Lawrence Agbemabiese
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Lawrence Agbemabiese
United Nations Environment Programme, Energy Branch, Division of Technology, Industry and Economics
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
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disconnection of modern energy regimes from the situation and needs of majority
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“Empowering local entrepreneurs and enterprises is key to developing the Tier 4 markets” (the 4 billion people at
the Bottom of the Pyramid)
small-scale energy SMEs can close the gap
C.K. Prahalad & Stuart L. HartThe Fortune at the Bottom of the Pyramid
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the case for energy SMEs beyond the grid
……provide efficiently packaged small scale energy services provide efficiently packaged small scale energy services for a variety of energy usersfor a variety of energy users11
……provide low cost alternatives to grid provide low cost alternatives to grid extensionextension22
……exist in a wide range of possible business modelsexist in a wide range of possible business models33
……often provide significant social and environmental returnsoften provide significant social and environmental returns44
SME can be key players in the delivery of modern energy services -- including bioenergy -- beyond they grid because
they…
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To successfully deliver energy services, what do SMEs need?…
……yes, “Financing.” yes, “Financing.” But that alone is insufficient!But that alone is insufficient!11
InformationInformation22
Seed and “second-stage” financeSeed and “second-stage” finance33
Business systems and toolsBusiness systems and tools44
Customer credit through 3Customer credit through 3rdrd Party institutions Party institutions55
Enterprise development assistanceEnterprise development assistance66
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• 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?…
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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
Public Sector Private SectorDevelopment/ Commercial/
Finance Spectrum I
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Gifts and Grants
Subsidies
Customer Down Payments & Supplier Credit
Commercial Loans, Investment, Insurance etc
Public Sector Private SectorDevelopment/ Commercial/
Finance Spectrum I
Gaps:1. Too few intermediaries.2. Too little seed capital.3. Too little reasonably priced growth capital.4. Insufficient consumer & micro-enterprise finance.
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Operations/Growth
BusinessPlanning
RollOut
Concept
AggregateInvestment
Investment Timeline
Expansion
Pilot
Asset-based financingSeed
Capital
EquityEquity DebtDebtGAPGAP
the finance gap in energy SME development terms
Upstream Downstream
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• 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.
how can these gaps be closed?
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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)
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start-up + 2nd stagefinancing
enterprisedevelopmentservices
private SMEsEnergy Services
Clients:Rural and/or peri-
urban
initial REED model – services and capital
intermediaries:national/internationalNGOs
short-term: in-house Investment Facilitylong-term: financial institutions
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Energy Branch, UNEP
a problem: 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
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start-upstart-upfinancingfinancing
enterpriseenterprisedevelopmentdevelopmentservicesservices
towards a solution 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
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““The vast majority of The vast majority of Africa’s 600 million + Africa’s 600 million +
people who lack people who lack modern energy and modern energy and
the opportunities the opportunities these represent”these represent”
Exactly who are these “end-users”?
Often stereotyped as being:-Too poor to be taken seriously- Reluctant to adopt innovations- Unwilling to pay for modern amenities
The BOP = “those with annual incomes up to and
including $3,000 per capita per year (2002 PPP).”
World Resources Institute
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Energy Branch, UNEP
Too poor to be taken seriously?
Source: World Resources Institute
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Energy Branch, UNEP
BOP spending on energy: US$433.4 billion
So, are clean energy end-users...-Too poor to be taken seriously?- Reluctant to adopt innovations?- Unwilling to pay for modern energy?
NO
Source: World Resources Institute
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Energy Branch, UNEP
Are they reluctant to adopt innovations?
Consider:• The phenomenal rise in the adoption of cell-phones by people at the BOP• The rapid proliferation of innovative applications, often discovered and popularized at the BOP• In Africa today, BOP spending on ICT-related services, mainly mobile phone use exceeds US$ 5 billion
So, are clean energy end-users...-Too poor to be taken seriously?- Reluctant to adopt innovations?- Unwilling to pay for modern energy?
NONONO
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Energy Branch, UNEP
Low ability to pay for improved energy services?
Energy
Food
Housing
Transportation
WaterOther
HealthICT 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
Adapted from: World Resources Institute
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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
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lessons/conclusions
• small and medium-sized private enterprises can play a vital role in expanding energy access in developing countries (proof of concept).
• 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.
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Thank you!
Lawrence AgbemabieseEnergy Branch, UNEP DTIE, ParisTelephone: +33 (01) 44 37 30 03
Email: [email protected]