the enterprise imperative improving local capacity and delivering modern energy by strengthening the...

The Enterprise Imperative

Improving local capacity and delivering modern energy by strengthening the enterprise-customer connection

Prepared for: USAIDDecember 2008Philip LaRoccoJennye Greene

The Solar Electric Light Co.

We can all agree that more SELCOs are needed in order to addressthe energy needs of the under-served.

Click below for 3 minute video

Lambark-LPG-Ghana

SEUL-Solar-Uganda

SME-RE-Biogas-Cambodia

VEV-Wind-Senegal

Toyola-Stoves-Ghana

LEDCO-Hydro-Nepal

MOP-Fruit Drying-Uganda

Red Ceramics-Natural Gas-Bolivia

Two Decades ofSuccessful Enterprise

Experience … 100s of Examples

La Esperanza

Where: La Esperanza, Intibuca, HondurasWhat: A 3-stage, 13.5 MW run-of-river hydroelectric project

Stage 1: 485 kWStage 2: 950 kWStage 3: 13.5 MW

Carbon: One of the first small-scale carbon monetizationsImpacts: Community development, jobcreation, clean energy, tree planting

Presentation Outline

1. The general landscape

2. The case for energy enterprises

3. Transferring knowledge and experience

4. Building a framework

1. The landscape2. The case for enterprise3. Transferring knowledge4. A Framework

1.6 billion peopledo not have electricity

2.4 billion people cook withtraditional fuels

2. The case for enterprise3. Transferring knowledge4. A Framework1. The landscape

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

0123456789

2008 2030

No ElectricityTraditional CookingTotal Population

People(Billions)

1. Lay of the land2. The case for enterprise3. Transferring knowledge4. A Framework

Sources: IEA World Energy Outlook, 2008 ; UN Population Projections, 2006

1. The landscape

Limits of Business-as-Usual

1. Geography2. Cost per grid connection3. 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.

Limits of Business-as-usual

Sourc

e:

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w.e

skom

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a

Limits of Business-as-Usual

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

1. Lay of the land2. The case for enterprise3. Transferring knowledge4. A Framework1. The landscape

A little perspective

0

5

10

15

20

25

30

Trillions of USD in spending

26 Trillion (IEA estimate ofglobal spendingthrough 2030)

150 Billion (could purchasemodern energy forevery currentunserved HH)


1. The landscape

Why focus on enterprises?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

2. The case for enterprise3. Transferring knowledge4. A Framework

Business-as-not-too-unusual

There are NO good reasons 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.


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?


Methodology of this study

1. Assemble a cross-section of real-world examples

2. From examples, identify criteria linked with success and failure, replicability and growth

3. Formulate a typology of models (both business and donor models)

4. Develop a set of implementation tools for USAID staff to evaluate and improve existing programs and propose new ones.


1. The landscape

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.

1. The landscape

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


Frameworks Being Used

1. 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.

2. The “Enterprise-Customer Connection:”

The most critical interaction in the value chain is between the “enterprise” (delivering party) and the customer (receiving party).


Our Objective: Balanced implementation

Policy Technology

Enterprise


An Out-of-Balance

Initiative…

Too much policy push…

Too little companion technology

push …

Way too little implementation

push …

Potential Impact

Balanced implementation strives for proportionate and appropriate emphasis on the key variables

Policy Technology

Enterprise


The balanced implementation model

Policy Technology

Enterprise


Impact

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.

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

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

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

The Enterprise-Customer connection

E(Enterprise)

C(Customer)


The Enterprise-Customer connection

Entrepreneur (e)

Technology (t)

Services (Es)

Finance (Ef)

Demand (d)

Knowledge (k)

Services (Cs)

Finance (Cf)

E(Enterprise)

C(Customer)


Entrepreneur (e)

Technology (t)

Services (Es)

Finance (Ef)

Demand (d)

Knowledge (k)

Services (Cs)

Finance (Cf)

Financial

Policy &

Enabling Environment

EnvironmentalSocial

E(Enterprise)

C(Customer)


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

Toyola Energy Ltd.

• 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. - 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

Balance Sheet Yr 1 Yr 2 Yr 3 Yr 4 Yr 5

Assets 73,833 63,829 57,172 63,961 62,693

Liabilities 62,205 47,699 32,892 18,675 5,553

Equity 11,628 16,130 26,148 45,286 57,139

Income Statement

Domestic units 5,300 8,480 11,024 14,331 18,630

Price Per Unit(US$) 6 6 6 6 6

Commercial Units 2,583 3,875 5,425 7,052 8,462

Price Per Unit 20 20 20 20 20

Total Revenue 80,812 124,132 169,121 219,858 271,711

Cost of Sales 44,314 68,061 92,741 120,564 148,976

Gross Profit 36,498 56,072 76,380 99,294 122,736

Gross Profit % 45.2% 45.2% 45.2% 45.2% 45.2%

Operating Expenses 30,800 33,880 47,432 66,405 92,967

EBITDA 5,698 22,192 28,948 32,890 29,769

Interest E+Co 1 2,212 3,650 2,262 1,397 239

EDS Rec Fees 644 1,288 1,288 1,288 644

Depreciation 11,533 11,533 11,533 2,800 2,800

Taxes 0 0 0 7,103 7,599

Net Income -8,692 3,861 9,359 18,498 11,530

Net Cash Flow 4,225 149 6,572 19,587 25,602

IRR 1 10%

Balance sheet projectionsfor first loan, Nov. 2006

Toyola Energy Ltd.

Projections

Nov-07 2008 2009 2010 2011 2012

Assets 109,924 219,258 201,952 184,677 177,647 179,891

Liabilities 68,575 147,274 109,359 69,628 37,294 12,445

Equity 41,349 71,984 92,593 115,049 140,354 167,446

#Units - Domestic Stoves 15,732 42,800 47,080 51,788 62,146 74,575

Price Per Unit $8.00 $8.00 $9.60 $11.52 $13.82 $16.59

#Units - Commercial Stoves 1,107 2,730 4,368 5,242 7,862 9,435

Price Per Unit $ 25 $ 25 $ 30 $ 36 $ 43 $ 52

Total Revenue 153,531 410,650 510,132 601,242 803,073 1,011,872

Cost of Sales 92,718 290,160 368,880 423,048 575,419 704,543

Gross Profit 60,813 120,490 141,252 178,194 227,654 307,329

Gross Profit % 39.61% 29.34% 27.69% 29.64% 28.35% 30.37%

Operating Expenses 36,283 63,786 85,184 122,478 171,727 251,834

EBITDA 24,530 56,704 56,069 55,716 55,927 55,495

Interest 2,857 12,956 10,724 7,910 4,322 1,505

Depreciation 12,300 17,866 17,866 17,866 17,866 17,866

Taxes 2,624 7,247 6,870 7,485 8,435 9,031

Net Income 6,749 18,635 20,609 22,456 25,305 27,093

Net Cash Flow (68,532) 55,522 1,710 (3,885) (3,471) (4,444)

IRR 8.31%

Balance sheet projectionsfor second loan, Dec. 2008Toyola Energy Ltd.

WikispaceFor more information, progress updates, or in order to leave yourfeedback, please visit our wikispaceentitled EnergyAccess. We want to hear about your examples and

insights.

Email [email protected] [email protected] for instructions.

Have a nice day and

Thank you for your attention!

Investors - Managed Accounts

Donations –Grants &

Energy Cures

Borrow ings – People + Planet

Notes

Services

SMEEntrepreneurs

&MFIs

Capital

Principal, Interest & DividendsDevelopment Benefits

Environmental Benefits

Carbon Revenues

Operations

Debt Equity End-userFinance



Energy Cures


Notes

Services

SMEEntrepreneurs

&MFIs

Capital



Carbon Revenues

Operations




Energy Cures


Notes

Services

SMEEntrepreneurs

&MFIs

Capital



Carbon Revenues

Operations




Energy Cures


Notes

Services

SMEEntrepreneurs

&MFIs

Capital



Carbon Revenues

Operations


Goals1. Create improved, cost-effective service

delivery of modern energy.

2. Leverage the largely untapped resource of small and growing businesses in order to do so.

3. Promote activities that can achieve scale and are replicable.



Energy Cures

Borrowings – People + Planet

Notes

Services

SMEEntrepreneurs

&MFIs

Capital



Carbon Revenues

Operations




Energy Cures

Borrowings – People + Planet

Notes

Services

SMEEntrepreneurs

&MFIs

Capital



Carbon Revenues

Operations


$1.00 $0.20 $0.10

$1.07 $0.23

2/3rds 10%, 7 y 1/6th 12%, 9 y 1/6th 11%, 5 y

10.7%

Provision for financial losses9.2% of P + I + D … 10.7% becomes 8.7%On $1.00 …equals 7.3% on $1.07

0.00%

1.00%

2.00%

3.00%

4.00%

5.00%

6.00%

7.00%

8.00%

9.00%

100% 94.25% 88.50% 82.75% 77%

Return

Sensitivity of Return to Amount Borrowed of each $1.30 Required10.7% hurdle rate, 9.2% losses, 1.30 formula

7.3% base caseBorrow $1.07Invest $1.00

Grants + Carbon= $0.23

% of full cost borrowed

Schedule and DeliverablesWeek Tasks Deliverables

Dec. (wk. 1) Finish case studies;

Start Interviews

Submit preliminary presentation, outline

Dec. (wk. 2) Continue interviews

Dec (wk. 3) Evaluate progress

Dec. (wk. 4) Consolidate research

Jan. (wk. 1) Begin writing

Jan. (wk. 2) Continue writing

Jan. (wk. 3) Format Submit text for peer review

Jan. (wk. 4) Edit, revise Deliver final materials (texts, case studies, presentations, multimedia) on flash drives

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