Financing biofuels and Jatropha plantation projects with special emphasis on Clean Development Mechanisms

Transcription

1 Financing biofuels and Jatropha plantation projects with special emphasis on Clean Development Mechanisms November 13 14, 2006 Accra, Ghana BioEnergy for Poverty Eradication: Enhancing the Role of Small/Medium Energy Enterprises Lawrence Agbemabiese Energy Branch United Nations Environment Programme Division of Technology, Industry & Economics (DTIE)

2 Overview Big Picture issues: Poverty, Environment, and Sustainable Energy The Case for Energy SMEs Energy SME Promotion: Gaps, Models and Experiences Building on experiences: Resources and Strategies

3 A normal view in rural Africa The vast majority of Africa s s 700 million people lack modern

4 Poverty-environment relations Policy failures, conflicts, induced migrations, disasters, unfavourable terms of trade + + Poverty Capital dissipation + Resource productivity loss + Children as assets + Population pressure > ecological carrying capacity High discount rates + + Resource loss Ill-health Resource dissipation + Pollution, resource loss Environmental degradation: global and local drivers Adapted from Poverty-Environment Partnership, 200

5 Sources of energy demand growth

6 The Energy-Development Dilemma Energy can play a critical role in helping to achieve the Millennium Development Goals (Energy for the Poor, DFID, 2002) But An energy path dominated by traditional or fossil fuels will be locally and globally costly from an economic, social and environmental perspective.

7 Environmental degradation Environmental Kuznet s Curve revisited Worsening environment Improving environment Ymax Per capita income Adapted from D.W. Pearce, 200

8 Breaking out of poverty: Some priority areas Poverty Eradication and Environmental Sustainability Soil conservation Access to clean water and sanitation Access to sustainable energy Ecosystem protectionrestoration Population management

9 Emergent energy-development paradigms From centralized, large project, energy-by-wires and tanker trucks to decentralized, local enterprise and market driven. From centralized to decentralized. From project finance, belts and suspenders 20% dollar denominated IRRs with 5-7 year exits to market entry, equity growing, local finance, built on a triple bottom line of profit, development and environment. From project financing to investing. From government or big company driven, top-down, prime contractor-subcontractor relationships to partnerships of businesses, NGOs, governments and others each adding value and each achieving its objectives. From contracting to partnering

10 The Case for Energy SMEs I The value of the small, local enterprise to the delivery of energy has been empirically demonstrated. SMEs are perhaps the most important and weakest bone in the sustainable energy and sustainable development skeleton. As the delivery vehicle for government programs, national contracts and multinational corporations, SMEs are crucial to success.

11 The Case for Energy SMEs II Empowering local entrepreneurs and enterprises is key to developing the Tier 4 markets (the 4 billion people at the Bottom of the Pyramid) C.K. Prahalad & Stuart L. Hart The Fortune at the Bottom of the Pyramid

12 The Case for Energy SMEs III SME can be key players in the development of the bioenergy chain and associated energy services because they provide efficiently packaged small scale energy services for a variety of energy users provide low cost alternatives to grid extension exist in a wide range of possible business models often provide significant social and environmental returns

13 To successfully deliver energy services, what do SMEs need? yes, Financing. Financing. But that alone is insufficient! Information and training Seed and second-stage finance Business systems and tools Customer credit through 3 rd Party institutions Enterprise development assistance

14 What sources of funding currently exist to support SMEs? Gifts and Grants Government Subsidies Development Assistance Guarantees Insurance Concessionary Loans Commercial Loans Concessionary Investment Commercial Investment Supplier Credit Customer Up-front Payments Entrepreneur s capital

15 Finance Spectrum I Development Public Sector Commercial Private Sector Gifts and Grants Subsidies Development Assistance & Specialized Programs Concessionary Loans & Investments, Micro-credit Entrepreneur s Equity Customer Down Payments & Supplier Credit Commercial Loans, Investment, Insurance & Guarantees

16 Banks, Funds & other financial institutions Commercial Loans, Investment Insurance & Guarantees Finance Spectrum II Development Funds Public Sector Gifts and Grants Subsidies Governments, Multilateral Programs Commercial Funds Private Sector Development Assistance & Specialized Programs Financial Intermediaries, NGOs, micro-lenders Concessionary Loans & Investments, Micro-credit Entrepreneur s Equity Customer Down Payments & Supplier Credit

17 Commercial Loans, Investment, Insurance & Guarantees Finance Spectrum III Development Public Sector Gifts and Grants Subsidies Development Assistance & Specialized Programs Concessionary Loans & Investments, Micro-credit Commercial Private Sector Gaps: 1. Too few intermediaries 2. Too little seed capital. 3. Too little reasonably priced growth capital. 4. Insufficient consumer & micro-enterprise finance. Entrepreneur s Equity Customer Down Payments & Supplier Credit

18 Upstream The finance gap in energy SME development terms Downstream Expansion Concept Business Planning Pilot Roll Out Operations/ Growth Aggregate Investment Seed Capital Asset-based financing Investment Timeline Equity GAP Debt

19 How can these gaps be closed? Expanding the number of intermediaries providing services and financing to SMEs. Increasing the available seed capital. Increasing the available pools of next stage capital. Providing capital at realistic return expectations = 6% to 10% ROI on an IRR basis. Expanding available consumer finance.

20 Energy SME Promotion: The REED Mode Enterprise Development Services Start-up Financing Enabling Gov t policies Energy SME Energy services and products for rural and urban clients NGOs / Dev. organisations Financial Institutions - 2nd stage financing

21 Case Study: RCI, Zambia Description of business: Jatropha biofuel production Financing: $8,000; 3yr loan; 5% interest

22 Description of business: Jatropha oil powered multifunctional platforms to peel, ground cereals and charge batteries Case Study: Bagani, Mali Seed Financing: $15,000; 5yr loan; 10% interest

23 What s new here..? Business As Usual Project centered Top-down, donor driven Large, politically visible Planned in full, in advance rigid Govt to MDBs/RDBs to apex organizations to contractors for fixed time and cost Alternative Model Enterprise centered Driven by local markets Small, medium sized Incremental, flexible and responsive Partnerships of value adding entities, driven by bottom line of service delivery and sustainable market presence

24 Multi-level public-private partnerships committed to making it work Finance Partnerships Donors, Governments Social + Environment Investors Strategic Investors Enterprise Dev. Partnerships Finance Specialists Eg. E+Co Country NGOs Eg. Enda, Kite Energy Service Partnerships SMEs Utilities Replication Partnerships Energy Administrations, Govt Agencies Donors, UN Agencies, etc

25 Eco'Home Gladym Lambark AREED Investments Some REED results and lessons Type 3 REED Investment: Expansion e.g., Urban LPG, efficient lighting Moderate risk-adjusted returns High direct impacts Low Innovation impact Ave Loan Size: $130,000 Ave defaults: 10% Ave returns: 5% - 8% Seeco Enterprises Anasset M38 Aprocer Kalola Farms AME Energie R Type 2 REED Investment: Commercialization e.g., Waste to energy, rural LPG Low risk-adjusted returns Ave Loan Size: $70,000 Ave defaults: 15% Ave returns: 3%-5% BETL VEV Chavuma Rasmas Ubwato Energie R II RCI Type 1 Investment: Proof of Concept e.g., Jatropha, crop drying, solar grinders. Very low risk-adjusted returns. High Innovation impact on sector dev. Typical Loan Size: $25,000 Ave defaults: 30% Ave returns: <3% - 50, , , ,000 Size (US$)

26 Next steps at UNEP in support of energy SME development Partnering with UNIDO to adapt REED approach to the bioenergy sector: raising awareness and providing training through UNEP NCPCs. UNEP Risoe Center is developing guidelines and baseline methodologies to promote financing of bioenergy enterprises under the CDM. Due Diligence Guidelines for both energy crops and forest residues have been developed by UNEP collaborating Centre, BASE. Feasibility study of local biodiesel production for use in telecommunications applications has just been completed and available to the public.

27 Some intergovernmental opportunities for bioenergy development UN Energy Created to coordinate UN agencies input to CSD. G8 Global Bio-energy Partnership: Initiated at Gleneagles Summit. FAO runs small secretariat in Rome. International Bio-energy Platform. Launched by FAO at CSD 14 to help address the sustainability of bioenergy. UN Biofuels Initiative. Coordinated by UNCTAD, supported by UN Foundation, operates with participation of FAO, UNDP, UNEP, and UNIDO.

28 Some intergovernmental opportunities for bioenergy development UNDP Energy and Environment Programme: Targets biofuels in the context of energy for sustainable development. Global Environment Facility: Deals with bioenergy projects under its renewables and climate change program. World Bank s bioenergy related activities: currently under the BioCarbon Fund.

29 Our expectations Per Capita Energy Consumption Rates (World Regions) Promoting energy SMEs to significantly expand access to energy services in Africa 0 Asia** Africa China*** LAC Non-OECD Europe Middle East Former USSR OECD

30 and help win the race against poverty

31 while preserving and restoring our environment for the survival of present and future generations, in a peaceful and prosperous world!

32 United Nations Environment Programme Division of Technology, Industry & Economics (DTIE) Thank you!