John Mennel USAID Enterprise Development & Strengthening Project Booz Allen Hamilton
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The Enterprise Imperative
Improving local capacity and delivering modern energy by strengthening the enterprise-customer connection
Prepared for: USAIDDecember 2008Philip LaRoccoJennye Greene
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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
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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
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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
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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
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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
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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
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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.
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Limits of Business-as-usual
Sourc
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Limits of Business-as-Usual
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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
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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. Lay of the land2. The case for enterprise3. Transferring knowledge4. A Framework1. The landscape
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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
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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.
1. Lay of the land2. The case for enterprise3. Transferring knowledge4. A Framework1. The landscape
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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?
1. Lay of the land2. The case for enterprise3. Transferring knowledge4. A Framework1. The landscape
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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. Lay of the land2. The case for enterprise3. Transferring knowledge4. A Framework
1. The landscape
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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; )
1. Lay of the land2. The case for enterprise3. Transferring knowledge4. A Framework
• Toyola – (Ghana; private)
• Multi-functional Platform – (Mali, govt’, donor)
• SME-RE – (Cambodia; private)
• Stiftung Solarenergie– (Ethiopia; donor)
… And many, many others.
1. The landscape
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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
1. Lay of the land2. The case for enterprise3. Transferring knowledge4. A Framework1. The landscape
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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).
1. Lay of the land2. The case for enterprise3. Transferring knowledge4. A Framework1. The landscape
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Our Objective: Balanced implementation
Policy Technology
Enterprise
1. Lay of the land2. The case for enterprise3. Transferring knowledge4. A Framework1. The landscape
An Out-of-Balance
Initiative…
Too much policy push…
Too little companion technology
push …
Way too little implementation
push …
Potential Impact
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Balanced implementation strives for proportionate and appropriate emphasis on the key variables
Policy Technology
Enterprise
1. Lay of the land2. The case for enterprise3. Transferring knowledge4. A Framework1. The landscape
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The balanced implementation model
Policy Technology
Enterprise
1. Lay of the land2. The case for enterprise3. Transferring knowledge4. A Framework1. The landscape
Impact
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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.
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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
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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
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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
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The Enterprise-Customer connection
E(Enterprise)
C(Customer)
1. Lay of the land2. The case for enterprise3. Transferring knowledge4. A Framework1. The landscape
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The Enterprise-Customer connection
Entrepreneur (e)
Technology (t)
Services (Es)
Finance (Ef)
Demand (d)
Knowledge (k)
Services (Cs)
Finance (Cf)
E(Enterprise)
C(Customer)
1. Lay of the land2. The case for enterprise3. Transferring knowledge4. A Framework1. The landscape
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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)
1. Lay of the land2. The case for enterprise3. Transferring knowledge4. A Framework1. The landscape
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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 ~$10.• Projected sales of 300,000
over the next 5 years
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Toyola Energy Ltd.
• Entrepreneurs:– Suraj and Ernest
• Technology:– ICS is mature and
appropriate technology• Services:
– Artisan training provided by EWW
– Business development provided buy E+Co
• Financing:– E+Co has made 2 loans
and an advance on future carbon revenues
• Customer demand:– Charcoal is expensive,
stoves have short payback period
• Knowledge of product:– EWW provided extensive
advertising• Services:
– Risk-free trials of stoves– Refurbishing possible
• Financing:– Relatively low cost– Some micro-credit
available
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Toyola Energy Ltd. - Outcomes
• Financial – – Profitable and fast-growing business, able to meet its
loan obligations– Potential carbon revenues are significant
• Social– Employment opportunities for 150+ people– Reduced indoor air pollution– Cost savings for households and chop bars
• Environmental– Less pressure on forest resources– Reduced GHG emissions
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USAID
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Balance Sheet Yr 1 Yr 2 Yr 3 Yr 4 Yr 5
Assets 73,833 63,829 57,172 63,961 62,693
Liabilities 62,205 47,699 32,892 18,675 5,553
Equity 11,628 16,130 26,148 45,286 57,139
Income Statement
Domestic units 5,300 8,480 11,024 14,331 18,630
Price Per Unit(US$) 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.
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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.
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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.
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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
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
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
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
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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.
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Investors - Managed Accounts
Donations –Grants &
Energy Cures
Borrowings – People + Planet
Notes
Services
SMEEntrepreneurs
&MFIs
Capital
Principal, Interest & DividendsDevelopment Benefits
Environmental Benefits
Carbon Revenues
Operations
Debt Equity End-userFinance
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Investors - Managed Accounts
Donations –Grants &
Energy Cures
Borrowings – People + Planet
Notes
Services
SMEEntrepreneurs
&MFIs
Capital
Principal, Interest & DividendsDevelopment Benefits
Environmental Benefits
Carbon Revenues
Operations
Debt Equity End-userFinance
$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
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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
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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