united nations environment programme division of technology, industry & economics (dtie) eric...
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![Page 1: United Nations Environment Programme Division of Technology, Industry & Economics (DTIE) Eric Usher Deputy Coordinator, Energy Branch eric.usher@unep.fr](https://reader036.vdocuments.us/reader036/viewer/2022062408/56649f125503460f94c25166/html5/thumbnails/1.jpg)
United Nations Environment Programme Division of Technology, Industry & Economics (DTIE)
Eric UsherDeputy Coordinator, Energy Branch
SME Enterprise DevelopmentA small agency’s perspective
Energy Week 2006March 6th, 2006, Washington
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Example Enterprises
Usiss, Mali• Business: Solar Crop Drying• Stage of Sector Dev.: Very Early proof of concept phase • AREED Support: $18,000, 4 yr loan and enterprise
development support from MFC, E+Co• Status: Operating. Repayments current.
BETL, Tanzania• Business: Logistics company coordinating ag. wastes for fuel
substitution• Stage of Sector Development: Early commercialization phase • AREED Support: $50,000 3-yr loan and Enterprise Dev.
Support from Tatedo, E+Co• Status: Increased sales from 500 Mt to 1200 Mt per month
Repayments current.
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Example Enterprises
Anasset, Ghana• Business: LPG distribution• Stage of Sector Dev.: replication phase • AREED Support: $38,000, 4 yr loan and enterprise
development support from KITE, E+Co• Status: Repayments current, expanding with bank financing.
KPBS, Zambia• Business: Charcoal production from sawmill waste• Stage of Sector Dev.: Proof of concept phase • AREED Support: $73,000, 4 yr loan and enterprise
development support from CEEEZ, E+Co• Status: Construction of 15 kilns completed. Production,
distribution and sales of charcoal started Feb 2003. Enterprise folded in 2004
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AREED
African Rural Energy Enterprise Development
EntrepreneurEntrepreneurEntrepreneurEntrepreneur CustomersCustomersCustomersCustomers
SeedFinancing
EnterpriseDevelopmentServices
EnergyServices
Demonstrating that needed energy services can be delivered on a sustainable commercial basis by clean energy SMEs.
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AREED
African Rural Energy Enterprise Development
What defines Seed Finance
• Typically 3-5 year loans in local or US currency.• Concessionality
– Elevated risk appetite– Provision of enterprise development services
=> Terms/conditions are not standardised, but rather are flexibly matched to what the enterprise can handle
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AREED Portfolio
Distribution of Enterprises by Technology Type
Biofuels 12%
Energy Eff. 26%
LPG Dist. 21%LPG Stove mfc 3%
Solar PV 18%
Solar Thermal 15%Wind 6%
AREED
African Rural Energy Enterprise Development
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AREED Investments 2000 - 2006
- 50,000 100,000 150,000 200,000
RCI
Energie R II
Ubw ato
Rasmas
Chavuma
VEV
BETL
Energie R
AME
Kalola Farms
Aprocer
M38
Anasset
Seeco
Lambark
Gladym
Eco'Home
En
terp
rises
Size (US$)
Type 1 Investment: Proof of Concept• e.g., Jotropha, crop drying, solar grinders. • Very low risk-adjusted returns.• High Innovation impact on sector dev.• Typical Loan Size: $25,000• Ave defaults: 30%• Ave returns: -5%
Type 3 REED Investment: Replication• e.g., Urban LPG, efficient lighting• Moderate risk-adjusted returns• High direct impacts• Low Innovation impact• Ave Loan Size: $130,000• Ave defaults: 10% • Ave returns: 5% - 8%
Type 2 REED Investment: Commercialization• e.g., Waste to energy, rural LPG• Low risk-adjusted returns•Ave Loan Size: $70,000• Ave defaults: 15% • Ave returns: 3%-5%
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AREED PortfolioAREED
African Rural Energy Enterprise Development
Portfolio Observations
• 3% to 5% Financial returns are achievable• Non financial returns can also be significant• Enterprise development costs are high
• 20 to 50 cents on each dollar invested
• Public Perspective • After costs, we still see a positive cash flow model
• Private Perspective• Enterprise development can be a less costly means of generating
project pipeline
Supporters: UN Foundation, GEF, German BMZ, SIDA, Dutch, Domini, FMO, US AID
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Barriers to Scale-Up
• Enterprise Level: Gap still exists between seed finance and follow-on investment
• Sector Level: Seed finance needs to break its reliance on the donor/foundation community
• Why aren’t mainstream energy investors providing seed financing today ?
Enterprise development costs Insufficient risk adjusted returns
• But, can we move this model to the middle of the road ?
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ReturnsEnhancement
Seed Capital Window
Transaction Cost Sharing
Sustainable Energy Fund
Enterprise Development
Support
SeedCapital
Seed Capital Access Facility(SCAF)
Closing the Gaps -Seed Capital Access Facility (SCAF)
Commercial Energy Fund
Development Finance
Commercial Investors
Local Banks
InvestmentCapital
Clean Energy Enterprise - Timeline
Concept
Project devmt,pilotBusiness
planning Aggregate Investment
Growth
Roll out
Seed Fund
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In markets where small scale clean energy is economically viable,....why aren’t banks lending ?
.… and, what can be done about it ?
• Example 1 – Indian Solar Loan Programme – State of Karnataka, Solar Home Systems, 2003 - 2006
• Before: many SHS vendors, small total sales, no bank lending• During: consumer finance programme offered through Canara
bank and Syndicate bank, interest rate subsidy, 16,000+ systems financed, other banks starting to lend
• After: subsidy phased out, banks continuing to lend, although lose market share in an increasingly competitive credit market
• Real Driver -> access to financing provided through 2076 bank branches
Indian Solar Loan Programme
Progress as of March 2005
0
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4000
6000
8000
10000
12000
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16000
0 6 12 18 24Programme time (months)
Nu
mb
er
of
loan
sGrameenCanaraSyndicateTotal Loans
Financing the Customers of SMEs
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Financing the Customers of SMEs
Solar Water Heaters Market Growth in Tunisia1985-2003
0
2000
4000
6000
8000
10000
12000
14000
16000
18000
20000
1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003
m²
of
ins
tall
ed
SW
H
GEF Project
• Example 2: MEDREP -Tunisia ProSOL Programme– Domestic Solar Hot Water, 2005 - 2006
• Before: solar thermal market small although near tipping point as shown by previous WB GEF programme, 35% energy subsidy for LPG, no bank lending
2005
29,000 m2
• During: SWH financing offered through 3 Tunisian banks, interest subsidy + energy subsidy extended to SHW + utility billing, 9,000 systems in 2005.
• After: ??• The real driver ->
policy change + utility billing.
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Loan Programme Observations
• Various soft barriers exist that prevent banks from lending• Bank engagement is not gradual, but rather follows somewhat
of a step function (ie herd instinct)• Multi-stakeholder engagement is key to successful
interventions.• Credit engagement can provide a strong feedback loop to
policy makers.
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www.unep.fr/energy/finance www.areed.org
The challenge of supplying small scale energy services• is NOT a lack of technology, business models, capital or the ability to pay; • it is the MISMATCH between the needs of the enterprise and the types of financing currently available.
Phil Larocco, E+Co
Eric Usher [email protected]
THANK YOU!