Capital access for clean energy businesses in Africa LCEDN, London 24/25 June 2013 Large infrastructure is less critical to closing the universal energy access gap How the energy access gap will be closed. Africa (IEA) Offgrid On-grid Mini-grid Conventional approach won’t solve most of the energy access challenge How the energy access gap will be closed. Africa (IEA) Asset types: Domestic scale solar, diesel, wind Capital; SME early stage equity, growth capital, inventory / working cap/consumer credit finance, Mostly private Asset types: Regional interconnectors, 50MW-1GW+ power stations, grid extensions, etc Offgrid Capital; On-grid Mini-grid Asset types: 50kW to 2MW hydro/solar/wind/AD/gasifier/biomass plus local distribution Capital; Asset/project finance/SME & project development equity. Mostly private, some public/NGO support Public, national governments, ODA, MDBs. Not much private Comparing LCOE of various electrification options 30km 3 per km US$ per kWh 1.500 Diesel $1.50/l 1.000 1700 kWh /m2/yr Diesel $1.50/l $330 40Wp Diesel $0.70/l 0.500 $260 40Wp 2600 kWh /m2/yr 1 Km 100 per km High Low Grid Solar PV extension mini-grid 1.579 0.714 0.132 0.467 Diesel $0.70/l PV/diesel Solar hybrid home Diesel mini-grid system mini-grid 0.738 0.695 1.237 0.463 0.585 0.633 Source: NORPLAN 2012. Cost competitiveness of rural electrification solutions There are as many different types of capital need in RE as there are in any other sector Capital need Examples Early stage project development Cane-to-ethanol plus IPP in Belize needs to spend $200k developing its $200m investment case Project construction $1-7m capex for a series of 0.3-3MW small hydro facilities in Tanzania & Rwanda Product / technology development $400k for innovative concentrated solar PV configuration component development, Kenya Proof of concept trialling $200k for trial establishment of a mingrid powered by a 30kW maize cob gasifier in Haiti Growth capital $1m for a pay-as-you-go solar home systems rollout, Rwanda Working capital – inventory $250k for a solar lantern distributor to replenish its supply chain from Asia to rural Tanzania & Kenya Working capital – consumer $300k for credit to a portfolio of schools buying improved cookstoves in Uganda Public capital can support private participation in most types of capital need Capital need Private capital – challenges Public funding - role Early stage project development • High risk – “a punt” • Cost share, with or without upside interest Project construction • Expected returns? • Some risks hard to assess • Capital grant or revenue subsidy (FiT supplement) Product /technology development • Very thin early stage equity/VC markets • Cost share, with or without upside interest Proof of concept trialling • Very thin early stage equity/VC markets • Cost share, with or without upside interest Growth capital • Shallow equity market • Debt mkt appetite for RE sme’s • Seed/cornerstone , new funds • Credit support for debt markets Working capital – inventory • Debt mkt appetite for RE sme’s • Credit support for debt markets Working capital – consumer • Debt mkt appetite for RE sme’s • Credit support for debt markets Challenges for DFIs in small scale renewable projects • Aggregation How to aggregate up the deal flow into something that is manageable? • Integration How to create an integrated approach that tackles all aspects of the problem? • Allocation What process for deciding which business/project to allocate capital/resources to? • Risk How to balance the financial objectives of the DFI and the “pioneering” objective of the intervention?