Post on 15-Jan-2016
The role of private sector and financial institutions in energy access – An emergent model
Enhancing Energy Access in Rural and Peri-urban Settlements:
Knowledge-Based Policy Engagement25 – 27 May, 2009
Cape Town, South Africa
outline• review of: current situation regarding energy access; ‘fundamental
behaviors/motivations’ of the private sector; and investment trends
• defining roles of private sector: SMEs under focus.
• barriers to private SME investment in clean energy products and services in developing countries/regions
• from theory to action: enabling and incentivizing SMEs and financial institutions to function the context of the REED programme
• Lessons and conclusions
energy access expansion: basic rationale…
eliminating energy poverty:
revalorizing agriculture--
improved productivity and
incomes
powering secondary industries, businesses, infrastructure:--economic diversification, growth and sustainability
PROFIT / LOSS
RISKS/
RETURNSUS AGAINST THEM
nevertheless, the private sector (warts and all)…
• generates 86% of global investments – therefore can play a critical role in shaping the evolution of the energy sector in a climate constrained world.
• is projected to provide at least 80% of mitigation finance and a substantial share of adaptation monies.
• in developing countries, has already provided about 80% and 75% respectively of total investments respectively in renewable energy and energy efficiency.
Energy Branch, UNEP
a role for private SMEs…
SME can lead the expansion of energy access (to modern equipment and services) ‘beyond the grid’ because they…
……provide efficiently packaged services for a variety of provide efficiently packaged services for a variety of energy usersenergy users
……provide low cost alternatives to grid extension – provide low cost alternatives to grid extension – services ‘beyond the grid’services ‘beyond the grid’
……can be configured in a wide range of possible business can be configured in a wide range of possible business modelsmodels
……often provide significant net social and environmental often provide significant net social and environmental returnsreturns
population
income levels
$1/day
Rural Areas Urban
Areas
CBOs SMEs Utilities
Poor Wealthy
role of SMEs vis-à-vis utilities and CBOs in energy access expansion
Adapted from: Brew-Hammond, 2005
unleashing the genie – barriers to private SME sector investment: developing countries/EITsgeneral barriers• riskier business environment• smaller transaction sizes higher financing costs• insufficient credit worthiness of project sponsorsbarriers specific to climate investments • higher financial costs + overwhelming uncertainties of
investing in unfamiliar technologies• absence of a clear, durable, consistent, and sufficient price of
carbon• uncertainty regarding eligibility and definition of credits from
carbon avoidance projects
Energy Branch, UNEP
Innovation capital Transaction financeOperating capital
Often secured
Occasionally secured
Supplier credit
Entrepreneur’s equity
Grants Consumer credit
Working capital loans
Finance + capacity gaps
Weak business planning
skills
Insufficient risk capital
(growth and start-
up)
Inadequate experience of Banks
Non-existent end-user finance options
Interventions egs. AREED, MEDREP, ISF
Enterprise development
servicesSeed and
Patient capital funds
Capacity-building and risk sharing with local
banks
User finance, micro-credit, lease/rentals, third party financing:
Target group = Productive users of
REPolicy support for SMEs
SME finance + capacity gaps
start-up + 2nd stagefinancing
enterprisedevelopmentservices
private SMEsEnergy Services
Clients:Rural and/or peri-
urban
initial REED model – services and capitalintermediaries:national/internationalNGOs
short-term: in-house Investment Facilitylong-term: financial institutions
Energy Branch, UNEP
key facts about AREED
• current geographic coverage: Mali, Senegal, Ghana, Tanzania, Zambia.
• donors: UN Foundation ($6.3m), Sida ($2.3m), BMZ ($0.4m), Dutch Government ($0.2m), other: DBSA, Bodyshop, Domini Investments.
• seed fund size: $1.4 m (2000) to $1.8m (today).• enterprise development costs: $0.20 - $0.50 per $1 invested.• impacts: slow to produce direct impacts (job creation, GDP
effects, GHG mitigation, etc) but can be significant over time.
Energy Branch, UNEP
low willingness to pay for improved energy services
Energy
Food
Housing
Transportation
WaterOther
HealthICT African rural households
“spend only a third as much on energy as their urban counterparts on average, the largest such discrepancy among regions.” WRI
Adapted from: World Resources Institute
start-upstart-upfinancingfinancing
enterpriseenterprisedevelopmentdevelopmentservicesservices
towards a solution low-wtp problem in AREED II
private SMEsEnergy Services
Clients:Primarily rural
commercial customers of
energy enterprises
ThesisThesis::Combine ‘traditional’ AREED SupportCombine ‘traditional’ AREED Support
+ + End User FinanceEnd User Finance
Key Players: MFIs and regular FIs
UNEP
Mali Folkecenter
escrow function
wholesale lender:
EcoBank
international development
wholesale lender
micro-finance institutions:
Nyetaa Finance…
private SMEs:clean energy equipment/
services
end-users/borrowers
equipment and services small loans & repayments
vendor finance
agreement
wholesale loans & repayments
recourse loans
LRF escrow agreement
Program implementation agreement and funding
TATA
AREED II end-user financing: roles of FIs
lessons/conclusions• small and medium-sized private enterprises can play a vital
role in expanding energy access in developing countries (proof of concept).
• financing for clean energy access is not a prob …. [wait! reconsider this conclusion in light of global financial crisis!].
• governments must create supportive investment climate, undergirded by good governance and mainstreaming of integrated resource planning approaches.
• private energy SME support and end-user financing must always go hand-in-hand as part of any energy market transformation strategy.
Thank you!
Lawrence AgbemabieseEnergy Branch, UNEP DTIE, ParisTelephone: +33 (01) 44 37 30 03
Email: lagbemabiese@unep.fr