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Sustainable Energy Access

For Rural Homes

Incentives & Barriers

ACEF, ADB, May 2012

Disclaimer

Personal reflections as social/energy entrepreneur

Views provided are not those of Barefoot Power

New hat industry-focused non-profit group:

Village Infrastructure Angels (VIA) www.villageinfrastructure.org

ACEF, ADB, May 2012

Disclaimer

Personal reflections as a social entrepreneur

Views provided are not those of Barefoot Power

ACEF, ADB, May 2012

Summary

Off-grid focus (no discussion on feed-in tariffs, etc)

Barrier analysis

Raising capital and investor appetite

Government policy

Technical

Incentives

Existing

Potential

ACEF, ADB, May 2012

Barriers - capital

70 deals to raise $7 million over 6 years ($1.5m equity)

Zero institutional equity from early '09 to early '12 as revenue soared 20x from $300k to >$6 mill

Institutional deals 6-18 months vs hypergrowth

HNW angel investors + supplier finance fill the gap

No thanks/mercy from institutions, will watch you die

Lack of working capital = massive supply gaps

Success can kill you. So can Inst. Investors + grants

Lesson: Investing own money vs other people's money

Need streamlined early stage investing sidecar fund

ACEF, ADB, May 2012

Some horror stories

Australian Banks - “We can lend to you if you can show 3 years of profitable operations, and have collateral”

“We don't know what your revenue will be, so we can't

value you”

Deloitte

Fast 50 revenue growth

“We'll be your only debt investor, with a conversion option after XX years, but we can't value you, so we won't define

the conversion price”

Y-Combinator

standard termsheet

“We'll lend convertible debt, but only with a conversion price at par value” = complete dilution

ACEF, ADB, May 2012

Improvements?

Learn from / recognize history

Real social capital current interest rates = 10-36%

Do deals faster

Agreed rough rules on valuation (eg. 0.5-2x revenue)

Auto-investment fund for lemming effect, faster deals

Entrepreneurs use online data room and 100s of FAQs

ACEF, ADB, May 2012

ACEF, ADB, May 2012
ACEF, ADB, May 2012

ACEF, ADB, May 2012

ACEF, ADB, May 2012

ACEF, ADB, May 2012 1935-1955

1935-1955

Cost to Government of funds

2-5% loans still given for rural electrification

ACEF, ADB, May 2012

Guarantees

5%

2%

2% loans = $9.8b 5% loans = $5.8b Guarantees = $26b Total = $42b 2%
2% loans = $9.8b
5% loans = $5.8b
Guarantees = $26b
Total = $42b
2% loans = $9.8b
5% loans = $5.1b
Guarantees = $26b

ACEF, ADB, May 2012

3- 6% equity as % of assets for power infrastructure in “good old days” Very

3-6% equity as % of assets for power infrastructure in “good old days”

Very high use of debt (20:1 leverage)

Higher equity today = higher dilution for founders = <51% ownership? Debt will do the heavy lifting of getting power to the poor, not equity

A role for Subordinate Venture Debt?

basically

impossible today

2-5% 5-10 year loans? Revenue-share?

This kind of true patient capital no longer exists for SMEs, only for governments

ACEF, ADB, May 2012

Improvements?

Learn from / recognize history

Real social capital current interest rates = 10-36%

Do deals faster

Agreed rough rules on valuation (eg. 0.5-2x revenue)

Auto-investment fund for lemming effect, faster deals

Entrepreneurs use online data room and 100s of FAQs

ACEF, ADB, May 2012

Barriers - policy

DC power safer, hence less regulations, almost none

AC power more dangerous, but micro projects (<50kW) can be delicenced (eg. Nepal has done well, PNG poor)

Capital cost subsidies can be smart and disappear over

time as costs for call, or can be dumb and last forever,

creating industry dependency

Few, if any, policies for investment-matching / soft loan / risk guarantee styles of government support

to microenergy SMEs and their investors

Trade wars Chinese solar price plummeting, tariffs rising

ACEF, ADB, May 2012

Barriers - technical

Resource solar abundant, scales down OK to 1-2 watts

for entry point activities (LED lighting, phone charging)

Products richer supply options of stoves and household

lighting systems, due to short payback (6-24 mth).

Minigrid + non-solar lagging, longer payback (3-5 years)

Quality vast range of quality of products, somewhat

rectified by quality labels like Lighting Africa, but similar to

ELI for CFLs, likely to be mostly applicable to donor/gov't bulk procurement programs and unrecognized in general

market (warranties are well respected, though).

Energy poverty is technically solved & largely investable

ACEF, ADB, May 2012

Incentives - existing

Competitions and grants

 

Lighting Africa, Solar for All / Canopus, Postcode Lottery, Ashden,

Shell Foundation, other

?

Some are not regular

Useful but very small compared to scale of problem

Subsidies

India Rs 90/Wp ($2/W), Nepal similar?

any

other in Asia-Pacific?

Limited to Made-in-India products

 

Costs time/money to do the paperwork, cash very slow to arrive

“per Watt” or “per kW” promotes power generation and discourages investing in energy efficiency (eg. LEDs)

Other? Free office incubators? Free investor/customer linkages?

ACEF, ADB, May 2012

Incentives - potential

Sidecar funds

Angel investors put money in a group pool when one angel invests, the pool automatically invests = faster deals

Risk guarantees (for working capital / lending debt)

“Skin in the game”? Need to ease it in, reduce perceived risk using 100% guarantees in early stage, then ramp down to “commercial” guarantees (eg. OPIC, EFIC need about 20% project equity) as field

default rates are shown/proven to be acceptable (<5% ? )

Incubator sandpits to play in

common/shared

infrastructure?

Create central office/warehouse for shared use by industry with

proper power, internet, security? Common for internet startups &

Chinese cities often create a technology speciality/cluster

Invest in common specialist software / ERP? Microfinance has

ACEF, ADB, May 2012

Thank you ACEF, ADB, May 2012 Stewart Craine stewart@villageinfrastructure.org

Thank you

ACEF, ADB, May 2012

Stewart Craine

stewart@villageinfrastructure.org

Thank you ACEF, ADB, May 2012 Stewart Craine stewart@villageinfrastructure.org