United Nations Environment Programme Division of Technology, Industry & Economics (DTIE) Eric Usher Head, Renewable Energy and Finance Unit [email_address] Is early stage seed capital the solution to accelerating project pipeline development in the clean energy sector ? TBLI Asia May 25th, 2006, Bangkok

Example Enterprises BETL, Tanzania Business : Logistics company coordinating ag. wastes for fuel substitution Stage of Sector Development: Early Commercialization phase AREED Support: $50,000 3-yr loan and Enterprise Dev. Support from Tatedo, E+Co Status: Increased sales from 500 Mt to 1200 Mt per month Repayments current. KPBS, Zambia Business: Charcoal production from sawmill waste Stage of Sector Dev.: Proof of concept phase AREED Support: $73,000, 4 yr loan and enterprise development support from CEEEZ, E+Co Status: Construction of 15 kilns completed. Production, distribution and sales of charcoal started Feb 2003. Enterprise folded in 2004

BETL, Tanzania

Business : Logistics company coordinating ag. wastes for fuel substitution

Stage of Sector Development: Early Commercialization phase

AREED Support: $50,000 3-yr loan and Enterprise Dev. Support from Tatedo, E+Co

Status: Increased sales from 500 Mt to 1200 Mt per month Repayments current.

KPBS, Zambia

Business: Charcoal production from sawmill waste

Stage of Sector Dev.: Proof of concept phase

AREED Support: $73,000, 4 yr loan and enterprise development support from CEEEZ, E+Co

Status: Construction of 15 kilns completed. Production, distribution and sales of charcoal started Feb 2003. Enterprise folded in 2004

Example Enterprises SEED FINANCE - Typically 3-5 year loans in local or US currency. - Concessionality -> Elevated risk appetite -> Provision of enterprise development services - Terms/conditions flexibly matched to what the enterprise can handle Sodigaz, Mali Business: LPG distribution Stage of Sector Dev.: Replication phase AREED Support: $183,000, 5 yr local currency loan and enterprise development support from MFC, E+Co Status: Repayments current, supply capacity doubled within a burgeoning market . Entrepreneur Customers Seed Financing Enterprise Development Services Projects/ Services Clean Energy Enterprise - Timeline Concept Project devmt, pilot Business planning Aggregate Investment Growth Construction seed

SEED FINANCE

- Typically 3-5 year loans in local or US currency.

- Concessionality

-> Elevated risk appetite

-> Provision of enterprise development services

- Terms/conditions flexibly matched to what the enterprise can handle

Sodigaz, Mali

Business: LPG distribution

Stage of Sector Dev.: Replication phase

AREED Support: $183,000, 5 yr local currency loan and enterprise development support from MFC, E+Co

Status: Repayments current, supply capacity doubled within a burgeoning market .

Segmenting the AREED Portfolio * Denotes full or partial write-off Type 1 REED Investment: Proof of Concept e.g., Jotropha, crop drying, PV mills Very low risk-adjusted returns. High Innovation impact on sector development Typical Loan Size: $25,000 Ave defaults: 30% Ave returns: 2% Type 3 REED Investment: Replication e.g., Urban LPG, efficient lighting Moderate risk-adjusted returns High direct impacts Low Innovation impact Typical Loan Size: $130,000 Ave defaults: 4% Ave returns: 6% Type 2 REED Investment: Commercialization e.g., Waste to energy, rural LPG Low risk-adjusted returns Typical Loan Size: $70,000 Ave defaults: 27% Ave returns: 4%

Type 1 REED Investment: Proof of Concept

e.g., Jotropha, crop drying, PV mills

Very low risk-adjusted returns.

High Innovation impact on sector development

Typical Loan Size: $25,000

Ave defaults: 30%

Ave returns: 2%

Type 3 REED Investment: Replication

e.g., Urban LPG, efficient lighting

Moderate risk-adjusted returns

High direct impacts

Low Innovation impact

Typical Loan Size: $130,000

Ave defaults: 4%

Ave returns: 6%

Type 2 REED Investment: Commercialization

e.g., Waste to energy, rural LPG

Low risk-adjusted returns

Typical Loan Size: $70,000

Ave defaults: 27%

Ave returns: 4%

Portfolio Observations 3% to 5% Financial returns are achievable, and non financial TBL returns can also be significant Enterprise development costs are high 20 to 50 cents on each dollar invested Public Perspective After costs, we still see a positive cash flow model Private Perspective Seed financing can be an effective means of generating project pipeline Why aren’t energy investors providing seed financing today ? Enterprise development and transaction costs Insufficient risk adjusted returns African Rural Energy Enterprise Development

3% to 5% Financial returns are achievable, and

non financial TBL returns can also be significant

Enterprise development costs are high

20 to 50 cents on each dollar invested

Public Perspective

After costs, we still see a positive cash flow model

Private Perspective

Seed financing can be an effective means of generating project pipeline

Why aren’t energy investors providing seed financing today ?

Enterprise development and transaction costs

Insufficient risk adjusted returns

Closing the Gaps - Seed Capital Assistance Facility (SCAF) Returns Enhancement Seed Capital Window Transaction Cost Sharing Sustainable Energy Fund Enterprise Development Support Seed Capital Seed Capital Assistance Facility (SCAF) Commercial Energy Fund Development Finance Commercial Investors Local Banks Investment Capital Clean Energy Enterprise - Timeline Concept Project devmt, pilot Business planning Aggregate Investment Growth Construction Seed Fund

SCAF Eligibility GEF eligible countries in Asia, Africa Renewable energy / Energy efficiency investments under $250,000 Typical SCAF Supported clean energy fund $3 to $5 million seed window within $30 to $100mn fund. SCAF Support 2.5% mgt fee increased to 4% 3% - 4% return boost per qualified investment for 4 yr period > $400K - $800K of SCAF support

GEF eligible countries in Asia, Africa

Renewable energy / Energy efficiency investments under $250,000

Typical SCAF Supported clean energy fund

$3 to $5 million seed window within $30 to $100mn fund.

SCAF Support

2.5% mgt fee increased to 4%

3% - 4% return boost per qualified investment for 4 yr period

> $400K - $800K of SCAF support

Foster a sustainable energy finance community that brings together financiers and catalyses public-private alliances to share costs and lower barriers to investment. Provide Information Facilitate Networks Develop Partnerships http://sefi.unep.org

http://www.unep.fr/energy/finance http://sefi.unep.org The challenge of supplying small scale energy services is NOT a lack of technology, business models, capital or the ability to pay; it is the MISMATCH between the needs of the enterprise and the types of financing currently available. Phil Larocco, E+Co Eric Usher [email_address] THANK YOU!

The challenge of supplying small scale energy services

is NOT a lack of technology, business models, capital or the ability to pay;

it is the MISMATCH between the needs of the enterprise and the types of financing currently available.

Phil Larocco, E+Co