Financing biofuels and Jatropha
plantation projects with special
emphasis on Clean Development
Mechanisms
November 13 – 14, 2006
Accra, Ghana
BioEnergy for Poverty Eradication:
Enhancing the Role of Small/Medium
Energy Enterprises
NOT AN OFFICIAL UNCTAD DOCUMENT
Lawrence Agbemabiese
Energy Branch
United Nations Environment Programme
Division of Technology, Industry & Economics (DTIE)
Overview
11
“Big Picture” issues: Poverty, Environment, and
Sustainable Energy
22
The Case for Energy SMEs
33
Energy SME Promotion: Gaps, Models and
Experiences
44
Building on experiences: Resources and
Strategies
A normal view in rural Africa…
The vast majority of Africa’s 700 million people lack modern
energy and the opportunities these represent
Poverty-environment relations
l
n
ita atio
p
Ca ssip
+ di
Policy failures,
conflicts,
induced
migrations,
disasters,
unfavourable
terms of trade…
+
en
dr
l
i
Ch sets
+ as
Poverty
Re
pro sour +
du ce
cti
vit
yl
os
s
Population
pressure >
ecological
carrying
capacity
+ R
e
dis sou
sip rce
ati
on
as
High discount
rates +
+ Resource loss
Ill-health
Environmental
degradation:
global and
local drivers
+
,
on loss
i
t
e
llu
Po ourc
res
Adapted from Poverty-Environment Partnership, 2005
Sources of energy demand growth
The Energy-Development Dilemma
p
Energy can play a critical role in helping to achieve
the Millennium Development Goals (Energy for the
Poor, DFID, 2002)
But…
p
An energy path dominated by traditional or fossil
fuels will be locally and globally costly from an
economic, social and environmental perspective.
‘Environmental Kuznet’s Curve’ revisited
Environmental
degradation
Worsening
environment
Improving
environment
Ymax
Per capita income
Adapted from D.W. Pearce, 2005
Breaking out of poverty: Some priority areas
Poverty Eradication and Environmental
Sustainability
Soil
conservation
Access to
clean
water and
sanitation
Access to
sustainable
energy
Ecosystem
protectionrestoration
Population
management
Emergent energy-development paradigms
o
From centralized, large project, energy-by-wires and
tanker trucks to decentralized, local enterprise and
market driven. From centralized to decentralized.
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.
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
The Case for Energy SMEs I
p
The value of the small, local enterprise to the
delivery of energy has been empirically
demonstrated.
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.
The Case for Energy SMEs II
“Empowering local entrepreneurs and
enterprises is key to developing the Tier 4
markets” (the 4 billion people at the
Bottom of the Pyramid)
C.K. Prahalad & Stuart L. Hart
The Fortune at the Bottom of
the Pyramid
The Case for Energy SMEs III
SME can be key players in the development of the
bioenergy chain and associated energy services
because they…
…provide efficiently packaged small scale
11
energy services for a variety of energy users
…provide low cost alternatives to
22
grid extension
…exist in a wide range of possible business
33
models
…often provide significant social and
44
environmental returns
To successfully deliver energy services,
what do SMEs need?…
11 …yes, “Financing.” But that alone is insufficient!
22 Information and training
33 Seed and “second-stage” finance
44 Business systems and tools
55 Customer credit through 3rd Party institutions
66 Enterprise development assistance
What sources of funding currently exist to
support SMEs?…
p
p
p
p
p
p
p
Gifts and Grants
Government Subsidies
Development
Assistance
Guarantees
Insurance
Concessionary Loans
Commercial Loans
p
p
p
p
p
Concessionary
Investment
Commercial
Investment
Supplier Credit
Customer Up-front
Payments
Entrepreneur’s capital
Finance Spectrum I
Development
Commercial
Public Sector
Private Sector
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
Finance Spectrum II
Development Funds
Commercial Funds
Public Sector
Private Sector
Gifts and Grants
Governments, Multilateral
Programs
Subsidies
Development Assistance &
Specialized Programs
Financial Intermediaries, NGOs,
micro-lenders
Concessionary Loans &
Investments, Micro-credit
Entrepreneur’s Equity
Customer Down Payments &
Supplier Credit
Banks, Funds &
other financial institutions
Commercial Loans, Investment,
Insurance & Guarantees
Finance Spectrum III
Development
Commercial
Public Sector
Private Sector
Gifts and Grants
Gaps:
1. Too few intermediaries.
2. Too little seed capital.
3. Too little reasonably
priced
growth capital.
4. Insufficient consumer &
micro-enterprise finance.
Subsidies
Development Assistance &
Specialized Programs
Concessionary Loans &
Investments, Micro-credit
Entrepreneur’s Equity
Customer Down Payments &
Supplier Credit
Commercial Loans, Investment,
Insurance & Guarantees
The finance gap in energy SME
development terms
Upstream
Downstream
Expansion
Operations/
Growth
Concept
Business
Planning
Pilot
Aggregate
Investment
Roll
Out
Investment
Timeline
Asset-based
financing
Seed
Capital
Equity
GAP
Debt
How can these gaps be closed?
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.
p
Energy SME Promotion: The REED Model
Enterprise
Development
Services
Start-up
Financing
Energy
Energy SME
SME
NGOs / Dev.
organisations
Enabling
Gov’t policies
Energy services and
products for rural and
urban clients
Financial
Institutions
- 2nd stage financing
Case Study: RCI, Zambia
Description of business: Jatropha biofuel production
Financing: $8,000; 3yr loan; 5% interest
Case Study: Bagani, Mali
Description of business:
Jatropha oil powered
multifunctional platforms to
peel, ground cereals and
charge batteries
Seed Financing: $15,000;
5yr loan; 10% interest
What’s new here..?
Business As Usual
Alternative Model
Ø Project centered
Ø Enterprise centered
Ø Top-down, donor driven
Ø Driven by local markets
Ø Large, politically visible
Ø Small, medium sized
Ø Planned in full, in advance –
rigid
Ø Incremental, flexible and
responsive
Ø Govt to MDBs/RDBs to apex
organizations to contractors
for fixed time and cost
Ø Partnerships of value adding
entities, driven by bottom line
of service delivery and
sustainable market presence
Multi-level public-private partnerships
committed to making it work…
Social + Environment
Investors
Strategic
Investors
Enterprise Dev. Partnerships
Finance Specialists
Eg. E+Co
Country NGOs
Eg. Enda, Kite
Energy Service Partnerships
SMEs
Utilities
Finance Partnerships
Donors,
Governments
Replication Partnerships
Energy Administrations,
Govt Agencies
Donors,
UN Agencies, etc
Some REED results and lessons
AREED Investments 2000 - 2006
Eco'Home
Gladym
Lambark
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%
Seeco
Anasset
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%
M38
Enterprises
Aprocer
Kalola Farms
AME
Energie R
BETL
VEV
Chavuma
Rasmas
Ubwato
Energie R II
RCI
-
50,000
Type 1 Investment: Proof of Concept
• e.g., Jatropha, crop drying,
solar grinders.
• Very low risk-adjusted returns.
• High Innovation impact on sector dev.
• Typical150,000
Loan Size:
$25,000
100,000
200,000
• (US$)
Ave defaults: 30%
Size
• Ave returns: <3%
Next steps at UNEP in support of
energy SME development
11 Partnering with UNIDO to adapt REED approach
to the bioenergy sector: raising awareness and
providing training through UNEP NCPCs.
22 UNEP Risoe Center is developing guidelines and
baseline methodologies to promote financing of
bioenergy enterprises under the CDM.
33 Due Diligence Guidelines for both energy crops
and forest residues have been developed by
UNEP collaborating Centre, BASE.
44 Feasibility study of local biodiesel production for
use in telecommunications applications has just
been completed and available to the public.
Some intergovernmental opportunities for
bioenergy development
11 UN Energy—Created to coordinate UN agencies
input to CSD.
22 G8 Global Bio-energy Partnership: Initiated at
Gleneagles Summit. FAO runs small secretariat
in Rome.
33 International Bio-energy Platform. Launched by
FAO at CSD 14 to help address the
sustainability of bioenergy.
44 UN Biofuels Initiative. Coordinated by
UNCTAD, supported by UN Foundation,
operates with participation of FAO, UNDP,
UNEP, and UNIDO.
Some intergovernmental opportunities for
bioenergy development
55 UNDP Energy and Environment Programme:
Targets biofuels in the context of energy for
sustainable development.
33 Global Environment Facility: Deals with
bioenergy projects under its renewables and
climate change program.
44 World Bank’s bioenergy related activities:
currently under the BioCarbon Fund.
Our expectations…
Per Capita Energy Consumption Rates
(World Regions)
3500
3000
…Promoting energy SMEs to
significantly expand access to
energy services in Africa
2500
2000
1500
1000
500
0
Asia**
Africa
China***
LAC
Non-OECD
Europe
Middle
East
Former
USSR
OECD
…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!
Thank you!
lagbemabiese@unep.fr
J
United Nations Environment Programme
Division of Technology, Industry & Economics (DTIE)