Clean Energy and Entrepreneurship Development AREED Model

1. Clean Energy and Entrepreneurship DevelopmentAREED Model

2. Outline • Clean energy barriers • AREED concept and partners • Results • Lessons learnt

3. Clean energy general barriers • Lack of focussed policy to promote clean energy • Lack of awareness on clean energy investment opportunities on the part of: • Public sector decision makers (partly blinded by short-term political expediency) • Private SME sector entrepreneurs • Programme managers in international financial, development and aid institutions • Financial Institutions

4. Clean energy general barriers • Weakness of skills to develop business proposals • Lack of appreciation of opportunities to metigate/adapt climate change such as CDM and adaptation funding facilities

5. Innovation capital Operating capital Transaction finance Entrepreneur’s equity Supplier credit Often secured Grants Working capital loans Consumer credit Occasionally secured Weak business planning skills Insufficient risk capital (growth and start-up) Non-existent end-user finance options Finance + capacity gaps Inadequate experience of Banks Enterprise development services User finance, micro-credit, lease/rentals, third party financing: Target group = Productive users of RE Capacity-building and risk sharing with local banks Seed and Patient capital funds Interventions Policy support for SMEs Stage 1: 0-10 years Stage 2:10 - 20 years Stage 3:20+ years SME finance + capacity gaps

6. Enterprise Development Services Start-up Financing Enabling Gov’t policies Energy business: services and products for rural and urban clients NGOs / Dev. organisations Financial Institutions - 2nd stage financing The AREED model Entrepreneur

7. Partners • UNEP: Initiator and facilitator, fund mobilization • E & Co : Seed Fund Manager • Donors : UN Foundation, Sida, BMZ, Dutch Government

8. 5 African Partners MFC, Mali TaTEDO, Tanzania ENDA, Senegal CEEEZ, Zambia KITE, Ghana

9. Key facts • May 1999: UNEP and E+Co present a proposal to the UN Foundation to adapt the “enterprise-centered” model in Africa • Total Amount : about US $ 7,5 m • Seed fund size: $1.4 m (2000) to $1.7m (today). • Enterprise development costs: $0.20 - $0.50 per $1 invested • Impacts: Slow to produce direct impacts (job creation, GDP effects, GHG mitigation, etc) but can be significant over time.

10. 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% • 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% AREED enterprise types

11. Results (cont) • Enterprises supported:  35 • Customers served:  331,000 • Qty C02 emissions avoided p.a:  422,000 tons • Qty charcoal/firewood displaced:  263,000 tons

12. Lessons learnt • Enterprise Centered Model is workable and can be replicated • Innovative because it can be adapted with local context of entrepreneurship • Removes barriers of financing of SMEs under traditional financing conditions • Concept of partnership is crucial for success

13. Lessons learnt • To enhance market base of end users requires consumers credit facility • Need to provide post investment support and monitoring

14. Merci beaucoup