financing biofuels and jatropha plantation projects with...
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United Nations Environment ProgrammeDivision of Technology, Industry & Economics (DTIE)
Lawrence AgbemabieseEnergy Branch
BioEnergy for Poverty Eradication: Enhancing the Role of Small/Medium
Energy Enterprises
Financing biofuels and Jatrophaplantation projects with special
emphasis on Clean Development Mechanisms
November 13 – 14, 2006
Accra, Ghana
Overview
““Big PictureBig Picture”” issues: Poverty, Environment, and issues: Poverty, Environment, and Sustainable EnergySustainable Energy11
The Case for Energy SMEsThe Case for Energy SMEs22
33
Building on experiences: Resources and Building on experiences: Resources and StrategiesStrategies
44
Energy SME Promotion: Gaps, Models and Energy SME Promotion: Gaps, Models and ExperiencesExperiences
The vast majority of AfricaThe vast majority of Africa’’s 700 million people lack modern s 700 million people lack modern energy and the opportunities these representenergy and the opportunities these represent
A normal view in rural Africa…
Poverty-environment relations
Population pressure > ecological carrying capacity
Environmental degradation: global and
local drivers
Capit
al
dissip
ation
+
Poverty
Childr
en as
assets
+
Resource dissipation
+
High discount rates +
Resource loss+
Polluti
on,
resour
ce los
s+
Ill-health
Resource productivity loss
+
Policy failures, conflicts, induced
migrations, disasters,
unfavourable terms of trade…
+
Adapted from Poverty-Environment Partnership, 2005
Sources of energy demand growth
p Energy can play a critical role in helping to achieve the Millennium Development Goals (Energy for the Poor, DFID, 2002)
p An energy path dominated by traditional or fossil fuels will be locally and globally costly from an economic, social and environmental perspective.
The Energy-Development Dilemma
But…
‘Environmental Kuznet’s Curve’ revisited
Per capita income
Environmental degradation
Worsening environment Improving
environment
Adapted from D.W. Pearce, 2005
Ymax
Breaking out of poverty: Some priority areas
Poverty Eradication and Environmental Sustainability
Access to clean
water and sanitation
Access to sustainable
energy
Soil conservation
Ecosystem protection-restoration
Population management
o From centralized, large project, energy-by-wires and tanker trucks to decentralized, local enterprise and market driven. From centralized to decentralized.
Emergent energy-development paradigms
o From government or big company driven, top-down, prime contractor-subcontractor relationships to partnerships of businesses, NGOs, governments and others each adding value and each achieving its objectives. From contracting to partnering
o From project finance, “belts and suspenders” 20% dollar denominated IRRs with 5-7 year “exits” to market entry, equity growing, local finance, built on a triple bottom line of profit, development and environment. From project financing to investing.
p The value of the small, local enterprise to the delivery of energy has been empirically demonstrated.
The Case for Energy SMEs I
p SMEs are perhaps the most important and weakest bone in the sustainable energy and sustainable development skeleton.
p As the delivery vehicle for government programs, national contracts and multinational corporations, SMEs are crucial to success.
“Empowering local entrepreneurs and enterprises is key to developing the Tier 4
markets” (the 4 billion people at the Bottom of the Pyramid)
The Case for Energy SMEs II
C.K. Prahalad & Stuart L. HartThe Fortune at the Bottom of the Pyramid
The Case for Energy SMEs III
……provide efficiently packaged small scale provide efficiently packaged small scale energy services for a variety of energy usersenergy services for a variety of energy users11
……provide low cost alternatives to provide low cost alternatives to grid extensiongrid extension22
……exist in a wide range of possible business exist in a wide range of possible business modelsmodels33
……often provide significant social and often provide significant social and environmental returnsenvironmental returns44
SME can be key players in the development of the bioenergy chain and associated energy services
because they…
To successfully deliver energy services, what do SMEs need?…
……yes, yes, ““Financing.Financing.”” But that alone is insufficient!But that alone is insufficient!11
Information and trainingInformation and training22
Seed and Seed and ““secondsecond--stagestage”” financefinance33
Business systems and toolsBusiness systems and tools44
Customer credit through 3Customer credit through 3rdrd Party institutionsParty institutions55
Enterprise development assistanceEnterprise development assistance66
p Gifts and Grantsp Government Subsidiesp Development
Assistancep Guaranteesp Insurancep Concessionary Loans p Commercial Loans
p Concessionary Investment
p Commercial Investment
p Supplier Creditp Customer Up-front
Paymentsp Entrepreneur’s capital
What sources of funding currently exist to support SMEs?…
àGifts and Grants
àSubsidies
àDevelopment Assistance &Specialized Programs
àConcessionary Loans &Investments, Micro-credit
àEntrepreneur’s Equity
àCustomer Down Payments &Supplier Credit
àCommercial Loans, Investment,Insurance & Guarantees
Public Sector Private Sector
Development Commercial
Finance Spectrum I
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 & Guarantees
Governments, Multilateral Programs
Financial Intermediaries, NGOs,micro-lenders
Banks, Funds & other financial institutions
Public Sector Private Sector
Development Funds Commercial Funds
Finance Spectrum II
Development Assistance &Specialized Programs
Concessionary Loans &Investments, Micro-credit
Entrepreneur’s Equity
Customer Down Payments &Supplier Credit
Gifts and Grants
Subsidies
Commercial Loans, Investment,Insurance & Guarantees
Gaps:1. Too few intermediaries.2. Too little seed capital.3. Too little reasonably priced growth capital.4. Insufficient consumer µ-enterprise finance.
Public Sector Private Sector
Development Commercial
Finance Spectrum III
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
p Expanding the number of intermediaries providing services and financing to SMEs.
p Increasing the available seed capital.p Increasing the available pools of next
stage capital.p Providing capital at realistic return
expectations = 6% to 10% ROI on an IRR basis.
p Expanding available consumer finance.
How can these gaps be closed?
Energy SME Promotion: The REED Model
Energy SMEEnergy SMEEnergy SME
NGOs / Dev.NGOs / Dev.organisationsorganisations
Financial Financial InstitutionsInstitutions-- 2nd stage financing2nd stage financing
StartStart--upupFinancingFinancing
EnterpriseEnterpriseDevelopmentDevelopmentServicesServices
Enabling Enabling GovGov’’tt policiespolicies
Energy services and products for rural and
urban clients
Description of business: Jatropha biofuel production
Financing: $8,000; 3yr loan; 5% interest
Case Study: RCI, Zambia
Description of business:
Jatropha oil powered multifunctional platforms to peel, ground cereals and charge batteries
Seed Financing: $15,000; 5yr loan; 10% interest
Case Study: Bagani, Mali
Business As UsualØ Project centered
Ø Top-down, donor driven
Ø Large, politically visible
Ø Planned in full, in advance –rigid
Ø Govt to MDBs/RDBs to apex organizations to contractors for fixed time and cost
Alternative ModelØ Enterprise centered
Ø Driven by local markets
Ø Small, medium sized
Ø Incremental, flexible and responsive
Ø Partnerships of value adding entities, driven by bottom line of service delivery and sustainable market presence
What’s new here..?
Social + EnvironmentInvestors
StrategicInvestors
Donors, GovernmentsFinance Partnerships
Enterprise Dev. Partnerships
Replication Partnerships
Energy Service Partnerships
Finance SpecialistsEg. E+Co
Country NGOsEg. Enda, Kite
SMEs Utilities
Energy Administrations,Govt Agencies
Donors,UN Agencies, etc
Multi-level public-private partnerships committed to making it work…
AREED Investments 2000 - 2006
- 50,000 100,000 150,000 200,000
RCI
Energie R II
Ubwato
Rasmas
Chavuma
VEV
BETL
Energie R
AME
Kalola Farms
Aprocer
M38
Anasset
Seeco
Lambark
Gladym
Eco'Home
En
terp
rise
s
Size (US$)
Type 1 Investment: Proof of Concept• e.g., Jatropha, 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: <3%
Type 3 REED Investment: Expansion• 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%
Some REED results and lessons
Partnering with UNIDO to adapt REED approach Partnering with UNIDO to adapt REED approach to the to the bioenergybioenergy sector: raising awareness and sector: raising awareness and providing training through UNEP providing training through UNEP NCPCsNCPCs..
11
UNEP Risoe UNEP Risoe CenterCenter is developing guidelines and is developing guidelines and baseline methodologies to promote financing of baseline methodologies to promote financing of bioenergybioenergy enterprises under the CDM.enterprises under the CDM.
22
Due Diligence Guidelines for both energy crops Due Diligence Guidelines for both energy crops and forest residues have been developed by and forest residues have been developed by UNEP collaborating Centre, BASE.UNEP collaborating Centre, BASE.
33
Feasibility study of local Feasibility study of local biodieselbiodiesel production for production for use in telecommunications applications has just use in telecommunications applications has just been completed and available to the public.been completed and available to the public.
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Next steps at UNEP in support ofenergy SME development
UN EnergyUN Energy——Created to coordinate UN agencies Created to coordinate UN agencies input to CSD.input to CSD.
11
G8 Global BioG8 Global Bio--energy Partnership: Initiated at energy Partnership: Initiated at Gleneagles Summit. FAO runs small secretariat Gleneagles Summit. FAO runs small secretariat in Rome.in Rome.
22
International BioInternational Bio--energy Platform. Launched by energy Platform. Launched by FAO at CSD 14 to help address the FAO at CSD 14 to help address the sustainability of sustainability of bioenergybioenergy..
33
UN Biofuels Initiative. Coordinated by UN Biofuels Initiative. Coordinated by UNCTAD, supported by UN Foundation, UNCTAD, supported by UN Foundation, operates with participation of FAO, UNDP, operates with participation of FAO, UNDP, UNEP, and UNIDO.UNEP, and UNIDO.
44
Some intergovernmental opportunities for bioenergy development
Some intergovernmental opportunities for bioenergy development
UNDP Energy and Environment Programme: UNDP Energy and Environment Programme: Targets biofuels in the context of energy for Targets biofuels in the context of energy for sustainable development.sustainable development.
55
Global Environment Facility: Deals with Global Environment Facility: Deals with bioenergybioenergy projects under its renewables and projects under its renewables and climate change program.climate change program.
33
World BankWorld Bank’’s s bioenergybioenergy related activities: related activities: currently under the currently under the BioCarbonBioCarbon Fund.Fund.
44
0
500
1000
1500
2000
2500
3000
3500
Per
Cap
ita
En
erg
y C
on
sum
pti
on
Rat
es
(Wor
ld R
egio
ns)
Asia** Africa China*** LAC Non-OECDEurope
MiddleEast
FormerUSSR
OECD
…Promoting energy SMEs to significantly expand access to
energy services in Africa
Our expectations…
…and help win the race against poverty
…while preserving and restoring our environment for the survival of present and future generations, in a peaceful
and prosperous world!
United Nations Environment ProgrammeDivision of Technology, Industry & Economics (DTIE)
Thank you!