First Energy

In September 2011, the CEO of First Energy Private Ltd, a start-up enterprise in the alternative energy industry in India, is at a critical juncture. The company has commercialized the technology of biomass cook stoves and has been providing, since 2007, clean and affordable cooking solutions to customers in rural India. A marginal rise in the price of biomass fuel in early 2011 has, however, led to a steep fall in demand, making the continuance in the rural household market unsustainable. The company is at a disadvantage in the household segment because the competing product, liquid petroleum gas (LPG), enjoys a price subsidy provided by the federal government. First Energy has been quick to target a niche in the urban commercial market consisting of restaurants, eateries, and hostels. While the margins are high in this segment, the volumes are low. The company must therefore build scale to be able to service the investments in plant capacity, which is under-utilized. The case enables students to come up with strategies for the CEO for market expansion. They will also decide whether to exit from or hold on to the household segment, where the margins are low but the volumes, considering the imminent de-subsidization of LPG, will be high.