Clean Energy and Entrepreneurship Development AREED Model

Clean Energy and Clean Energy and Entrepreneurship DevelopmentEntrepreneurship Development

AREED ModelAREED Model

OutlineOutline

Clean energy barriersClean energy barriers

AREED concept and partnersAREED concept and partners

ResultsResults

Lessons learntLessons learnt

Clean energy general barriersClean energy general barriersLack of focussed policy to promote clean Lack of focussed policy to promote clean energy energy

Lack of awareness on clean energy Lack of awareness on clean energy investment opportunities on the part investment opportunities on the part ofof::– Public sector decision makers (partly blinded Public sector decision makers (partly blinded

by short-term political expediency)by short-term political expediency)– Private SME sector entrepreneursPrivate SME sector entrepreneurs– Programme managers in international Programme managers in international

financial, development and aid institutionsfinancial, development and aid institutions– Financial InstitutionsFinancial Institutions

Clean energy general barriersClean energy general barriers

Weakness of skills to develop business Weakness of skills to develop business proposalsproposals

Lack of appreciation of opportunities Lack of appreciation of opportunities to metigate/adapt climate change to metigate/adapt climate change such as CDM and adaptation funding such as CDM and adaptation funding facilitiesfacilities

Innovation capital Transaction financeOperating capital

Often secured

Occasionally secured

Supplier credit

Entrepreneur’s equity

Grants Consumer credit

Working capital loans

Finance + capacity gaps

Weak business planning

skills

Insufficient risk capital

(growth and start-

up)

Inadequate experience of Banks

Non-existent end-user finance options

Stage 1: 0-10 years Stage 2:10 - 20 years Stage 3:20+ years

Interventions

Enterprise development

servicesSeed and

Patient capital funds

Capacity-building and risk sharing with local

banks

User finance, micro-credit, lease/rentals, third party financing:

Target group = Productive users of

REPolicy support for SMEs

SME finance + capacity gapsSME finance + capacity gaps

The AREED modelThe AREED model

EntrepreneurEntrepreneurEntrepreneurEntrepreneur

NGOs / Dev.NGOs / Dev.organisationsorganisations

Financial Financial InstitutionsInstitutions- 2nd stage financing- 2nd stage financing

Start-upStart-upFinancingFinancing

EnterpriseEnterpriseDevelopmentDevelopmentServicesServices

Enabling Enabling Gov’tGov’t policies policies

Energy business: services and products

for rural and urban clients

PartnersPartners

UNEPUNEP: : Initiator and facilitator, fund Initiator and facilitator, fund mobilizationmobilization

E E & & CoCo : : Seed Fund ManagerSeed Fund Manager

Donors : Donors : UN Foundation, Sida, BMZ, UN Foundation, Sida, BMZ,

Dutch GovernmentDutch Government

5 African Partners5 African Partners

MFC, Mali

ENDA, Senegal

KITE, GhanaCEEEZ, Zambia

TaTEDO, Tanzania

Key factsKey facts

May 1999: UNEP and E+Co present a proposal to the UN May 1999: UNEP and E+Co present a proposal to the UN Foundation to adapt the “enterprise-centered” model in Foundation to adapt the “enterprise-centered” model in AfricaAfrica

Total AmountTotal Amount : : about US $ 7,5 mabout US $ 7,5 m

Seed fund sizeSeed fund size: : $1.4 m (2000) to $1.7m (today).$1.4 m (2000) to $1.7m (today).

Enterprise development costsEnterprise development costs: : $0.20 - $0.50 per $1 $0.20 - $0.50 per $1 investedinvested

ImpactsImpacts: : Slow to produce direct impacts (job creation, GDP Slow to produce direct impacts (job creation, GDP effects, GHG mitigation, etc) but can be significant over effects, GHG mitigation, etc) but can be significant over timetime..

AREED Investments 2000 - 2006

- 50,000 100,000 150,000 200,000

RCI

Energie R II

Ubw ato

Rasmas

Chavuma

VEV

BETL

Energie R

AME

Kalola Farms

Aprocer

M38

Anasset

Seeco

Lambark

Gladym

Eco'Home

En

terp

rises

Size (US$)

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%

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%

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%

AREED enterprise typesAREED enterprise types

Results (cont)Results (cont)

Enterprises supported:Enterprises supported: 3535

Customers served:Customers served: 331,000331,000

Qty C02 emissions avoided p.a:Qty C02 emissions avoided p.a: 422,000 tons422,000 tons

Qty charcoal/firewood displaced:Qty charcoal/firewood displaced: 263,000 tons263,000 tons

Lessons learntLessons learntEnterprise Centered Model is workable and Enterprise Centered Model is workable and can be replicatedcan be replicated

Innovative because it can be adapted with Innovative because it can be adapted with local context of entrepreneurshiplocal context of entrepreneurship

Removes barriers of financing of SMEs Removes barriers of financing of SMEs under traditional financing conditionsunder traditional financing conditions

Concept of partnership is crucial for successConcept of partnership is crucial for success

Lessons learntLessons learnt

To enhance market base of end To enhance market base of end users requires consumers credit users requires consumers credit facility facility

Need to provide post investment Need to provide post investment support and monitoringsupport and monitoring

Merci beaucoupMerci beaucoup