Energy and Poverty Reduction: Proceedings for the Global Village Energy Partnership (GVEP) Workshop on Pre-Investment Funding Berlin, Germany, April 23-24, 2003 Global Village Energy Partnership (GVEP) Report 294/04 November Proceedings for the Global Village Energy Partnership (GVEP) Workshop on Pre-Investment Funding Sponsored by the Global Village Energy Partnership Technical Secretariat Hosted by Kreditanstalt Für Wiederaufbau (KFW) Berlin, Germany, April 23-24, 2003 2 Copyright © 2004 The International Bank for Reconstruction and Development/THE WORLD BANK 1818 H Street, N.W. Washington, D.C. 20433, U.S.A. All rights reserved Manufactured in the United States of America First printing November 2004 ESMAP Reports are published to communicate the results of ESMAP's work to the development community. The typescript of the paper therefore has not been prepared in accordance with the procedures appropriate to formal documents. 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TABLE OF CONTENTS Acknowledgments ...................................................................................................... v Executive Summary.................................................................................................. vii Background...................................................................................................... vii Partnership Activities ....................................................................................... vii GVEP Workshop.............................................................................................. vii Workshop Structure......................................................................................... vii Workshop Findings ..........................................................................................viii Conclusions.......................................................................................................ix 1. Workshop Overview...............................................................................................1 Background........................................................................................................1 GVEP Workshop................................................................................................2 Workshop Overview...........................................................................................3 2. Summary of Panel Discussions............................................................................5 Findings and Recommendations from Panel I ? Project Developers and Entrepreneurs ........................................................................................5 Discussion Highlights.............................................................................5 Recommendations...............................................................................10 Findings and Recommendations from Panel II ? Financiers..........................10 Discussion Highlights...........................................................................10 Recommendations...............................................................................12 Findings and Recommendations from Panel III ? Fund Managers................13 Discussion Highlights...........................................................................13 Recommendations...............................................................................15 3. Working Group Discussion Highlights ..............................................................17 Topic One: Is there value added from a new GVEP pre-investment fund, and how can it complement existing funds?..............................17 Topic Two: What types of pre-investment products and services are needed to accelerate investment in energy services for productive, consumptive, and social needs? ......................................18 i Topic Three: How should the fund be managed and operated in developing country markets to ensure effectiveness and efficiency?.19 Topic Four: What would be the complementarities between the GVEP pre-investment fund and other financing instruments?...........20 4. Conclusions...........................................................................................................23 Key Workshop Findings...................................................................................23 Overall Findings ...................................................................................23 Areas for Possible GVEP Support.......................................................24 Possible Role for GVEP Partners........................................................25 Appendix 1: Workshop Agenda ..............................................................................27 Appendix 2: Workshop Presentations...................................................................31 Global Village Energy Partnership (GVEP) Overview.....................................31 Dominique Lallement ...........................................................................31 Meeting Background, Goals, Objectives and Structure..................................34 Judy Siege ...........................................................................................34 Experience in Pre-Investment Funding for Clean Energy Programs and Project Development: Case Studies from the Entrepreneur Perspective ..........................................................................................39 Arturo Rivera, ElectrOriente.................................................................39 Dipal Chandra Barua, Grameen Shakti...............................................42 Francis Yamba, Centre for Energy, Environment and Engineering, Zambia:...............................................................46 Luis Torres, BP Solar...........................................................................49 Mobilizing Local Capital Markets: The Role of Pre-Investment Capital.........52 Ajay Narayanan, Infrastructure Development Finance Corporation...52 John Taylor, Development Finance Corporation of Uganda...............55 Chris West, Shell Foundation ..............................................................58 Experiences and Lessons Learned from Funds Managers ............................59 Fernando Alvarado, E & Co.................................................................59 Hans Schut, Solar Development Group, Triodos International Fund Management...................................................................62 Grace Yeneza, Preferred Energy Investment.....................................67 ii Patricia Moles, (formerly Terra Capital, Brazil) ...................................72 Appendix 3: List of Confirmed Participants ..........................................................73 iii Acknowledgments This report presents the results of a two-day workshop held April 23-24, 2003, in Berlin, Germany. The purpose of the workshop was threefold: (1) to determine whether the Global Village Energy Partnership (GVEP) should develop a pre-investment fund to facilitate the scale-up of modern energy services; (2) to provide a forum for reviewing and soliciting input on other GVEP financing activities; and (3) to share lessons learned and best practices on the financing and delivery of modern energy services. The workshop involved about 40 participants from around the world, including representatives from developing and industrialized countries. The workshop was organized under the aegis of GVEP and was made possible with funding from the UNDP/World Bank Energy Sector Management Assistance Program (ESMAP), which also houses the GVEP Technical Secretariat. Additionally, the Kreditanstalt für Wiederaufbau (KfW) served as cosponsor of the workshop, providing the meeting venue, meals and refreshments, and conference planning and logistical support. As was noted by several of the participants, KfW did an outstanding job in organizing and running the meeting. Special acknowledgments go to Peter Pischke of KfW, who opened the meeting and welcomed the participants, Neithard Petry who chaired the two day meeting with tremendous efficiency and humor, Dominique Lallement, who helped to design and run the workshop, and Judy Siegel, who planned and organized the meeting and was the lead author on this report. Also supporting the design of the meeting and report development were John Ryan, a consultant to ESMAP, and members of the GVEP Technical Secretariat, including Susan McDade, Ellen Morris, Dick Jones, Katherine Gratwick, and Ghislaine Kieffer. Marjorie K. Araya for coordinating the publication process and Matthew Gardner for formatting this report. The GVEP Technical Secretariat would also like to acknowledge the work of the moderators who chaired the various sessions, including Jurie Willemse, Susan McDade, and Edward Hoyt, as well as the moderators and rapporteurs of the breakout sessions: Hasna Khan, Sarah Adams, Dipal Barua, Teo Sanchez, Venkat Ramana, John Ryan, Lalith Gunaratna, and Ebenezer Nketsia-Tabiri. Finally, we would like to acknowledge the excellent presentations, which documented experiences to date in the financing of modern energy services and stimulated discussion and debate. Session speakers included: Arturo Angel Rivera-Valentin, Dipal Chandra Barua, Francis Yamba, Luis Torres, Ajay Narayanan, John Taylor, Chris West, Fernando Alvarado, Hans Schut, Grace Yeneza, and Patricia Moles. v Executive Summary Background 1. The Global Village Energy Partnership (GVEP), launched at the World Summit on Sustainable Development in Johannesburg, South Africa, in August 2002, seeks to increase energy access to the millions of unserved or underserved people in developing and transition economies in a manner that enhances economic and social development and reduces poverty. A "Partnership of Partnerships," GVEP brings together developing and industrialized country governments, public and private sector organizations, multilateral and bilateral organizations, consumer groups, and nongovernmental organizations (NGOs). Currently, GVEP has about 200 partner organizations and the list grows daily. Partnership Activities 2. Based on consultations with partners and other organizations over the past year, GVEP has identified five value-added areas where support is needed: (1) national and/or subnational energy-poverty action plan development and implementation; (2) capacity strengthening, focusing on entrepreneurs and consumer service organizations; (3) financing facilitation, including pre-investment support, a financing portal, risk mitigation instruments, financier training programs, and investment leveraging; (4) knowledge management to share information and provide a forum for networking among partners; and (5) results monitoring and evaluation. GVEP Workshop 3. On April 23-24, 2003, the GVEP Technical Secretariat, in conjunction with partner organization Kreditanstalt für Wiederaufbau (KfW), sponsored a workshop in Berlin, Germany, to seek input on the GVEP financing facilitation service line. The purpose of the workshop was threefold. First, and most important, was to answer the question "Should GVEP develop a pre-investment fund to facilitate the scale-up of modern energy services?" Discussions over the past year have yielded strong and often divergent views on the merits of a GVEP pre-investment fund. Second, the workshop provided a forum for reviewing and soliciting input on the other elements of the financing facilitation service line as identified above. Third, the workshop sought to share lessons learned and best practices on the financing and delivery of modern energy services by the various stakeholder groups involved in the process. Workshop Structure 4. The workshop involved about 40 participants from Asia, Latin America, Africa, Europe, and North America that reflected the various GVEP partners involved in the financing arena. These included private firms, project developers, entrepreneurs, financiers, NGOs, and service delivery organizations. The two-day workshop included vii overview presentations by the GVEP Technical Secretariat; panel discussions involving entrepreneurs, developing country financing organizations, and funds managers; and working groups to allow participants to discuss, in more detail, ways to increase investment in modern energy projects and programs. Workshop Findings Overall Findings · Need for pre-investment funding, but not for a new GVEP fund. · Though pre-investment support is important, it is not the only element lacking in project development; there was a strong call for financing support across the continuum ? from concept to investment to operation. · Call for risk-sharing and risk mitigation instruments at all stages in the project financing cycle (not just investment/operating stage), and for all actors in the marketplace. · Markets need to grow on their own strengths, not on subsidies, though conditional grant funding is needed for some services ? capacity building, knowledge dissemination, startup costs, reduced system costs. · Financial resources are available in the marketplace, including grant funding and liquidities in local markets; however: (1) Pre-investment funding is difficult to access in many countries; (2) where available it does not always yield investment and deal flow; and (3) accessing funds where they do exist is difficult, time-consuming, and costly. · Consumers are key in project design, including understanding consumer demand and ability to pay for the energy services. · Funding mechanisms need to be locally managed and operated; for pre-investment activities, the funds should be in local currencies. · Public-private partnerships are vital to secure political support, commitment, and action. Areas for Possible GVEP Support · Provide networking and information dissemination on best practices and lessons learned; build on and replicate successes. · Identify sources of funds (pre-investment/investment) from domestic and international sources, package this information in understandable and accessible formats, and make available to service providers. · Help close the gap in pre-investment and investment financing by creating a virtual "brokerage house" for interested parties in order to accelerate deal flows. viii · Assist in the design and development of new domestic and international financing sources (pre-investment/investment) and improve efficiencies and operation of existing funds. In all cases, funds should involve clear guidelines, speedy processes, and flexibility from financiers. · Support capacity building within the financial sector, for example, local banker training, microcredit organization training, and train-the-trainers programs. · Guide the use of soft funding to ease financing bottlenecks toward market-based solutions. · Support the design of risk mitigation instruments and other financial engineering that could increase the flow of funds for energy projects and programs. · Increase understanding of consumer issues with respect to modern energy delivery, including hosting a workshop on consumer credit and related issues. Possible Role for GVEP Partners · Provide financing directly and/or increase access to funding sources (particularly, local investors, developing country and industrialized governments, private firms, financial institutions, and multilateral organizations). · Participate in working groups on specific GVEP financing-related activities. · Provide advice on available financing sources, lessons learned, and best practices. · Serve as a knowledge resource for other partners and GVEP-supported activities. · Engage in country-level consultations. Conclusions 5. The workshop offered significant insight on the role for GVEP in the pre- investment and broader financing continuum. The workshop also provided an excellent forum for exchange of information among developers, financiers, and end users. 6. A key finding was that GVEP should not create a global pre-investment fund but should work with partner organizations toward increasing pre-investment and investment sources through a range of capacity-building, knowledge management, and financing facilitation activities noted above. The design and implementation of action plans in GVEP partner countries is a viable mechanism for identifying and mitigating financing barriers at the local level, expanding financing sources (local, regional, and international) at all stages in the project cycle, and deploying effective modern energy projects and programs to increase energy access. ix 1 Workshop Overview Background 1.1 The Global Village Energy Partnership (GVEP) is an initiative dedicated to ensuring access to modern energy services by the millions who are unserved and underserved in developing countries around the world? especially poor communities in rural, peri-urban, and urban areas. The partnership brings together developing and industrialized governments, public and private sector organizations, multi- and bilateral institutions, consumer groups, nongovernmental organizations (NGOs), and others in an effort to reduce poverty and enhance economic and social development through the accelerated provisionof modern energy services. Currently, more than 200 organizations have joined the partnership, each of which brings to the initiative a unique perspective and the benefits of its own individual efforts and services to improve people's standards of living through energy services. 1.2 GVEP has engaged its partners in a global dialogue to facilitate sharing of successes, disseminating models, pooling technical resources, bridging financing gaps, strengthening local community organizations, aggregating and accounting for results, and, where necessary, designing new instruments. Iinitial results from the dialogue indicate that GVEP can add value in five key areas: · Action Planning and Implementation, to provide the vehicle for energy-related activities set forth in national and local poverty reduction strategies and development plans. · Capacity Development, to enhance policy frameworks, entrepreneurial development, consumer organization, and credit systems aimed at expanding the number and the capabilities of enterprises operating in rural markets in order to increase access to energy services. · Funding Facilitation, to work with a broad range of local, bilateral, and multilateral financiers in expanding existing programs and financial instruments to better suit the needs of investors and energy consumers. Proposed financing facilitation activities include a pre-investment fund to assist entrepreneurs and consumers in early-stage project development activities, a financing portal with information on financing 1 2 Proceedings for the GVEP Workshop on Pre-Investment Funding sources and access, local banker training and funds mobilization, risk reduction instruments, and investment leveraging, · Knowledge Management and Transaction, to enable the sharing of information on innovative approaches, lessons learned, and best practices for improved energy service delivery, while providing a forum for networking among partners. · Results and Impact Monitoring and Evaluation, to track energy services and their impact on poverty reduction and sustainable development, while enhancing partner accountability for tangible results. GVEP Workshop 1.3 On April 23-24, 2003, the GVEP Technical Secretariat, in conjunction with partner organization KfW, sponsored a workshop in Berlin, Germany, to obtain input on one of the five GVEP service lines ? financing facilitation. In particular, the purpose of the workshop was threefold: · First, and most important, the workshop sought to answer the question "Should GVEP develop a Pre-Investment Fund to facilitate the scale-up of modern energy services?" Discussions over the past year have yielded strong, and often divergent, views on the merits of a GVEP pre-investment fund. The Berlin workshop sought to have an open and frank discussion on the value of a GVEP pre-investment fund and to draw conclusions and recommendations for future GVEP support in this area. · Second, the workshop provided a forum for reviewing and soliciting input on the other elements of the financing facilitation service line? financing portal, banker training, risk mitigation instruments, and investment leveraging. Each of these activities has been identified as important and lacking in the marketplace. · Third, the workshop sought to share lessons learned and best practices on the financing and delivery of modern energy services by the various stakeholder groups involved in the process. Financing Gaps In exploring the GVEP role in financing facilitation, a number of critical gaps have been identified. These include: · Low appetite for risk by financiers. Financiers often perceive a wide range of risks associated with modern energy service projects and some of the technologies that power them and often lack the capacity to analyze these risks. This leads to high transaction costs and the availability of a limited menu of financing options in many developing countries. · Lack of affordable capital for local entrepreneurs. Entrepreneurs require access to capital to help defray the often high upfront costs associated with developing modern energy service projects at the village level; assistance in the identification of financing sources and options; help in preparing the documentation required to access financing; guidance, know-how, and insights to navigate the inevitable bumps in the development and operation of projects; and a menu of financial options tailored to the risks specific to their projects. · Consumer needs for access to energy services and affordable credit. Household consumers require access to affordable credit and dependable energy services at the village level or in their urban environments; enterprises using modern energy services need working capital to start up or expand businesses. Workshop Overview 3 Appendix 1 provides the workshop agenda and Appendix 2 the workshop presentations. Workshop Overview The workshop was organized as presented below. 1.4 Opening Session. Peter Pischke of KfW opened the workshop, welcomed the participants, and introduced Neithard Petry of KfW, who served as overall workshop moderator. Dominique Lallement, Coordinator of the GVEP Technical Secretariat, introduced the partnership, including GVEP history, goals, objectives, partner roles, implementation arrangements, planned activities, and progress to date. Judy Siegel, who coordinates GVEP Technical Secretariat financing facilitation activities, outlined GVEP's possible role in financing facilitation, the results of consultations to date on this topic (including barriers to financing, priority areas for GVEP support, and role of pre-investment funding), and the expected goals and outcomes of the workshop. A discussion ensued with participants commenting on GVEP roles and value added and expectations of the two-day event. 1.5 Panel Discussions. Following the opening remarks, three panel discussions offered insights, experience, and lessons learned on pre-investment funding from the perspective of energy project developers, entrepreneurs, local financiers, and funds managers. Each session included three­four speakers who addressed the following topics: · Panel I ? Project Developer/Entrepreneur Perspective. Entrepreneurs and developers discussed case studies illustrating the role of pre-investment funding in preparing clean energy projects and programs. They also offered a practitioner perspective on the role of pre-investment support in the continuum of financial assistance for modern energy services. · Panel II ? Local Capital Markets. Financial institutions and foundations offered their insights into the role of pre-investment capital in mobilizing local financing for the delivery of modern energy services. · Panel III ? Fund Manager Experience. Fund managers presented lessons learned from operating facilities that made pre-investment support and financing available to developers executing or supplying modern energy services in rural and peri-urban environments. 1.6 Working Groups. Following the formal presentations and discussions, participants organized into four breakout groups to answer questions specific to GVEP's role in pre-investment support and broader financing facilitation. · Group 1 discussed "Is there value added from a new GVEP pre-investment fund, and how could it complement existing funds?" 4 Proceedings for the GVEP Workshop on Pre-Investment Funding · Group 2 examined "What types of pre-investment products and services are needed to accelerate investment in energy services for productive, consumption, and social needs?" · Group 3 addressed "How should pre-investment funds be managed and operated in developing country markets to ensure effectiveness and efficiency?" · Group 4 discussed "What is the complementarity between pre-investment funding and other financing instruments (for example, loans, equity, and guarantees)?" A list of the Breakout Group participants is provided in Appendix 3. 1.7 Wrap-Up Session. During this session, the findings from each of the four breakout groups were presented to the full assembly of participants for discussion. 1.8 Closing Remarks. In the final session, moderated by Mr. Petry, Dominique Lallement summarized the findings from the workshop and engaged the assembly in a discussion of next steps. Mr. Petry thanked the participants on behalf of KfW and the other sponsors. 2 Summary of Panel Discussions 2.1 The second session of the workshop involved panel discussions by project developers, entrepreneurs, financiers, and fund managers. Representatives from each of the three groups made presentations and engaged the participants in a dialogue on the role of pre-investment funding from the perspective of their institutions. A brief summary of the findings and recommendations from each of the three groups is provided below. Findings and Recommendations from Panel I ? Project Developers and Entrepreneurs 2.2 In this session, project developers and entrepreneurs operating in developing countries worldwide provided input on the phases of pre-investment funding, barriers to securing pre-investment support, and recommended support from GVEP in strengthening and expanding local businesses to supply modern energy services. Follow- on discussions with audience participants further informed the debate. 2.3 Session speakers included Arturo Rivera with ElectrOriente, S.A., in Guatemala; Dipal Chandra Barua with Grameen Shakti in Bangladesh; Francis Yamba with the Center for Energy, Environment and Engineering in Zambia; and Luis Torres with BP Solar in Spain. For the most part, the speakers represented companies providing decentralized systems based on renewable energy (small-scale hydro, solar, wind, modern biomass) as well as liquefied petroleum gas (LPG) and bio-diesel. Discussion Highlights 2.4 The panelists and discussants identified four key phases in the business development cycle where pre-investment support was needed. Figure1, presented by the first speaker, Arturo Rivera, summarized the importance of pre-investment support. · Phase 1: Project identification or initial business development was described as the first phase in the process where project and business development concepts are conceived. Activities included scouring an area for potential opportunities; determining the availability of energy resources; identifying areas of high consumer, commercial, and/or industrial demand for energy services; meeting with government officials to discuss policies and regulations governing participation in the sector; 5 6 Proceedings for the GVEP Workshop on Pre-Investment Funding visiting potential sites and talking with local communities to gauge demand and interest; creating awareness among policymakers and clients of the social, economic, and environment benefits of the potential opportunities; thinking through the technology options to meet "felt" demand; and sorting through a range of locations and approaches. Figure 1. The Importance of Pre-Investment Financing Investment Technical-Financial Feasibility DeveloperE&Co Analysis and REEF/IFREE/CFA/ Pre-Feasibility Evaluations Project Profile Topography, Hydrology, Grid, etc. Developer Project Identification Land, Legal Communities, Social Awareness · Phase 2: Concept development involves filtering the options identified in phase one; assessing the viability of specific opportunities in terms of potential legal, commercial, and technical issues; determining whether there is local support for project concepts; assessing the regulatory framework for developing the transactions; examining the possibility of securing basic necessities such as land tenure and rights of way; and working through the potential financial options. From these initial data the entrepreneur builds the profile of a particular project, prepares the project and business concept, and determines the context in which it will operate. · Phase 3: Pre-feasibility study involves the packaging of more detailed information (including backup data and documentation) into a full brief that makes the case for moving forward on a particular project or enterprise. In the pre-feasibility stage the context and the concept of the project are specified in detail, along with the developer's management and technical competencies to implement the concept. In particular, the pre-feasibility stage documents the following types of information: technical, financial, legal, and commercial specifications of the project and business Summary of Panel Discussions 7 concept; letters of support from clients, including utilities, cooperatives, and consumer groups; initial findings by regulatory agents that the project or business would have a legal space in which to operate; demand analysis and ability and willingness to pay estimates; fuel supply agreements; marketing plans outlining competing and complementary sources of energy in the market; the financial structure and requirements; and the management and implementation team, their experience, and capabilities. A key point raised in the context of the pre-feasibility stage was that projects that produce capacity exceeding local customers' needs cannot always sell this excess power to the grid, because of a range of access, market, and regulatory issues. For example, it was noted that in Guatemala, projects below 10 MW cannot provide power into the grid. · Phase 4: Feasibility study or business plan Feasibility Study Phase involves documenting the commercial Can Be a Headache feasibility of the project or enterprise and During the first panel, speaker packaging this in a format requisite to access Arturo Rivera noted that the cost of debt and/or equity investment from outside a feasibility study is high. "Big sources. Information may include site- project, big headache; small project, specific engineering drawings; commercial, big headache. It's generic." At the legal, and financial structures for the project feasibility stage there is little or enterprise; equipment supply chain financial assistance available and the commitments from purchasers of the services; developer is running short on funds. permitting arrangements; cost-benefit Pre-investment support is imperative calculations; market and financial analyses; to make projects go forward and to and many other elements that are brought share the risks with the developer. together and described in a full business plan or feasibility study. · Phase 5: Investment, developers noted the difficulty in mobilizing project finance below US$50 million, and achieving high internal rate of return (IRR) expectations. For example, the Renewable Energy and Efficiency Fund (now closed) required rates of return of up to 25 percent, and the Central American Bank for Economic Integration (CABEI) requires returns of up to 32 percent. 2.5 The speakers emphasized that the first two stages in developing enterprises and projects are often difficult and slow-going, requiring significant investment in time and capital and considerable technical expertise and know-how. They also stated, repeatedly, that few financial institutions are providing funds to cover the costs incurred in these two stages; these costs are almost always borne by the entrepreneur. For example, one speaker noted that early-stage project identification involves a range of land tenure, legal, community and social awareness, topography, hydrology, and grid interconnect issues that are generally considered risk capital invested by the developer. He explained that one of his small-scale hydro projects (<10MW) has taken more than seven years to put in place. He indicated that when this project began, funding was available from sources such as the International Fund for Renewable Energy 8 Proceedings for the GVEP Workshop on Pre-Investment Funding and Efficiency (IFREE), USAID/Winrock Pre-Investment Funding: International pre-investment window, and Grameen Shakti Experience Corporación Financiera Ambiental to cover these early-stage project development costs at subsidized Dipal Barua, Managing Director rates contingent on performance; today, however, of Grameen Shakti in each of these funding mechanisms has closed. Bangladesh, stressed that pre- investment funding has helped 2.6 Speakers also indicated that technical Grameen Shakti to achieve its assistance to navigate the process and prepare critical mass, deliver a range of requisite documentation to apply for pre-feasibility financing options to its clients, and feasibility funding (phases three and four above) and reduce the cost of solar modules by 50 percent since it was also absent in most developing countries. They began operations in 1996. stressed that the lack of funds and technical Support from the International assistance is restricting the number of developers Finance Corporation enabled able to put together projects and emphasized the Grameen Shakti to expand its considerable need for access to soft financing in operations, with 13,300 systems these project and enterprise development phases to installed by March 2003 (640 reduce or share the considerable risks and costs and kWp) and an additional 4700 to expand the base of service providers in rural areas. systems planned for this year. 2.7 A few programs that offer support to entrepreneurs for the third and Capacity Building and Pre-Investment Support Go Hand in Hand fourth phases were mentioned by participants, including E+Co, the National In describing the experiences of the Rural Electric Cooperative Association African Rural Energy and Enterprise (NRECA), the Solar Development Development (AREED) Program, Foundation, Winrock International India Professor Yamba noted that enterprise ARECOMM, Development Finance development services, in conjunction with Corporation of Uganda (DFCU), Preferred startup financing, are key to the delivery of Energy, Inc. (PEI), and Photovoltaics modern energy services by local Manufacturing Technology Initiative (PV- entrepreneurs. Growing evidence from MTI). These organizations provide some the five African countries where AREED assistance in strengthening the business operates also demonstrates significant co benefits beyond the provision of energy plan, completing technical studies, services. These include job creation, designing financial structures, and protection of land and forest resources, advancing to access investment capital and increased productivity and incomes, clean moving forward in the implementation of a water access, and other development business. However, the speakers lamented priorities. that these funds are expensive, often at market rates or above. As in the first two stages, there is a general lack of subsidized, contingent funding to support work in the third and fourth phases. Project developers are often running very short on funding once they reach the feasibility/advance business planning phase and this lack of funds is a significant bottleneck to project and enterprise development. The speakers stated that they were thankful for the existence of these programs, as many of them had been beneficiaries, but that they were often difficult to Summary of Panel Discussions 9 access; involved complex and daunting application and contracting procedures and requirements; were often managed from an OECD country, making it very difficult to access key decision makers; and required hypothecation of assets to cover equity or loans. 2.8 A key point that came out of the discussion is that two extremes are occurring in the financing of rural and peri-urban energy projects in developing countries today. At the one extreme, pre-investment or seed funding may be available (for example, through E&Co or Solar Development Foundation), but very few deals close because the developers and entrepreneurs do not have sufficient experience and credentials with financial intermediaries. At the other extreme, investment funding is available, but pre-investment support is difficult to access. The goal should be to provide access to financing across the spectrum, from pre-investment through to investment, and to close the gap on the two extremes. 2.9 The speakers and participants also emphasized that in most developing countries entrepreneurs will never even get to Phase I, Concept Development. They noted that, particularly in rural areas, entrepreneurs have limited: knowledge of modern energy technologies for delivery of energy products and services; information on modern energy services and technologies for productive and consumption uses; awareness of business opportunities in the energy sector; and capacity to identify transactions, develop concepts, and write the business plans and feasibility studies requisite for accessing capital. Addressing these information and awareness gaps would enhance entrepreneurs' ability to help a deal to flow successfully through the financing pipeline. Pre-Investment Support for Sustainable Projects and Enterprises? Luis Torres of BP Solar described the key components of building sustainable rural energy markets. Follow-on discussions converged on the following components for sustainable energy projects and enterprises: · Technical sustainability ? pre-investment funding mechanisms should support entrepreneurs who integrate proven technologies with known performance and quality standards; develop solid in-country product and spare-part supply chains; provide adequate technical training for installation, operation, and maintenance; and include lifecycle considerations in their calculations. · Economic sustainability ? the project or enterprise should ensure sufficient cost recovery to cover operation and maintenance of the system as well as wealth creation. · Social sustainability ? the project or enterprise should address local needs and priorities, have community buy-in and commitment, involve the community in preparation and implementation activities, and consider transfer of ownership to the local community, where appropriate. Addressing these issues in the design phase results in more effective project and enterprise designs, greater local support, and improved chances for success. 10 Proceedings for the GVEP Workshop on Pre-Investment Funding Recommendations 2.10 Entrepreneurs made a number of recommendations in regard to the provision of pre-investment support: · Contingent pre-investment funding should be made available to cover all four phases of pre-investment work, not just the third and fourth phase; no pure grants should be given. · When loans and equity investments are offered to cover pre-investment phases, hypothecation of assets should not be required. · Information on pre-investment programs, products and services should be made widely available and be clear and concise. · Application forms for pre-investment support should be kept simple and transparent, and officers of the funding facility should be readily available to answer questions throughout the application, negotiation, and funding processes. · Processing of requests for funding should be executed in a timely manner. · The funding institution should administer the program at the local level. · Funding should be directed toward projects and enterprises that emphasize technical, economic, and social sustainability (see textbox). Findings and Recommendations from Panel II ? Financiers Discussion Highlights 2.11 The financiers presenting in this panel ? Ajay Narayanan, Vice President of the Indian Infrastructure Development Finance Corporation, John Taylor, Group Managing Director of the Uganda Development Finance Corporation, and Chris West of Shell Foundation ? opened with an overview of their respective financial institutions and a summary of activities relevant to the workshop agenda. These presentations helped to set the context for discussions and inform the audience of some of the innovative products and services that are being employed to finance the delivery of modern energy services in developing countries. The speakers identified a number of limitations to the financing of modern energy services in developing country markets. These included: · Entrepreneurial Limitations. There was a strong call from the financiers for GVEP and its partners to go beyond pre-investment support to locate and assist in providing financial support, technical assistance, and training at all stages in building and sustaining enterprises capable of delivering modern energy services in rural and peri- urban settings. · Financing Limitations. There was general agreement that donor and other programs should not focus exclusively on pre-investment programs but should work across the Summary of Panel Discussions 11 financing continuum in designing solutions to finance-related bottlenecks for modern energy service delivery at the village level. · Financial Institutions and Product Limitations. The speakers emphasized four barriers that confront project developers and entrepreneurs in trying to secure financing: o Financiers are often unfamiliar or uncomfortable with modern energy technologies and the instruments to finance them. o Modern energy service schemes are often too complicated for local financing institutions in that they may require more sophisticated financial structures (for example, non recourse project finance or convertible warrants) to create acceptable risk­return ratios, yet be too small for mainstream development finance institutions with experience in these instruments. o Entrepreneurs are often exposed to tumultuous political, economic, and weather- related events that require financial restructuring or insurance products to hedge the associated risks; operational risks and micro changes can also influence the viability of projects and enterprises. o The menu of financial options is limited in many developing countries; financial institutions may simply not have the instruments needed to finance energy- poverty projects and enterprises (for example, long-term loan funds to help defray upfront costs, guarantees to mitigate risks, and insurance to cover uncertainties). 2.12 The speakers made the following important points as to why pre-investment support is Importance of Linking into needed: (1) It enables projects with quasi-commercial Local Capital Markets approaches to emerge; (2) it provides a solution to Highlighting the Indian funding and liquidity constraints; (3) it provides a Infrastructure Development means of securing investment, particularly from local Finance Corporation (IDFC) sources, for rural and peri-urban projects (not an end in experience, Ajay Narayanan itself); and (4) it yields projects that can serve as a stressed that financing is not showcase for policy and regulatory reform. They also the issue ? local capital is noted that pre-investment funding should be market-, adequate and often cheaper not supply-driven, should support business models, than international funding. should be tailored to the needs of local project The challenge is to develop developers and entrepreneurs, should address the sound projects and to avoid technical and capacity needs of recipients, and should subsidies and other market distortions unless these are not be grant-based. well thought through and business-based. 12 Proceedings for the GVEP Workshop on Pre-Investment Funding Recommendations 2.13 During the presentations and discussions a number of suggestions were made regarding the potential roles for GVEP in addressing constraints across the financing spectrum. These included: · GVEP could work with credit facilities and Profit and Development: financial intermediaries to increase access to Proving They Can Work affordable debt and equity for small and medium Together enterprises (SMEs). The facilities could utilize subsidies from donors to help train in and develop In January 2003, the solutions to funding and liquidity constraints Development Finance Company throughout the life of an enterprise, not just at a of Uganda (DFCU), Shell particular phase in the development of the Foundation, and Shell Uganda business. Facilities could offer small loans and joined forces to establish a equity investments to cover working capital and US$4 million Uganda Energy make access to repeat and larger loans based on Fund. The fund provides both business development services debt capacity and repayment performance. Such and lease finance to small and facilities could be developed within existing local medium enterprises and aims to financial institutions for which GVEP could be a pioneering force in organize capacity- building programs to help developing the pro-poor SME financial staff become more comfortable in energy sector in the country. lending for modern energy services as well as expanding the menu of financial options available. It was also suggested that GVEP could help to create new financial instruments (including risk mitigation instruments, such as guarantees) in partnership with NGOs and local banks. The speakers emphasized that the actors, whether supporting the expansion of services offered by an existing institution or creating new instruments, must be able to devote time to understand the local needs, provide flexible financing with appropriate safeguards for quality and sustainability, and make a long-term commitment to the financing enterprises in the local market. · Second, enterprise assistance services could help to strengthen capacity in the areas of accounting, finance, marketing, strategic planning, and business planning. GVEP could support the provision of capacity-building services, with local or international consulting firms, within local NGOs or financial institutions to ensure that enterprise development services are available. The participants made it clear that GVEP must recognize that capacity building has a long gestation and requires a solid commitment from stakeholders. · Third, GVEP could assist in catalyzing the development of insurance products that would be available for SMEs to provide hedge against market, political, economic, and weather risks. · Fourth, GVEP could provide support in fostering policies at the local, regional, and national levels that promote business solutions to the delivery of sustainable energy services by SMEs, the flow of private capital into projects, and access to reliable Summary of Panel Discussions 13 energy services for clients. Stable policies governing regulation, dispute resolution, property rights, and other issues influence the return on investment and are essential to expanding investment in the sector. GVEP should work with community groups, governments, and trade and enterprise associations to encourage policies that support responsible, balanced, low-cost solutions to providing modern energy services. Public-private partnerships to develop and strengthen energy and related infrastructure policies and regulations was considered important. Findings and Recommendations from Panel III ? Fund Managers Discussion Highlights 2.14 The fund managers in this panel ? Fernando Alvarado with E&Co, Hans Schut with Triodos, Grace Yeneza with Preferred Energy Investment in the Philippines, and Patricia Moles, formerly with Terra Capital in Brazil? began their presentations by describing the experience base of their respective institutions. All presenters described how they identified entrepreneurs with whom to invest and assembled financing products and services tailored to meet their business needs. 2.15 Beyond the initial descriptions, the fund managers engaged participants in a dialogue on the challenges they confront in managing investment facilities. Many of these challenges, bottlenecks, findings, and recommendations were similar to those outlined by the entrepreneurs and financiers in the previous sections, and included the following: · Begin investing in enterprises through modular, small tranches of capital disbursements, providing incremental amounts of funding based on clearly demarcated milestones, thus reducing credit risk exposure. · Couple pre-investment funding with both pre- and post-investment enterprise assistance services, as many of the problems and their solutions occur outside the financing arena. · Work with entrepreneurs directly rather than keeping a distance for "due diligence" purposes; due diligence can often be better served and far less expensive when you are in constant contact with the reality of the transaction. · Where projects and enterprises fail, write off the losses and move on. · Convertible debt instruments are often preferable to equity investments, as the debt promotes a discipline of repayment on behalf of the entrepreneur; entrepreneurs may not want "outsiders" to participate in ownership, and the potential for conversion into equity is retained to take advantage of the "up" side when the project or enterprise yields returns. · Diversify risk through cofinancing partnerships. 14 Proceedings for the GVEP Workshop on Pre-Investment Funding · Make the structure of any fund simple for both parties ? for investors to understand what the entrepreneurs are doing and for the entrepreneurs to understand the products and services offered by the investor. · Create a track record in the target sector before setting up the fund (do pilot projects, direct investment, and so forth). · Allocate resources to training both fund managers and entrepreneurs. · Be sure the risk profile of the activities is constantly aligned with expectations of key investors. · Finally, be careful not to duplicate, without adaptation, models developed in OECD countries. What works in the United States and Europe probably will not work in the developing countries markets. Funding Needs to Transcend Pre -Investment Support E&Co, which has supported more than 90 clean energy enterprises in 34 countries and invested more than US$9 million, calls for funding for all aspects of entrepreneur project development, not just early-stage pre-investment. Fernando Alvarado, E&Co's Regional Manager for Latin America and the Caribbean, noted that the lack of seed and growth capital continues to be the most important gap. Currently, E&Co has identified a project deal flow and existing project pipeline that represents investment opportunities in excess of US$400 million for which seed and growth capital are not available. 2.16 The fund managers that were running successful programs attributed their LEARNING FROM THE SOLAR success to a number of factors, including a DEVELOPMENT GROUP AND TRIODOS strong pipeline of transactions, linkages with policy work to encourage investment in Hans Schut of Triodos Bank/SDG, shared his more than five years' modern energy services, identification of experience in providing finance to solar markets where there is a strong demand for companies. He noted that although services (enterprise assistance and seed many markets for solar are growing, the capital), partnerships with local NGOs, bulk of these have developed more synergies with other programs supporting the slowly than expected and many continue delivery of modern energy services, and an to rely on subsidies that are hindering experienced team of professionals present in scale-up. Among his findings were: the local markets. One of the fund managers Credit is needed to develop sustainable succinctly summarized the ideal local fund: a markets, risks can be mitigated by management team that can devote time to bringing in financing partners and understanding the local needs, capital that allowing distributors to focus on the sale, external risk finance is required for permits flexible pre-investment and microfinance institution participation, investment financing (with appropriate lots of handholding is needed from safeguards for quality and sustainability), and investors, and local presence is crucial. clients with a strong business plan that includes a long-term commitment to beneficiary communities. Summary of Panel Discussions 15 Recommendations GVEP can help in a number of areas: · Work with partner countries to expand access to pre-investment funding, seed capital, and investment capital for rural and peri-urban projects. · Enhance the investment climate for these projects through policy and regulatory reforms. · Strengthen communities so that they can implement projects in a sustainable manner. · Engage donors in improving the use and flexibility of their funds toward more sustainable, market-based approaches. Powering the Philippines Grace Yeneza, with Preferred Energy Investment in the Philippines, has experience in pre- investment funding that has evolved over the years, resulting in more operational projects today. Under the early Winrock/PEI cost-share program, projects were conceptual in nature, required more than the US $35,000 in financing available (particularly in the case of hydro), and were converted to a full grant if they did not proceed to implementation in five years? a disincentive for developers to reach implementation. Today, PEI supports the Renewable Energy Financing and Technical Assistance (REFTA) cost-share program that provides cost shares of US$20,000­US$100,000, direct support for the creation of development companies, and convertible equity in a company once it is established. As a result, the Philippine Bio-Sciences Company (waste-to-energy) was established and has implemented one bio-gas project, with replication ongoing in 7 additional sites; the Mindanao Hydro Development Corporation was established, with 11 projects (78MW) in the pipeline. PEI, with ESMAP assistance, is also supporting a Village Power Fund to provide pre-investment and partial loan support to communities for rural energy project development. 3 Working Group Discussion Highlights 3.1 Participants in the workshop were assigned to four groups to participate in more participatory and focused discussions on pre-investment funding, related financing services, and the value-added role for GVEP in accelerating the delivery of modern energy services. Specific topics addressed by each of these groups and a summary of their discussions are presented below. Topic One: Is there value added from a new GVEP pre-investment fund, and how can it complement existing funds? 3.2 Group One began discussions by listing several existing funds or facilities offering pre-investment support. These included the Uganda Development Finance Corporation facility; E&Co; the Africa, Brazil, and China Renewable Energy and Enterprise Development facilities (AREED, BREED and CREED); FENERCA; the Philippines Village Power Fund; the Solar Development Group; the Winrock India ARECOMM fund; and the World Bank Small and Medium Enterprise facilities, among others 3.3 Group One then moved on to question if there was added value from a new GVEP pre-investment fund, paying particular attention to how such a fund could complement the products and services offered by existing sources. The group outlined the stages in enterprise development and illustrated that there were many gaps where funding from GVEP could be of assistance. These included: · Limited knowledge by bank staff on how to assess risks associated with financing rural and peri-urban energy projects; · Lack of information on financing programs available to support these projects; · Enterprise need for assistance and seed capital to prepare business plans and related materials required of financial institutions; and · Limited menu of financial options and instruments available for rural and peri-urban project financing needs. 17 18 Proceedings for the GVEP Workshop on Pre-Investment Funding 3.4 The group determined that that GVEP could play a significant role in addressing these barriers: · Work with local NGOs and financial institutions to strengthen entrepreneurs and service providers in developing business plans and other documentation to the point where it is ready for investors. · Help project promoters identify sources of financing and assist in negotiations. · Train staff in financial institutions serving local markets in risk assessment procedures to increase their lending for energy-poverty projects. · Enable the creation and mobilization of regional and country funds and capacity. · Give credibility to small developers through a standard GVEP "project certification" that would ensure investors of the viability of the proposed project (the merits of and approach to establishing a certification process would need to be explored in more depth). · Play the role of knowledge center for developers on financing sources. · Pursue the structuring of new investment instruments that would broaden the pool of capital for projects, including guarantees, insurance, municipal bonds, pensions, and corporate funds for social responsibility. Facilitate the availability of contingent seed capital to cover pre-investment work through local intermediaries. 3.5 The group determined that GVEP does not need to develop a new fund to address the items above, but should leverage existing funds and redirect donor, private sector, and local capital liquidities into these areas. Topic Two: What types of pre-investment products and services are needed to accelerate investment in energy services for productive, consumptive, and social needs? 3.6 Group Two started by acknowledging that soft funding may be necessary throughout the life of a village energy project to support training and technical assistance services, "buy down" the costs of commercial investment instruments, and engineer risk mitigation instruments such as guarantees and insurance. Group members emphasized that to ensure sustainability it was important to support investments in enterprises that focused on income generation and productive uses. The group also pointed-out that that a commercial energy endeavor does not have to be a profitable one. A successful business or project can return capital to cover the costs and maintain the investment base but does not have to yield a profit. Projects and enterprises operated by NGOs and cooperatives were discussed as examples of commercial, though not necessarily profitable, activities. 3.7 The group suggested that if GVEP were to enter into pre-investment funding it must be careful to consider the terms of the funding, require capital recovery Working Group Discussion Highlights 19 for funds recycling, and make available soft financing for pioneers exploring new energy service delivery structures. 3.8 The group concluded that there was no one answer to the question of what to finance and on what terms finance should be given. The answer should be dictated by an assessment of the local market, considering such factors as capacity and willingness to pay, potential for coupling energy with productive uses, target clientele, and so forth. Potential targets for funding were split into two categories, project financing and funding for scale-up: · To support the development of projects the group identified the following areas for pre-investment support:feasibility and pre-feasibility studies, institution building, business planning, training and capacity building, and technical assistance and enterprise development services. · To support scale-up, the group recommended training for entrepreneurs, particularly on available financing products and services and how to access these. Seed capital was also deemed important to cover the costs of scaling up service delivery. The group concluded by stressing the importance of training and empowering local leaders to articulate the energy and financing needs of their constituents, negotiate with suppliers, and develop policy frameworks that reflect local needs and priorities. Topic Three: How should the fund be managed and operated in developing country markets to ensure effectiveness and efficiency? 3.9 Group Three started from the premise that GVEP would develop a pre- investment fund; however, discussions over the course of the workshop determined that GVEP should not create a new, global fund, but rather facilitate the creation of local funding mechanisms (pre-investment through investment). Presented below are highlights of the Group Three discussion that would be relevant to any organization considering creation or modification of pre-investment facilities to support the delivery of modern energy services. · Funds should be managed by qualified local institutions (for example, operational entities [OEs]) that are familiar with financial, technical, and market issues in the host country and have a history in energy or related cross-sector fields. · OEs managing pre-investment or investment facilities should be selected in an open, transparent manner, preferably through a competitive solicitation. · OEs should screen proposals and set up committees that make decisions on proposals. · Funds should be available to a range of entities (NGOs, municipalities, co-ops, consumers, enterprises) for a variety of activities to be determined by local needs, requirements, and clientele. OEs should be given maximum flexibility in designing the services and instruments they offer. 20 Proceedings for the GVEP Workshop on Pre-Investment Funding · Technical assistance, enterprise incubation, and training are often just as important as seed capital to institutions developing modern energy services. When seed capital is offered, the investment must be structured in a manner in which sufficient funds are returned to permit the fund to operate as an independent revolving fund."" · Local OEs may provide pre-investment support to multiplier institutions in-country to expand their reach and impact. · Assistance should be tied to concrete results; the fund should learn by investment in doing, not investment in studying. · Investment instruments should be denominated in local currencies. Topic Four: What would be the complementarities between the GVEP pre- investment fund and other financing instruments? 3.10 Group Four concluded that pre-investment funding is an important first step in the financing continuum for provision of modern energy services. The group developed a matrix that could be completed for GVEP countries to identify the types of financing services available throughout the project or enterprise cycle, gaps in the marketplace, and complementarities between the various phases of support. Exhibit 2: Matrix of Financing Stages and Providers Project/ Concept Licensing/ Enterprise Design Pre-Feasibility Feasibility Permitting Construction Operations ID Stage Stage Study Stage Study Stage Stage Stage Stage Owners' Equity & R&D Support Pre-Investment and Early-Stage Equity Feasibility Study Support Debt, Equity, Risk Mitigation Financing 3.11 Recommendations by the group in designing pre-investment vehicles that complement later stage funding sources include: · Understand local market needs and competencies. · Delegate management responsibility for pre-investment instruments to the local level, Working Group Discussion Highlights 21 · Reduce the number of people involved in management and operation of pre- investment facilities. · Use local agents withknowledge of available financing sources and service providers. · Do not provide pure grants. · Leverage pre-investment assistance with loans or other forms of finance, including risk guarantees. · Make available concessional funding at all stages to address the various risks to project or enterprise development; as the risks are mitigated, eliminate the soft funding. · Complement enterprise finance with consumer financing support. 4 Conclusions 4.1 The Berlin workshop offered significant insight on the role for GVEP in the pre-investment and broader financing spectrum. It brought together a range of experts including bankers, financial intermediaries, project developers, entrepreneurs, service providers, and end users to share their experiences and lessons learned and to guide the direction of future GVEP activities in the financing area. Emerging from their discussions were a number of common themes as well as recommendations for the GVEP Technical Secretariat and partner organizations. Key Workshop Findings Overall Findings · There is a need for pre-investment funding, but not necessarily a dedicated, global "GVEP pre-investment fund." · Pre-investment funding is necessary but not sufficient; it needs to be coupled with investment support. · There is a call for risk-sharing and risk mitigation instruments at all stages in the project financing cycle (including guarantee mechanisms at the pre-investment and investment stages); these should be made available for the range of actors in the marketplace ? financial intermediaries, entrepreneurs, project developers, municipalities, cooperatives, and consumers. · Markets should grow on their own strengths, not on subsidies. Conditional grant funding may be needed to provide certain services such as capacity building, knowledge dissemination, banker and consumer training, start-up costs, and reduced system costs, but these grants should be project-related (not for studies) and aimed at expanding, not distorting, sustainable commercial markets. · Financial resources are available in the marketplace, including a limited amount of pre-investment funding and local liquidities for debt investment; however: o Funds are not always accessible for "near" commercial rural and peri-urban energy projects. 23 24 Proceedings for the GVEP Workshop on Pre-Investment Funding o Pre-investment funding is difficult to access in most countries; where available, it does not always yield deal flow. o Investment financing does not necessarily follow projects with pre-investment support. o Where liquidity is present there is often insufficient understanding of the risks and rewards associated with financing energy projects and enterprises and a limited menu of financing options available. o Funding sources (for pre-investment and investment) are not always known to local entrepreneurs and consumers. o Financial institutions and investment houses generally require collateral or other guarantees for pre-investment and investment, thus restricting the base of eligible entrepreneurs and enterprises able to access this funding. o Accessing funds where they exist is difficult, time consuming and costly. · Consumers are key in the financing equation, because of their understanding of the structure of demand and their ability to pay for the energy services to supporting credit needs. · Global funding mechanisms for energy services have not been effective; funding mechanisms need to be locally managed and operated and available in local currencies. · Public-private partnerships are important to secure political support and improve the local investment climate Areas for Possible GVEP Support · Support the development of country action plans that identify project and program opportunities: o Catalyze domestic and international financing sources. o Facilitate development of local pre-investment funds or expand services available in existing pre-investment funds toward modern energy services. o Help improve the efficiency and operation of existing and planned pre- investment funds (clear guidelines, speedy processes, and flexibility from financiers). · Enhance financing portal to identify and package funding source information from local, national, regional, and international sources; provide information on local service providers. · Support capacity building within the financial sector, for example, local banker training, microcredit organization training, and train-the-trainers programs. · Guide the use of soft funding where needed to ease financing bottlenecks toward market-based solutions Conclusions 25 · Support the design and structuring of risk mitigation instruments and other financial engineering that could increase the flow of funds for energy projects and programs. · Provide networking and information dissemination role for best practices and lessons learned; build on and replicate successes. · Help close the gap in pre-investment and investment financing by creating a virtual "brokerage house" for interested parties who can accelerate deal flows. · Host a workshop on consumer credit and related issues. Possible Role for GVEP Partners · Provide financing directly and/or increase access to funding sources (particularly, local investor, government, private sector, multilateral, and bilateral agency GVEP Partners). · Participate in working groups on specific GVEP financing-related activities. · Provide advice on available financing sources. · Serve as a knowledge resource for other partners and GVEP-supported activities. · Share lessons learned and best practices. · Engage in country-level consultations. 4.2 A key finding was that GVEP should not create a global pre-investment fund but should work with partner organizations toward increasing pre-investment and investment sources through a range of capacity-building, knowledge management, and financing facilitation activities noted above. The design and implementation of action plans in GVEP-partner countries is a viable mechanism for identifying and mitigating financing barriers at the local level, expanding financing sources (local, regional, and international) at all stages in the project cycle, and deploying effective modern energy projects and programs to increase energy access. Appendix 1 Workshop Agenda Should GVEP Develop a Pre-investment Fund to Facilitate the Scale- up of Modern Energy Services? Strategy and Planning Workshop April 23 ­24, 2003 KfW Berlin, Charlottenstr. 33/33a Berlin, Germany Chairperson: Mr Neithard Petry, KfW Day 1 8:45 am Introduction Welcome Remarks (a) Peter Pischke, Director of the Competence Center Energy, KfW Global Village Energy Partnership (GVEP) Overview Dominique Lallement, Manager, UNDP/World Bank Energy Sector Management Assistance Program (ESMAP) and GVEP Coordinator Meeting Background, Goals, Objectives and Structure Judy Siegel, GVEP Technical Secretariat 9:30 am Experience in Pre -Investment Funding for Clean Energy Program and Project Development: Case Studies from the Entrepreneur Perspective Moderator: Jurie Willemse, RAPS South Africa · Arturo Rivera, ElectrOriente.: Role of Pre-investment Support for Small Hydro Development in Central America · Dipal Chandra Barua, Grameen Shakti: The Asian Experience 27 28 Proceedings for the GVEP Workshop on Pre-Investment Funding · Francis Yamba, President, Centre for Energy, Environment and Engineering, Zambia: Experience in Seed Financing for Cookstoves, Energy Efficiency and Small Biomass · Luis Torres, BP Solar: The Role of Seed Capital in Building Sustainable Energy Markets in Latin America Question, Answers and Group Discussion 11:00 am Break 11:30am-1 pm Mobilizing Local Capital Markets: The Role of Pre -Investment Capital Moderator: Susan McDade · Ajay Narayanan, Vice President, Infrastructure Development Finance Corporation, India · John Taylor, Group Managing Director, Development Finance Corporation of Uganda · Chris West, Shell Foundation Questions, Answers and Group Discussion 1:00 pm Lunch 2:00 pm Experiences and Lessons Learned from Funds Managers Moderator: Edward Hoyt, Econergy International · Fernando Alvarado, Regional Manager for Latin America, E& Co. · Hans Schut, Solar Development Group, Triodos International Fund Management · Grace Yeneza, Director, Philippines Village Energy Fund, Preferred Energy Investment · Patricia Moles, (formerly Terra Capital, Brazil) Questions, Answers and Group Discussion 3:30 pm Roundtable Discussions Participants break into 4 groups for more focused, participatory discussions. Each group will address a different issue. Participants will be assigned in advance to Group Discussions. Group 1 Issue: Is there value added from a new GVEP Pre-Investment Fund and how can it complement existing funds? Moderator: Hasna Khan, PS Lor Piyal Hennayake, Hatton National Bank, Sri Lanka Rapporteur: Sarah Adams, EdF Appendix 1: Workshop Agenda 29 Group 2 Issue: What types of pre-investment products and services are needed to accelerate investment in energy services for productive, consumptive and social needs? Moderator: Dipal Barua, Grameen Shakti Rapporteur: Teo Sanchez, ITDG Peru Group 3 Issue: How should pre -investment funds be managed and operated in developing country markets to ensure effectiveness and efficiency? Moderator: Venkat Ramana, Winrock International Rapporteur: John Ryan, ESG Group 4 Issue: What is the complementarity between pre-investment funding and other financing instruments (loans, equity, guarantees, etc.)? Moderator: Lalith Gunaratne, LGA Consultants Rapporteur: Ebenezer Nketsia-Tabiri, KITE 5:30 pm Wrap-Up 7:00 pm Dinner Day 2 9:00 am Roundtable Session Reports and Discussion Moderator: Judy Siegel, GVEP Technical Secretariat 11:00 am Break 11:30 am Wrap-Up and Next Steps Neithard Petry, Kfw 1:00 pm Lunch Adjourn! Appendix 2 Workshop Presentations Global Village Energy Partnership (GVEP) Overview Dominique Lallement Energy for the Poor Global Village Energy Partnership: The Global Village Energy A Call for Action, Accountability and Results Partnership GVEP seeks to put in place a 10 year implementation based partnership to reduce Harnessing Energy for Poverty Reduction: poverty and enhance economic and social People, Productivity and Partnerships development through the accelerated provision of modern energy services to those unserved or underserved. Dominique Lallement Coordinator, Technical Secretariat Valued-added From the Partnership The Path to the Partnership VILLAGE POWER GVEP Services = multiplier Outcomes with VPP: ·Capitalizes on successes Considerably increased ·Makes knowledge available 1990 TO 2000 ·Disseminates models for Availability of Rural & INCUBATION effective energy delivery Urban Energy Services, FROM TALK ·Pools technical resources Improved health and IMPLEMENTATION ·Bridges the financing gap Education Services, ·Six Conferences 2000 to 2002 ·Links governments, donors, Increased incomes, ·First VP: 35 private sector, financiers & NGOs Attendees, all U.S. TO DESIGN 2003 TO 2012 Existing toward common goal Increased employment, ·VP 2000: 600 · E-Village Dialogue Rural ·Strengthens local community Improved quality of Attendees, 60 ·Technology Neutral TO ACTION ACTION Energy/ organizations Life Countries ·PV-Household Focus ·Multi-Sector · Action Plans Programs ·Aggregates and accounts for results ·Designs new instruments ·WSSD Prep-Com Meetings · Capacity Building ·Focus Group&Consultations · Financing Facilitation ·GVEP Launch · Knowledge Management · Monitoring & Evaluation 31 32 Proceedings for the GVEP Workshop on Pre-Investment Funding The Demand for Partnership Services: GVEP Products and Services Results from Participatory Assessment Action Plans Political Commitment Policy Framework Consumptive Uses Multi-sector Demand Assessment (Light, Power, Heat/cooking) All inclusive Socially Productive Rural & peri-urban Entrepreneurial Services Consumer Organization Support Uses (Health, Education) Capacity Development Economically Cross Sector Linkages Productive Uses Info on Funding Sources, Seed Capital (Motive Power, ICT) Financing Facilitation Local Banker & Micro Credit Training Funding Mobilization and Access Multisector Data Bases: Partners, TA sources, Best Practices, Lessons Learned, Multiple Knowledge Management Dissemination: website, toolkits, radio Technologies/ K-Transaction: TA, workshops Multiple sources Results and Impact Information on Contribution to Service Range of Project Monitoring & Evaluation Delivery for Health, Water, Schools, SMEs, ICT, Agriculture, Households size/market share A Partnership of Partnerships Partners: Sector Breakdown multilateral Private 3% NGOs gvt Sector 12% private Developing & 34% Industrialized Country Financial Institutions Governments GVEP: NGO 146 51% NGO: 74 partners Private sector: 49 Government: 18 Multilateral Consumers Organizations Representing 146 Multilateral: 5 organizations Partners: RegionalBreakdown What Do Partners Bring? Middle East East Asia 2% Central Asia Demand for Energy 5% 1% Country Action Plans South Asia Services for North 11% America ·North America: 47 Poverty Reduction 32% Africa ·Europe: 36 21% LAC ·Africa: 31 3% ·South Asia: 16 Portfolios of Europe 25% ·East Asia: 7 Knowledge Investments & Financial Resources Activities ·LAC: 5 ·Middle East: 3 Representing 41 countries ·Central Asia: 1 Appendix 2: Workshop Presentations 33 Agreeing to a Statement of Primary Actors: working together Principles? Partners (146 orgs working worldwide) Partners commit to: àprovide/benefitresources&activitiesfor TS increasing modern energy service delivery · 10-year "implementation-based" program (7 individuals from · Increase energy access and reduce poverty ESMAP, Private · Advance market principles: reform, multiple providers & funders Sector/USAID, UNDP, DFID) · Consider multiple technologies, sectors & delivery approaches Board · Focus on the poor àprovides services, coordinates · Coordinate with related activities (national, local) & partnerships (12 individuals from 12 orgs) partnership · Agree to report on results àprovideguidancetopartnership activities Biennial General Assembly Primary Actors: the Partnership Board A Three Track Approach for Services prompted by the Technical Secretariat Name Affiliation/Country Stakeholder Group Adelia de Melo Branco Joaquim Nabuco Foundation/ Brazil NGO Harish Hande Solar Electric Light Private Sector Track 1 Country/State action plans developed by Company/SELCO/ India multi-stakeholder dialogue with partners Paul Hassing Department of Environment and Gvt Development/ Netherlands Stephen Karekezi AFREPREN/ Kenya NGO Track 2 Cross cutting activities in support of Susan McDade Sustainable Energy Programme/ Multilateral Service lines UNDP Charles Nicholson BP/London Private Sector Sheila Oparaocha ENERGIA/ Netherlands NGO Track 3 Unsolicited proposals which might develop Rachel Polestico Appropriate Technology Center, NGO Xavier University/ Philippines into Track 1 or 2 activities Griffin Thompson USAID/ USA Gvt Frank Tugwell Winrock International NGO Njeri Wamukonya UNEP/ Denmark Multilateral Dominique Lallement ESMAP/ World Bank Multilateral Services Delivered since the Launch: A three ­track resource flow Two regional Africa workshops for 13 countries: October 2002: Ethiopia, Ghana, Kenya, Uganda, Tanzania, and · Incremental resources mobilized by and channeled Zambia (78 participants) through the technical secretariat February 2003: Benin, Burkina Faso, Guinea, Mali, Mauritania, Togo, Senegal (124 participants) · Incremental or redirected resources mobilized by àActionPlansandprojectsunderpreparationinZambia,Tanzania,Ghana, individual partners for activities supported the *Uganda, Mali, Senegal, Burkina Faso, *Togo Under Delivery: Financing Facilitation Consultation goals of the partnership Under Preparation: · Incremental-large scale investment and financing June 2003: Practitioners workshop in Sri Lanka resources into energy service development June 2003: National or State Level Workshop in India July 2003: Bolivia, Brazil, Dominican Republic, Guatemala, Honduras, Mexico,Peru + Conference for 15-20 countries July 2003: Cameroon, Chad, Congo, DR Congo, Equatorial Guinea, Ivory Coast, Madagascar and Niger 34 Proceedings for the GVEP Workshop on Pre-Investment Funding Services Delivered/Planned Electricity, Productivity and Empowerment in Char Montaz · Newsletter and webpage "For the first time we · Q & A desk, and project reviews were able to see the · Partner Data Base faces of our family · On-line consultations members at dinner; · Governance arrangements for the first time we · Coordination with other WSSD Initiatives felt safe in our homes". · Consultations on Monitoring and Impact Evaluation · Resource Mobilization Thank you! www.gvep.org Meeting Background, Goals, Objectives and Structure Judy Siegel Slide 1 Global Village Energy Partnership Pre-Investment Workshop Judy Siegel GVEP Technical Secretariat April 23, 2003 Slide 2 Outline · Why GVEP Financing Facilitation? · Consultation Results: - Key Barriers to Financing - Possible Areas for GVEP Support - Potential Role for Pre-Investment Support in the Financing Cycle - Considerations for Pre-Investment Funding · Workshop Overview, Structure and Expected Outcomes Appendix 2: Workshop Presentations 35 Slide 3 Why Financing Facilitation? · GVEP has sought input on value added services from a number of sources, including: ­ E-Village On-line Dialogue and Survey ­ Focus Group Discussions ­ Workshops and Meetings ­ One-on-one Discussions (firms, entrepreneurs, financiers) · Results indicated GVEP could add value in 5 key areas: ­ Action plan development ­ Capacity strengthening ­ Knowledge management ­ Results monitoring and evaluation ­ Financing facilitation Slide 4 Consultation Results: Key Barriers Identified Regarding Financing · A critical gap exists between financiers of energy projects, needs for capital by local entrepreneurs and consumer access to affordable credit · Financiers: ­ Wide range of project scale and technology solutions ­ Perceived project risks ­ Lack capacity to analyze projects and assess entrepreneur credit worthiness ­ High transaction costs; limited menu of financing instruments · Entrepreneurs: ­ Require knowledge, skills & capacity to secure pre-investment financing and prepare bankable projects ­ Require information on available financing sources & how to access · Consumers: ­ Lack access to affordable credit that matches their ability Slide 5 Consultation Results: Possible Areas for GVEP Support · GVEP can help to bridge the gaps between financiers, and consumers, reducing constraints on and increases investment in energy projects & programs · Five financing products identified for possible GVEP support: ­ Training for Finance Intermediaries ­ Financing Facilitation Portal ­ Pre--Investment Fund ­ Risk Mitigation Instruments 36 Proceedings for the GVEP Workshop on Pre-Investment Funding ­ Leveraging Investment Financing for Energy --Poverty --Development Projects and Programs · These services can be provided one-on-one, or ideally, comprise an integrated package of services made available at a country/state level or across countries/organizations Slide 6 Consultation Results: Possible Role for Pre-Investment Support in Financing Cycle · Pre-investment Funding ­ Concept ­ Business Plan · 1st Stage Debt & Equity Finance ­ Project Implementation · 2nd Stage Debt & Equity Finance ­ Expansion & Growth Slide 7 Consultation Results: Considerations for Pre-Investment Funding Pre-Investment Funding should be: · Locally managed and operated · Coupled with TA, incubation, training, mentoring services, and financial syndication services · Open to all types of promoters -- for-profit, NGOs, cooperatives, municipalities, MFIs, consumer credit assoc, etc · Employ standardized application and assessment procedures, and ensure quick turnaround times · Risk shared with recipients Slide 8 Findings (Cont`d) · Viewed in the broader financing spectrum leading to ventures that attract traditional and non-traditional investors · Providing access to capital to defray high upfront costs associated with bankable project development · Supporting a range of early stage project preparation activities: ­ Working Capital -Business Planning ­ Market Studies -Ability to Pay Studies ­ Feasibility Studies -Pilot Projects ­ Admin-Legal Fees Appendix 2: Workshop Presentations 37 · No interest in an Investment Fund, however, GVEP should consider development of a Pre-investment Fund to help address early stage market gaps Slide 9 Workshop Overview · Goal: To bring together key stakeholders to: ­ Explore possible needs for and merits of a GVEP Pre-Investment Fund ­ To share lessons learned, best practices and experiences · Objectives: To answer key questions on the need for Pre-Investment Support ­ What types of pre-investment products/services are needed to accelerate investment in energy services for productive, consumptive and social needs? ­ How should these products/services be financed? Would there be value added from a new Pre-Investment Fund and how could it complement existing funds? ­ How should pre-investment funding be managed and operated in developing country markets to ensure effectiveness and efficiency? Slide 10 Workshop Overview (Cont`d) ­ What would be the complementarity between pre-investment funding and broader financing facilitation products supported by GVEP and others ­ For example, banker training, financing source portal, risk mitigation instruments, investment leveraging · Workshop Considerations: ­ No pre-determined conclusions ­ Seeking thoughts/inputs on market needs for pre-investment support & how best to meet this need (GVEP or otherwise) Slide 11 Workshop Structure Day One · Experiences in Pre-investment Funding ­ Private firms, NGOs, bankers, fund managers · Roundtable Focused Discussions Addressing 4 Key Questions · Dinner Day Two · Wrap-up and Next Steps · Luncheon and Adjourn Lots of time for discussion! 38 Proceedings for the GVEP Workshop on Pre-Investment Funding Slide 12 Expected Workshop Outcomes and Schedule · Discussion Brief on Workshop Findings and Suggested Next Steps ­ May 10 ­ Will be circulated to workshop participants for their review and comment ­ Presentation of Workshop Findings to GVEP Board ­ May · First Board Meeting to be held in Washington DC · Implementation of Findings ­ May 2002 and beyond ­ GVEP in coordination/cooperation with partners and other key organizations Slide 13 Thank you! www.gvep.org Appendix 2: Workshop Presentations 39 Experience in Pre-Investment Funding for Clean Energy Programs and Project Development: Case Studies from the Entrepreneur Perspective Arturo Rivera, ElectrOriente GUATEMALA Land of Eternal Spring CURRENT EXPERIENCE Role of a Private Developer · In Guatemala, the General Electricity Law mandates from 5 MW up · The experience presented is for small hydro Angel Arturo Rivera-Valentín projects in various stages of completion. ElectrOriente, S.A. · The need for Pre investment financing is encountered in all stages of development · Personal contacts and success = Support 2 GVEP, Berlin, Germany April 23-24, 2003 GVEP, Berlin, Germany April 23 -24, 2003 ElectrOriente, S.A. Role of Pre Investment Support for Small Hydro Investment for Hydro IMPORTANCE OF PRE INVESTEMENT Development in Central AmericaAmerica FINANCING Legal Framework FeasibilityTechnical-Financial Developer /E&CO REEF/IFREE/CFA Pre - Analysis and Project Project Evaluations Feasibility Identification Financing Project profile Topography, Project Profile Hydrology, Grid, etc. Land Developer Land, Legal Tenure Project Identification Communities, Social awareness GVEP, Berlin, Germany April 23 -24, 2003 ElectrOriente, S.A. Time Line 40 Proceedings for the GVEP Workshop on Pre-Investment Funding Role of Pre Investment Support for Small Hydro Support Small Role of Pre Investment Support for Small Hydro Support Small Development in Central America. America Development in Central America. America I. Initial Process II. Bridge Funding · Project identification · Once pre feasibility level is reached, pre investment funding is required for specific · Land tenure and rights of way items such as confirming the hydrology, weir · Initial studies. i.e. hydrology, initial construction, additional topography, legal, etc. topography, access to grid or market, etc. · At this moment the project enters the · Regulatory framework international arena, and starts to be known. INVESTMENT BY DEVELOPER = Risk capital DEVELOPER CONTINUED INVESTMENT BY DEVELOPER A NEED FOR PREINVESTMENT SUPPORT FOR PREINVESTMENT SUPPORT 5 6 GVEP, Berlin, Germany April 23 -24, 2003 ElectrOriente, S.A. GVEP, Berlin, Germany April 23 -24, 2003 ElectrOriente, S.A. Role of Pre Investment Support for Small Hydro Support Small Role of Pre Investment Support for Small Hydro Support Small Development in Central America. America Development in Central America. America II. Bridge Funding III. Feasibility Stage · The cost of a feasibility study is high. Big project · Our experience is with IFREE/CFA. 50% big headache, small project Big headache. It's shared cost-grant/loan/success contingent generic. Very little financial assistance available. funding. With IFREE, was for feasibility study The developer is usually running short on funds, and CFA to construct a measuring weir and so the need for pre invesment support is complementary topography. It always ends up imperative to make projects go forward. Sure it is becoming a higher cost to the developer. still risk money at this stage. CONTINUED INVESTMENT BY DEVELOPER INVESTMENT BY DEVELOPER and DEVELOPER and A NEED FOR PREINVESTMENT SUPPORT FOR PREINVESTMENT SUPPORT PREINVESTMENT FUNDS IF AVAILABLE 7 8 GVEP, Berlin, Germany April 23 -24, 2003 ElectrOriente, S.A. GVEP, Berlin, Germany April 23 -24, 2003 ElectrOriente, S.A. Role of Pre Investment Support for Small Hydro Support Small Role of Pre Investment Support for Small Hydro Support Small Development in Central America. America Development in Central America. America III. Feasibility Stage IV. Project Financing · The importance of funding-partners in stages II · If funding is available, the cost of these funds have to be closely examined. IFREE/CFA where and III help identify the source of the project subsidized-contigent funds, and now the financing. available funds are above market rates · The need for equity funding. · (i.e.) E&CO, NRECA, local banks, investors, etc. · (i.e) CASEIF,NRECA have targeted usage. INVESTMENT BY DEVELOPER and DEVELOPER and PREINVESTMENT FUNDS IF AVAILABLE 9 10 GVEP, Berlin, Germany April 23 -24, 2003 ElectrOriente, S.A. GVEP, Berlin, Germany April 23 -24, 2003 ElectrOriente, S.A. Appendix 2: Workshop Presentations 41 Role of Pre Investment Support for Small Hydro Support Small RECOMMENDATIONS Development in Central America. America · Make pre investment funds available for all stages IV. Project Financing · Share risks and share benefits. · The need for equity investors/funders to · Clear guidelines for applying, and soft funds for understand the difference between equity and the support. loan. Some want a % of the project as equity · Funding process less rigorous/fast track approval contributors, and a minimum of 25% IRR. · Make the funding information-options available to developers · Create equity funds with a long range investment profile. Convert Pre Investment into equity with a buy -back option. 11 12 GVEP, Berlin, Germany April 23 -24, 2003 ElectrOriente, S.A. GVEP, Berlin, Germany April 23 -24, 2003 ElectrOriente, S.A. A DEVELOPERS PHILOSOPHY. ·Take care with the end as you do with the beginning, and you will have no failure." LAO TZU ·Work keeps us from three great evils: boredom, vice, and poverty." VOLTAIRE 13 GVEP, Berlin, Germany April 23 -24, 2003 ElectrOriente, S.A. 42 Proceedings for the GVEP Workshop on Pre-Investment Funding Dipal Chandra Barua, Grameen Shakti "Experience in Pre-Investment Funding for Clean Energy Program and Project Development: Case Studies from the Entrepreneur Perspective" Presented by: Dipal C. Barua Managing Director Grameen Shakti Bangladesh E-mail: dipal@grameen.com The Experience of Grameen Shakti www.gshakti.com About Grameen Shakti Background n Established in 1996 n Not for Profit n 130 Million People n Limited by Guarantee Energy Scenario Aim & Objective n 30% People are accessing the grid n To promote and popularize solar home systems to electricity the rural and remote off grid areas of Bangladesh. 30% 70% n 70% People are n Improving the quality of rural life through renewable energy resources. deprived of it n To develop and popularize environment friendly n In response to energy renewable energy resources for income generation crisis Grameen Shakti Non Electrified Area Electrified Area activities that helps to alleviate poverty. established in 1996 Objectives of Pre-Investment Fund: Mission of Capacity Building: ØFor Social Acceptance Ø Technology Transfer ØCapacityBuilding Ø Appropriate Financial Engineering for Customer ØAchieving Critical Mass Ø Establishment of Distribution Network Mission of Social Acceptance: Ø Diversification for productive uses Objectives of Critical Mass Gain: ØContinues motivational work Ø Sustainability ØDemonstration Ø Pre-Commercialization ØWorkshop, Seminar, Training, Poster, Leaflet, Ø Commercialization Brochure etc. Appendix 2: Workshop Presentations 43 Pre-Investment Fund on Grameen Shakti: · Grameen Shakti started its operation in 1996 with an Impact of Pre-Investment Fund amount of US$ 115,000 as initial fund and promoting solar home systems to the rural areas in a very small ØPre-Investment fund helps Grameen Shakti to scale. achieve its critical mass. As a result its negotiation capability has increased and Grameen Shakti is able · In 1998 we have received an amount of US$ 750,000 to decrease the cost of solar modules up to 50% by from IFC as loan @2.5% interest thereafter which now. accelerate the company into a massive expansion of its activities through out the country. There is an innovative terms and conditions for awarding ØDifferent type of financing options has introduced Performance Incentives of 50% of the loan if the for the sake of GS clients. company hit the break even and we have been awarded by 1999 and that is the break through. Financing... Gradually and finally GS has the following mode of financing for the program as, Ø Grameen Shakti's initial financing mode in 1996-97, after achieving the first pre-investment was as follows, n Option 1 F One Option only · The customer has to pay (75%) of the total price of the uThe customer has to pay (15%) of the total price of the system system · The rest amount (25%) will be paid with 8% service charge within 6 monthly installments uThe rest amount (85%) will be paid with 12% service charge within 3 years through 36 monthly installments Ø Afterwards in 1998, the break through by IFC, the n Option 2 financing goes as, uThe customer has to pay (25%) of the total price of the F One Option only system · The customer has to pay (50%) of the total price of the system uThe rest amount (75%) will be paid with 8% service charge · The rest amount (50%) will be paid with 8% service within 2 years through 24 monthly installments charge within 1 year through 12 monthly installments Distribution network Operational Areas of PV Program n Option 3 Working Area #of Office uThe customer has to pay (15%) of the total price Bangladesh n Tangail 6 Grameen Shakti's Working Area in 2003 as down payment. n Mymensingh-1 5 n Mymensingh-2 3 Activities Area uThe remaining (85%) of the loan amount including n Comilla 6 n Shatkhira 3 10% service charges are to be paid by 36 account n Khulna 6 payee cheques in advance. n Sylhet 8 n Panchagar 2 n Patuakhali & Barguna 9 n Option 4 n Chittagong-1 9 uIn case of cash purchase GS provide 4% discounts n Chittagong-2 4 San Mon Hatidwip pura a n Munshigonj 1 on total price Kut n Rajshahi 1 ubdi a n Bagura 3 Total 66 44 Proceedings for the GVEP Workshop on Pre-Investment Funding Yearly Progress Adaptive Research Research Total Installed Systems: 13,300 Total Installed Capacity: 640 kWp Expected installation of this year: 6000 Grameen Shakti has developed the 6000 following components 6000 Low cost 12V, 6W 5000 4704 l 4704 fluorescent lamp. So 4000 far fabricated 7,745 No. of 3196 3196 lamps Systems 3000 2000 1760 1760 lLow cost 12V, 8W 1202 1356 1356 fluorescent lamp. 1000 228 228 373 373 lLow cost charge 0 Up to Up to 1998 1998 1999 1999 2000 2000 2001 2002 2002 Jan to Jan to controller (both 10A 1997 1997 Mar Mar 2003 and 15A capacity) 2003 Training Program on Installation and Maintenance Productive Use: The world becomes smaller to a rural women. q Technician Training q GS trains the local young men and women on n This communication operation, installation and facility through this phone maintenance of PV can be availed by other systems villagers of the locality. q So far trained 595 local technicians (SHS is being used for mobile phone charging). q Customer Training q GS trains its customers for n She earns US$100 per better maintenance of the month from this phone. systems The system also help her q So far trained 3450 n customers children for their q The trained customers can education easily take care of minor problems of their systems Productive Use (Mobile Grocery Shop from market to market) Productive Use (Grocery Shop, Sawmill, Saloon) Appendix 2: Workshop Presentations 45 Entertainment, Education and Health Clinic Micro Utility nGrameen Shakti introduced micro utility to the remote places for income generation activities. It is like selling energy to the Neighboring shops. Micro Utility at Dacope, Khulna Energy Globe Award 2002 Installation n The Energy Globe Award is the international prize for sustainable energy solutions and honours outstanding initiatives in the fields of energy efficiency and renewable energy sources. Solar Power Computer Education Center Thank You for Your kind Attention Curiosity and Understanding of PV Technology in Rural Bangladesh 46 Proceedings for the GVEP Workshop on Pre-Investment Funding Francis Yamba, Centre for Energy, Environment and Engineering, Zambia Global Village Energy Partnership Strategy and Planning Workshop on Pre- BACKGROUND (1) Investment Fund Berlin, Germany, 23rd ­ 24th April 2003 qAvailability of financing contributes to Topic: AREED Experience in Provision of enhancing and supporting sustainable Pre-Investment Enterprise development from the viewpoint of supplying Development Services & Seed energy for the poor rural and also aimed at Financing poverty reduction Prof. F. D. Yamba Centre for Energy, Environment and Engineering Zambia (CEEEZ) Plot No. 1635 Malambo Road, Contract Haulage Premises, Private Bag E721 Lusaka, Zambia. Tel/Fax: 260-1-240267 Email: yamba@eng.unza.zm / ceeez@coppernet.zm 1 2 BACKGROUND (2) BACKGROUND (3) q It is now widely accepted that the lack of clean and qThe greatest social challenge that most sustainable energy is a significant barrier to the successful implementation of poverty reduction African governments face in the 21st century programmes in most African countries. is that of poverty reduction. q Addressing these issues, however, is a difficult financial and political challenge for African governments who often qVirtually all governments in Africa have place the needs of concentrated urban populations embarked on poverty reduction programmes ahead of those in peri-urban and rural areas. q Experience of AREED of that of seeking to develop new sustainable enterprises that use clean, efficient, and renewable energy technologies to meet the development needs of rural areas, is one effective approach to 3 overcoming the barrier identified above. 4 AREED AND ITS EXPERIENCE IN PRE- INVESTMENT AND SEED FINANCING OBJECTIVES OF AREED q AREED Program was established in 2000 by a group of q Based on an enterprise development approach pioneered by E+Co multi-lateral (UNEP), international (E&Co) and national and AREED partners, the AREED specific objectives are: partners (Ghana, Mali, Senegal, Tanzania and Zambia) § Establish and strengthen enterprises (private sector and to: public-private partnerships) that offer clean modern energy services to rural and peri-urban populations. § Address this need by helping to build and sustain § Increase the capacity of local NGOs to offer enterprise energy enterprises capable of delivering energy development services critical to the start -up of small and mid- services, and promotion of clean and sustainable size energy enterprises. energy technologies for productive uses for § Engage local and regional financial institutions to invest in income generating activities. the clean energy sector. § Enhance the ability of local, regional and national § Meet on-the-ground needs of entrepreneurs and governments to support business-like, solutions to the start-up businesses with a business orientation. delivery of sustainable energy services by small and mid-size 5 energy enterprises. 6 Appendix 2: Workshop Presentations 47 AREED ARRANGEMENT STAGES OF THE TOOLKIT PROCESS AREED Support TOOLKIT A Idea Idea Enterprise Start-up E Development Financing N R Services T Proposal R FactFact-Finding E E P EDS Entrepreneur Energy Feasibility Analysis Entrepreneur E R Services Rural Clients Rural Clients E N Business Planning E EDS and D $ U NGOs Banks ImplementationImplementation R $$ and 2ndStage $$$ AREED Partners Expansion 7 8 AREED EXPERIENCE AREED ACHIEVEMENTS (1) qEnterprise-centeredmodelcanbeapowerfulmeansfor achieving concrete and sustainable solutions to problems in qSince 2000, the following accomplishments energy and a variety of other development sectors. have been obtained through the AREED qGrowing evidence from the five countries where AREED is partnership: active demonstrates that these types of energy enterprises can generate measurable co-benefits beyond the provision of §Training of 250+ entrepreneurs on business energy services including: planning and enterprise development; § creationofjobs; §$400,000 invested in 13 enterprises, § protection of land and forest resources; including enterprises active in the following: § increasedproductivityandincomes; § provisionofcleanwater; § other development priorities. 9 10 AREED ACHIEVEMENTS (2) AREED ACHIEVEMENTS (3) üsolarcropdrying, ücharcoalproductionfromsawmillwaste, §Increased capacity of local institutional üefficientcookstovemanufacture, partners to deliver enterprise development üwindwaterpumping, services and analyze investment opportunities; and üsolarwaterheating, üsolar bakeries, §Completionoftrainingtoolsandmaterials to foster local energy enterprise üLiquified PetroleumGas(LPG) distribution, development and finance. üBio-dieselmulti-functionplatforms üenergyefficiency 11 12 48 Proceedings for the GVEP Workshop on Pre-Investment Funding CHALLENGES (1) CHALLENGES (2) qWhile it is acknowledged that a good start and foundation qThe problems above are being caused by the following have been achieved, the most pressing challenge is negative conditions prevailing on the ground. attainment of long term sustainability and contribution of § Contact between partners and RBEsis limited AREED to national development priorities of partner § Entrepreneurs do not have knowledge of technologies for countries. delivery of energy products and services qProblems that are seen as threatening the long term § Entrepreneurs, particularly those in rural area, are sustainability include: unaware of application of clean/renewable energy technologies for productive use. § limited flow of rural-based enterprises (RBEs) through § Entrepreneurs have limited awareness of business the pipeline opportunities in the energy sector § insufficientresourcestosupportlongtermEDS § Entrepreneurs capacity to write project proposals is delivery and investments limited. 13 14 WAY FORWARD q Theproblemsidentifiedabovearepre-investmentrelatedand provision and enhancement of such funds will go a long way in removing these barriers, and ultimately increase and sustain the flow of proposals through the pipeline through implementation of the following strategies § Increase dialogue between partners and umbrella organisations who support entrepreneurs for increased production through provision of energy as part of their production. § Initiate targeted marketing of packaged technologies. § Work closely with national and international agencies in the demonstration of viable energy technologies as a business. 15 Appendix 2: Workshop Presentations 49 Luis Torres, BP Solar NON-ENERGY HARDWARE PACKAGES STRATEGIC MODELS Self financing Health kits Education kits Productive kits Off set plan Community kits Home kits BUILDING Communication kits SUSTAINABLE RURAL OFFER Social DEVELOPMENT sustainability Bilateral ENERGY MARKETS Finance Technical Economic Multilateral sustainability sustainability Finance Alternative Finance SMEs Luis Torres GVEP BERLIN WORKSHOP, 23th & 24thApril 2003 SUSTAINABILITY FINANCIAL PACKAGE PACKAGE Hardware Packages POTABLE WATER KITS HOME KITS Solar Water Pumping System Solar Home lighting system & HARDWARE PACKAGES Water Purification System HEALTH KITS EDUCATION KITS Solar Power Systems Solar Power Systems for Rural Health for schools to energize Centers & Clinics audio/video players & Solar vaccine fridge system computers and lighting PRODUCTIVE KITS COMMUNICATION KITS Hybrid Systems, Micro-grids Satelite Communication (Agricultural appliances, irrigation, Internet access dry machinery, milk refrigeration, electrical shears) Rural Telephone ·Sustainability What does sustainability mean in Off-Grid rural energy projects? SUSTAINABILITY Technical performance of the systems An Economic model ensuring operation & maintenance of the systems and wealth creation Social commitment and local community transfer 50 Proceedings for the GVEP Workshop on Pre-Investment Funding ·How to ensure sustainability? ·Social Sustainability -Ensure project meets local Improvement needs and priorities of basic needs Local agenda -Community buy-in and and Job Early included in the commitment Creation Poverty involvement of Project -Performance specifications with -Community preparation reduction local leaders proven technology & quality -Handover of the project to standards Social local communities Social -In-Country product support and -Matching synergies with local spare availability agenda Development -Technical training Transfer and -Life cycle considerations TechnicalABILITY SUSTAIN Searching & Community Coordination ownership Organizational development with Agencies and atlevel local & Stimulate Economic institutions Strengthening participationorganizational & productive skills -SME creation Training -Microfinance availability for local communities needs -Fee-for-maintenance implementation Technical training, Capacity-building & Organizational Management ·Why focus on Microenterprises development? ECONOMIC ·SHOULD BE A MAJOR COMPONENT ON PROJECT ECONOMIC SUSTAINANBILITY SUSTAINABILITY ·PROMOTE HOUSEHOLDS ECONOMIC SELF NESS & PROMOTION MICROFINANCE SERVICES & MICROENTERPRISE DEVELOPMENT ·INCREASE INCOME GENERATION ON RURAL POOR · HELPING JOB CREATION ·HELPING COMMUNITY EMPOWERMENT ·Integrating Energy Services in rural commumities & ·Microfinance Services II N synergies with Microfinance Schemes N relevance in wealth C C creation SMEs Creation O O Large scale MM project Energy Services for Wealth E E Productive issues Job creation Creation and Service Livelihood and Capital G G Cost Improvement Provision effectiveness E Income E Complete circle N N SMEs creation generation and saving of investment, i.e. Capacity E E Financial production, income, Building R R sustainability Autonomy and consumption, A A Microfinance empowerment savings, investment T T Services: credit, Renewable Energy Self insurance, etc. for Rural II sufficiency O O PROJECT INTERMEDIATE LONG-TERM Development INPUTS BENEFITS OUTCOMES N N Appendix 2: Workshop Presentations 51 ·Financial Services for Economic ·Microfinance services Sustainability ·Subsidies: resolve the problem of initial access to capital for productive purposes, New approach in Off-grid energy offer regarding economic the major constraint low -income households have to face sustainability ·Loans, in kind or cash: should be compatible with microenterprise business and income patterns. Firstly poor households receive small loans for working capital, the access to repeat and larger loans is based on debt capacity and repayment performance Programs & projects should consider a financial solution for ·Savings: generally, beneficiariesdo not have the ability to create substantial saving SMEs development a priory, they need institutional support (through solidarity groups, revolving credit and saving associations or credit cooperative models) HOW? · Insurances: poor householdsare extremely vulnerable to economic, political and physical downturns (increase in expenses, harsh weather, etc), so Private initiative, Donor, Recipient . . . ? insurance is an effective mechanism to provideprotection against risk Consultancy services: can help to create capability on accounting techniques, business planning, market development ·Roles in Socio-economic development strategy MICROFINANCE & POVERTY REDUCTION NEXUS FINANCIAL RESULTS IMPACT ON POVERTY SERVICES DONOR/ Diversification of economic activities More diversified income sources RECEPIENT PRIVATE COMPANIES THIRD AGENCIES & SUBCONTRACTORS Credit Lead to adoption of better technology Less volatile income GOVERNMENTS Facilities Enable expansion of micro enterprises Severity of poverty is reduced Promote risk sharing Empowerment Increase economic growth, i.e. GDP Reduce social exclusion Diversity & inclusion in country richness Savings Greater capacity for self-investments Reduce household vulnerability to Facilities of Enhance ability to face external shocks risks/external shocks microfinance Reduce need to borrow from money lenders at Less volatility in household consumption SME high interest rates Greater income FINANCE PROJECT SYSTEM SOCIAL institutions DEVELOPMENT Enable purchase of productive assets Severity of poverty is reduced AND DESIGN DESIGN,SUPPLY PREPARATION SERVICES (MFIs) Improve allocation of resources Empowerment LIAISON AND PROJECT & DEPLOYMENT AND AND Increase production figures Reduce social exclusion MANAGEMENT COMMUNITY DEVELOPMENT CAPITAL Insurance Reduce risks and potential losses Greater income PROVISION Services Assurance of assets Less volatility in consumption Reduce impact of external shocks Greater security Reduce exposure and mitigate non-payment RURAL Money Facilitate trade and investments Greater capital movements Higher commercial opportunities ENTERPRISES Transfer CREATION Services 52 Proceedings for the GVEP Workshop on Pre-Investment Funding Mobilizing Local Capital Markets: The Role of Pre-Investment Capital Ajay Narayanan, Infrastructure Development Finance Corporation Outline · Background of IDFC Rural Energy · Our work in Rural Energy Role of seed capital · The issues as we see it · Need and role for pre-investment and its interface with local capital GVEP Workshop Berlin April 23rd, 2003 2 IDFC Background IDFC's work work · Influencing the national policies for PSP in infrastructure · Set up in 1997 as a nodal FI to lead private capital ­ Power policy : shift from generation to distribution to commercially viable infrastructure ­ Roads : Annuity model/ PFPI model for PSP · 40% GoI, 40% international agencies · State partnerships and policies & Advisory · Capital base of over US$300 mn (equity+ sub- ­ Development of energy and other infrastructure policies debt) and balance sheet size of US$ 650 mn ­ Setting up joint ventures for project development · Project financing · Works on project finance, policy & advisory work ­ FY 2002 sanctions were US$ 565 mn including US$ 190 of · Sectors guarantees ­ Energy · This includes various RETs as well as India's first private commercial MSW biomethanation project · Generation, Transmission and Distribution ­ Creation, structuring and management of an infrastructure ­ Integrated Transport & Logistics equity fund of US $ 200 million announced in Union Budget · Roads and Bridges 2002 · Ports and harbors · IDFC has a strong orientation towards SD in all of the ­ Telecommunication & IT above ­ Water, Sanitation and Solid waste ­ Project environment risk mitigation ­ Food & Agriculture ­ Carbon financing : working on national policy and creating a deal flow for PCF and other international ­ New social sectors : Health, Education & Tourism buyers 3 4 Appendix 2: Workshop Presentations 53 Background of DI in IDFC IDFC & DI · Limited last mile impact of centralized infrastructure · A commitment to facilitate the development of · Adverse impacts of centralized development business models and projects that are ­ Not always cost effective ­ Replicable/Scalable ­ Environment & Social impacts ­ Based on commercial principles ­ Long gestation periods ­ Proper risk-return-allocation · Distortions in system for rural infrastructure & poverty alleviation · An internal annual allocation of US$ 2 million set · A divide of commercial finance vs. Donor programs aside to fund suitable projects · Is it possible to have commercially oriented decentralized · IDFC has committed itself to moving ahead in infrastructure that targets last mile access ? this area ­ Redefining Private sector to include any non-governmental ­ Can provide financing structure ­ Predicated on profit motive being a reliable driver ­ Can facilitate development process (with project structuring inputs) ­ Focus on proper incentivisation to achieve a sustainable project · Cannot develop projects or provide grants 5 6 Decentralized infrastructure - Issues · TECHNOLOGY : Decentralized technologies have issues of reliability and local operability (and comfort amongst Issues in Decentralized financiers) · POLICY: Does not normally provide for DI. In areas such Infrastructure development Infrastructure as energy & telecom, ­ Distribution and generation asset ownership ­ Tariffs and recovery · FINANCE : These projects are often too complicated for local financing and too small for mainstream FI interest ­ Transaction costs ­ Sophistication of financial structures to create the suitable risk return allocation ­ Has worked to some extent with retail device financing · MANAGEMENT : Need for local entrepreneur/service providers with ownership ­ NGOs averse to commercial operation ­ Commercial operators moral hazard and high monitoring costs · Other "feel good" agendas could hinder chance of success 8 IDFC approach in the sector Examples Examples · Application of sound project finance principles in Rural · In addition to policy level interventions and assignments energy financing · Working on rural distribution pilots in India with a bilateral ­ Look at non-recourse ­ Bilateral to provide conditional grant for project feasibility & IDFC ­ Long tenor takes on if found viable and meeting our parameters ­ IDFC involved from the beginning · Suitable risk-return allocation · Risk mitigation arrangements with Bilaterals for GHG mitigation ­ Local ownership with financial stake projects ­ Proximity of service provider & customer · Working to finance distributed generation projects (IDFC is · Enabling financing (as with IDFC's mandate for larger interacting with project developers/promoters to create the right projects) with movement towards local intermediation structure) ­ IDFC is willing to part bear the high transaction costs in developing the sector in the interim ­ Small hydro ­ Solar Home Lighting thru NGO networks · Focus on service delivery rather than asset creation ­ Solar minigrid · Dimensions ­ Biomass (small and medium) ­ Generation (conventional/renewable) · Exploring EE & DSM projects based on various models (linked to ­ Distribution (Grid/off grid/mini-grid) Rural distribution) ­ Commercial approach (Ability/willingness to pay and subsidies where required) · New areas ­ Local need for energy and demand driven ­ Biofuels and biodiesels ­ Urban transport : public transport (BRT/High capacity buses) 9 · Carbon financing 10 54 Proceedings for the GVEP Workshop on Pre-Investment Funding IDFC's envisaged role role Need for pre-investment support · A vital link to enable projects with quasi commercial approaches to emerge · Needs to be a means than an end in itself ­ Financing is not an issue (local capital is adequate and possibly cheaper) ­ Project development is the area where the focus needs to be ­ Needs to avoid subsidies and other distortions unless completely thought through. No grants to project developer. ­ Work with conventional mainstream local finance that will step in once the pre-investment work is done · Objective: To catalyze the development of sustainable rural energy project development & financing ­ Eventually the state should enable the development and soft financing and the suitable policy frameworks ­ This would attract local entrepreneurs with the requisite skills ­ Local capital would also be comfortable to provide the appropriate financing ­ Technology should also fall into place if there is a commercial market 11 12 Strategic direction for sustainability · Initial focus on business models and projects · Require local capital involvement following project development if project is viable/sustainable · Showcase successful projects and move state/national policy changes to mainstream the approach · Some models ­ Creating a locally managed reflows project development fund whose leverage can be increased over time. ­ Setting up of a rural energy fund with government for pre-investment support once projects are successful 13 Appendix 2: Workshop Presentations 55 John Taylor, Development Finance Corporation of Uganda Facts about Uganda · East Africa, west of Kenya · On the Equator John S Taylor · Total Area - 236,040 sq km Water 36,330 sq km Managing Director Land 199,710 sq km DFCU Group, Uganda · Tropical climate, generally rainy with two dry seasons (Dec-Feb, Jun- Aug); semiarid in the North. · Essentially agricultural; fertile, well watered with many lakes and rivers · Est. population, 25million (2002) growing at 3% pa. Economic Indicators DFCU Group 2000 2001 2002 2003f 2004f 2005f DFCU Limited (Incorporated 1964) GDP% 5.5 6.0 5.6 5.5 6.6 6.0 Inflation % 2.2 3.8 3.0 5.0 5.0 5.0 DFCU Leasing Housing Finance Nakasero Properties 100% 50%+Control 62.7% UGX/US$ 1,565 1,789 1,845 1,860 1,920 2,000 (1999) (2001) (2002) Bank deposits 840 824 984 n/a n/a n/a (US$' millions) DFCU Bank Rwenzori Properties 100% 62.7% (2000) (2000) Source: Bank of Uganda/ The Africa Report 2002/03 DFCU Group financial growth DFCU Group Developmental Products FiveYearsHighlights Growth - `98 to `02 200,000 10000 · Long term development loans 187,821 · Total assets up 5X 180,000 9,129 9000 · NAV up 3.5X 160,000 8000 · Leasing - finance leases 138,627 140,000 7,095 7000 · Mortgage for home ownership 120,000 6000 · PAT up 15X million100,000 96,949 5000 million · No. employees up · Equities UGX' 80,000 4000 PAT 60,000 51,207 3000 from 44 to 234 2,652 3,024 40,000 34,309 33,984 2000 · Loans to micro Finance Institutions 24,939 20,709 20,000 14,672 1000 · Fastest growing 9,628 589 0 0 Group in Uganda 1998 1999 2000 2001 2002 TotalAssets NAV PAT 56 Proceedings for the GVEP Workshop on Pre-Investment Funding Pre-Investment Fund Delivery Mobilising Local Capital · Solution to funding / liquidity constraints · Seed capital · Tailored to needs of entrepreneurs · Venture capital · Oriented to business-based assistance · Medium and long term lending · Leasing · Link with local capital sources · Mortgages · Commercial characteristics · Credit Process rests with FIs · Matching grants · Technical support- credit, monitoring · Commercial viability DFCU experience in equities DFCU Equities - Why so many failures? NOT GOOD!! Of 34 equity investments · Low/nil cost funding - "Soft" approach Partly Not Write · Lack of experience in equities (MAPTI) Successful Successful Successful offs · Areas we didn't know well Financial 6 3 10 15 · Financial failure (usually)=Operational failure Success? · High costs of monitoring and supervision Developmental 6 8 5 15 Success? DFCU Equities - lessons to be learned DFCU Group drivers Vision · Risks and responsibilities vs. return ­ become recognized best local financial institution · Needs of strong institutions in place Mission ­ make profit while delivering development finance · Needs market discipline Commitment · Need more effective control than minority ­ Vision and Mission statements bind everybody · Leveraged transaction- quasi-equity approach Staff · Act on the lessons to be learned! ­ Very well trained and highly motivated Overall ­ Clear purpose and motivation Appendix 2: Workshop Presentations 57 Effective ways of delivering seed finance Scale-up of modern energy services · Lines of credit Uganda Energy Fund (UEF) · Matching funds ­ grants · Partnership - DFCU & Shell Foundation · Special funds ­ on lending to projects in · US$ 4 million fund on a matched basis remote areas- women groups, training · Credit appraisal and approval by DFCU · Commercially viable projects qualify · Commercial rates apply · Shell's involvement adds immense credibility Conclusion ­ Answer always `YES' · Is DFCU still interested in Seed Finance ? · Is DFCU mobilizing local capital resources? · Does "Profit & Development" work? · Does DFCU Group need more funding? · Should GVEP develop a Pre-investment Fund? 58 Proceedings for the GVEP Workshop on Pre-Investment Funding Chris West, Shell Foundation Appendix 2: Workshop Presentations 59 Experiences and Lessons Learned from Funds Managers Fernando Alvarado, E & Co. MISSION: "Bringing together technology, people and funding April 23, 2003 to create local enterprises that deliver modern energy to those in need" E+Co offers a COMBINATION of products to support the enterprise: E+Co / Local Partners Government Toolsand Enterprise / Policies Productive Uses/ Training Development Income Generation Services Fernando Alvarado Entrepreneurs Sustainable Energy Enterprises Clients E+Co LAC Regional Manager Start-up Later stage Micro -finance Financing capital (E+Co) (Financial Institutions) GVEP - BERLIN 2 E+Co is a global organization with an extensive E+Co's unique investment philosophy includes several network: characteristics that make it particularly effective Y E+Coofficesin: CostaRica,Bolivia,Brazil,SouthAfrica, Y Localenterprise-centeredapproach;affordablecapitalatmostscarce/ needed stage Vietnam and the US ­ Risks mitigated through substantial EDS, modular capital dispersion, specialization in the clean energy sector, significant experience, and diligent structuring; Y Partnerships: 9 local Institutions/NGOs ­ However, RISK is accepted; early stage enterprises in emerging markets Y Workwithentrepreneursdirectly(worktogetherratherthanengagein Y Outreachintoadditional11countriesinCentralAmerica, traditional expensive 100% "belts and suspenders" due diligence) Africa and Western China ­ Provide support services both pre and post-investment ­ Where projects / enterprises fail, write off the losses and move on Y OngoingRegionalPrograms: Y Convertibledebtatattractive,affordableterms;E+Co'ssharingof Ø FENERCA (USAID sponsored): 5 countries in Central equity upside strengthens partnership, justifying greater involvement America and resources post-investment Ø AREED (UNF sponsored): 5 African countries ­ Convert to equity only when an enterprise shows significant growth capacity Ø BREED (UNF sponsored): Northeastern Brazil ­ Begin small, providing funding in small tranches as company grows and demonstrates its Ø CREED (UNF sponsored): Western China ability to execute, hence reducing credit risk ­ Diversify risk through co-financing partnerships with social investors and lenders 3 4 60 Proceedings for the GVEP Workshop on Pre-Investment Funding E+Co attributes the success of its investment portfolio E+Co work over the last decade has resulted in many to several key factors tangible results Results E+Co experienced team with market Y 90+cleanenergyenterprisessupportedin34countries,$9million+invested. presence Y 24enterprisesdeliveringcleanenergytoover200,000people Strong and Synergies with related programs expanding Y Anestimated500jobshavebeencreateddirectlythroughtheseinvestments (e.g. FENERCA, pipeline AREED) Y E+Coinvestmentshaveproducedover$38millionofco-financing ­ Sharing its renewable energy financing experience, E+Co has provided training to 70+ Central American financial institutions and to 45 in Africa The Energy Enterprise Y E+Co'enterprisespreventanestimated60,000tonsofCO2peryear Strong NGO ­ E+Co recently helped structure the sale of 333,000 tons of carbon from an Policy linkages E+Co-supported Guatemalan hydro plant to a Dutch utility, valued at partnerships ~$900,000, over a 10 year period to promote RE (e.g. BUN-CA and KITE) Y UsingtheEnergyEntrepreneurHandbook,E+Cohaspresentedtrainingto approximately 500 entrepreneurs in Latin America and Africa Delivery platforms: Market demands (capital, EDS, low Cable / DTH Y E+Coreceivedthe2002EnergyGlobeAward forinnovationinsustainableenergy transaction costs) Cellular Paging 5 6 E+Co LAC, with funding from the MIF, has successfully Besides solid FINANCIAL results, the MIF Fund has structured an innovative Venture Capital Facility produced substantial social and environmental impact Y Effectivedevelopmentandstructuringoftransactions Key fund terms ­ $2 million + of Venture Capital Facility invested in 20 enterpri ses ­ $275,435 of Grant Facility invested in 11 enterprises Y Fundlaunched:September,1996 ­ As of Dec 31, 2002: 31 disbursed; 5 repaid; 18 active; 8 grants or written off Ø Repayments of MIF funds: $1 million (50%) Y Venture Capital Facility size: $2,279,500 Ø ExpectedIRRof10%onVentureCapitalFacility ­ For eligible small and medium sized energy enterprises Y EfficientleveragingofMIFfundswithcapitalfromothersources ­ Portfolio Risk Sharing ­ 38.6% of E+Co LAC's investments include MIF funds ­ "Reasonable rate of return" required Y Portfolioweightedtowardsloans(lowestrisk);equityused opportunistically ­ 75% to be repaid in September 2004; 25% September in 2006 Y Riskdiversifiedbytechnology(27.5%hydro,22.2%PV,16.7%EE, Y GrantFacilitysize: $1,062,000forEDSandFundManagement 33.6% other) Y Matchingrequirementforfundsinvestedfromeitherfacility Y Substantialsocialandenvironmentalimpactfrominvestments ­ 300 direct and 900 indirect jobs created ­ 17.6 MW of grid connected clean energy servicing 20,000 households ­ 7,500 rural households served by off-grid energy companies ­ 37,000 tons / year of greenhouse gas emissions offset 7 8 Off-grid successful case studies demonstrate the On-grid successful case studies demonstrate the substantial impact of E+Co's investments substantial impact of E+Co's investments Red Ceramics ­ La Paz, Bolivia RAPS ­ South Africa Kanata 7.6 MW Hydro Plant ­ Bolivia Tecnosol ­ Nicaragua KBPS ­ Zambia Snow Mt 480 kW ­ Honduras 9 10 Appendix 2: Workshop Presentations 61 ...La Esperanza: pre and post investment EDS, Seed E+Co is positioned for continued growth, BUT requires $, Financial Advisory and Second Stage Financing... additional SEED capital and GROWTH capital The future Y FENERCA,AREED,BREEDandCREEDprovideuniqueplatformtoleverageof tools and training, EDS, policy linkages and seed capital. Y $10million+leveragedfromtheUnitedNationsFoundation,USAIDand other public and private sources to support the Enterprise Centered Approach. Y EDSCONTINUEStobeanimportantcomponentofourcoreservices Y E+Co's networkofcontactswithco-financiers, entrepreneurs and key stakeholders provide foundation for continued growth ? If and only if . . . Y MORESEEDandGROWTHcapitalisavailabletofunda$320million pipeline(70 investments) Y Secondstage,patientcapital,todaynonexistentinthedevelopingcountries, becomes available 11 12 The Future... Contact information Y ThereAREpre-investmentprogramsinplace,E+Coisimplementingfour regional ones in Latin America, Africa, Brazil and China. Y ThelackofSEEDandGROWTHcapitalcontinuetobethemost Fernando@energyhouse.com important gaps. Y ProjectdealflowandexistingpipelineidentifiedbyE+Corepresent www.energyhouse.com investment opportunities for seed and growth capital in excess of $400 million. E+Co LAC Y Fundsareneededforallaspects,notjustearlystagepre-investment Y Investmentneedstobechanneledthroughimplementerswithproven Tel: (506) 296 3532 track record, local presence and success case stories. Fax: (506) 296 4810 For example San José, Costa Rica Global Rural Energy "Best Practices" FUND (GREF) concept of theUNF sponsored Energy Future Coalition: Things that work Proven models 13 14 62 Proceedings for the GVEP Workshop on Pre-Investment Funding Hans Schut, Solar Development Group, Triodos International Fund Management Appendix 2: Workshop Presentations 63 64 Proceedings for the GVEP Workshop on Pre-Investment Funding Appendix 2: Workshop Presentations 65 66 Proceedings for the GVEP Workshop on Pre-Investment Funding Appendix 2: Workshop Presentations 67 Grace Yeneza, Preferred Energy Investment Our Rural Energy Challenges Challenges · The Philippines is an archipelago with close to 15 million households PRE-INVESTMENT FINANCING: FINANCING: · About 20% of households still without PEI's Experience In The Philippines access to electricity, mostly in remote island and upland communities · The Country is largely dependent on Grace S.Yeneza imported oil and coal as source of energy Managing Director Preferred Energy, Inc. · There are vast renewable energy resources www.pei.net.ph that remain untapped · Market and policy environment still undergoing restructuring Preferred Energy, Inc. Preferred Energy, Inc. Preferred Energy, Inc. Inc. Our Strategic Concept and its pioneering ways Concept ØA Filipino non-stock, non-profit organization that develops renewable and Solutions must demonstrate: clean energy resources for power and other applications Ø Flexibility ØPEIfocuseson: Ø Sustainability · Policy advisory to government ØEnterprise · Project development advisory · Private sector partnerships · Project financing Preferred Energy, Inc. Preferred Energy, Inc. Our Track Record PEI... 1994 - Conceptualized Wind Energy Atlas for the Philippines 1995 - Organized first International Wind Energy Conference Has done, and continues to do - Developed local expertise in micro-hydro technology 1995-97 - Provided pre-investment cost-share for 2 projects projects 1995-97 - Assisted and financed private sector-led projects: · 7 MWs grid based hydropower project nationwide · 98 kWs microhydro for eco-tourism · solar PV dissemination 1996-97 - Organized and provided pre-investment support to 2 project development companies in the areas of : 1997-99 - Provided pre-investment grants to NGOs for community- based projects 2000 - Developed the Village Power Fund Concept Preferred Energy, Inc. Preferred Energy, Inc. 68 Proceedings for the GVEP Workshop on Pre-Investment Funding Hydro Power Solar Energy Villa Escudero 98 kW Bubunawan 7MW Micro-Hydro Project Hydropower Plant Project Preferred Energy, Inc. Preferred Energy, Inc. Wind Energy Biogas to Energy Wind Energy Resource Atlas of the Philippines Wind Energy Monitoring Activities Preferred Energy, Inc. Preferred Energy, Inc. Community-Based Power Projects PEI's Pre-Investment Tulgao-Dananao , Kalinga, BagongBayan , Roxas, Kimbutan Apayao Palawan Financing Experience Lon-Oy Binosawan, Roxas, Palawan Oyao Balbalasang Preferred Energy, Inc. Preferred Energy, Inc. Appendix 2: Workshop Presentations 69 REPSO Cost-share REPSO Cost-share Terms & Conditions Program Results: ØRenewableresources-basedexceptmunicipal ØConsidered at least 10 projects solid waste ØTwo projects funded (over 3 years) ØPre-investment cost-share up to $35,000 ØBoth projects did not proceed to implementation ØCost-share support to be repaid if project proceeds to implementation within 5 years of completion of feasibility study Issues Encountered ØCost share becomes a full grant if project does not §Mostprojectswereonlyinconceptualstages advance to implementation within 5 years § $35,000limitwasnotsufficientforsomeprojects(i.e, hydro) Basic Assumption: § Conversiontofullgrant,ifprojectdonotproceedto implementation Projects are ready but needed a little push to in 5 years, was incentive for developers to delay project implementation complete studies and advance to implementation REFTA Cost-Share REFTA Cost-Share Program Results: ØCost-share in chunks of $20,000; $50,000 ØPhilippine Bio-Sciences Company, Inc (a waste to and $100,000 energy company) was established § Philbio implemented Rocky Farms Biogas Project ØSupport directed to creation of § Philbio biogasprojectreplicatedin7moresites development companies § Expanding to industrial waste and municipal waste ØCost-share convertible to equity into the ØMindanao Hydro Development Corporation was company as soon as set-up established § Mindevcohas 11 projects in the pipeline ( about 78 MWs) § Currentlyindiscussionwithpossibleinvestors § Has MOAs withdistributionutilitiesandintheprocessof obtaining development permits for a number of sites Preferred Energy, Inc. Preferred Energy, Inc. Community-based Village Power Power Community-based Village Power Power ØCost-share grant support of $20,000 to Results: NGO/Peoples' Organizations Ø Leveraged cost share with other grants Ø 8micro-hydro projects implemented § Granttosupportcommunitypreparation Ø Serving 10 villages/communities and over 1,000 households and pre-feasibility study of community- based energy projects Issues Encountered § Communityenergyprojectstobeowned § Projectreliedongrants and managed by the community/local § Longgestationtofindsufficientgrantsupport people's organization § Highleveloffrustrationwhilewaitingforthe projecttobe implemented § Grant-based financing encouraged low-costdesignalternatives Preferred Energy, Inc. Preferred Energy, Inc. 70 Proceedings for the GVEP Workshop on Pre-Investment Funding ESMAP-supported supported PEI's Village Power Fund Model Model Village Power Pilot Projects ØProvides pre-investmentandinvestment (partial loans) to communities for rural energy projects ØProjectsshouldbesustainable: · Least cost energy solution · Livelihood opportunities · Strong local organization with managerial credibility and willing to invest equity ( time, money, skills) · Birth of local enterprises providing essential infrastructure and services PilotMicro-hydro and Livelihood Projects Micro Livelihood Projects Preferred Energy, Inc. Preferred Energy, Inc. Pilot Village Power Fund Project · Funded by the World Bank ­ Energy Sector Management Assistance Program · Pilot Village Power Fund provides: ­ Project Incubator Services ­ Project financing ­ Continuing oversight of project operations to ensure sustainability Preferred Energy, Inc. Pilot Village Power Fund Project Concerns/lessons learned: § Needtobuildcapacitytoinstillenterprise concepts into NGOs/Peoples' Organizations § Capacity building has long gestation and requires solid commitment from stakeholders § Multiplefundingrequiredduetospecializedfocus of funding agencies. § Each donor agency has own procedures and standards § Co-mingling of fund is not possible for some agencies Preferred Energy, Inc. Appendix 2: Workshop Presentations 71 Why a Pre-investment Fund for Village Power ? Two Ultimate Challenges Power ? · Pre-investment Fund is important for pursuing village level development ØHowtore-engineercommunitiesinto entities that can implement projects in a · PEI experience indicates financing village level energy initiatives is possible but not sustainable manner; and easily done ØHowtogetdonorstoagreeand · Pre-investment financing is only the first step streamline the financing mechanism to · Need for incentives to advance projects to allow for flexibility and use of innovative implementation, hence investment financing necessary solutions Preferred Energy, Inc. Preferred Energy, Inc. A Wish List Ø A locally organized Fund that: § Can devote time to understand the local needs § Can provide flexible pre-investmentand investment financing but with appropriate safeguards for quality and sustainability § Has long term commitment to beneficiary communities Ø A Fund with a streamlined process of pre-investment and investment financing for rural projects Preferred Energy, Inc Ø Donor institutions that are willing to invest in local 1703 The Centerpoint, Julia Vargas Ave. talents and allow this GVEP Dream become a reality! Pasig City, Metro Manila, Philippines www.pei.net.ph Preferred Energy, Inc. 72 Proceedings for the GVEP Workshop on Pre-Investment Funding Patricia Moles, (formerly Terra Capital, Brazil) Structure Terra Capital Investors ­ Lessons Learned · Sectors: Organic Agriculture, Forestry (non-tropical), non- · Background timber forest products, nature tourism, aquaculture ­ Concept fund idealized by the IFC: targeting biodiversity conservation via private sector investments. · Management Team ­ Business plan and structuring of the fund: 1996-1998 ­ Venture Capital Experience: EEAF (Washington Based) ­ Start ­up of operations November 1998 ­ Knowledge of biodiversity related/NGO issues: SDI (Rio de · Investment Model Janeiro) ­ Applying traditional venture capital model to new emerging ­ Local Presence in Brazil: Banco Axial (in 2000 passed to A2R), sectors new "green" bank. ­ Focus in Latin America ­ Remain minority investor to motivate entrepreneurs These 3 institutions created Terra Capital Advisors ­ 10 year fund, 5 years Investment program, 5 year Divestment. (IFC acted as passive partner) ­ Originally expected to invest in 12-14 projects ­ Ambitious returns: 20% to investors Investors: IFC, MIF, SECO, Triodos, Calvert, private individuals Operations 2002: four-year assessment · Initial Capital: US$15 MM in commitments (idea of a second closing) · Portfolio was considered too risky, with no assurance of returnsafter 3 · Investment range: US$500,000 to US$2.2 million years · Support of US$5 MM from GEF, targeting the incremental expenses of the management group (not portfolio companies) · Manager had to adopt a proactive, attitude in problem deals, the refore · Governance: Board of Directors (main investors + manager, increasing the risks to shareholders Investment Committee) · A development "type" work was required, but no structure had been · Highlights: foreseen to tackle this limitation. ­ First 6 months of operations focused on deeper pipeline analysis · Steep learning curve (first two projects were bad investments) and development of specific biodiversity guidelines · Very difficult operating environment (from a macroeconomic and ­ Weak entrepreneurial and business planning capacity regional basis), with most sectors suffering from informal competition ­ Initial idea of 12-15 projects abandoned after one year. · Governance of the fund was jeopardized by small scale. Close ­ Heavy hands-on management requirements monitoring of the board was not cost effective. ­ Ongoing businesses in rural areas were exposed to heavy tax and labor contingencies From 1999-2002 only 4 investments were made (US$5.5million), In 2002 investors suspended new investments and entered divestment phase. Conclusions · Terra Capital did not meet expectations of investors. · Lessons learned on structure: ­ Make it simple · Lessons learned on Operations: ­ Create track record prior to setting up the fund (do pilot projects, direct investment, etc) ­ Allocate resources to training both managers and entrepreneurs ­ Be sure the risk profile of the activities is constantly aligned with expectations of key investors. ­ Be careful with tropicalizing "advanced" countries' models. What works in the US probably does not work in Latin America Appendix 3 List of Confirmed Participants First Last Name Name Affiliation Email address Country Gladymanuel Trading Enterprise Abbey Emmanuel Limited, Ghana gladymanuel@yahoo.com Ghana Adams Sarah EDF ACCESS sarah.adams@edf.fr France E&Co Regional Manager for Latin Alvarado Fernando America fernando@energyhouse.com Costa Rica Barua Dipal Grameen Shakti dipal@grameen.com Bangladesh D'Addario Patrick Fiorello H. Laguardia Foundation fhlfoundation@netscape.net USA Forster John Impax Capital Coporation Limited jforster@impax.co.uk UK LGA Consultants (Pvt) Ltd/ Sage Gunaratne Lalith training lalithg@sri.lanka.net Sri Lanka Gunning Rebecca IT Power rebecca.gunnin@itpower.co.uk UK Hoyt Edward Econergy International Corporation hoyt@econergy.net USA Khan Hasna Prokaushali Sangsad Limited HasnaJKhan@cs.com Bangladesh Kieffer Ghislaine ESMAP/World Bank gkieffer@worldbank.org USA Lallement Dominique ESMAP/World Bank dlallement@worldbank.org USA McDade Susan Sustainable Energy Programme UNDP susan.mcdade@undp.org USA Morris Ellen Sustainable Energy Solutions ellen@sustainable-solutions.com USA Moles Rivero Patricia Terra Capital Investors patricia.moles@a2r.com.br Brazil Environmental Management Group, Narayanan Ajay IDFC ajayn@idfc.com India 73 74 Proceedings for the GVEP Workshop on Pre-Investment Funding First Last Name Name Affiliation Email address Country Nketsia-Tabiri Ebenezer KITE Nketsia@Kiteonline.Net Ghana Neithard Petry Petry KfW Neithard.Petry@kfw.de Germany Pischke Peter KfW Peter.Pischke@kfw.de Germany Ramana Venkat Winrock International Vramana@Winrock.Org USA Angel Rivera Arturo Batir S.A arixsa@guate.net Guatemala Honduran Association of Small Rivera Canales Jorge Renewable Energy Producers cenit@edured.net Honduras Rosenthal- Renewable energies promotion Brendel Pablo project/program GTZ Pablo.Rosenthal@gtz.de Germany Ryan John ESG johnehryan@yahoo.com UK Sanchez Teodoro ITDG teo@itdg.org.pe Peru The Schut Hans Triodos hansschut@triodos.nl Netherlands Seifried Rolf KfW Rolf.Seifried@kfw.de Germany Siegel Judy Energy and Security Judy@Energyandsecurity.Com USA Taylor John Development Finance Corporation JStaylor@dfcugroup.com Uganda Torres Luis BP Solar Lantonio.Torres@Ec1.Bp.Com UK Von Fersen Claudia KfW claudia.vonfersen@kfw.de Germany West Chris Shell Foundation Chris.C.West@Si.Shell.Com UK Willemse Jurie RAPS South Africa jurie@raps.co.za South Africa Wong Richard World Bank Rwong@worldbank.org USA Centre for Energy, Environment and Yamba Francis Engineering, Zambia (CEEEZ) F.d.yamba@eng.unza.zm Zambia Yeneza Grace Preferred Energy Inc. gsyeneza@pei.net.ph Philippines