PRIVATE SECTOR LED OFF-GRID ENERGY ACCESS The A-B-C Business Model and How Third Parties Can Support the Development of Energy Access Solutions Feb 20, 2013 Incubating Innovation for Rural Electrification: The Telecom Energy Initiative Speaker: Mohua Mukherjee

Structure of the Presentation Why does the off-grid space represent a promising area for small power providers to invest in? What is the A-B-C Model? How can external parties (like donors, financing institutions, foundations and challenge grant providers) provide support to create a better eco-system in which private energy supply companies (ESCOs) can grow?

Why is the off-grid space attractive to private investors now? Off-grid customers rely on fuel (kerosene, diesel) to meet their energy needs Their fuel costs have been rising while solar panel costs have been falling So the cost to supply an energy solution on a commercial basis is falling The power consumption of household appliances, for example bulbs, television sets and refrigerators – has decreased drastically in just the last couple of years So a small amount of low-cost power supplied commercially can go a long way to improving the access picture

Why is the off-grid space attractive to private investors now? Electrification technologies can range from a few watts for solar lighting and phone charging stand-alone PV, to full grid connections or isolated mini-grid electrification that gives 24/7 access to a sufficient amount of power. Most small investors’ initial focus will be at the lower wattage end of this scale, of getting 1-50W of electricity (micro-energy) to households, for 4-12 hours of power per day, rather than W of 24/7 access at first Familiarity with the customer base and increase in customer income and loads will allow for scaling up at a particular location

What is the A-B-C Model? This model seeks to reduce risks for small private power producers in the off-grid space It identifies three sets of customers: Anchors Businesses and Community members Anchors represent daytime load, predictable in nature, requiring continuous delivery Businesses are local commercial establishments, for whom power is a critical input Community members: affordability is a major issue; may have many other pressing needs in addition to power

How Does the A-B-C Model reduce risks? Type of Customer High Margin for a Small ESCO Power Supplier? Does it make the ESCO Bankable? Do commercial Banks like this risk? ConclusionRisk Mitigation Impact Anchor e.g. telecom tower NO – telecom tower can squeeze ESCO on prices YESTelecom tower is not profitable but is Bankable PPA with a Telecom Tower gives ESCO access to Banks Business e.g. local rice mill or local shopping center YES – it is very expensive for local business to supply itself with power, manage fuel logistics etc NOLocal business is profitable but not bankable PPA with local businesses gives ESCO high margins, most proftibale Community Member/House- hold YES/NO-if household demand is small and variable NOHousehold is neither bankable nor profitable but needed for local buy-in Supply to local household gives ESCO roots in the community and protection of assets

Barriers to Growth Of Mini-grids Market Information and Data Collection, Mapping of Load Locations and Daily Fluctuation in demand Information on latest available technologies to reduce transactions costs e.g. ICT enabled pre-paid smart meters Information on potential financing partners (equity, debt, R&D, grant) for investment and working capital Information on Policy and Regulatory environment—new incentives, how to access government grants, required paperwork, reporting formats Information on identifying local entrepreneurs in new areas for replication of a business model

How Can Third-Party Supporters of Mini- grids help? Reduce transaction costs for mini-grid operators Identify and train high quality professional services required by them Identify technological inputs and make the information accessible Mini-grid operators can then spend less of their scarce time and hard-earned money chasing up these services which effectively reduce their focus on O&M With proper support, we can increase the mini-grid operators’ “bandwidth” and allow them to do more in their area of core competence

How Can Third-Party Supporters of Mini- grids help? There are many resources to support energy access— how to resolve the mismatch? Public sector Rural Electrification Agencies have delivered very limited results Difficult for donors to channel funds to individual private companies How can support be delivered where it is needed, “just in time”? One idea is for these funds to be invested in creating a common “eco-system” for all mini-grid operators in a given region or country, to lower transaction costs

How Can Third-Party Supporters of Mini-grids help? “Mini-Grid Development Company” to reduce transactions costs for a large number of its “member mini-grid operators” It would pro-actively identify and disseminate market information on un-electrified areas, and available technology providers It would identify and train a roster of professional service providers for mini-grid operators and It would cost-share the payments required for professional services to mini-grid operators

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