1. The Enterprise Imperative Improving local capacity and delivering modern energy by strengthening the enterprise-customer connection Prepared for: USAID December 2008 Philip LaRocco Jennye Greene

2. The Solar Electric Light Co. We can all agree that more SELCOs are needed in order to address the energy needs of the under-served. Click below for 3 minute video

3. Lambark-LPG-Ghana SEUL-Solar-Uganda SME-RE-Biogas-Cambodia VEV-Wind-Senegal Toyola-Stoves-Ghana LEDCO-Hydro-Nepal MOP-Fruit Drying-Uganda Red Ceramics- Natural Gas-Bolivia Two Decades of Successful Enterprise Experience … 100s of Examples

4. La Esperanza Where: La Esperanza, Intibuca, Honduras What: A 3-stage, 13.5 MW run-of-river hydroelectric project Stage 1: 485 kW Stage 2: 950 kW Stage 3: 13.5 MW Carbon: One of the first small-scale carbon monetizations Impacts: Community development, job creation, clean energy, tree planting

5. Presentation Outline 1.The general landscape 2.The case for energy enterprises 3.Transferring knowledge and experience 4.Building a framework 1. The landscape2. The case for enterprise3. Transferring knowledge4. A Framework

6. 1.6 billion people do not have electricity 2.4 billion people cook with traditional fuels 2. The case for enterprise3. Transferring knowledge 4. A Framework 1. The landscape

7. Business-As-Usual $26 trillion in global energy spending by 2030 and there will still be … –1.4B w/out electricity –2.6B using traditional cooking fuels People (Billions) 1. Lay of the land2. The case for enterprise3. Transferring knowledge 4. A Framework Sources: IEA World Energy Outlook, 2008 ; UN Population Projections, 2006 1. The landscape

8. Limits of Business-as-Usual 1.Geography 2.Cost per grid connection 3.Population growth In a conventional utility model (RSA), the grid extension became uneconomic around R3,000 (yr 2000R)/connection. At R5,000/connection, market penetration stops. This left 20-25% of the market unmet.

9. Limits of Business-as-usual Source: www.eskom.co.za

10. Limits of Business-as-Usual

12. Back-of-the-envelope calculations Over five years, the 1.6B people without electricity and the 2.4B people without modern cooking will spend over $250B on fuel (mostly kerosene and woodfuels) For ~$150B, a solar home system and modern cook stove could be given to every household that doesn’t have them. Over five years, the fuel savings from switching would be ~$100B for lighting and ~$50B for cooking 1. Lay of the land2. The case for enterprise3. Transferring knowledge 4. A Framework 1. The landscape

13. A little perspective 1. Lay of the land2. The case for enterprise3. Transferring knowledge 4. A Framework 1. The landscape

14. Why focus on enterprises? BUSINESS-AS-USUAL PROBLEMS: Classic utility model not serving all unmet demand … trapped in one size fits all model Grappling with macro issues of growing energy insecurity … little or no incentive toward human development Dissatisfaction with one-size-fits-all or one-gap-needs-filling ODA approaches Need to deal with climate change adaptation and mitigation overwhelms energy access issues The limits of central station, pipe and wires energy are understood THE ENTERPRISE ADVANTAGE: Ability to efficiently address unmet demand … multiple products and services Successful enterprise-customer experimentation since early 90s … built on quality of life and productive livelihood growth Opportunity for USAID to leverage scarce resources and take the lead in a model that recognizes and fills multiple gaps Economic, social and environmental benefits in new service delivery The untapped potential of local entrepreneurship has been grossly underutilized 2. The case for enterprise3. Transferring knowledge 4. A Framework

15. Business-as-not-too-unusual There are NO good reasons why so many people are un-served. The key building blocks are available... Demand/purchasing power Appropriate technology Resources for capacity building Delivery expertise …under the right circumstances. 1. Lay of the land2. The case for enterprise3. Transferring knowledge 4. A Framework 1. The landscape

16. Communicating success This body of work asks just two questions: What can be learned from these small and growing energy enterprises? How do we convert what we know into a practical tool and set of guidelines for development practitioners? 1. Lay of the land2. The case for enterprise3. Transferring knowledge 4. A Framework 1. The landscape

17. Methodology of this study 1.Assemble a cross-section of real-world examples 2.From examples, identify criteria linked with success and failure, replicability and growth 3.Formulate a typology of models (both business and donor models) 4.Develop a set of implementation tools for USAID staff to evaluate and improve existing programs and propose new ones. 1. Lay of the land2. The case for enterprise3. Transferring knowledge4. A Framework1. The landscape

18. A wide range of technologies and organizational structures Zara Solar –(Tanzania; private) Barefoot College –(India; private, donor) SELCO –(India; private) Soluz –(Dominican Republic, Honduras; private) RAPS –(South Africa; ) 1. Lay of the land2. The case for enterprise3. Transferring knowledge 4. A Framework Toyola –(Ghana; private) Multi-functional Platform –(Mali, govt’, donor) SME-RE –(Cambodia; private) Stiftung Solarenergie –(Ethiopia; donor) … And many, many others. 1. The landscape

19. Expertise drawn from many varied sources Eric Usher, UNEP Ellen Morris, Arc Finance UNDP, MFP Bunker Roy, Barefoot College Christine Eibs Singer, E+Co Dan Shepherd, IADB-MIF Stacy Swann, IFC Harish Hande, Selco-India Harald Schutzeichel, Stiftung Solarenergie Suraj Wahab O, Toyola Mohamed and Mona Parpia, Zara Solar …And many, many more 1. Lay of the land2. The case for enterprise3. Transferring knowledge 4. A Framework 1. The landscape

20. Frameworks Being Used 1.The “Balanced Implementation Model:” It is the combination of and balance among three variables… Policy & enabling environments The availability of suitable technology Capable “enterprise-like” delivery … that account for an initiative’s success. 2.The “Enterprise-Customer Connection:” The most critical interaction in the value chain is between the “enterprise” (delivering party) and the customer (receiving party). 1. Lay of the land2. The case for enterprise3. Transferring knowledge 4. A Framework 1. The landscape

21. Our Objective: Balanced implementation PolicyTechnology Enterprise 1. Lay of the land2. The case for enterprise3. Transferring knowledge 4. A Framework 1. The landscape An Out-of- Balance Initiative… Too much policy push… Too little companion technology push … Way too little implementation push … Potential Impact

22. Balanced implementation strives for proportionate and appropriate emphasis on the key variables PolicyTechnology Enterprise 1. Lay of the land2. The case for enterprise3. Transferring knowledge 4. A Framework 1. The landscape

23. The balanced implementation model PolicyTechnology Enterprise 1. Lay of the land2. The case for enterprise3. Transferring knowledge 4. A Framework 1. The landscape Impact

24. Case Study: FENERCA FENERCA (2000-05) was a USAID program that sought to create a pipeline of RE business proposals by strengthening the capacity of entrepreneurs, local financial institutions, NGOs and governments. USAID was the primary source of programmatic funds ($5.3 M) FENERCA was largely successful in following a balanced implementation approach.

25. FENERCA Highlights Enterprise: 162 enterprises received development services 62 bankable proposals created 21 businesses operational by 2005 (+8 awaiting fund disbursement) >$36 M in financing mobilized

26. FENERCA Highlights Technology: 1,850 people trained in subjects related to clean technology (entrepreneurs, government officials, NGO decision- makers, and staff of financial institutions) Of the 21 enterprises created, –13 solar –5 small hydro –3 biomass

27. FENERCA Highlights Policy: Policy document produced related to policy opportunities for RE in CA 3 meetings held with regional energy authorities Assistance given to Honduran Congress in drafting legislation providing incentives for RE development

28. The Enterprise-Customer connection E (Enterprise)‏ C (Customer)‏ 1. Lay of the land2. The case for enterprise3. Transferring knowledge 4. A Framework 1. The landscape

29. The Enterprise-Customer connection Entrepreneur (e)‏ Technology (t)‏ Services (Es)‏ Finance (Ef)‏ Demand (d)‏ Knowledge (k)‏ Services (Cs)‏ Finance (Cf)‏ E (Enterprise)‏ C (Customer)‏ 1. Lay of the land2. The case for enterprise3. Transferring knowledge 4. A Framework 1. The landscape

30. Entrepreneur (e)‏ Technology (t)‏ Services (Es)‏ Finance (Ef)‏ Demand (d)‏ Knowledge (k)‏ Services (Cs)‏ Finance (Cf)‏ Financial Policy & Enabling Environment EnvironmentalSocial E (Enterprise)‏ C (Customer)‏ 1. Lay of the land2. The case for enterprise3. Transferring knowledge 4. A Framework 1. The landscape

31. Case Study: Toyola Energy Ltd. Manufacture and distribution of improved charcoal cookstoves in Ghana Started business in 2006 Stoves exhibit ~40% fuel efficiency and retail for ~$10. Projected sales of 300,000 over the next 5 years

32. Toyola Energy Ltd. Entrepreneurs: –Suraj and Ernest Technology: –ICS is mature and appropriate technology Services: –Artisan training provided by EWW –Business development provided buy E+Co Financing: –E+Co has made 2 loans and an advance on future carbon revenues Customer demand: –Charcoal is expensive, stoves have short payback period Knowledge of product: –EWW provided extensive advertising Services: –Risk-free trials of stoves –Refurbishing possible Financing: –Relatively low cost –Some micro-credit available

33. Toyola Energy Ltd. - Outcomes Financial – –Profitable and fast-growing business, able to meet its loan obligations –Potential carbon revenues are significant Social –Employment opportunities for 150+ people –Reduced indoor air pollution –Cost savings for households and chop bars Environmental –Less pressure on forest resources –Reduced GHG emissions

34. USAID 

35. Balance Sheet Yr 1Yr 2Yr 3Yr 4Yr 5 Assets73,83363,82957,17263,96162,693 Liabilities62,20547,69932,89218,6755,553 Equity11,62816,13026,14845,28657,139 Income Statement Domestic units5,3008,48011,02414,33118,630 Price Per Unit(US$)66666 Commercial Units2,5833,8755,4257,0528,462 Price Per Unit20 Total Revenue80,812124,13 2 169,12 1 219,85 8 271,71 1 Cost of Sales44,31468,06192,741120,56 4 148,97 6 Gross Profit36,49856,07276,38099,294122,73 6 Gross Profit %45.2% Operating Expenses30,80033,88047,43266,40592,967 EBITDA5,69822,19228,94832,89029,769 Interest E+Co 12,2123,6502,2621,397239 EDS Rec Fees6441,288 644 Depreciation11,533 2,800 Taxes0007,1037,599 Net Income-8,6923,8619,35918,49811,530 Net Cash Flow4,2251496,57219,58725,602 IRR 110% Balance sheet projections for first loan, Nov. 2006 Toyola Energy Ltd.

36. Projections Nov-0720082009201020112012 Assets 109,924219,258201,952184,677177,647179,891 Liabilities 68,575147,274109,35969,62837,29412,445 Equity 41,34971,98492,593115,049140,354167,446 #Units - Domestic Stoves15,73242,80047,08051,78862,14674,575 Price Per Unit$8.00 $9.60$11.52$13.82$16.59 #Units - Commercial Stoves1,1072,7304,3685,2427,8629,435 Price Per Unit$ 25 $ 30$ 36$ 43$ 52 Total Revenue 153,531410,650510,132601,242803,0731,011,872 Cost of Sales92,718290,160368,880423,048575,419704,543 Gross Profit 60,813120,490141,252178,194227,654307,329 Gross Profit % 39.61%29.34%27.69%29.64%28.35%30.37% Operating Expenses36,28363,78685,184122,478171,727251,834 EBITDA 24,53056,70456,06955,71655,92755,495 Interest2,85712,95610,7247,9104,3221,505 Depreciation12,30017,866 Taxes2,6247,2476,8707,4858,4359,031 Net Income 6,74918,63520,60922,45625,30527,093 Net Cash Flow (68,532)55,5221,710(3,885)(3,471)(4,444) IRR 8.31% Balance sheet projections for second loan, Dec. 2008 Toyola Energy Ltd.

37. Wikispace For more information, progress updates, or in order to leave your feedback, please visit our wikispace entitled EnergyAccess. We want to hear about your examples and insights. Email philip.larocco@eandco.net or jennye@gmail.com for instructions.

38. Have a nice day and Thank you for your attention!

39. Goals 1.Create improved, cost-effective service delivery of modern energy. 2.Leverage the largely untapped resource of small and growing businesses in order to do so. 3.Promote activities that can achieve scale and are replicable.

40. Investors - Managed Accounts Donations – Grants & Energy Cures Borrowings – People + Planet Notes Services SME Entrepreneurs & MFIs Capital Principal, Interest & Dividends Development Benefits Environmental Benefits Carbon Revenues Operations DebtEquity End-user Finance

41. Investors - Managed Accounts Donations – Grants & Energy Cures Borrowings – People + Planet Notes Services SME Entrepreneurs & MFIs Capital Principal, Interest & Dividends Development Benefits Environmental Benefits Carbon Revenues Operations DebtEquity End-user Finance $1.00$0.20$0.10 $1.07$0.23 2/3rds 10%, 7 y1/6 th 12%, 9 y1/6 th 11%, 5 y 10.7% Provision for financial losses 9.2% of P + I + D … 10.7% becomes 8.7% On $1.00 …equals 7.3% on $1.07

42. Sensitivity of Return to Amount Borrowed of each $1.30 Required 10.7% hurdle rate, 9.2% losses, 1.30 formula 7.3% base case Borrow $1.07 Invest $1.00 Grants + Carbon = $0.23 % of full cost borrowed

43. Schedule and Deliverables WeekTasksDeliverables Dec. (wk. 1)Finish case studies; Start Interviews Submit preliminary presentation, outline Dec. (wk. 2)Continue interviews Dec (wk. 3)Evaluate progress Dec. (wk. 4)Consolidate research Jan. (wk. 1)Begin writing Jan. (wk. 2)Continue writing Jan. (wk. 3)FormatSubmit text for peer review Jan. (wk. 4)Edit, reviseDeliver final materials (texts, case studies, presentations, multimedia) on flash drives