Is early stage seed capital the solution to accelerating project pipeline development in the clean...

United Nations Environment Programme Division of Technology, Industry & Economics (DTIE)

Eric UsherHead, Renewable Energy and Finance Unit

eric.usher@unep.fr

Is early stage seed capital the solution to accelerating project pipeline development in

the clean energy sector ?

TBLI AsiaMay 25th, 2006, Bangkok

Example Enterprises

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.

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

Example Enterprises

EntrepreneurEntrepreneurEntrepreneurEntrepreneur CustomersCustomersCustomersCustomers

SeedFinancing

EnterpriseDevelopmentServices

Projects/Services

SEED FINANCE- Typically 3-5 year loans in local or

US currency.- Concessionality

-> Elevated risk appetite-> Provision of enterprise

development services

- Terms/conditions flexibly matched to what the enterprise can handle

SEED FINANCE- Typically 3-5 year loans in local or

US currency.- Concessionality

-> Elevated risk appetite-> Provision of enterprise

development services

- Terms/conditions flexibly matched to what the enterprise can handle

Sodigaz, Mali• Business: LPG distribution• Stage of Sector Dev.: Replication phase • AREED Support: $183,000, 5 yr local currency loan

and enterprise development support from MFC, E+Co• Status: Repayments current, supply capacity doubled

within a burgeoning market.

Clean Energy Enterprise - Timeline

Concept

Project devmt,pilotBusiness

planning Aggregate Investment

Growth

Construction

seed

AREED Investments 2001 - 2006

- 50,000 100,000 150,000 200,000

RCI (Biofuel)*

TSADC (SThermal)*

Bagani (Biofuel)*

Ubwato (Cookstoves)*

USISS (Crop Drying)

Rasma (Cookstoves)*

Translegacy (LPG-Stove)

Foyers Amel. (LPG-Stove)

VEV (Wind Pumps)

Prosoleil (SThermal)

BETL (Biomass)

Fadeco (SThermal)

Fee Hi (LPG)

Energie R (SPV)

AME (SThermal)*

Kalola Farms (Wind Pump)

Bansim (LPG)

Aprocer (Cookstoves)

Mona (SPV)

M38 (LPG)

RESCO (LPG)

Anasset (LPG)

Chavuma (EEfficiency)

KBPS (Biomass)*

Seeco (SPV)

LMDB (LPG)

Lambark (LPG)

Motagrisol (SPV)

Gladym (ELighting)

AB Mgt (EEfficiency)

Eco'Home (ELighting)

Sodigaz (LPG)

Enterprises

Size (US$)

Type 1 REED Investment: Proof of Concept• e.g., Jotropha, crop drying, PV mills • Very low risk-adjusted returns.• High Innovation impact on sector development• Typical Loan Size: $25,000• Ave defaults: 30%• Ave returns: 2%

Type 3 REED Investment: Replication• e.g., Urban LPG, efficient lighting• Moderate risk-adjusted returns• High direct impacts• Low Innovation impact• Typical Loan Size: $130,000• Ave defaults: 4% • Ave returns: 6%

Type 2 REED Investment: Commercialization• e.g., Waste to energy, rural LPG• Low risk-adjusted returns•Typical Loan Size: $70,000• Ave defaults: 27% • Ave returns: 4%

Segmenting the AREED Portfolio

* Denotes full or partial write-off

African Rural Energy Enterprise Development

Portfolio Observations

• 3% to 5% Financial returns are achievable, and • non financial TBL 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

• Seed financing can be an effective means of generating project pipeline

• Why aren’t energy investors providing seed financing today ? Enterprise development and transaction costs Insufficient risk adjusted returns

ReturnsEnhancement

Seed Capital Window

Transaction Cost Sharing

Sustainable Energy Fund

Enterprise Development

Support

SeedCapital

Seed Capital Assistance

Facility(SCAF)

Closing the Gaps -Seed Capital Assistance Facility (SCAF)

Commercial Energy Fund

Development Finance

Commercial Investors

Local Banks

InvestmentCapital

Clean Energy Enterprise - Timeline

Concept

Project devmt,pilotBusiness

planning Aggregate Investment

Growth

Construction

Seed Fund

SCAF Eligibility

• GEF eligible countries in Asia, Africa

• Renewable energy / Energy efficiency investments under $250,000

• Typical SCAF Supported clean energy fund– $3 to $5 million seed window within $30 to $100mn fund.

– SCAF Support• 2.5% mgt fee increased to 4%

• 3% - 4% return boost per qualified investment for 4 yr period– > $400K - $800K of SCAF support

Foster a sustainable energy finance community

that brings together financiers and catalyses

public-private alliances to share costs

and lower barriers to investment.

Provide Information Facilitate Networks Develop Partnerships

http://sefi.unep.orghttp://sefi.unep.org

http://www.unep.fr/energy/finance http://sefi.unep.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 Eric.Usher@unep.fr

THANK YOU!