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The Enterprise Imperative

Improving local capacity and delivering modern energy by strengthening the enterprise-customer connection Prepared for: USAID December 2008. The Enterprise Imperative. THE ENERGY ENTERPRISE TOOLKIT PROJECT. Philip LaRocco Jennye Greene. The Solar Electric Light Co.

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The Enterprise Imperative

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

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

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

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

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

  6. 2.4 billion people cook with traditional fuels 1.6 billion people do not have electricity 4. A Framework 1. The landscape 2. The case for enterprise 3. Transferring knowledge

  7. Business-As-Usual $26 trillion in global energy spending by 2030 and there will still be… • 1.4B w/out electricity • 2.6B using traditional cooking fuels People (Billions) Sources: IEA World Energy Outlook, 2008 ; UN Population Projections, 2006 4. A Framework 1. Lay of the land 1. The landscape 2. The case for enterprise 3. Transferring knowledge

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

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

  10. Limits of Business-as-Usual

  11. Back-of-the-envelope calculations • Over five years, the 1.6B people without electricity and the 2.4B people without modern cooking will spend over $250B on fuel (mostly kerosene and woodfuels) • For ~$150B, a solar home system and modern cook stove could be given to every household that doesn’t have them. • Over five years, the fuel savings from switching would be ~$100B for lighting and ~$50B for cooking 4. A Framework 1. Lay of the land 1. The landscape 2. The case for enterprise 3. Transferring knowledge

  12. A little perspective 4. A Framework 1. The landscape 1. Lay of the land 2. The case for enterprise 3. Transferring knowledge

  13. BUSINESS-AS-USUAL PROBLEMS: Classic utility model not serving all unmet demand … trapped in one size fits all model Grappling with macro issues of growing energy insecurity … little or no incentive toward human development Dissatisfaction with one-size-fits-all or one-gap-needs-filling ODA approaches Need to deal with climate change adaptation and mitigation overwhelms energy access issues The limits of central station, pipe and wires energy are understood THE ENTERPRISE ADVANTAGE: Ability to efficiently address unmet demand … multiple products and services Successful enterprise-customer experimentation since early 90s … built on quality of life and productive livelihood growth Opportunity for USAID to leverage scarce resources and take the lead in a model that recognizes and fills multiple gaps Economic, social and environmental benefits in new service delivery The untapped potential of local entrepreneurship has been grossly underutilized Why focus on enterprises? 4. A Framework 1. The landscape 2. The case for enterprise 3. Transferring knowledge

  14. Business-as-not-too-unusual There are NOgoodreasons why so many people are un-served. The key building blocks are available... • Demand/purchasing power • Appropriate technology • Resources for capacity building • Delivery expertise …under the right circumstances. 4. A Framework 1. Lay of the land 1. The landscape 2. The case for enterprise 3. Transferring knowledge

  15. Communicating success This body of work asks just two questions: • What can be learned from these small and growing energy enterprises? • How do we convert what we know into a practical tool and set of guidelines for development practitioners? 4. A Framework 1. Lay of the land 1. The landscape 2. The case for enterprise 3. Transferring knowledge

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

  17. A wide range of technologies and organizational structures • Zara Solar • (Tanzania; private) • Barefoot College • (India; private, donor) • SELCO • (India; private) • Soluz • (Dominican Republic, Honduras; private) • RAPS • (South Africa; ) • Toyola • (Ghana; private) • Multi-functional Platform • (Mali, govt’, donor) • SME-RE • (Cambodia; private) • Stiftung Solarenergie • (Ethiopia; donor) … And many, many others. 4. A Framework 1. Lay of the land 1. The landscape 2. The case for enterprise 3. Transferring knowledge

  18. Expertise drawn from many varied sources • Eric Usher, UNEP • Ellen Morris, Arc Finance • UNDP, MFP • Bunker Roy, Barefoot College • Christine Eibs Singer, E+Co • Dan Shepherd, IADB-MIF • Stacy Swann, IFC • Harish Hande, Selco-India • Harald Schutzeichel, Stiftung Solarenergie • Suraj Wahab O, Toyola • Mohamed and Mona Parpia, Zara Solar …And many, many more 4. A Framework 1. Lay of the land 1. The landscape 2. The case for enterprise 3. Transferring knowledge

  19. Frameworks Being Used • The “Balanced Implementation Model:” It is the combination of and balance among three variables… • Policy & enabling environments • The availability of suitable technology • Capable “enterprise-like” delivery … that account for an initiative’s success. • The “Enterprise-Customer Connection:” The most critical interaction in the value chain is between the “enterprise” (delivering party) and the customer (receiving party). 4. A Framework 1. Lay of the land 1. The landscape 2. The case for enterprise 3. Transferring knowledge

  20. Our Objective: Balanced implementation Potential Impact An Out-of-Balance Initiative… Too much policy push… Too little companion technology push … Way too little implementation push … Policy Technology Enterprise 4. A Framework 1. Lay of the land 1. The landscape 2. The case for enterprise 3. Transferring knowledge

  21. Balanced implementation strives for proportionate and appropriate emphasis on the key variables Policy Technology Enterprise 4. A Framework 1. Lay of the land 1. The landscape 2. The case for enterprise 3. Transferring knowledge

  22. The balanced implementation model Policy Technology Impact Enterprise 4. A Framework 1. Lay of the land 1. The landscape 2. The case for enterprise 3. Transferring knowledge

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

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

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

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

  27. The Enterprise-Customer connection E (Enterprise)‏ C (Customer)‏ 4. A Framework 1. Lay of the land 1. The landscape 2. The case for enterprise 3. Transferring knowledge

  28. Entrepreneur (e)‏ Demand (d)‏ Technology (t)‏ Knowledge (k)‏ E (Enterprise)‏ C (Customer)‏ Services (Es)‏ Services (Cs)‏ Finance (Ef)‏ Finance (Cf)‏ The Enterprise-Customer connection 4. A Framework 1. Lay of the land 1. The landscape 2. The case for enterprise 3. Transferring knowledge

  29. Policy & Enabling Environment Entrepreneur (e)‏ Demand (d)‏ Technology (t)‏ Knowledge (k)‏ E (Enterprise)‏ C (Customer)‏ Services (Es)‏ Services (Cs)‏ Finance (Ef)‏ Finance (Cf)‏ Financial Social Environmental 4. A Framework 1. Lay of the land 1. The landscape 2. The case for enterprise 3. Transferring knowledge

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

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

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

  33. USAID 

  34. Toyola Energy Ltd. Balance sheet projections for first loan, Nov. 2006

  35. Toyola Energy Ltd. Balance sheet projections for second loan, Dec. 2008

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

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

  38. THE ENERGY ENTERPRISE TOOLKIT PROJECT Goals • Create improved, cost-effective service delivery of modern energy. • Leverage the largely untapped resource of small and growing businesses in order to do so. • Promote activities that can achieve scale and are replicable.

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

  40. Investors - Managed Accounts Borrowings – People + Planet Notes Donations – Grants & Energy Cures Carbon Revenues $1.07 $0.23 $1.00 $0.20 $0.10 Capital Services Operations 2/3rds 10%, 7 y 1/6th 12%, 9 y 1/6th 11%, 5 y Debt Equity End-user Finance SME Entrepreneurs & MFIs Principal, Interest & Dividends Development Benefits Environmental Benefits 10.7% Provision for financial losses 9.2% of P + I + D … 10.7% becomes 8.7% On $1.00 …equals 7.3% on $1.07

  41. 7.3% base case Borrow $1.07 Invest $1.00 Grants + Carbon = $0.23 % of full cost borrowed Sensitivity of Return to Amount Borrowed of each $1.30 Required 10.7% hurdle rate, 9.2% losses, 1.30 formula

  42. Schedule and Deliverables

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