Regional Workshop on Access to Modern Energy in Urban and Peri-Urban Areas: Policies and Knowledge Sharing 3-5 November, Senegal, Dakar Financing Mechanism for Clean Energy Access: The AREED Programme Lawrence Agbemabiese United Nations Environment Programme, Energy Branch, Division of Technology, Industry and Economics
disconnection of modern energy regimes from the situation and needs of majority
small-scale energy SMEs can close the gap “Empowering local entrepreneurs and enterprises is key to developing the Tier 4 markets” (the 4 billion people at the Bottom of the Pyramid) C.K. Prahalad & Stuart L. Hart The Fortune at the Bottom of the Pyramid
the case for energy SMEs beyond the grid SME can be key players in the delivery of modern energy services -- including bioenergy -- beyond they grid because they… …provide efficiently packaged small scale energy services for a variety of energy users 1 …provide low cost alternatives to grid extension 2 …exist in a wide range of possible business models 3 …often provide significant social and environmental returns 4
To successfully deliver energy services, what do SMEs need?… 1 …yes, “Financing.” But that alone is insufficient! 2 Information 3 Seed and “second-stage” finance 4 Business systems and tools 5 Customer credit through 3rd Party institutions 6 Enterprise development assistance
Gifts and Grants Government Subsidies Development Assistance Guarantees Insurance Concessionary Loans Commercial Loans Concessionary Investment Commercial Investment Supplier Credit Customer Up-front Payments Entrepreneur’s capital What sources of funding currently exist to support SMEs?…
Gifts and Grants Subsidies Development Assistance & Specialized Programs Concessionary Loans & Investments, Micro-credit Entrepreneur’s Equity Customer Down Payments & Supplier Credit Commercial Loans, Investment, Insurance etc Finance Spectrum I Development/ Commercial/ Public Sector Private Sector
Gifts and Grants Subsidies Customer Down Payments & Supplier Credit Commercial Loans, Investment, Insurance etc Finance Spectrum I Development/ Commercial/ Public Sector Private Sector Gaps: 1. Too few intermediaries. 2. Too little seed capital. 3. Too little reasonably priced growth capital. 4. Insufficient consumer & micro-enterprise finance.
the finance gap in energy SME development terms Upstream Downstream Expansion Operations/ Growth Aggregate Investment Roll Out Business Planning Pilot Concept Investment Timeline Asset-based financing Seed Capital Equity GAP Debt
how can these gaps be closed? • Expand the number of intermediaries providing services and financing to SMEs. • Increase the available seed capital. • Increase the available pools of next stage capital. • Provide capital at realistic return expectations = 6% to 10% ROI on an IRR basis. • Expand access to innovative consumer finance.
UNEP response/translation: Rural Energy Enterprise Development (REED) • African REED (AREED I and AREED II): • 2000 Present in Tanzania, Zambia, Senegal, Ghana, Mali • Brazil REED (BREED): • 2002 2005 • China REED (CREED): • 2004 present (Yunan Province)
Walking the talk in Africa: AREED Energy Branch, UNEP
initial REED model – services and capital intermediaries: national/international NGOs enterprise development services Clients: Rural and/or peri-urban Energy Services private SMEs start-up + 2nd stage financing short-term: in-house Investment Facility long-term: financial institutions
a problem: low willingness to pay for improved energy services African rural households “spend only a third as much on energy as their urban counterparts on average, the largest such discrepancy among regions.” WRI ICT Transportation Health Other Water Energy Food Housing Adapted from: World Resources Institute Energy Branch, UNEP
towards a solution in AREED II Thesis: Combine ‘traditional’ AREED Support + End User Finance enterprise development services Clients: Primarily rural commercial customers of energy enterprises Energy Services private SMEs start-up financing Key Players:MFIs and regular FIs
Exactly who are these “end-users”? “The vast majority of Africa’s 600 million + people who lack modern energy and the opportunities these represent” The BOP = “those with annual incomes up to and including $3,000 per capita per year (2002 PPP).” World Resources Institute • Often stereotyped as being: • Too poor to be taken seriously • Reluctant to adopt innovations • Unwilling to pay for modern amenities
Too poor to be taken seriously? Source: World Resources Institute Energy Branch, UNEP
BOP spending on energy: US$433.4 billion Source: World Resources Institute • So, are clean energy end-users... • Too poor to be taken seriously? • Reluctant to adopt innovations? • Unwilling to pay for modern energy? NO Energy Branch, UNEP
Are they reluctant to adopt innovations? • Consider: • The phenomenal rise in the adoption of cell-phones by people at the BOP • The rapid proliferation of innovative applications, often discovered and popularized at the BOP • In Africa today, BOP spending on ICT-related services, mainly mobile phone use exceeds US$ 5 billion • So, are clean energy end-users... • Too poor to be taken seriously? • Reluctant to adopt innovations? • Unwilling to pay for modern energy? NO NO NO Energy Branch, UNEP
Low ability to pay for improved energy services? In Africa, yes: African rural households “spend only a third as much on energy as their urban counterparts on average, the largest such discrepancy among regions.” WRI ICT Transportation Health Other Water Energy Food Housing Adapted from: World Resources Institute Energy Branch, UNEP
AREED II end-user financing: roles of FIs end-users/borrowers equipment and services small loans & repayments private SMEs: clean energy equipment/ services micro-finance institutions: Nyetaa Finance… vendor finance agreement wholesale loans & repayments TA TA Mali Folkecenter wholesale lender: EcoBank recourse loans international development wholesale lender LRF escrow agreement escrow function Program implementation agreement and funding UNEP
lessons/conclusions • private energy SME support and end-user financing must always go hand-in-hand as part of any energy market transformation strategy. • governments must create supportive investment climate, undergirded by good governance and mainstreaming of integrated resource planning approaches. small and medium-sized private enterprises can play a vital role in expanding energy access in developing countries (proof of concept).
Thank you! Lawrence Agbemabiese Energy Branch, UNEP DTIE, Paris Telephone: +33 (01) 44 37 30 03 Email: email@example.com