The Role of SGBs in Clean Energy Development Jeffrey Haeni USAID/EGAT/I&E Infrastructure Workshop

Alternative Scenario or BAU? $26 trillion in global energy spending by 2030 and there will still be… 1.4B w/out electricity 2.6B using traditional cooking fuels The IEA projects that from 2006 to 2030, there will be approximately $26 trillion in global energy spending. They then develop two scenarios – Business-as-usual, or an alternative scenario (one employing more renewables and clean alternatives). In both cases, the number of un- and under-served individuals doesn’t change significantly from what we have today – 1.6 billion in un-electrified homes and 2.4 billion using traditional cooking fuels. Where’s the progress? Is that really the only alternative? Source: UN Population Projections, 2006 ; IEA World Energy Outlook, 2008

The SME Concept (click on the video in order to start)

Successful Enterprise Toyola-Stoves-Ghana VEV-Wind-Senegal Lambark-LPG-Ghana SME-RE-Biomass-Cambodia LEDCO-Hydro-Nepal Two Decades of Successful Enterprise Experience … 100s of Examples (click forward once and then wait for animation) Lambark: Provides LPG filling and delivery services to customers in Kumasi, Ghana’s second largest city, as well as customers in the surrounding regions who otherwise must travel long distances to the city center to refill their cylinders. SME-RE: Sells and maintains industrial sized gasification systems using rice husks as a fuel that produce electricity for a variety of different companies – rice mills, brick factories and others. SEUL (Solar Energy Uganda Ltd.): One of the larger solar PV companies in Uganda, serving households and institutions for over a decade. Toyola Energy Ltd.: Leading producer of improved charcoal cookstoves in Ghana. LEDCO: The first time in Nepal that a community-based organization attempts to establish grid-connected hydro power projects. MOP (Masaka Organic Producers): A company representing women farmers in Uganda uses solar dryers to prepare their crops for both local and international consumption. VEV: Wind-powered water pumping. A company established to maintain windmills and pumps installed and left by an NGO. Red Ceramics Association: Organized a fuel-switching project for members (brick makers) to replace sawdust and used oil with grid-connected natural gas in Bolivia. SEUL-Solar-Uganda Red Ceramics- Natural Gas-Bolivia Source: E+Co MOP-Fruit Drying-Uganda

The Clean Energy SGB Universe Definition: <300 employees, <15 million in revenues/assets (IFC) Types of Services: Lighting, electricity for appliances, improved cooking, water-pumping, agro-processing, motive transport Technologies: LPG, Solar PV, solar thermal, improved biomass cookstoves, hydro, wind, biogas, gasification, biofuels Interaction with Customers: Single buyer PPAs, inside-the-fence deals, large numbers of retail customers SGB = Small and growing businesses

The SGB Universe Business models: How will the customer pay? Cash, 30-day credit, long term credit rental, fee-for-service/utility model, supplementary subsidies provided directly to business, vouchers systems, … Niche in the value chain? Sourcing, manufacture, distribution, retail, maintenance, project operator… Operational structure? One company w/ everything in house, one company employing contractors, franchise model, … Ownership? Private (single owner, limited partnership, corporation, association), public-private partnerships, community/cooperatively owned, etc, …

SME Universe Current Status: What Can be Achieved? Installations Technology/Application Installations Biogas 16 million PV 2 million Small Wind <10,000 Source: REN21 - 2005 What Can be Achieved? Source: Innovations in Rural Energy Delivery – Navigant - 2006

Source: Innovations in Rural Energy Delivery – Navigant - 2006

SME Development Toolkit: Methodology Assemble a cross-section of real-world examples There are 16 of these, and counting From examples, identify criteria linked with success and failure, replicability and growth 1 programmatic & 1 enterprise framework developed Develop a set of implementation tools for USAID staff to evaluate and improve existing programs and propose new ones. “Tools” include: the 2 frameworks, financial analysis tutorials, portfolio spreadsheets and the effects of carbon finance, concrete step-by-step materials on how to plan a business and create proposals The collection of case studies is meant to target inductive learners. Often, just seeing a wide variety of examples (successful and struggling), these learners can internalize much of the information. The frameworks are perhaps most useful for deductive learners who want to see the picture as a theoretical whole, understand the rationale, and then finally derive each piece of the puzzle. Lastly, the more explicit set of tools is meant to help those who appreciate “peering inside” a little more deeply to see how things work. The tools presented here are the everyday working tools of SGB financiers, the service providers as well as the entrepreneurs themselves.

The Framework for Program Implementation There are 3 main elements that, in combination, can characterize most support programs. The most effective programs address all 3 in a balanced fashion. Policy Technology Policy can help provide the enabling environment in which development can take place. Appropriate technology is necessary as well in order to find a superior energy solution, one that people will actually prefer to use and that is also better for the environment. The enterprise aspect is crucial in order to make the intervention financially self-sustaining, hence scaleable. Enterprise

Program Challenges Some programs, for example, put relatively too much emphasis on policy and neglect the technology and enterprise aspects. The potential positive impacts, then, “spill” out and are not realized. Technology Policy Programs examined in this Toolkit are the LPG promotion program in Ghana, the MFP program which began in Mali and has since spread to other areas in West Africa, the Biogas sector partnership in Nepal, the Rural Electrification plan in South Africa and the USAID-funded FENERCA in Central America. Each program is evaluated with regards to the degree to which it achieved its stated objectives, led to lasting change, and resulted in activities that were scaleable. Enterprise

The Framework for SGBs: Creation and sustained success Entrepreneur (e)‏ Technology (t)‏ Services (Es)‏ Finance (Ef)‏ Demand (d)‏ Knowledge (k)‏ Services (Cs)‏ Finance (Cf)‏ Financial Policy & Enabling Environment Environmental Social E (Enterprise)‏ C (Customer)‏ Here is the essence of the situation: Can enterprises be created that can: 1) provide customers with what they want, and 2) financially survive by doing so? Are customers sufficiently empowered in order to take advantage of what these enterprises have to offer? This is referred to as the enterprise-customer connection. Each of the 8 factors pictured above is explored in some depth in the toolkit. References to the case studies, documents and exercises are included.

Policy and enabling environments Carbon finance Subsidies Cross-cutting Topics Policy and enabling environments Carbon finance Subsidies Avenues of intervention In addition to the eight factors on the previous slide, these topics are more indirectly involved in the enterprise-customer transaction and have the ability to affect many aspects of that relationship. Again, these topics are explored and linked to other materials in the toolkit.

Policy and enabling environments Key issue areas affecting energy SMEs (can be positive or negative, depending) Government/donor energy support programs Preferential/discriminatory tax treatment Business and banking environment These are the three major areas where policy realms tend to influence outcomes in the clean energy SGB sector. Each of these can be helpful to enterprises or frustrating, depending on how the policy or program framework was designed and implemented. This is all explored in some depth.

Carbon Finance Represents a potential additional source of revenue for energy SMEs Must balance carbon development costs against anticipated revenues CERs - difficult, narrow range of profitability VERs – ~ 10,000 t/yr by 2010 “hurdle rate” Single enterprises or programs of activities Need for specialized carbon developer Carbon finance is, perhaps, difficult and more risky than many may guess at first. It is difficult because of the complexity of the rules and regulations governing different types of offset calculations and registration (this is a very long, multi-step set of processes). It is risky because of the fact that uncertainties related to the underlying businesses, to the registration process, and finally to the price of carbon are all added on top of one another. Nevertheless, many SGBs and clean energy programs have managed to package and effectively sell carbon offsets, resulting in an important source of revenue for their operations.

Subsidies What makes a subsidy “smart?” Effective, achieves its stated aims Satisfies the “But-for” principle Cost-benefit analysis Efficient, compared to alternative strategies Hard subsidies (provide forms of direct financial benefits) vs Market readiness subsidies (build human capacity, awareness, etc.) Some level of subsidy support is no doubt needed to promote improved energy access for the roughly 2 billion people who lack it. But what form should it take? How much is needed and where? These are issues tackled in the Toolkit and they remain open to much more debate. In the end, the subsidy question is a matter of choice, but the aim of this section is to offer a more rigorous set of criteria and analytical tools to help development professionals and government officials make those difficult choices.

Avenues of Intervention Variety of ways to get involved Information (collection, analysis, dissemination) Market readiness (training, advocacy, awareness-raising) Transactions (program implementation, finance) How to get involved as an organization, an individual, and try and make a difference? Start by assessing your strengths and areas of expertise and try and find a “good fit” in this list. When thinking about program design, what are all the various, market-wide challenges that need addressing and can partners with appropriate skill sets be identified to help?

Rationale for creating a Wikispace The Wikispace Rationale for creating a Wikispace Dynamic, easily updated, supports multiple media formats, more “2D” (as opposed to a “linear” report) Can be opened up for future collaboration, leveraging collective intelligence and expertise This is the 21st century after all. No more reports! The goal of the wikispace is to help you more easily explore the topics which interest you, quickly access the reference documents and spreadsheets you need, watch videos, directly contribute your own knowledge and carry on discussions with peers in the forum pages…. All in one convenient location. How are we doing? -> Log in and let us know!

The Wikispace http://energyaccess.wikispaces.com The wikispace is organized by content as well as by type in order to facilitate browsing and information retrieval. There is a presentation library (as well as single, fit-for-purpose slides), a carefully chosen bibliography, a video library, and list of useful links for project champions and their enablers. It also houses financial training materials. Each page includes a discussion forum where readers can post their reactions, suggest new edits, or carry on debates. Users with permission can directly edit the pages. http://energyaccess.wikispaces.com