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

disconnection of modern energy regimes from the situation and needs of majority

Inspiration: D. Adams

“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. Hart The Fortune at the Bottom of the Pyramid

the case for energy SMEs beyond the grid …provide efficiently packaged small scale energy services for a variety of energy users 1 1 …provide low cost alternatives to grid extension 2 2 …exist in a wide range of possible business models 3 3 …often provide significant social and environmental returns 4 4 SME can be key players in the delivery of modern energy services -- including bioenergy -- beyond they grid because they…

To successfully deliver energy services, what do SMEs need?… …yes, “Financing.” But that alone is insufficient! 1 1 Information 2 2 Seed and “second-stage” finance 3 3 Business systems and tools 4 4 Customer credit through 3 rd Party institutions 5 5 Enterprise development assistance 6 6

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?…

 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 Sector Development/ Commercial/ Finance Spectrum I

 Gifts and Grants  Subsidies  Customer Down Payments & Supplier Credit  Commercial Loans, Investment, Insurance etc Public Sector Private Sector Development/ 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.

Operations/ Growth Business Planning Roll Out Concept Aggregate Investment Timeline Expansion Pilot Asset-based financing Seed Capital Equity Debt GAP the finance gap in energy SME development terms UpstreamDownstream

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?

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)

Energy Branch, UNEP Walking the talk in Africa: AREED

start-up + 2 nd stage financing enterprise development services private SMEs Energy Services Clients: Rural and/or peri- urban initial REED model – services and capital intermediaries: national/international NGOs short-term: in-house Investment Facility long-term: financial institutions

Energy Branch, UNEP a problem: low willingness to pay for improved energy services Energy Food Housing Transportation Water Other Health ICT 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-upfinancing enterprisedevelopmentservices towards a solution in AREED II private SMEs Energy Services Clients: Primarily rural commercial customers of energy enterprises Thesis: Combine ‘traditional’ AREED Support + End User Finance Key Players: MFIs and regular FIs

“The vast majority of Africa’s 600 million + people who lack modern energy and the opportunities 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

Energy Branch, UNEP Too poor to be taken seriously? Source: World Resources Institute

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

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? NO

Energy Branch, UNEP Low ability to pay for improved energy services? Energy Food Housing Transportation Water Other Health ICT 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

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 TA 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). 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 Agbemabiese Energy Branch, UNEP DTIE, Paris Telephone: +33 (01)