging others.
Government action to address these issues for poor consumers takes the form of:
(1) Direct government intervention e.g. funding ex-ante research efforts; safety nets such
as cash transfers to the poor or subsidies on electricity; or
(2) Indirect government intervention drawing on and utilising the power of the market and
supporting it to address the needs of poor consumers.
How can DFID respond – the opportunities
DFID works closely with others (donors, multilateral development banks, developing country
governments) to support (1) above. We also support (2) in the instance where we procure
specific research and development on the open market. However, we tend to use a small
number of procurement models. There is an opportunity to broaden our portfolio of
procurement models to include approaches that both broaden and deepen our
engagement with the private sector and support the growth of sustainable markets that
provides for poor consumers in the long-term.
There are significant opportunities for developing countries to innovate and leapfrog the
developed world’s pattern of technology development and growth. A recent study by the
11
Karnani, A. (2009) Romanticizing the Poor, Standford Social Innovation Review, Standford
University, CA.
6
Institute for Integrated Economic Research (IIER) found substantial potential in the
agricultural sector, where improved low carbon technologies can enhance well-being, health,
and even GDP without significantly raising carbon emissions (or in some cases with reduced
carbon-dioxide outputs)12. There are also a number of new innovation approaches that
illustrate the potential for building capacity in developing countries for innovation, including13:
 Inclusive innovation – Brings vast amount of benefits to a large number of people for
very little cost. This can be inclusive in outputs (resulting technology or services) and in
the process (including bottom of the pyramid consumers in the development, design,
dissemination process itself). The Tata Nano is an example – the inexpensive
production process produces an inexpensive product that many people can afford.
Cheap mobile phone handset and price plans are another.
 Reverse innovation – Products designed, created, and manufactured in a developing
country. The product may initially be designed to meet developing world demands for
lower cost, then exported to developed world markets as a cheaper alternative (e.g.
Nestlé selling low-cost, low-fat dried noodles originally created for rural India as a
healthy product in Australia and New Zealand).
 Disruptive innovation – New technologies or products for new markets and a different
unserved set of consumers. The new products go on to disrupt an existing market as
more value is added; displacing an older technology often through lowered prices (e.g.
early low cost plastics had very limited use, mainly for electric insulation. As they’ve
developed more value, they have replaced many products like household appliances
previously made from wood or metal – chopping boards and kettles).
 Open innovation – A process of linking people with varying expertise working in
different institutions and countries, to accelerate the development of a specific
technology/idea.
However, there is no silver bullet for DFID to support that will ensure innovation in product
and service delivery. Instead, a portfolio approach is required where a range of
mechanisms target different needs that occur at different times in the innovation process.
This business case is part of a package of programmes to address the various weaknesses in
the market’s ability to provide solutions for poor people, illustrated in the innovation chain
below. The innovation chain/process (see Figure 1) is a process that all new ideas and
concepts follow – starting with idea generation; building prototypes, testing the idea;
developing it for first entry into the market; early adoption by the market; to finally, full
commercialisation of the product/service/idea. The range of initiatives available to address the
various individual barriers have been plotted onto the diagram below.
Kunz, H., Rembrandt, K., Raettig, T., Balogh, S. (2011) Low Carbon and Economic Growth – Key
Challenges, Institute for Integrated Economic Research, Switzerland.
13 Described in: Morey, J., Milford, L., Madeira, L., Stori, V. (2011) Moving Climate Innovation into the
21st Century: Emerging Lessons from other Sectors and Options for a New Climate Innovation
Initiative. Clean Energy Group, US.
12
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Figure 1: the technology innovation chain or process
Technology
Prizes
Business
model prizes
National Climate Innovation Centres
Results-based financing
Early-stage fund for SMEs and
entrepreneurs
Deployment
research
questions
Source: Sagar A (2011)14
As highlighted in Figure 1 above, there are two funding and support gaps (‘valleys of death’)
where an idea or technology can fail due to a lack of finance as well as a lack of knowhow or
skills to take the idea to the next stage. This business case aims to test a new approach to
addressing both these gaps through an incentive prize – providing a cash incentive for
organisations to invest in R&D in technologies and different business models that serve the
bottom of the pyramid market. Most global R&D is focused on high-end developed world
products and services because the demand and people’s willingness to pay is well
understood. This is not the case with bottom of the pyramid consumers in developing
countries. As such, the vast majority of public and private spending on technology
development pays little attention to the needs of the poor.
In addition to technology development (and/or adaptation of existing technologies for use in
different situations and locations), testing and trialling of different business models that help
scale up and socialisation of technologies to reach poor consumers is also needed (including
how social uses shape and re-shape the nature of technology). Often what is restricting
deployment is related to social aspects of the market, for example social barriers (behavioural
or cultural issues) and financial barriers (consumers ability to purchase and pay for goods and
services provided by the technology). There are opportunities to further understand which
new, innovative business models might help reach more consumers in a sustainable, longterm manner.
However, supporting R&D and innovation can be unpredictable and risky – some
ideas/inventions will succeed and some will fail. An effective response to the uncertainty of
14
Menon, J., Sagar, A. (2012) Prize-Driven Innovation for Development. X PRIZE Foundation, US
and IIT Delhi, India.
8
returns may be to develop a portfolio or menu of approaches and of technologies/ideas to
reduce the impact of individual failures15. As such, DFID is working on a number of
programmes (illustrated on the innovation chain above):
 National climate innovation centres: national hubs in developing countries to support
climate technology SMEs by providing some finance ($10k-$500k) and technical
assistance (e.g. developing a business plan, linking to universities to build prototypes,
etc.). Centres will help organisations network with local supply chains and distribution
networks and potential financiers16.
 Low carbon results-based financing: a programme to support deployment of renewable
energy technologies by providing a cash payment to the project developer when they
achieve results (e.g. 10,000 solar lanterns sold; 2,000 new households connected to a
renewable mini-grid). The cash payment tapers off each year until the project is earning
revenues and sustainable without the extra support.
 Early-stage flexible fund: flexible fund to support early-stage entrepreneurs and SMEs
to develop and test their business models. The fund will support various climate
technologies in a range of countries and aims to build these enterprises into a position
that they are attractive to private investors, such as venture capitalist.
 Deployment research questions: commissioning a series of key questions on
innovation and deployment of climate technologies – why has it worked in some
context and not others; what are the social, cultural and institutional issues; how do we
measure innovation in the informal sector; etc.
 Innovation prizes – for technology and business models – the focus of this business
case. A series of stakeholder consultations (private sector, academics, donors, civil
society, Foundations, colleagues from other sectors) and two reports commissioned by
DFID (described below) illustrate that an innovation prize programme is a valuable
addition to traditional approaches to stimulate innovation and address climate change.
Innovation prize programme – the proposed intervention
Developing countries suffer not only from an inadequate pipeline of adapted and/or new
technologies and products to suit their needs, but also from market demand incapable of
exerting the kind of ‘pull’ that might solve that problem without public intervention. Developing
market consumers generally do not have the collective purchasing power that would stimulate
such innovation.
Innovation, incentive or inducement prizes serve as a means to induce, or “pull” innovation
and are one tool increasingly used to incentivise R&D in markets where uncertainty of returns
stifle innovation. Prizes offer rewards (generally financial, but sometimes business
development assistance) for pre-specified scientific or technological achievements, such as
the development of a device or method to perform a particular function within given
parameters17. Prizes are well understood and have been used for centuries to encourage
innovation. Perhaps the most well-known early prize was the Longitude Prize of 1714 – the
winning technology is still used today. However, to date they have not generally been used to
15
Stern, N. (2006) The Economics of Climate Change. Cambridge University Press, United Kingdom.
For
more
information
see
infoDev’s
Climate
Technology
Program:
http://www.infodev.org/en/Topic.19.html
17 Adler, J. H. (2010) Eyes on the Climate Prize: Rewarding Energy Innovation to Achieve Climate
Stablization. Prepared for the Rethinking the Foundations of Climate Change Law and Policy
workshop, October 23, 2009.
16
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encourage innovation that addresses the needs of the poor.
Prizes work best in situations where there are clear, objective goals and a well-defined
‘problem statement’, with many participants who are willing to bear risks 18. McKinsey’s report
on philanthropic prizes (2009) identifies when prizes are more likely to be effective (i.e. clear,
achievable goal; many solvers; and solvers willing to accept outcome risk) – illustrated in
Figure 2 below. The pull mechanism of prizes can be deployed either on its own; as a
complement to other pull mechanisms such as advance market commitments (AMCs) (e.g.
commitments to buy a percentage of the prize winning solution); or in conjunction with “push”
mechanisms such as research grants (e.g. grants to allow individuals to compete in the
competition – the hybrid prize-grant option identified below).
Figure 2: decision tree – when to use prizes
McKinsey (2009)
The economic characteristics and functions of prizes, as identified by Vivid Economics19 are:
1. They provide a financial incentive, which serves to lever investment towards specific
purposes
2. In the process of competing for a prize, investors, entrepreneurs, inventors, and
potential future customers are brought together;
3. They encourage commercialisation of innovations, both through by linking and
networking potential funders, competitors, audience, and through signalling the most
promising innovations;
McKinsey & Company (2009) ‘And the winner is’… Capturing the promise of philanthropic prizes.
Vivid Economics (2007) The Economics of Climate Change Prizes: Synthesis. Vivid Economics,
UK.
18
19
10
4. They have broader sociological impacts, such as the popularisation of a particular
challenge, which may further strengthen the financial, matching, and commercialisation
effects of prizes.
Further evidence from DFID’s commissioned reports highlight the case for exploring the use
of innovation prizes to develop and deploy technologies for environmental problems in
developing countries. These reports have been drawn on considerably in designing this
programme and are referenced throughout this business case.
 An evidence review commissioned through the DEW Point resource centre20 on the
value for money and effectiveness of prizes for development. This study found that
prizes can be effective when appropriately designed and targeted, and that potential
payoffs and value for money of adding prizes to a toolkit for encouraging innovation are
considerable.
 A report by the X-Prize Foundation and the Indian Institute of Technology (IIT-Delhi)21
on the use of prizes to address market failures in developing countries. The report
highlights the importance of the research, design and planning process, and includes
guidance on designing and operating prizes and eleven stakeholder-suggested prize
concepts, spanning energy, agriculture, buildings, water and sanitation.
There has been a recent resurgence of interest in the use of prizes to spur innovation in areas
considered to be socially and economically important (see: http://keionline.org/prizes/cites for
a list of articles and books). This is because traditional innovation tools are sometimes
inadequate, particularly in least developed countries with less sophisticated science and
technology systems. Traditional innovation policy has relied on a combination of regulation,
subsidies, the patent system and government research. A growing body of evidence suggests
that prizes can similarly support innovation, but with additional benefits. For example, prizes
can be targeted to more specific challenges than regulation, while being open and flexible to
the full range of possible solutions. Compared to subsidies they ensure the risks of failure fall
on the private sector where they can be managed most efficiently. The patent system has
received criticism on its ability to stimulate innovation, particularly for small businesses22. In
addition, in developing countries the Intellectual Property (IP) system is nascent and not well
enforced. In addition, it recognised that prizes can create significant leverage, crowding in
private sector investment to solve specific problems. Everett (2011) found that returns on
investment (RoI) for innovation awards range from 2:1 to 33:1 benefit cost ratios; and around
8:1 to 16:1 for market stimulation (grand) prizes.
Finally, unlike traditional public R&D spending, prizes can help in the creation of new markets
through greater public awareness and potential investment opportunities for future
deployment.
Everret, B. (2011) Evidence Review – Environmental Innovation Prizes for Development. DEW
Point
Enquiry
No.A0405.
Commissioned
by
DFID.
Available
at:
http://teamsite/sites/policydivision/srvm/lowcarbon/Renewable%20Energy%20Technology/Evidence%
20Review%20Environmental%20Innovation%20Prizes%20for%20Development%20(July%202011).p
df
21 See endnote 14 – Prize-Driven Innovation for Development.
22 This varies depending on the sector. For example, it could be argued that much R&D for
pharmaceutical drugs would not go ahead without the ability to apply for patents for resulting
products. See Macdonald, S. (2004) When means become ends: considering the impact of patent
strategy on innovation. Information Economics and Policy 16: 135-158.
20
11
Prizes are not a universal solution and are most effective where they complement existing
policies23. There are functions which other policies might perform better than a prize e.g. once
a technological breakthrough has been achieved, regulation may be more effective at
encouraging wide roll-out and technology diffusion through, for example, imposing sectorwide standards. As such, regulation and prizes may complement each other when deployed
in succession.
Vivid Economics (2007) finds prizes well suited to achieving certain public policy goals, in
particular triggering key bottleneck innovations that may be held back by a variety of market
failures, at low costs. Everett (2011) points out that, while the optimal level of resources that
should be devoted to prizes may not be clear, it is ‘surely much larger than at present’. Both
sources indicate that prizes are not an alternative to other public policy interventions, and that
combinations of instruments may be needed to address certain challenges, including climate
change.
Types of prizes
Everret (2011) categorised the types of prizes into:
 Market stimulation – large international, highly publicised prizes with one large prize
purse (typically greater than US$1m) e.g. X PRIZE Challenges24. These prizes can run
for more than four years until the successful ‘solution’ is awarded.

Innovation awards – prizes typically awarded for new start-up business ideas or
technologies e.g. the annual Shell Springboard25 and the annual Ashden Awards for
Sustainable Energy26.

Open innovation – posting a specific problem to a wide audience, taking advantage of
a large pool of potential problem solvers – the successful solver wins the prize e.g.
InnoCentive27 and NineSigma28 platforms.

Social challenges – design to engage with and benefit communities e.g. the Nirmal
Gram Pursakar Total Sanitation Campaign in India29.
In addition, a single prize can be designed and disseminated in a variety of ways, including:

Single, large: one, large prize directed toward a specific, measurable, ex ante target
with one irrefutable prize winner.

Stage-gate: a framework for dividing product development into discrete stages which
are separated by decision points or 'gates’. The purpose of gates is to ensure that the
successful project is on track and to make a “go/kill” decision for continuation. Gate
reviews are based on established criteria that must be met in order to proceed to the
next stage in the process. One option is to progress fewer and fewer successful
projects after each gate, until a final one or two win a final prize.
23
The large majority of reviews of innovation prizes include this finding, see: endnote 14; endnote 18;
endnote 19; endnote 20.
24 http://www.xprize.org/
25 http://www.shellspringboard.org/
26 http://www.ashden.org/
27 http://www.innocentive.com/
28 http://www.ninesigma.com/
29 http://nirmalgrampuraskar.nic.in/
12

Proportional: pays out in proportion to success, where success is defined as a level of
impact. For example, a prize could be paid out to educators in proportion to the number
of school children that achieve certain test levels, thus rewarding the most successful
techniques.

Incremental: similar to stage-gate prizes, these could measure incremental efficiency
increases in performance, for example, on an annual basis.
The key steps in prize development and implementation illustrated in Figure 3 and described
below in greater detail (Annex 1 provides a ‘rule of thumb’ for prize design).
Figure 3: broad stages in prize process
McKinsey (2009)
Detailed consultation and research is required at each stage for each individual prize.
1. Setting the goal to either incentivise: finding a new solution to a problem or an
existing solution and apply it to the problem.
2. Identifying the likely competitors – crucial for choosing the type of prize.
3. Selecting the type of prize – e.g. market stimulation; staged; proportional; etc.
4. Designing the type and size of reward – e.g. cash reward; future contract with
strings attached; recognition and reputation.
5. Determining an appropriate cost of entry – including admin cost of demonstrating
success criteria has been met; effort in developing prize entry; risk the innovation
will be copied; etc.
6. Determining entry rules – to minimise admin costs and potentially support other
policy objectives (e.g. gender), but balanced to ensure success and effectiveness of
prize.
7. Launching the prize to target key audiences and achieve intended results.
DFID is proposing to establish a new innovation prize platform to incentivise R&D and support
successful solutions that address a set of defined problem statements. This single platform
would launch a number of individual prizes (up to five initially) using the various prize types
described above (e.g. stage-gate, proportional, etc.). We intend to develop this programme
following a competitive tender process for the appropriate prize-running organisation
(described in more detail in the Commercial Case). The successful bidder will then embark on
a design phase for the programme, which, if approved by DFID, will be implemented.
13
Examples of issues/problems amenable to the prize approach are listed below. These were
gathered through research and consultation with DFID Advisers in-country, entrepreneurs,
civil society and others working on climate solutions for poor people; and are used for analysis
in this business case. The final choice of problem statements might not be exactly the same,
but are likely to be similar. Annex 2 contains a list of some of the evidence base for this
selection.
 small-scale waste-to-energy solutions for urban slums
 quick, cheap, reliable microbiological testing of water
 low carbon cooling technologies (low energy, low refrigerants for either buildings or
food preservation)
 low-cost (sub U$5) machine-to-machine (M2M) data chip to include in pay-as-you-go
products30, and business models for pay-as-you-go ‘basics’ household modern energy
services31
 household energy storage that doesn't involve batteries
What are others doing?
The UK is recognised as a leader in climate technology innovation, through our support
domestically for innovation (notably through the UK’s Carbon Trust) and our international
efforts in pushing the climate technology negotiations to deliver more for developing countries.
Few donors are working on similar interventions to support the interconnection of: innovation
and R&D; climate technologies; and developing countries. There are a number of
organisations that run prizes/competitions both nationally and internationally listed in Section
C of the Commercial Case, however, no one organisation is currently running
innovation/incentive prizes for climate technologies in developing countries.
The US’s interest in prizes was cemented in law in 2010 when Congress expanded authority
to use prizes to every government department32. India has also indicated its interest in
partnering with the UK on climate innovation more broadly and has launched a number of its
own domestic prizes in the past33. In addition, the Clean Energy Ministerial 2013 will be
hosted in India in April 2013 and with a strong focus on innovation. Foundations such as
Gates, Shell and Rockefeller have also indicated early interest; while AusAID and Norad have
growing interest in innovation and climate. It is anticipated that partners may join DFID in
funding particular prizes depending on their interest area, once the programme is underway.
Other market-based programmes that provide support to test and pilot concepts are often not
thematically focused (e.g. USAID’s Development Innovation Ventures 34) and rarely support
low carbon energy given the level of real and perceived risks associated. The DFID-supported
This is a recent addition to the list of potential problems to be explored and is a ‘problem statement’
which has developed through another DFID-supported project with the Shell Foundation and M-Kopa
Solar.
31 This is included as an indication of a ‘business model’ prize. This particularly problem is likely to be
addressed by the private sector without the need of an innovation prize as an incentive (pay-as-yougo systems are currently being developed and deployed by M-Kopa, Eight19, etc.).
32
http://www.whitehouse.gov/blog/2010/12/21/congress-grants-broad-prize-authority-all-federalagencies
33 The Nirmal Gram Pursakar; the National Biomass Cookstoves Initiative.
34 http://www.usaid.gov/div/
30
14
African Enterprise Challenge Fund (AECF) Renewable Energy and Climate Adaptation
Technologies (REACT35) programme provides matched-funds to support businesses in East
Africa to scale-up their renewable energy or adaptation business. DFID Caribbean is
supporting a Caribbean-only contest for any innovative low carbon ideas (IDEAS36). These
challenge funds are relatively broad in coverage and do not use a well-defined ‘problem
statement’ to incentivise private sector R&D. This programme will contribute to the
approaches available to DFID and the wider development community to stimulate R&D, and
will build on lessons learnt from the programmes described above and others that stimulate
innovation.
Supporting HMG and DFID commitments, RED and ICF priorities
This work aims to support HMG and DFID commitments, and Research and Evidence
Division (RED) and International Climate Fund (ICF) priorities, including building a robust
evidence base for policy making, working with the private sector, and supporting innovation in
climate change. The intervention will directly support a number of RED and ICF priorities that
have been identified as needing a greater focus, including:
- Creating and using new technologies (RED Research Strategy 2008-2013)
- Demonstrate results in producing pioneering technologies in both traditional and new
fields (RED Results Framework)
- Building knowledge and innovation through research and development (ICF
Implementation Plan)
- Influence the architecture and delivery of finance by piloting new innovative
mechanisms (ICF LCD objectives)
- Promote private sector investment in low carbon infrastructure and service delivery
(ICF LCD objectives)
- Help demonstrate a range of approaches, with a rigorous focus on lesson learning and
learning by doing (ICF Implementation Plan)
Contributing to the evidence base
There are three key opportunities (outputs) to contribute to the evidence base on climate
technology innovation through this programme:
1. Technologies developed and initial deployment
The programme will directly incentivise R&D spend and the development/modification
of climate technologies by private organisations and research institutions through
offering a cash and recognition award if they are the winners of the prize. Examples
from other incentive prizes demonstrate how significant this can be: the Ansari X-Prize
was a US$10m prize which resulted in US$100m of R&D by private companies striving
to win. Although only one company won, seven companies now operate in the market
(which didn’t exist prior to the prize). Reporting on both the winners and losers will be
an important part of the M&E framework to contribute to the evidence base and
understanding innovation for climate technologies for low income consumers.
2. Research of ‘problem statements’
In identifying appropriate problem statements to be addressed by a prize, the
programme will conduct in-depth research and consultation with a wide group of
35
36
http://www.aecfafrica.org/react/
http://www.iadb.org/en/topics/energy/ideas/ideas,3808.html
15
stakeholders, mapping the state of play of currently available technologies and active
stakeholders. This research is critical to the success of the prize and will result in a
high level of publically available information and evidence on real and perceived gaps
in the service delivery market for poor consumers.
3. Evaluation of the use of innovation prizes
The programme will provide insight into the use of innovation prizes to achieve
environmental and development goals, particularly for the bottom of the pyramid
consumers, by evaluating each prize and building an understanding of lessons learnt.
Empower women and girls, and youth
This programme presents an opportunity to help meet DFID’s new strategic vision for girls
and women. A recent publication by the UN highlights the importance of both ensuring
women’s role in science and technology (women IN science) and developing and
implementing science and technology approaches which benefit women (science FOR
women). This involves consulting and working with women in the choice, development and
application of technologies; providing them access to resources; ensuring their contribution to
and benefit from science and technology innovations; and recognising and supporting their
local knowledge and innovative practices37. During the design phase analysis will be carried
out to determine how the intervention might effectively support the inclusion of women in the
programme (to both advise and to compete), while also encouraging the breakdown of
intergenerational cycles of poverty by supporting and empowering youth as champions of
change. Data on jobs created as a result of the programme will be collected and
disaggregated by gender and age.
The consequences of not intervening
Without DFID’s intervention, it is likely that private investment in climate technologies for low
income consumers in developing countries will remain untapped. DFID will continue to use
traditional ways to support a select number of researchers ex-ante to develop new and modify
existing technologies for deployment. Given the market situation in developing countries
(notably the uncertainty of returns and demand), it is unlikely the private sector will invest
heavily in R&D and innovation for low income consumers, who will continue to be unable to
access clean energy, safe drinking water and sanitation. We will be less likely to achieve the
step change required to tackle poverty in the face of emerging threats.
37
Miroux, A. (2010) Mainstreaming a Gender Perspective in Science, Technology and Innovation
Policy, United Nations Conference on Trade and Development, Switzerland.
16
Theory of Change
Inputs
New international
prize platform
established
DFID
funding
Other funding
(Foundations,
donors,
private
sector)
Understanding
of poor
people’s
unmet needs
Experienced
prize-running
organisation
Outputs
Activities
Entrepreneurs,
SMEs, large
private sector,
academia,
researchers and
civil society
collaborate on
developing
solutions to prize
problems
End-users (BoP
consumers) are
involved in prize
design and winner
selection process
to ensure
technologies are
grounded in
reality
Developing
country
innovators
(entrepreneurs
and researchers)
develop
partnerships with
developed world
stakeholders to
develop solutions
Others
recognise
opportunity
and join UK
in
establishing
the platform
Problem
statements
are identified
and
articulated
clearly and
solutions are
realisable
5 prizes
launched
and 3
successfully
awarded
5 research
papers on
chosen prize
problem
statements
grounded in
end-user
consultation
3 papers
demonstrating
the value and
use of different
Prize purse is
innovation
attractive
prizes in
enough to
supporting
incentivise
innovation
organisations
Outcome
International
and local
investors are
willing to
invest in the
deployment
of solutions
in countries
Winning
projects are
able to be
replicated,
scaled up and
costs reduced
Affordable and
accessible
technologies
are developed
and deployed;
through
scaling-up
innovation
prizes to
support
innovation and
crowd in new
investment
Impact
12 million
people with
increased
access to
low carbon
energy,
water and
sanitation
Other key areas
to tackle poverty
are successfully
addressed
including:
- policies and
regulations
- institutional
requirements
- corruption
Successful
ventures
raise public
and investor
awareness
of
opportunities
to take part
= Assumptions
A varied group
of we expect to achieve
B. Impact and Outcome
that
stakeholders
developing and
expected impact
is that
testing solutions
poor people
water andforsanitation)
The
12 million people will have new access to services (energy
and
through affordable technologies and business models for the
bottom of the pyramid consumers by 202538.
The outcome is that affordable and accessible technologies are developed and deployed;
through scaling-up innovation prizes to support innovation and crowd-in new investment.
Outcomes to be achieved by 2016/17 are:
1. Leverage / crowding in of £35m of new investment in the developing and deploying
technologies for the poor39
38
This has been calculated and documented in the Appraisal Case that follows. It assumes from 5
prizes: 2 will fail; 2 will be moderately successful; 1 will be transformational in its impacts. Numbers of
people are calculated based on an indicative set of prizes and the addressable market associated
with each prize.
17
2. At least 7 new, affordable and accessible climate technologies developed for poor
people40
3. At least 5 affordable and accessible climate technologies deployed to poor people41
4. At least 50% of entrants applying for prizes are new teams/organisations to DFID
funding
The outputs for this programme are:
1. 5 new, innovation prizes launched and 3 successful awarded
2. At least 10 research papers on the ‘problem statement’ (e.g. microbiological testing
of water). These will be published for each prize in two stages: (1) at the time of the
launch providing evidence of problem and analysis of opportunities; and (2) postevaluation of the prize providing an evaluation of the response, including details on
failures
3. At least 3 evaluation reports on the use and value of different types of innovation
prizes tested for development and environment problems
39
This has been calculated as the average return on investment figures from of Shell Springboard
(RoI 1.96) and OmniCompete Global Security Challenge (RoI 6.49) (as calculated in Everett (2011) –
endnote 20).
40 Assuming 5 prizes: 1 transformational (5 new technologies developed); 2 mildly successful (2 new
technologies developed); and 2 failures.
41 Assuming 5 prizes: 1 transformational (3 technologies deployed); 2 mildly successful (2
technologies deployed); and 2 failures.
18
Appraisal Case
A. What are the feasible options that address the need set out in the Strategic case?
The alternative options to be appraised are:
1. Counterfactual – do nothing additional
2. More funding through traditional grants targeting the identified issues
3. Establish a new innovation prize platform targeting the identified issues
Option 1: Counterfactual – do nothing additional
DFID would not provide any additional support to incentivise R&D and innovation for climate
technologies and would continue with our current programmes only.
Option 2: Increase funding for innovation through current portfolio of approaches
DFID would increase funding for traditional R&D grants to support innovation for climate
technologies and business models. This would require DFID to commission external
researchers using standard procurement models to develop solutions to the problem
statements identified.
Option 3: Add innovation prizes to the mix of current approaches
DFID funding would support the establishment of a new innovation prize platform as an
alternative way of incentivising R&D and supporting successful solutions only that address a
set of defined problem statements. This would complement existing initiatives funded
through option 2 approach.
B. Assessing the strength of the evidence base for each feasible option
Option Evidence rating
1
Medium: evidence on counterfactual / ‘business as usual’ exists, although it is limited
for the bottom of the pyramid market
2
Low – Medium: evidence tends to suffer from sample bias and a lack of reporting of
failures
3
Low – Medium: evidence tends to suffer from sample bias and a lack of reporting of
failures
What is the likely impact (positive and negative) on climate change and environment for each
feasible option?
Option
1
2
3
Climate change and environment risks Climate
change
and
environment
and impacts, Category (A, B, C, D)
opportunities, Category (A, B, C, D)
C
C
B
B
B
B
On the basis of the evidence provided in this business case, it can be assumed that the three options
proposed would not generate any unmanageable risks associated with the environmental impact of
the intervention, or its effects on global climate.
Option 1 (the counterfactual – do nothing option) would generate no risks to the environment or
climate change as it would lead to no additional funding to support innovation in climate technologies
and therefore no impacts. It would also result in no opportunities to support environmental
management or mitigate/adapt to climate change.
19
Option 2 (increase funding for innovation through our current portfolio of commissioning models)
could result in a medium risk to the environment or climate change if multiple delivery partners were
chosen to conduct the research and analysis. Multiple organisations will likely increase the travel
associated with the programme, as well as the necessary outputs (reports, online communication
materials, etc.), therefore increasing the environmental footprint of the work. This option creates
medium opportunities for the environment and climate change, given grant funding will support
innovation in climate technologies. It can be assumed that some of these grants would result in
successful solutions that support climate mitigation/adaptation and environmental management
(some will also fail and not provide worthwhile results).
In addition, there is a mild risk associated with unpredictability of specific climate and/or environment
conditions in the future that could reduce the impact of the final research output and could, in turn,
impact on the programme’s overall success. For example, the researchers may invest a significant
amount of time and resources into developing a product which is suited to a pre-determined set of
environmental and climate conditions that are consistent with current predictions that do not turn out
to be accurate. Such a scenario would reduce the applicability and impact of the product in question
as well as the success of DFID’s support. This is difficult to mitigate against, but is important to flag.
Option 3 (a new innovation prize programme to support innovation for climate technologies) will have
similar impacts to Option 2, but may result in a smaller carbon and environmental footprint through
more limited travel associated with the programme. The programme should intend to use, where
possible, in-country experts and delivery agents to limit the need for international flights.
Recommendations to minimise operational impacts of the programme include:
 Reducing the need to travel by using teleconference / videoconference facilities and locally
based staff where appropriate.
 If flights are required ensure individuals travel in economy class and offset flights with through
a verifiable carbon offset project42. Business class travel will also have a negative impact on
the value for money of the programme.
 Reduce the carbon footprint of the outputs through, for example, use of online
communications, recycled paper, and minimising printing and printing waste.
There is a risk that the research financed as a result of the programme (e.g. particular products and
technologies built) could have direct or indirect impacts on the environment and/or future climate. For
example, the development of a new way of storing household energy through environmentally
unfriendly batteries may have negative impacts for other resources (e.g. water). This is a risk as we
may not have any oversight of environmental and social safeguards employed by the organisations
competing for each prize. To mitigate this risk a condition of participating could include a limit on
negative environmental impacts. The prize-running organisation will need to define environmental
and social safeguards all competitors must adhere to (using the World Bank and ICF standards as a
minimum). In addition, this will need to be carefully appraised as part of the individual prize appraisal
process (i.e. the choice of prize should attempt to limit this risk where possible) and impacts should
be monitored on an ongoing basis.
Similarly to option 2, there is a risk that the unpredictability of future environment and climate
conditions could affect the impact of the product and therefore the programme.
C. What are the costs and benefits of each feasible option?
42
On average, business class passengers are responsible for up to 2.1 times the emissions of an
economy traveller. Kollmuss, A., Lane, J. (2008) Carbon Offsetting & Air Travel, Stockholm
Environment Institute Discussion Paper, Part 1: CO2-Emissions Calculations, 28 May 2008.
http://www.co2offsetresearch.org/PDF/SEI_Air_Travel_Emissions_Paper1_%20May_08.pdf
20
Option 1: Do nothing
This option would involve no additional funding from DFID to support innovation in climate
technologies for poor people. As such, there are no additional financial costs to DFID of this option.
However, this misses an opportunity to support innovation and potentially support some highly
transformational technologies.
The Global Innovation Index 201243 can be used to understand the current level of innovation in
developing countries. The GII is a composite indicator that ranks countries/economies in terms of
their enabling environment to innovation and their innovation outputs, published annually by INSEAD.
This year’s GII highlights that, on average, high-income countries outpace developing countries by a
wide margin across the board in terms of scores. In addition, the report suggests that in developing
countries there is often an excessive focus on basic research without diffusion to innovation actors in
the private sector.
Accurate data on innovation (including diffusion) and R&D in developing countries suffers from a
number of challenges, including the fact that much innovation happens in the informal economy - a
vital source of employment and income for the poor. As such, data on innovation (where data
collection exists) is often an underestimate of the activity in the country. Data collated as part of the
Global Innovation Index 2012 illustrates the severe lack in R&D in developing countries, notably subSaharan Africa (with 12 countries scoring an n/a due to lack of information).
Without DFID’s intervention it is likely that private investment in technologies for low income
consumers in developing countries will remain untapped and innovation will continue to be
underutilised. Without new technologies and/or new service delivery models, low income consumers
will continue to be unable to access clean energy, safe drinking water and sanitation, and we will be
less likely to achieve the step change required to tackle poverty in the face of emerging threats.
Option 2: Traditional R&D grants
Under this option, DFID would increase financial support to innovation in climate technologies
through our current portfolio of research commissioning methods – and provide a selection of R&D
grants to various organisations to produce the innovation we are aiming to achieve.
Pros of traditional grants
A grant could be awarded to an organisation to develop (and potentially deploy) a technological
solution to meet a specified need. This could be in the form of small scale grants for concept
development and prototyping; grants for proof-of-concept including demonstrating and trialling; and
funding for dissemination and scale-up. This is perhaps the traditional, and often perceived as the
lowest risk approach (see costs below). The benefits are that this approach is well-understood and
accountability lines are clear. The use of research grants can provide return on investment (RoI) if
funders have a clear objective in mind and can identify the best way to achieve this objective. In this
case, funders have suitable knowledge to evaluate proposals and to rationally choose the one with
the best chance of achieving their goal.
Cons of traditional grants
Under a tradition grant arrangement, the funder would pay upfront for the R&D, whether or not the
R&D produces anything of value in return. Allocating grant money effectively requires the grantmaking entity to pick “winners” and “losers” in advance, which they may not be best placed to do.
43
http://www.globalinnovationindex.org/gii/
21
There is a perception that governments are bad at picking technology winners, with the media quick
to report on failures44. DFID would need be confident in its ability to select the most appropriate
organisation to develop and deliver the technology at the onset. This could also limit the number new
and unproven organisations from non-conventional fields in participating in solution generation as the
‘usual suspects’ are likely to be more effective at providing winner grant applications. Grants can also
lead to conservatism and be top-down in nature.
Comparing the average cost of problem resolution for developing world technologies posted under
the Rockefeller InnoCentive initiative (in which 10 challenges were posted via an open innovation
network and 6 solved in 18 months), with the average cost of grant contracts under DFID Renewable
Natural Resources Research Programme (with a typical grant being £70,000 per annum for three
years), Everett (2011) found that the open innovation approach by InnoCentive could represent a
48% cost saving. This is a crude calculation, which doesn’t include how practical the solutions from
InnoCentive were compared to RNRRS solutions.
In addition, Lakhani (2006)45 who studied 166 discrete scientific problems posted to the open
innovation platform InnoCentive, and found that:
“the broadcasting of problem information to a diverse community of solvers can yield effective
solution rates. We do not yet have an empirical basis for comparing this outcome with the
effectiveness of traditional problem solving activities within academic or commercial
laboratories for similar discrete problems. However many of the R&D laboratories posting
these problems had been unsuccessful in creating solutions to these problems, thus implying
a noteworthy outcome”.
Options 3: Innovation prize platform
Prizes are an effective, alternative tool for solving problems where the objective is clear, but the way
to achieve it is not.
Pros of prizes
Innovation prizes, offer many advantages including:
1) New players – a prize can induce competitors from around the world to join the search for a
solution. One metric of a prize’s impact is the number of contestants that it attracts. A study
reviewed problems solved on InnoCentive’s website and found people from outside the
scientific or industry discipline in question were more likely to solve a challenge46. Successful
solvers solved problems at the boundary or outside of their fields of expertise, indicating a
transfer of knowledge from one field to others. In addition, the new solvers/applicants then
become part of the wider network; approximately 80% of companies applying to the Global
Security Challenge (a prize for new technologies in security services from start-ups and
SMEs) had not previously submitted funding applications to the prize promoter. After
participating in the GSC, applicants subsequently go on to apply to the prize promoter for
future funding opportunities.
2) New ideas – new players bring new thinking to an old problem. One of the main advantages
of prizes is that by defining the problem not the solution, it is possible to access a much
44
The well-publicised Solyndra experience (a solar panel manufacturer who received a $535m US
federal loan) highlighted that public money is often better spent on relatively inexpensive R&D across
a vast number of exciting but still-too-expensive ideas, maintaining the R&D risk on the private sector,
more effective at making decisions on where they envisage market demand.
45 Lakhani, K. R., Jeppesen, L. B., Lohse, P. A., Panetta, J. A. (2006) The Value of Openness in
Scientific Problem Solving. Harvard Business School; Copenhagen Business School; InnoCentive.
Available: http://www.hbs.edu/research/pdf/07-050.pdf
46 See endnote 41 – The Value of Openness in Scientific Problem Solving.
22
broader range of innovation. In addition, as mentioned, the risk taking and decision making is
not with the funder, who often lacks the technical knowledge and abilities required to make
the most effective judgements – particularly of importance when investing public funds. The
Longitude Prize (1714) was offered by the British Government for a simple and practical
method for the precise determination of a ship's longitude while at sea. Conventional wisdom
at the time was that the answer lay in the stars; however the prize was awarded to John
Harrison who solved the problem by an improved measurement of time.
3) Payment on results – by rewarding prizes after successful and demonstrated completion of
the prize target, funders don’t waste money by providing all funding up-front before the goal
has been achieved. This provides an opportunity for value for money compared to up-front
R&D grants. For example, through competition for the best high definition television standards
the US established an advanced standard at much lower public cost than the subsidised
cooperative R&D programmes in Europe and Japan47.
4) Risk stays with the competitor – linked to above, the risk of delivering a successful result
remains with those competing (e.g. private sector, researchers, etc.). The Cheap Access to
Space (CATS) Prize challenged entrants to launch a 2kg load to altitudes of 120km and
200km48. Both prizes went unclaimed as the teams did not come as far as anticipated when
the prize was established, but did make demonstrable progress. The greater-than-expected
difficulty of the challenge did not leave the sponsor out of pocket since the teams bore the risk
themselves. Given the private sector is better able to bear delivery risk this is attractive for
both the public sector and advantageous for social allocation of risk.
5) Return on Investment – prizes can create significant leverage. Everett (2011) found that
returns on investment (RoI) for innovation awards range from 2:1 to 33:1 benefit cost ratios;
50-80% cost reductions and RoI up to 182% from open innovation prizes; and benefit costs
ratios around 8:1 to 16:1 for market stimulation (grand) prizes, e.g. the Ansari X-Prize, which
is credited with leveraging $100m in R&D finance to achieve the $10m prize. Since the award
of the prize, public and private expenditure in support of the private space flight industry has
topped $1.5bn49. In addition, while only one company ‘won’ the prize, seven companies are in
operation today due to the market stimulation impacts of the prize. The approaches used to
estimate longer term benefits, beyond just leveraged investment, are highly dependent on the
nature of the prize. The X-Prize Foundation have through various prizes demonstrated that
competitors have been collectively willing to spend up to 10–16 times the cash value of a
prize on relevant research to meet the objectives.
6) Speed of problem solving – the competitive spirit can bring out the best innovations. Many
technological developments were discovered when individuals were competing with each
other. The race to sequence the human genome between a group of international scientists
(the Human Genome Project) and a company, Celera, resulted in the goals for both
competitors being reached sooner50.
7) Headlines and attention – the media spotlight around a prize can bring an important
problem to the attention of millions. Shell’s Springboard programme, considered highly
successful, has awarded £1.98m in no-strings attached prizes and generated some significant
media attention. In the first month after the 2011 awards, the prizes generated 92 pieces of
coverage in one month, reaching an audience of 24 million for 10 winners. Coverage included
47
Eisenmann, T. R. (2005) High-Definition TV: The Grand Alliance, Harvard Business School Case
804-103, October 2005. (Revised from original December 2003 version.)
48 For information see: http://archive.spacefrontier.org/Projects/CatsPrize/
49 See endnote 20 - Evidence Review – Environmental Innovation Prizes for Development.
50 Adams, J. (2008) Sequencing human genome: the contributions of Francis Collins and Craig
Venter. Nature Education 1(1).
23
local, regional and national broad sheet press and trade publications as well as activity on
twitter51.
Cons of prizes
Counter arguments against prizes include52:
1) Might not result in a solution – if designed inappropriately, a prize competition might not
result in the desired outcome (i.e. no winners). Netflix’s $1m prize to build recommendation
software for their online movie website did not result in a solution that was implemented as
the additional gains did not justify the engineering effort53.
2) Fixed cost of running a prize – prizes have only been shown to be effective if they are both
of the right financial size and designed well. Designing a prize well can be challenging and
requires an initial level of finance to support research and consultation. This is a necessary
fixed cost and there will be a limit to how much this can be reduced before impacting on the
effectiveness of the prize itself.
3) Widespread adoption cannot be guaranteed by a prize – even if a prize has succeeded in
stimulating a desired innovation, widespread adoption of this innovation may be hindered by
other obstacles. Widespread deployment is often limited by different factors than those
holding back innovation activity.
4) Prizes are not a silver bullet – they are not a universal solution and there are functions
which other policies might perform better than a prize. For example, regulation may be more
effective at encouraging wide roll-out and technology diffusion through imposing sector-wide
standards.
5) Should not operate as stand-alone – they are an addition (rather than a substitute) to
innovation policies, such as up-front R&D grants, the patent system, regulations and often
work best when aligned with other support to help winners take their winning idea forward and
into the marketplace. The Carbon Trust’s Accelerator programme is a good example which
begins with a prize and ends with seed investment into the winning enterprise from the
Carbon Trust, matched by private investors54.
6) High level of financial resources required to compete – researchers may need to obtain
significant funding for their research in order to compete and prizes may lead to duplication of
effort, more so than with government grants. One example is the large, market stimulation
Ansari X-Prize, with a high level of financial resources required to compete. Only twenty-six
teams competed and on average, they each invested over $3 million into their attempts. The
high cost of involved in being a credible competitor may limit the playing field and directly
reduced the number of teams participating in the competition.
7) Limited developing country participation – given the high profile and funding that may be
required to participate, developing country representatives might find it difficult to develop
their ideas and inventions, particularly when up against large, wealthy multinational players.
8) Budgeting and forecasting can be tricky – given the uncertainty of the winner (including
whether there will even be a winner!) it can be difficult to forecast accurately what the spend
profile will be.
The indicative comparison in Table 3 below looks at the traditional welfare gains (e.g. a net gain for
consumers or producers) as well as whether the benefit is likely to achieve a gain for the poor in a
See endnote 20 - Evidence Review – Environmental Innovation Prizes for Development.
Some of these could be applicable to traditional grants – depending on the way the grant is
designed, notably: 1, 3, 4 and 5.
53 Holiday, R. (2012) What the Failed $1m Netflix Prize says about Business Advice. Forbes online
article: http://www.forbes.com/fdc/welcome_mjx.shtml
54 For more information see: http://www.carbontrust.com/our-clients/o/offshore-wind-accelerator
51
52
24
developing country context. The options are ranked 1 to 5. A higher ranking implies better outcome.
This is a qualitative ranking but informed by previous research. The benefits and costs of the options
are not weighted as this will need to be informed by the individual well-developed the prize criteria.
Table 3: welfare benefits of prizes v grants
Welfare
Benefits of Prizes
Enhancing
Benefits
Competition
Information
Incentives
Risk
Positive
Spillovers
Managing
Negative
Externalities
Addressing
public good
needs
TOTAL
Prizes will spur competition, often
bringing in competitors from outside
the sector, supporting the diffusion of
innovation
Prizes encourage publicity information sharing
Prizes encourage adaptation of
existing technologies – flexibility
Prizes can be designed to manage
the risk of failure through a ‘staged’
process – failed projects do not pass
through to next stage and therefore
further funding
Prizes allow you to learn from
failures (cost savings for others). Not
all prizes produce winners -but
nevertheless have benefits as the
expose the possibilities with a range
of technologies and build up
knowledge.
They can also help to address coordination failures and prize
contestants seek partners to deliver
a prize and spur new alliances
Prizes can manage common pool
problem (overfishing) by adding
enhanced management to minimise
duplication and encourage
cooperation.
They can also be used to exploit
opportunities in the area of nonpatented able technologies. Where
there was no prize no innovation
would take place
Benefits of Grants
Rank
4
4
This is less likely – grants applicants
tend to be known to the grantor
Rank
1
Depends on the ToR but could well
engage widely but is not their
comparative strength
Responds to the ToR
3
4
Depends on the ToR – but rarely a
condition for grants
1
3
Limited – based on universities
apply their research outputs in
developing countries
2
2
Well managed
4
4
Can specifically address this need
4
3
24
2
17
In summary, prizes have are better positioned to offer a wider range of benefits.
Costs of prizes
As with other prize competitions (e.g. run by organisations such as the Technology Strategy Board,
X-Prize Foundation, InnoCentive) costs are anticipated to be similar to the breakdown below. We
anticipate a number of key cost drivers can be used to drive down the direct costs of the programme.
These include: location of the prize running organisation; input of lessons learning from other prizes;
ability to utilise pro bono expertise for technical advice and prize judging. These cost drivers will be
requested during the tender process for the prize-running organisation and will be one factor bids will
be judged against. In addition, we anticipate other funders (donors, Foundations, etc.) to support the
25
programme where it aligns with their own objectives. As such, it is anticipated that direct programme
costs will be shared amongst 1-2 other donors depending on the prize.
Table 1: cost of prize programme
Types of costs
Admin Spend:
Percentage
5%
Indirect costs (e.g. overheads to support maintenance of
organisation: electricity, rent, office services, etc.)
Direct costs (e.g. salaries for those involved in managing
the prize process – secretariat costs of transferring funds,
booking travel, etc.)
Programme Spend:
95%
Direct costs – costs against actual activities.
- Prize idea generation (research and consultation)
- Ongoing consultation with beneficiaries, private sector,
researchers
- Prize design based on research (including stakeholder
identification, launch, operation and awarding of prize)
- Launch and run individual prizes (including expert panel
to review and reward)
Monitoring and Evaluation (M&E)
Prize funds available for winning participants
35%
7%
53%
It is difficult to be precise about the required programme design funds and reward funds for each
prize at this stage, as this will be determined during the prize design process and will depend on
various factors e.g. how large a prize purse is required to incentivise investment; the number of
potential participants; appropriate prize model (e.g. multiple stages, one large). As such, individual
cost-benefit analyses will be included in the design phase for each prize. This will quantify anticipated
costs and benefits and make an assessment of the value for money for each individual prize. It will
also inform the results logframe for individual prizes and ensure strong targets to monitor and
evaluate against.
As an indication, below we have estimated feasible costs for the five potential prizes identified in the
Strategic Case. The prize pot for each individual prize is anticipated to be in the range of £2-5m,
which would be dispersed between up to 5 winners and at various stages as they achieve predefined results.
Table 2: estimated costs for potential prize ideas
Prize
Costs
Small-scale waste-to-energy
solutions for urban slums
Staged prize:
1. Build a working prototype
(up to 5 winners)
2. First three successful
tests of technology in
three sites with different
needs and inputs over a
specified period of time
(up to 3 winners)
Total: £5m
 Admin costs: £250,000
 Research of market and
design of prize: £1.75m
 M&E: £350,000
 Prize funds provided to
prize winners: (£3.25m)
Round 1: £352,000 ea
(total £1.625m)
Round 2: £541,660 ea
(total £1.625m)
Scale of Challenge &
potential outputs
1bn people live in slums
(projected to grow to 2bn by
2030)
 Increased number people
with access to affordable
energy services
 Decrease in waste
accumulation in slums
 Local job creation –
particularly in slums (both
direct – suppliers and
distributors and indirect –
energy power allows new
businesses)
26

Low carbon cooling
Total: £4m
technologies (for air-con and
 Admin costs: £250,000
fridges)
 Research of market and
Staged prize:
design of prize: £1.75m
1. Build a working prototype
 M&E: £350,000
that meets specific criteria  Prize funds provided to
using locally sourced
prize winners: (£3.25m)
materials (up to 4
Round 1: £406,250 ea
winners)
(total £1.625m)
Round 2: £812,500 ea
2. First two successful
(total £1.625m)
delivery models used to
deploy technology (up to
2 winners)
Quick, cheap, reliable
Total: £2m
microbiological testing of
 Admin costs: £100,000
water
 Research of market and
Awarded to the two quickest,
design of prize:
cheapest, and most reliable
£700,000
means of microbiological testing
 M&E: £140,000
of water (with various conditions:
 Prize funds provided to
price, reliability, speed, etc.)
prize winners:
£650,000 ea (total
£1.3m)
Development of locallyrelevant technologies for
the poor
World sales in 2011 up 13%
3bn more middle class
consumers by 2030
 Reduction in/avoidance of
carbon emissions from
refrigerants
 Development of locallyrelevant technologies for
the poor
 Local job creation (both
direct and indirect)
780m people do not have
access to safe drinking
water
 Development of locallyrelevant technologies for
the poor
 Local job creation (both
direct and indirect)
 Safer drinking water for
poor people
Technologies and business Total: £4m
models
for
pay-as-you-go  Admin costs: £200,000
‘basics’ household modern  Research of market and
energy services55
design of prize: £1.4m
Prize for a cheap machine-to M&E: £280,000
machine data chip to allow pay Prize funds provided to
as-you-go business models,
prize winners: (£2.6m)
followed by prizes for top two
 Round 1: £1m
successful ‘pay-as-you go’
 Round 2: £800,000 ea
businesses that provide 200
(total £1.6m)
households with modern energy
services in 3 months (95%
success rate for households
meeting payments)
1.3bn people without access
to modern energy services
 Increased number of
people with access to
affordable energy services
 Local job creation (both
direct and indirect)
 Deployment of locallyrelevant technologies for
the poor
Household energy storage that
doesn't involve batteries
Staged prize:
1. Build a working prototype
(up to 2 winners)
1.3bn people do not have
access to the grid and use
batteries for energy storage
 Development of locallyrelevant technologies for
the poor
Total: £5m
 Admin costs: £250,000
 Research of market and
design of prize: £1.75m
 M&E: £350,000
 Prize funds provided to
This is included as an indication of a ‘business model’ prize. This particularly problem is likely to be
addressed by the private sector without the need of an innovation prize as an incentive (pay-as-yougo systems are currently being developed and deployed by M-Kopa, Eight19, etc.).
55
27
2. First successful tests of
technology (1 winner)
prize winners: (£3.25m)
Round 1: £812,500 ea
(total £1.625m)
Round 2: £1.625m



Local job creation (both
direct and indirect)
Indirect increase in access
through new methods of
storing energy at a
household level
Decreased environmental
impact from batteries
It is anticipated that as the prizes are won and the concept is proven successful at incentivising
innovation for development problems, more funders will join the programme, reducing the need for
DFID funding. DFID may then wish to exit the programme, making room for other donors and
funders.
Table 4 below illustrates these costs as compared with grant costs. In terms of costs, prizes are likely
to fare worse.
Table 4: costs of prizes v grants
Costs
Prizes
High – a successful prize needs a
strong management process to increase
the probability of success. These
associated costs can be as high as
50%, including administration costs, preprize research and evidence gathering,
and management of the prize process
(consultation, launch, awarding, etc.).
Grants
Low – administration and management
of the grant process is often lower as it
does not include the requirement for
robust initial research and evidence
gathering on the problem. Estimate from
other large RED grant programmes can
be up to 15 to 20%.
D. What measures can be used to assess Value for Money for the intervention?
The value for money for the programme can be measured with reference to the following critical
success criteria:
- Numbers of poor beneficiaries of resulting products / services
- Private sector invests in resulting products / services to ensure access by the poor (measured
by Return on Investment or RoI)
- Numbers of new players / solvers whom crowd-in to solve old problems – including numbers
of developing country participants
- The challenges / problem statements are accurately identified and the prize designed
appropriately to ensure the best solution for beneficiaries
- Lessons are learnt by DFID and others on the prize model for development
Social rates of return of successful innovations have not been measured for this appraisal, given the
uncertainty around choice of prize problem statements; however, this will be conducted as part of the
individual prize appraisal prior to each prize launch. These are important to attempt to measure as
they may be significant. Lichtenberg (1992) illustrated that the social rate of return from privately
funded R&D in equipment can be up to seven times as high as the private returns56.
Research commissioned for DFID on the value for money and effectiveness of prizes over other
instruments (Everett 2011) concluded that value for money from prize programmes is evident across
prize types, but the extent of value obtained is often dependent on externalities and other initiatives.
56
Lichtenberg, F. R. (1992) R&D Investment and International Productivity Differences. National
Bureau of Economic Research Working Paper No. 4161 in Economic Growth in the World Economy,
Symposium 1992, edited by Horst Siebert, pp. 89-110.
28
The research provided the following examples of value for money for prizes.
RoI
Innovation awards range from 2:1 to 33:1 benefit cost ratios
Open innovation prizes, RoI up to 182%, with payback in 2 months and 50-80% cost
reductions
Market stimulation prizes range from 8:1 to 16:1 benefit costs ratios
New solvers
As described earlier, approximately 80% of companies applying to the Global Security
Challenge were new solvers. Similarly, of teams that competed in the Progressive
Automotive X-Prize 35% of the teams did not exist before the prize, and of those
teams that did exist, 30% were informal and 17% were non‐vehicle‐related.
People with resulting product
The evidence base is weak on numbers of people with resulting prize products, likely
due to the fact that prizes have focused more on technology development, rather than
deployment. However, notably, the technology awarded through the Longitude Prize is
still in use today. Additionally, a Rockefeller and InnoCentive prize programme was
able to deploy 300,000 solar torches (can be roughly equated to 1 per person) by
using a ‘buy one, give one to a developing country free’ in the US57.
While support for innovation and R&D is risky and unpredictable, the opportunities are often worth
the risk, particularly if the potential impact is significant. Prizes encourage a maximum amount of
innovation by not pre-defining the technological solution; therefore there are greater opportunities for
success and for a significant, transformational impact.
However, there will be failures and some prizes will not result in a transformational impact. Based on
a conservative assumption, of the 5 prizes: 2 will fail or will not result in any significant addition to the
marketplace and therefore opportunities for poor consumers; 2 will result in some innovation, but will
not ‘take-off’; and 1 will result in a transformational change with significant impacts for poor
consumers.
Value for money and expected impact assessments will be carried out once the focus of the prizes
has been determined, but an estimate can be given at this stage, based on the possible prize ideas
listed in Table 2 and assuming indicative successes and failures as follows:
- 1 transformational impact: waste-to-energy in slums
- 2 mildly successful: water testing and batteries
- 2 failures: energy business model and air-conditioning prizes
Using the addressable market indicated in Table 2 and the assumptions of prize successes/failures,
the estimated impact of this programme is calculated as 12 million people, broken down as follows:
 Waste-to-energy: transformational impact estimated at reaching 1% of the problem (1 billion
people currently living in urban slums)
o 10 million people
 Water testing: mildly successful impact estimated at reaching 0.1% of the problem (780
million people without access to safe drinking water)
o 0.8 million people
 Batteries: mildly successful impact estimated at reaching 0.1% of the problem (1.3bn people
without access to the grid and use batteries for storage)
o 1.3 million people
57
See endnote 20 - Evidence Review – Environmental Innovation Prizes for Development.
29
E. Summary Value for Money Statement for the preferred option
The total estimated impact is 12 million people as a result of DFID’s £15 million investment,
equivalent to a cost of £1.25 per person enabled to access energy/water services.
Based on the limited evidence available, while the optimal level of investment in prizes is not clear, it
is likely to be much larger than at present, and the potential payoffs of adding prizes as a new
mechanism to the toolkit for encouraging innovation are immense58.
While there is anecdotal evidence on the effectiveness and return on investment from traditional
methods, this is by no means conclusive59.
The return on investment for various types of prize competitions has the potential to be impressive. It
is therefore deemed good value for money to complement our portfolio of tools to stimulate
innovation through a new innovation prize programme, while maintaining high returns of investment,
reaching large numbers of poor beneficiaries and bringing in new socially orientated innovators.
See endnote 20 - Evidence Review – Environmental Innovation Prizes for Development.
The Prize Summit: Summary of key debates (2011), InnoCentive and London Business School.
Available at: http://theprizesummit.com/previous_summits.php
58
59
30
Commercial Case
Direct procurement
A. Clearly state the procurement/commercial requirements for intervention
Direct procurement
A restricted procurement process will be adopted to select the effective organisation (or consortium)
to manage and run the prize platform (prospective bidders are listed in section C below). DFID will
advertise the contract requirement on the DFID website and in the OJEU and all interested suppliers
will be invited to notify DFID of their interest in tendering for the services through a short expression
of interest. DFID will then be able to select, from amongst the interested suppliers, those who are to
be invited to respond to the more detailed Invitation to Tender (ITT). This is the procedure that DFID
adopts in most cases as it provides:
 Clear transparency around choice of partner, chosen by fair and open competition
 Competition can drive down costs, particularly administration costs of the programme
 DFID can design the programme to accurately meet our priorities as opposed to negotiating
with an already established programme
In addition, this limits the administrative burden on DFID staff (both programme and procurement
staff) through a more restricted process (e.g. staff may only need to review and score a limited
number of responses to the ITT as opposed to all responses).
Shortlisted suppliers will compete on the basis of delivering maximum impact for our stated budget.
DFID funding will cover both administration costs for running the programme and programme costs
for managing and deploying prize funds. Some funding will be required up front to the successful
bidder to allow them to establish the platform and launch and run the first prize. Award money to the
successful prize winner/s will be provided when the specific, identified objectives have been met (i.e.
on delivery of results). If there is no clear winner, funding will not be disburses and therefore not
wasted on unsuccessful outputs.
Indirect procurement
Prize money will be awarded to the successful prize winner/s only when the specific, identified
objectives (defined clearly at the beginning of the prize launch) have been met. As such, this
programme is an example of results-based financing - a new form of aid financing that makes
payments contingent on the independent verification of results, a major theme of the UK
Government’s reform agenda. The three key elements of this programme is therefore:
 payments based on results
 recipient discretion (the recipient has space to decide how results are achieved)
 verification of results as the trigger for disbursement
DFID funds for the prize winners (i.e. the majority of funding for this programme - £7.95m) will only be
transferred from DFID to prize-running organisation to disburse to the winners, when it is verified that
there is a clear winner and the required results have been achieved. If there is no winner, funding will
not be dispersed and therefore not wasted on unsuccessful outputs. Award payment will be made to
the winner participant/s from the prize-running organisation as an unconditional grant.
The length of running time for the prize will depend on the type of prize chosen (e.g. staged,
proportional, etc.). Suitable ‘end dates’ will be determined during the prize design phase. It is
anticipated that most prizes will be ‘open’ for 12 months. If there is no successful winner at the end of
the open period, the prize winning funds will not be spent and will remain with DFID (as DFID will
only transfer funds when a successful competitor is identified).
B. How does the intervention design use competition to drive commercial advantage
for DFID?
31
This programme is fundamentally about the use of competition to deliver results.
The innovation prize model is essentially about driving R&D and innovation through a focused and
competitive approach. Prizes attract a wide range of participants, from traditional researchers to
maverick thinkers, and from large companies to entrepreneurs (compared to a typical government
grant which finances only one competitor in one location using one approach). As illustrated early, a
review of problems solved on InnoCentive’s website found that people from outside the scientific or
industry discipline in question were more likely to solve a challenge60. The new solvers then become
part of the wider network, so to keep aware of future opportunities.
Through a competitive procurement process (the restricted process described above) to select the
successful prize-running organisation, DFID will challenge potential organisations to deliver our
intended results in the most effective, economic and efficient way.
C. How do we expect the market place will respond to this opportunity?
There is a growing body of evidence that illustrates the value in the use of prizes for spurring
innovation and private sector activity (referenced throughout this business case). Previous work
commissioned by DFID (Everett, 2011) identified a number of competition/prize-running
organisations. The list below also contains additional organisations based on our own research and
analysis. We anticipate a high standard of responses to run the prize platform from a variety of
organisations including those listed below. As no one existing organisation is deemed to have all the
skills required to deliver this programme effectively alone. As such, we anticipate and welcome
consortium bids.
Organisations / programmes
Global Village Energy
Partnership (GVEP)
Carbon Trust UK
Grand Challenges Canada
Technology Strategy Board
(TSB)
60
Applicability
An international NGO that supports sustainable energy
solutions (notably access) in developing countries, working
with entrepreneurs, financiers, donors, distribution
networks, etc.
Designed and facilitated the IDEAS innovation contest in
Latin America and the Caribbean focusing on innovative
proposals to promote renewable energy, energy efficiency
and energy access in the region.
A former UK public body (now limited company) providing
advice to companies and government on energy and
carbon savings.
Designed and facilitated technology challenges and
competitions based on specific problem statements.
A not-for-profit organisation focused on improving the
health of people in developing countries through
innovation.
Has launched a number of health-related global
challenges including: Saving Lives at Birth (DFID
partnering); Point-of-Care Diagnostics; and Saving Brains.
The UK’s national innovation agency with experience in
running competitions for business-led innovation and
technological solutions (including low carbon vehicles).
DFID RED is exploring a partnership with the TSB on a
number of potential ‘problems’. We are excluding climate
See endnote 41 – The Value of Openness in Scientific Problem Solving.
32
Ashden Awards for Sustainable
Energy
Nesta
X-Prize Foundation (XPF)
USAID Development Innovation
Ventures (DIV)
Saltire Prize
InnoCentive
and environment problems from this discussion at this
stage, as it is uncertain how this will be taken forward and
in what timeframe.
A recognition award for UK and developing country
sustainable energy solutions. The categories are broad
and do not rely on achieving a specified outcome. There is
little evidence that this drives and spurs innovation as it
rewards concepts after they have been implemented.
Alternatively, we would like to incentivise innovation and
R&D through the opportunity of a cash prize/reward for
achieving a specified outcome.
A UK non-profit focused on supporting innovation by
mobilising investments and grants, and building networks.
Have recently launched the Centre for Challenge Prizes
and plan to launch two prizes in the summer on carbon
data collection and cycling.
No developing country experience.
An international non-profit working with private sector
organisations to develop incentive prizes to address global
challenges. Their history is in high-profile, large-scale
concepts – including the Ansari X-Prize to develop a
commercial space-flight carrier (which launched Virgin
Galactic).
Work completed for DFID by XPF does not instil
confidence that they could design suitable prizes for
household/community developing country problems. In
addition, a change in leadership has resulted in XPF
limiting their relationship with public sector organisations.
A grant-based ‘challenge fund’ for innovative ideas across
the spectrum of development issues. Funds available for
anything from ‘proof of concept’ through to scale-up (new
geographies etc.). Awarded to concepts, not for
achievement of results.
Potential for DFID to join this programme as a pilot/testing
of this approach, however, it is not an incentive or
inducement prize model that awards R&D achievements.
The Scottish Government’s £10 million market stimulation
challenge to accelerate the commercial development of
marine energy. It will be awarded to the team that can
demonstrate in Scottish waters, a commercially viable
wave or tidal stream energy technology that achieves the
greatest volume of electrical output over the set minimum
hurdle of 100GWh over a continuous 2 year period using
only the power of the sea.
An open innovation platform based in the US but recently
acquiring OmniCompete (UK-based prize-running
organisation). InnoCentive have run prizes in the areas of
security, energy and healthcare (including energy storage
and off-grid lighting).
Currently working with Rockefeller and GlobalGiving on a
water platform for developing countries which matches
funders with solutions (matched by Rockefeller). Solutions
along the value chain (i.e. design new technologies,
through to deployment).
33
NineSigma
Shell Springboard
An open innovation platform that establishes partnerships
amongst industry organisations seeking a solution from
external sources (academic, research institutions, private
laboratories, etc.). Often results in ongoing collaboration or
partnerships with the solver/s.
A corporate social responsibility / social investment
initiative fully funded and managed by Shell. A prize
programme that provides a financial boost to innovative,
low carbon business ideas from across the UK by
providing 8 awards of £40,000.
We also anticipate strong responses to the individual prize competitions, with results dependant on
their target stakeholders (i.e. specific to location; sector (WASH, household energy); technology
development versus deployment; etc.). Through strong awareness raising the prizes will likely
receive interest from a vast array of stakeholders, inside and outside the area of expertise. As
evidence suggests, prizes can bring an important problem to the attention of millions, including
people from outside the scientific or industry discipline in question. These newcomers are often more
likely to solve a long running challenge given their ‘outsider’ perspective, illustrated in Lakhani (2006)
who found that:
The broadcasting of problem information to outside scientists to a diverse community of
solvers can yield effective solution rates (29.5 resolution rate) for problems that previously
remained unsolved inside R&D laboratories of well-known science-driven firms.
D. What are the key cost elements that affect overall price? How is value added and
how will we measure and improve this?
Administration costs (overheads, salaries for managing process) and programme costs (costs of
research, design, launch, reward and outreach for individual prizes) are the key costs drivers for this
programme. In the Invitation to Tender (ITT) DFID will provide an upper limit for these costs and
request organisations provide a thorough breakdown of their intended management and
administration costs. Value is added through the competitive bidding process where organisations
(private, civil society) will be challenged to minimise costs in order to be competitive with others.
The ITT will request bidders to be transparent on costs and explore opportunities to reduce direct
programme costs through, for example: seeking pro-bono support; location of main activities; build on
lessons from former and existing prize competitions; and linking to existing networks; civil society,
researchers, and DFID country offices with an understanding of the problem area (prize topic) to take
advantage of work already undertaken and reduce the need for additional research. These costs will
be monitored throughout programme implementation and efforts will be made to reduce these costs
wherever possible. It is anticipated that scope for reducing these costs significantly will be limited.
The prize funds available for the winning prize competitors are the other substantial cost drivers for
this programme. Funds available for each prize winner will be determined by the appraisal
undertaken before each prize is launched. As such, it will be set at what is considered the optimal
level to incentivise action without providing an opportunity for excessive profits, and will be evaluated
as part of the post-prize evaluation process. In addition, winners will be independently verified to
ensure they met the success criteria before receiving prize funds.
E. What is the intended Procurement Process to support contract award?
A restricted procurement process will be adopted. A Contract Notice will be advertised on the DFID
website and in the Official Journal of the European Union (OJEU) in alerting potential suppliers to
DFID’s requirement. The full Invitation to Tender (ITT) package including final Terms of Reference
(TOR), evaluation criteria (technical and commercial), and any supplementary documents will be
34
available electronically from the date of publication of the Contract Notice. This will allow a reduced
timescale for receipt of tenders from 40 days to 35 days.
The Contract Notice will be placed on the DFID website and in the OJEU requests information, in the
form of an Expression of Interest (EOI), to allow DFID to shortlist suppliers who will be invited to
tender for the overall contract (to design and implement the prize platform). Shortlisted suppliers will
compete on the basis of delivering maximum impact for our stated budget.
The criteria against which the shortlisted suppliers will be evaluated against currently includes:
 Experience in running open innovation prizes/competitions/challenges.
 Experience in developing a ‘problem statement’ to be addressed.
 Presence and experience in developing country, particularly with entrepreneurs, small
enterprises, academics and research institutions, and civil society.
 Demonstrated understanding of the technology innovation process, including social and
business model innovation.
 Experience in environment, energy, climate change and water issues and their relationship to
development goals.
 Ability to leverage additional funds.
 Wide network including academics, research institutions, multinationals, entrepreneurs, civil
society in both developed and developing countries. Strong skills in marketing and awareness
raising amongst a diversity of networks will be required.
 Links and networks with private investors an advantage (e.g. venture capital, angels, etc.).
 Experience in dealing with donor/government/philanthropic funding.
In addition, given DFID’s interest and priorities, the requirements of this prize platform (of which the
successful organisation will need to prove they can deliver on) are:
 Consultation will be essential to develop a strong ‘problem statement’ to be addressed by the
prize. This must include consultation with the demand side / end users of the product/service
to assist successful uptake of the product/service once awarded.
 Prizes to be developed for problem statements across the length of the innovation process
(e.g. new technology developed through to new business model to reach BoP consumers).
Most notably, some prizes will be designed to tackle the deployment/commercialisation
valley of death.
 Some prizes may use a stage-gate approach: e.g. initial competition/prize – prize money
available to 15 successful competitors; successful companies open to compete for prize two:
prize money available to top 5 successful competitors; until 1 competitor successful at large
prize purse (focused on outcomes desired i.e. x people with access to clean energy through
x technological solution).
 Some prizes will be best applied locally, nationally, regionally or internationally. The
successful bidder must have the ability to do all of these (in time) as the need arises.
 To encourage collaboration and lesson learning, there may be a need to stipulate a condition
that ensures a sufficient amount of input from developing country stakeholders (i.e. 70% of
the work must be led/conducted by a developing country partner).
 There must be a strong evaluation and lesson learning process. All failures should be
regarded as ‘public goods’, providing open access knowledge on why these have failed
ensuring the international community can learn from these efforts.
To take advantage of the reduced timescale, the full ITT package including final TOR, evaluation
criteria (technical and commercial), and any supplementary documents must be available
electronically from the date of publication of the Contract Notice.
F. How will contract & supplier performance be managed through the life of the
intervention?
35
The organisation who wins the tender for the programme will report directly to DFID. Expected
results, with measurable indicators, are set out in the logical framework, which will form the basis for
monitoring the performance of the programme. Reviews (according with DFID’s reporting
requirements) will be conducted annually. An independent mid-term review will also be conducted.
The evaluation will collate the value for money metrics (described in the Appraisal Case section D
above) across the launched prizes. DFID may then take relevant decisions (e.g. providing more/less
funding to individual prizes based on results) on the basis of evidence.
36
Financial Case
A. What are the costs, how are they profiled and how will you ensure accurate
forecasting?
The total is £15m for five prizes of various sizes. £7.5m will fall within the CSR period where 1-2 prizes
are likely to be awarded. Spend profile will need to be negotiated alongside the winner tender, but is
anticipated to be similar to the table below:
Description
2012/13
Total
100,000
Admin costs total
Programme costs:
Direct – research, design,
develop, manage prize
Programme costs:
Direct – M&E
5,000
85,000
10,000
Programme costs:
Funds to winner(s)
2013/14
2014/15
2015/16
2016/17
Total
3,600,000 3,700,000 3,600,000 4,000,000 15,000,000
180,000
185,000
180,000
200,000
1,550,000 1,345,000 1,255,000 1,075,000
160,000
170,000
165,000
500,000
1,710,000 2,000,000 2,000,000 2,225,000
750,000
5,310,000
1,005,000
7,935,000
Up to £50,000 may be used following approval of this business case to help further refine some of the
high priority problem/challenge definitions identified in this business case. This will enable the
competitively tendered programme, once established, to launch its initial prize(s) without a significant time
delay.
Accurate forecasting will be an essential part of the contract. Payment requests will be quarterly, with the
prize-running organisation providing DFID with a description of activities to be carried out in the
forthcoming quarter. A quarterly meeting with the DFID programme management team (including finance
management) will be required to be scheduled one month prior to the invoice due date to ensure
forecasted spend is accurate and on target.
B. How will it be funded: capital/programme/admin?
Funding will be DFID programme funds from the Climate and Environment team in the Research and
Evidence Division. It will be a part of the UK’s International Climate Fund (ICF). Prize money will be given
for results which take physical form in terms of access to low carbon energy, water and adaptation
products or services. Although the final portfolio of products and services cannot be known in advance,
these could include equipment/appliances such as lanterns and cookstoves, as well as, potentially
infrastructure installations such as biogas digesters. The funding is likely to be all RDEL, however, prize
funds for winning participants could potentially be classified as CDEL given the reasons above. Full
review of the CDEL/RDEL split will likely be possible once the initial prizes are designed.
Funding for this programme is considered ODA. £7.5m will be disbursed during the current spending
round. Since the final recipients may be private firms, it will be a requirement for the successful prizerunning organisation to maintain the conditions for ODA in the terms of the prize incentives offered, and
the eligibility of participating prize competitors.
C. How will funds be paid out?
Implementation finance will be needed by the prize-running organisation to design and establish the
platform and undertake the prize development and design process. These will be required to launch the
37
initial prizes in 2012/13-2013/14. Funds will then be dispersed to the prize winners via the prize-running
organisation (to streamline finance from potentially multiple donors to the prize winners).
The proposed mechanism for facilitating the funds will be a contract with the successful tender. In the
event of a consortium bid, the consortium will be required to be established as an individual entity to
receive DFID funds. Implementation payment to the prize-running organisation will be paid out in quarterly
tranches, based on the achievement of agreed quarterly milestones.
D. What is the assessment of financial risk and fraud?
Financial risk and fraud can be identified at two levels:
 Risk of fraud by the prize-running organisation/consortium
 Risk of fraud by the prize winning organisations
Fraud will be mitigated against by ensuring robust and transparent monitoring and reporting procedures
and by ensuring a clear, robust, transparent and independent method for approving prize winners.
The successful prize-running organisation will be required to have an anti-corruption policy. Where subcontractors are required, the prize-running organisation will be required to undertake due diligence on
suppliers to mitigate against financial risk and fraud.
E. How will expenditure be monitored, reported, and accounted for?
Details of expenditure will be required on a quarterly basis measured against agreed milestones and
forecasts. Quarterly disbursements will be linked to activity / progress reports and annual financial
statements. This reduces the risk of potential abuse of the funds and is a check that ensures DFID funds
are not being used for purposes other than what they were originally intended. Financial reports will be
required to be sent to DFID within three months of the end of the organisation’s financial year and report
receipt of DFID funds and associated disbursements, together with unspent funds.
In addition, the prize winners will be independently verified to ensure they met the success criteria before
receiving prize funds.
38
Management Case
A. What are the Management Arrangements for implementing the intervention?
The management arrangements will be agreed with the successful bidder. However, there are a few
key elements that are essential described below.
Governing Board
A high-level governance and accountability board will keep an overview of strategic focus and
progress towards funder’s requirements (milestones, M&E, reporting). Representatives will include
funders (DFID; other donors; Foundations; etc.) The Board will have ultimate responsibility over
ensuring the administration and financial requirements of funders are being met accurately and to
time.
Operational Team
The day-to-day management of the programme will be overseen by the Operational Manager. The
team will be split into the following sub-teams:
o Finance, procurement and reporting
o Research, stakeholder engagement and technical assistance
o Communications and outreach
o Monitoring and Evaluation
Advisory/Technical Committee
This committee would advise on the thematic elements of each prize, as such, it would include
experts in the chosen ‘problem statement’ – such as WASH experts; off-grid energy experts; etc.
Beneficiaries (end-users of the technology: poor consumers) would also be represented at this level
by an appropriate representative (civil society, community groups, etc.). The individuals making up
the technical committee will therefore be different for each individual prize. The committee should will
provide a quality assurance role at the problem definition stage and may also act as the judging panel
for each prize.
Independent Assessor/s
An independent and suitably qualified assessor/auditor will assess, verify and rank the results of
those competing for the prizes.
DFID programme management
The programme will be managed by DFID’s Climate and Environment research team (Innovation
Adviser) with inputs on energy, water and adaptation from colleagues in both Research and Evidence
Division and Policy Division. Financial management will be provided by the Climate and Environment
Team in RED. The prize-running organisation will be required to report on progress once a year at an
annual meeting with other donors and stakeholders (as and when they join the programme). DFID’s
Annual Review will also be completed at this time.
B. What are the risks and how these will be managed?
Below is a list of identified risks and associated mitigating action.
Risk
1. High financial
resources required
to compete
Mitigating action
Costs to entry can be limited,
simplifying entry and winning
conditions (e.g. location of award
ceremony etc.). Prizes for second and
third place may be used to spread
rewards more evenly and to lower the
Risk rating
M
Impact
L
39
2. Might not result in
a solution
3. Limited developing
country
participation
4. Does not result in
adoption of
solution
risks of entry for small entrants. Also, a
staged contest with increasing rewards
between stages can help to overcome
financial constraints faced by small but
promising innovators.
The research and consultation required
as part of the prize design process will
hopefully ensure problem statements
with a fair likelihood of success will be
taken forward. However, the nature of
innovation is to test different options
with some failures and some success
therefore, to fully mitigate this risk is
against the purpose of this programme.
Conditions of prize may include a
required amount of developing country
participation for competitors
(encouraging collaboration).
One option would be to ensure a prize
concept will only be taken forward and
developed if the managing organisation
has secured interest to purchase (e.g.
an AMC) or invest (e.g. by a venture
capitalist) in the successful winners to
ensure sustainability of outputs. A prize
that supports business models (and
therefore deployment of the
technologies) can also help mitigate
this risk.
M
H
M
L
M
M
In accordance with DFID’s Design & Implementation Guidance, the design and implementation of the
programme will be taken forward under a single tender to ensure value added and to reduce costs of
multiple contracts. Other advantages include:
 Reduces the risk of complaint where a separate Design consultant takes part in the
subsequent competition for Implementation (creating the perception of unfair advantage).
 Reduces the timescales resulting from two separate competitions / contracts.
 Reduces the risk of the Implementation supplier disagreeing with the Design Consultant and
reduced commitment to delivery.
 Reducing the risk of disputes around the assessment of results that warrant awarding a prize
– by including an independent and qualified assessor who assess and ranks the results and
certifies that the results meet the set criteria.
This will require a break clause at the end of the Design Phase, to ensure DFID are content that
Design work is satisfactory and the proposal for Implementation represents VfM. The Design phase
will provide further confirmation on:
 Final logframe with milestones and targets
 Programme’s cost profiles
 M&E process and reporting dates
 Management structure of the programme
 Risk register to be monitored throughout the life of the programme
 Steps for cost-benefit analysis to be completed for each prize
40
C. What conditions apply (for financial aid only)?
Not applicable.
D. How will progress and results be monitored, measured and evaluated?
Results and progress will be monitored annually by the M&E team in the prize-running organisation
and provided to DFID’s programme manager (in the Climate and Environment research Team) as
part of the annual review process. An independent mid-term evaluation will be conducted in 2014/15
and an independent final evaluation in 2016/17. The evaluations will identify lessons learned and feed
into any follow-on programme design. If in the mid-term review it is revealed that the programme is
not meeting targets, the programme will not receive any further funding. The costs of these reviews
have been included in the programme.
As described in the Appraisal Case, each individual prize will require a cost-benefit analysis and its
own M&E process to measure and monitor its impact and sustainability – to be completed during the
design phase. Crucial to the success of the prize will be how the resulting technology or business
model is deployed to ensure the long-term sustainability and use of the product. This will be part of
the research and design phase and will include the establishment of baselines and targets and will
require an understanding of the cultural and behavioural elements of the chosen prize concept. We
will encourage the prize organisation to develop mini-logframes to measure outputs and success and
include an indicator on long-term sustainability of prize winning ideas. Logframes will also need to
measure the relevant International Climate Fund (ICF) Key Performance Indicators (KPIs) below and
the measures of Value for Money (as described in section E of the Appraisal Case).
ICF Key Performance
Indicators
1. Numbers of people
supported by ICF programmes
to cope with the effects of
climate change
2. Number of people with
improved access to clean
energy as a result of ICF
programmes
Primary
Secondary
Depends on the ‘prize problem
statement’. Not likely to be
primary or secondary.
To be measured through the M&E
framework. Target:
 12 million people with
improved access to energy
and water services
Depends on the ‘prize problem
statement’. Not likely to be
primary or secondary.
Y
3. Number of forest dependent
people with livelihoods benefits
protected as a result of avoided
deforestation and degradation
4. Value of assets/economic
activities protected or made
less vulnerable
5. Number of net jobs created
Not primary or secondary. Likely
to be difficult to measure.
Y
6. Tonnes of CO2 equivalent
reduced or avoided (including
forestry)
7. Level of installed capacity of
clean energy
8. Number of hectares where
Expected results
Y
Y
To be measured through the M&E
framework (disaggregated by
gender & income).
To be measured through the M&E
framework. Difficult to determine
prior to prize problem statement
definition.
To be measured through the M&E
framework. Difficult to determine
prior to prize problem statement
definition.
Depends on the ‘prize problem
41
deforestation and degradation
avoided
9. Number of domestic low
carbon [and climate resilient]
technologies supported
Y
10. Value of (non-carbon)
ecosystem goods and services
generated/protected
11. Volume of public finance
mobilised for climate change
purposes as a result of ICF
funding
12. Volume of private finance
mobilised for climate change
purposes as a result of ICF
funding
Y
Y
13. Improved capacity of
developing countries to tackle
climate change
14. Increase in number and
quality of climate change
related knowledge products to
support global & national
decision making on shifting to
low-carbon development paths
15. Extent to which ICF
interventions are being
transformational
statement’. Not likely to be
primary or secondary.
To be measured through the M&E
framework. Target:
 7 innovative technologies
developed and tested; 5 of
these deployed61
Not primary or secondary. Likely
to be difficult to measure.
Y
Y
To be measured through the M&E
framework. Target:
 At least £5m public finance
leveraged (including
donors/foundations)62
To be measured through the M&E
framework. Target:
 £35m additional funds
invested by private sector as
result of the prize63
To be measured through the M&E
framework. Target:
 At least 5 partnerships
between developed and
developing country private
sector and researchers64
Not primary or secondary. Likely
to be difficult to measure.
To be measured through ongoing
and end of programme
evaluation. Potential to be highly
transformational through the
development and demonstration
of new technologies and business
models replicable across
geographies, reducing costs and
risks, and encouraging private
investment.
61
Assuming 5 prizes: 1 transformational (5 new technologies developed, 3 technologies deployed); 2
mildly successful (2 new technologies developed, 2 technologies deployed); and 2 failures.
62 Assuming 25% of implementation and prize funding is secured from other public funders – likely to
be a conservative estimate.
63 Average of return on investment figures from Shell Springboard (RoI 1.96) and OmniCompete
Global Security Challenge (RoI 6.49), which assumes 10% discount rate and that prize is attributable
for 20% of new investment into technologies/enterprises. As calculated in Everett (2011) – endnote
20.
64 Partnerships will be formed as part of the prize platform, which will likely include a condition for
partnerships across the developing and developed world. Assume a minimum of one partnership per
prize.
42
Lograme
Quest No of logframe for this intervention: 3594111
43
Annex 1
Overview of rule-of-thumb in prize policy design – Vivid Economics (2007)
44
Annex 2
Evidence of need / R&D gap and opportunities
Small-scale waste-to-energy solutions for urban slums
 Katukiza, A.Y., Ronteltap, M., Niwagaba, C.B., Foppen, J.W., Kansiime, F., Lens,
P.N. (2012) Sustainable sanitation technology options for urban slums.
Biotechnology Advances 30(5): 964-78.
 ESMAP (date unknown) Innovative Approaches to Energy Access for the Urban
Poor: Summaries of Best Practices from Case Studies in Four Countries
 Kuick Research (2012) India Urban and Industrial Waste to Energy Market
 UN-Habitat (2009) Promoting Energy Access for the urban poor in Africa:
Approaches and Challenges in Slum Electrification
Business models for pay-as-you-go household modern energy services
 Ferris, D. (2012) Cleantech Startup Finds Poor Villagers are More Profitable than
Mobile
Telecom.
Forbes
Magazine
blog.
Available
at:
http://www.forbes.com/sites/davidferris/2012/09/13/cleantech-startup-finds-poorvillagers-are-more-profitable-than-mobile-telecom/
 The Economist Technology Quarterly Q3 2012 Lighting the way Energy technology:
Cheaper and better solar-powered electric lights promise to do away with kerosene
fuelled lanterns. Available at: http://www.economist.com/node/21560983
Quick, cheap, reliable microbiological testing of water
 Rahman, K., Khush, R., Gundry, S. (2010) Aquatest: Expanding Microbial Water
Quality Testing for Drinking Water Management in Drinking Water Safety
International, April 2010. International Water Association.
Low carbon cooling technologies (low energy, low refrigerants for either
buildings or food preservation)
 Koizumi, S. (2007) Energy Efficiency of Air Conditioners in Developing Countries
and the Role of CDM. IEA Information Note, International Energy Agency.
 McNeil, M. A., Letschert, V. E. (2008) Future of Air Conditioning Energy
Consumption in Developing Countries and what can be done about it: The Potential
of Efficiency in the Residential Sector. Lawrence Berkeley National Laboratory.
 Rosenthal, E. (2012) The Costs of Keeping the Tropics Cool. The New York Times,
Sustainability News Analysis, Saturday 8 September 2012.
 International Institute of Refrigeration (2002) Refrigeration report. Part of the
Industry as a partner for sustainable development series, facilitated by UNEP.
Household energy storage that doesn't involve batteries
 Nissen, W. (2012) Energy Storage R&D Key to Renewables. Minnesota 2020.
Available
at:
http://www.mn2020.org/issues-that-matter/economicdevelopment/energy-storage-rd-key-to-renewables.
 Dell, R. M., Rand, D. A. J. (2001) Energy storage – a key technology for global
energy sustainability. Journal of Power Sources 100: 2-17.
 Ali, H., Ali-Oettinger, S. (2012) Advancing Li-ion. PV Magazine. Available at:
http://www.pv-magazine.com/archive/articles/beitrag/advancing-li-ion_100006681/501/#axzz27NnpdmAp
45