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

1935-1955

ACEF, ADB, May 2012

Cost to Government of funds

2-5% loans still given for rural electrification

ACEF, ADB, May 2012

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

Guarantees

5%

2%

ACEF, ADB, May 2012

3-6% equity as % of assets for power infrastructure in good old days Very high use of debt (20:1 leverage)..........basically impossible today 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? 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