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

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