North-South-South Forum on Biofuels, Climate and Sustainable Development

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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
Lawrence Agbemabiese
United Nations Environment Programme, Energy
Branch, Division of Technology, Industry and
Economics
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disconnection of modern energy regimes from the
situation and needs of majority
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Inspiration D. Adams
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small-scale energy SMEs can close the gap
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
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the case for energy SMEs beyond the grid
SME can be key players in the delivery of modern
energy services -- including bioenergy -- beyond
they grid because they
provide efficiently packaged small scale energy
services for a variety of energy users
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provide low cost alternatives to grid extension
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exist in a wide range of possible business models
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often provide significant social and
environmental returns
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To successfully deliver energy services, what do
SMEs need?
yes, Financing. But that alone is insufficient!
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Information
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Seed and second-stage finance
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Business systems and tools
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Customer credit through 3rd Party institutions
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Enterprise development assistance
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What sources of funding currently exist to
support SMEs?

• Gifts and Grants
• Government Subsidies
• Development Assistance
• Guarantees
• Insurance
• Concessionary Loans
• Commercial Loans

• Concessionary Investment
• Commercial Investment
• Supplier Credit
• Customer Up-front Payments
• Entrepreneurs capital

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Finance Spectrum I
Development/
Commercial/
Public Sector
Private Sector

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Finance Spectrum I
Development/
Commercial/
Public Sector
Private Sector
Gaps 1. Too few intermediaries. 2. Too little
seed capital. 3. Too little reasonably priced
growth capital. 4. Insufficient consumer
micro-enterprise finance.

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the finance gap in energy SME development terms
Upstream
Downstream
Expansion
Operations/ Growth
Aggregate Investment
Roll Out
Business Planning
Pilot
Concept

Investment Timeline
Asset-based financing
Seed Capital
Equity
Debt
GAP
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how can these gaps be closed?

• 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.

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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)

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Walking the talk in Africa AREED
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initial REED model services and capital
intermediaries national/international NGOs
enterprise development services
Clients Rural and/or peri-urban
Energy Services
private SMEs
start-up 2nd stage financing
short-term in-house Investment
Facility long-term financial institutions
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a problem low willingness to pay for improved
energy services
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
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towards a solution in AREED II
enterprise development services
Clients Primarily rural commercial customers of
energy enterprises
Energy Services
private SMEs
start-up financing
Key Players MFIs and regular FIs
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Exactly who are these end-users?
The BOP those with annual incomes up to and
including 3,000 per capita per year (2002
PPP). World Resources Institute

• Often stereotyped as being
• Too poor to be taken seriously
• Reluctant to adopt innovations
• Unwilling to pay for modern amenities

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Too poor to be taken seriously?
Source World Resources Institute
Energy Branch, UNEP
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BOP spending on energy US433.4 billion
Source World Resources Institute

• So, are clean energy end-users...
• Too poor to be taken seriously?
• Reluctant to adopt innovations?
• Unwilling to pay for modern energy?

Energy Branch, UNEP
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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

Energy Branch, UNEP
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Low ability to pay for improved energy services?
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
Energy Branch, UNEP
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AREED II end-user financing roles of FIs
end-users/borrowers
equipment and services
small loans repayments
micro-finance institutions Nyetaa Finance
private SMEs clean energy equipment/ services
vendor finance agreement
wholesale loans repayments
TA
TA
Mali Folkecenter
wholesale lender EcoBank
international development wholesale lender
recourse loans
LRF escrow agreement
escrow function
Program implementation agreement and funding
UNEP
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lessons/conclusions

• small and medium-sized private enterprises can
  play a vital role in expanding energy access in
  developing countries (proof of concept).

• private energy SME support and end-user financing
  must always go hand-in-hand as part of any energy
  market transformation strategy.

• governments must create supportive investment
  climate, undergirded by good governance and
  mainstreaming of integrated resource planning
  approaches.

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Thank you!

• Lawrence Agbemabiese
• Energy Branch, UNEP DTIE, Paris
• Telephone [phone]
• Email lagbemabiese_at_unep.fr