A presentation on linkages between Microfinance and Renewable Energy

1. ENERGY SERVICES FOR THE BASE OF PYRAMID: THE ROLE OF MICROFINANCE INSTITUTIONS PRESENTER: ANOJ VISWANATHAN THEME: e-NVIRONMENT INSTITUTION: NATIONAL UNIVERSITY OF SINGAPORE

2. DISPARITIES IN ACCESS TO ELECTRICITY

3. Many of the world’s poor do not have access to basic financial services Most of the world’s poor do not have access to energy services Estimates vary, but about 500m poor entrepreneurs need access to finance; while only just over 100m have access. (Source: MicroCapital Monitor, Nov. 16 2007 ) Less than 500k clien ts of MFIs have access to energy loans 1.7 billion people have no access to electricity 8 6% of BoP households (PCI: ~3/day) lack access to electricity only 6% of middle class segment lack access (PCI: $10-$30/day). 2.4 billion people rely on traditional biomass for cooking and heating 1.3 million people die of indoor air pollution each year (smoke from biomass). Untapped market for clean energy estimated to be US$ 433 Billion ( ~ 10% of total BoP services) CONTEXT FOR ENERGY LENDING (1/2)

4. Rural Poor have the least access to electricity Rural areas show a larger and more persistent penalty in access to electricity across income groups. For example, in Bangladesh 37% of urban BoP households have grid-access, compared with only 4% of their rural counterparts The Poorest pay The Highest for Energy Services Households in the income group of less than $1.50/day spend an average of $148 a year on energy, equivalent to around $0.40 a day 20 – 25% of household income in energy services compared to 5 – 8% of household income spent by middle class segment (~ PCI: $- 30/day) CONTEXT FOR ENERGY LENDING (2/2)

6. ENERGY LENDING – EXAMPLE FOR A LOAN STRATEGY * All values in Indian Rupees (INR) ** 1 USD = 50 INR LOAN FOR A SOLAR POWERED LED LANTERN

7. Benefits enjoyed from access to clean energy services go beyond savings from kerosene and firewood An effective way to combat climate change – Carbon Credits ?? Solar Home Systems (SHS), Biogas plants, (BGP) and Improved Cook Stoves (ICS) all deliver cash savings and also generate income. BENEFITS BEYOND CASH SAVINGS Benefits Solar Powered Lanterns SolarPV Systems Improved Cook Stoves Biogas Plants Economic Avg. Kerosene savings of 5 litres/month. Payback ~ 15 months. Avg. kerosene savings of 12 liters / mth. Wood savings of $1.5/mth. Payback ~ 6 months. Wood savings of $3/mth. Revenue of $160/yr from biogas and fertilizer sales. Environmental ~ 145 kg of CO2 emission abated per lantern ~ 375kg/yr of CO2 emission abated per SHS installed. (45Watt system) Reduction of wood consumption by 25%. ~4.6 tonnes/yr of CO2 emission abated per Biogas plant installed. (3m3 plant) Social Increased time for work education, transit purposes. Increased time for work and education. Indoor air quality. Better cooking conditions for women. Boosts agro productivity by reusing animal waste products.

11. ENERGY SERVICES FOR BoP: EVALUATION FRAMEWORK (1/3) SERVICE OFFERING STANDARDISED PRODUCT Plain vanilla approach – single product (solar lanterns/ cook stoves) Small ticket items (<$60) with high volume targets, repayable in 25 – 50 weeks. Targeted at “lower poor” Risk averse, preferred by small to medium MFIs Low operational challenges, easy roll-out. No long term vision Diversified approach – multiple products and services (SHS, BGPs etc) Big ticket items ($200 – 600), repayable in 6 – 36 months Targeted at “upper poor” Considerable risk in operations, hedged for technology. Big MFIs are capable of pursuit (e.g. Grameen Shakti) NEED BASED SOLUTION PRODUCT COST/LOAN RANGE LENDING MODEL Down-payment Instalment Service charge Solar Home System (SHS) 20Wp - $217 50Wp - $400 15% 36 months 6% flat 25%. 24 months 4% flat Domestic, Biogas 1.2m3 $220. 4.8m3 -$550 25% 24 months 8% flat Improved Cook Stove $12-$15 100% N.A Nil $25 $50 15% 6 months 4% flat

12. ENERGY SERVICES FOR BoP: EVALUATION FRAMEWORK (2/3) SALES MODEL ACCESS VS OWNERSHIP BoP income – low and volatile Segmentation by “who can use the product” and “who can buy it” Access model based on leasing, shared usage, rental schemes, micro-utility schemes. Success stories- Grameen Shakti’s micro-utility model and SELCO’s lantern rental model Immediate Ownership Credit based ownership Access/Lease

13. ENERGY SERVICES FOR BoP: EVALUATION FRAMEWORK (3/3) VALUE PROPOSITION CONSUMPTION SAVINGS VS. INCOME GENERATION . MFIs believe that Energy products/loans – purely consumptive in nature. Loans only for repeated, successful clients However, range of clients have proven capacity to pay for consumption loans as well as generate income as micro entrepreneurs Photovoltaic Battery Charging: A Profitable Business in India (SELCO, India) Capital Expenditure Approximately INR 5,000 (US$ 110) per battery unit for each solar light that operates 6–8 hours/day, and INR 3,500 (US$ 77) for one that operates 3–4 hours/day Clients Hawkers (fruit vendors, vegetable vendors etc) Revenue Daily rental fee for battery with 6–8 hours running capacity: INR 20-25. Savings of INR 10–15 over kerosene light. Annual revenue for renting a 6–8 hours battery = INR 6,800. Assuming that the loan period is 2 years at IRR 17% (diminishing). Client will pay INR 5,885 (INR 3,155+ INR 2,730). Expenses for battery transportation and maintenance is 10% of total revenue = INR 680. Year 1 income - INR 2800/battery. Year 2 - INR 3,390 When the loan is paid off, the client earns INR 6,120 per year per unit system.

14. BUSINESS MODELS FOR ENERGY LENDING Framework based on experiences from 7 MFIs in Asia and Africa and LAC. Desk study and On-the-ground research with industry experts. Partnership with Energy Service Companies (ESCOs): SELCO-SEWA, India Direct Micro-lending by Energy Companies: Soluz, Latin America Income Generation Activity Loan: Amret, Cambodia Wholesale procurement and sale of energy products to local distribution networks: KUSCCO, Kenya Microfranchising by MFIs/ Energy Companies: SunLabob, Laos/Vietnam

18. I shall make electricity so cheap, that only the rich shall burn candles - Thomas Alva Edison The poor need an opportunity, not charity, to shape their future - Dr Vikram Akula Q & A THANK YOU CONCLUSION