Innovative Financing options in transfer of sustainable energy and climate adaptation technologies in East Africa. Dr Virinder Sharma DFID Kenya

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1 Innovative Financing options in transfer of sustainable energy and climate adaptation technologies in East Africa Dr Virinder Sharma DFID Kenya

2 Three main Financing options 1. AECF-Renewable Energy & Adaptation Technologies Challenge Fund-Grant and loan -250k -1.5m USD 2. Kenya Climate Innovation Centre PoC Grant- 50k USD- Seed capital 3. Green Mini Grids Africa- Bank Credit line through KAM

3 What is the AECF? The AECF is a fund of donor money available to the private sector on a competitive basis It is a special partnership initiative of the Alliance for a Green Revolution in Africa (AGRA). AGRA has Strive Masiyiwa as its Chairman and is funded by Rockefeller and Bill and Melinda Gates. Koffi Annan is the Chair Emeritus. Funded by a multi-donor consortium (Dutch, DFID, DANIDA, SIDA, IFAD, CGAP). The donors form the Governing Council of the AECF AGRA appointed KPMG as Fund Managers for the AECF AECF funds business innovation in agribusiness, rural financial services, renewable energy, adaptation to climate change, information and media services

4 Achievements Size of fund: the AECF was started in initial capital was US$34 million; with the stewardship of AGRA together with the Fund Manager, the fund has now grown to a size of over US$245 million and has run 18 competitions so far. Investments: the AECF is currently financing 191 projects in 23 countries, to the level of US$160 million. Countries: Headquartered in Nairobi, with Fund Manager regional hubs in Harare (Zimbabwe) and Accra (Ghana). Impact: Estimated that over 3.5 million rural people across the continent currently benefit as a result of the investments made. Benefits are measured in terms of increased income per household or reduced household costs.

5 AECF Aims and Objectives Goal: accelerate pro-poor growth in Africa increasing employment, livelihood opportunities and income and reducing poverty Purpose: to make agribusiness, finance, renewable energy and information market systems work better for the poor in rural areas in Africa Result: by improving the way market systems work, we aim to have a positive impact (jobs and incomes) on large numbers of people living in rural areas. Development impact. Modus Operandi: The AECF works by supporting private sector companies to develop and test new and innovative business ideas

6 How the AECF Operates Runs bespoke competitions to allocate funds to best bids Provides financial support for innovative business ideas, using matching fund principles Funding opportunity for business innovation for profit private sector; commercial viability + potential to scale + development impact AECF offers minimum US$250,000 to maximum US$1.5 million as grants and interest free loans. 6 year contracts. Two opportunities in 2014 REACT R3 launching now and later in the year, the flagship Africa Agribusiness Window

7 Finding the Right Projects We seek projects that are commercially motivated & innovative to get systemic impact SCALE Commercial Motivation: Scale required for systems impact; scale will only be reached if business model is (very) profitable Disruptive Innovation: as a key indicator of systemic change potential Upsetting the market such that others will copy and replicate the more innovative the better Principle: Start races rather than picking winners VIABILITY (SOCIAL) IMPACT

8 What is the AECF REACT Window? A special funding window for business ideas that are based on renewable energy and adaptation to climate technologies Goal: to contribute to reducing rural poverty in East Africa Objective: to catalyse private sector investment and innovation in low cost, clean energy and climate change technologies

9 How much is available? The competition is funded by the UK Department for International Development (DFID) and the Swedish International Development Agency (SIDA) Approx $20m funds available for the third round i.e. we expect approximately 25 companies to be financed Companies may be from the EAC or domiciled outside of the EAC, but all projects must take place in one or more countries within the EAC. Application process goes live on July 15 th Window remains open for applications for 2 months.

10 REACT so far REACT R1/R2 (EAC) already complete 32 companies awarded approximately US$25 million in grants and interest free loans REACT Mozambique complete currently bringing 12 companies to contract Clusters of companies: geographic / thematic / technology spreads - with exciting business models to address some of the most pressing challenges facing energy access & adaptation to climate change for low-income consumers Companies that cross-cut across REACT thematic areas

11 Key Strands in REACT: Increased access to low cost, clean energy for rural businesses & households Products and services that help rural people adapt to climate change Financial services that increase access to finance for low cost clean energy and climate resilient technologies or catalyse financial solutions We are keeping broad definitions of the above, to open the box and see what innovations come through

12 Adaptation: An application under this theme should be able to answer the questions: How will your product or service help a rural household or small business to better cope with an extreme climatic event (such as floods or drought) or an economic shock as a result of such an event? Or How will your product or service help a rural household or small business to better cope with changing rainfall patterns, shifting seasons or reduced soil quality? It is also possible for an applicant business to consider how it may protect itself against the future impacts of climate change, eg introduction of new varieties of more resilient coffee (or other crops) Business ideas for arid and semi arid areas particularly encouraged eg in the livestock sector

13 Project Examples Renewable Energy Micro solar PV solutions for households & businesses that have little hope of grid access Power generation (eg from agricultural waste), supply to main or minigrids Adaptation to Climate Technologies Drought resistant seeds Early weather warning systems that increase resilience and reduce vulnerability Small scale irrigation systems Financial Services Increased access to finance for renewable energy & adaptation to climate technologies eg through credit guarantees Weather insurance for smallholder farmers Lighting Africa ILRI ILRI

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15 What is the CIC? World Bank-infoDev initiative, funded by UK Aid and DANIDA Will provide incubation, capacity building services and financing to Kenyan SMEs developing climate mitigation and adaptation solutions First in a series of CICs that infodev is launching globally GVEP International, PwC, Strathmore University and KIRDI are the lead partners in a consortium contracted by infodev to establish and operate the CIC Supporting consortium partners are UNIDO, Adelphi, KIPPRA, LTS International, Netwas, Technoserve and Oxford Energy Associates 15

16 Why CIC? Why now? Several challenges underscore the need to stimulate climate innovation and the growth of clean tech industries in Kenya: Only 14-16% of Kenyan households are connected to the grid, a significant contributor to the energy divide in the country Traditional biomass-based fuels for cooking and heating are currently the most important source of primary energy in Kenya with wood fuel accounting for 68% of total consumption Access to safe water is estimated at 60% in urban areas and 40% in rural areas, while sewerage systems cover only 14% of the population Agriculture is the key economic activity in Kenya, contributing 80% of formal employment and 26% of GDP, yet is highly constrained by low and erratic rainfall 16

17 Sectors Water and sanitation Renewable energy Agribusiness 17

18 CIC activities Advisory services Financing Access to facilities Enabling ecosystem Access to information Provide mentoring and specialised training programmes Access to toolkits, templates and pre-packaged support Provide Proof of Concept grants Facilitate access to other sources of financing Provide access to facilities that house incubatees and support technology design, adaptation, prototyping, etc Work with GoK to develop Kenyan clean tech policies Coordinate technology transfer and collaborative R&D Gather, package and disseminate information on technologies, financing and local markets 18

19 Expected outcomes Combined suite of financing and services make the CIC the go to institution for emerging climate solutions in Kenya CIC expected to deliver a mix of social economic and environmental benefits including: Green jobs created Companies launched Reduction of CO2 emissions Greater climate resiliency Access to clean energy and water Strengthened technology transfer and local innovation capacity 19

20 Supporting key GoK policy initiatives The CIC was developed in close consultation with GoK ministries and officials, primarily the Climate Change Coordination Unit in the Prime Minister s Office and the Ministry of Environment The CIC will help Kenya achieve numerous economic and policy objectives including: Kenya Vision 2030 (to become a middle-income country) Greening Kenya (to directly support low carbon growth through green initiatives) 20 The National Climate Change Response Strategy (which specifically advocates innovation centers)

21 Who can participate? The CIC is seeking a range of partners: Entrepreneurs and SMEs: the CIC seeks to support SMEs and entrepreneurs developing innovative energy, water and agriculture solutions Financial institutions: the CIC seeks to partner with investors, banks and financial community to improve access to financing and increase the supply of capital. Governments: the CIC aims to work with policymakers to support the adoption of clean technology in Kenya. Private sector: the CIC aims to facilitate collaboration between its clients and local and international businesses as suppliers, distributors, partners, licensees or licensors, investors or acquirers. Academia: the CIC seeks forge linkages between innovators and academia to generate valuable knowledge and technologies 21

22 3. GREEN MINI GRIDS AFRICA: Context and drivers Energy access Economic Growth Women and Girls Low Carbon Future Fit energy resilience Private Investment and participation Infrastructure/Capital

23 Why mini-grids/mini-utilities? 33 kv Distribution Grid Perimeter Off-Grid Perimeter Off-Grid Perimeter Solar/wind Stand-alone Systems MG Hydro MG 100 kv Transmission Justified by high population > X pop MG Biomass Figure 1 : Illustrative view of Grid and Off-Grid perimeters (DFID-IED, 2013)

24 Mini-grids essential to universal access 20% SSA SEFA Universal Energy Access

25 Why has this not happened already? Barriers specific to GMGs in any context Country specific barriers Project preparation/sector capacity Capital hurdle and availability of credit Policy/regulatory environment

26 What could a DFID ICF project change? Critical mass in investment and use of GMGs at scale in ready countries Delivering direct benefits Providing experience and lessons for other countries Prepare market conditions for GMGs investment in more countries Wider learning and transformation potential 5 or 6 countries ready for mini-grid investment

27 What is the potential in Ke and Tz? Countr y Total Populatio n Mini- Grid Potenti al Portion of GMG Potential Kenya 43,269,39 4 (% of pop) Wind Hydro Biomas s Solar 23% 22% 10% 10% 63% Tanzani a 44,607, % 10% 10% 18% 64%

28 Key Programme Elements SE4ALL GMGs High Impact Opportunity AfDB/SE4ALL Hub, USAID, DFID, Nor, Den, Ger, Country Reps, PS Reps, CSO Reps, IRENA, WB, UN Co-ordination 3) Regional Green Mini-grids Facility Country preparation packages, co-ordination, cross-learning, communications, research, Kenya GMGs Co-ord Group Learning/Support DP Energy Group + REA/MoE Learning/Support 1) GMGs Kenya Critical mass of investment and delivery activity on GMGs 2) GMGs Tanzania Critical mass of investment and delivery activity on GMGs

29 1) GMGs Kenya Kenya GMGs Co-ord Group REA, MoE, AFD, GIZ/KfW, SREP, Nor, PS, CSO rep etc Other Progs e.g. KfW/GIZ, SREP/AFD, WB KEEP DANIDA, AFD 30m ICF Funds managed by DFID K 30m Bilateral contribution to AFD New GMGs window in KAM RTAP Programme IFC Policy work in BRICK 20% TA and Transaction Advisory and preparation support Grant NGOs/CBOs communities /counties Grant Mini-Grid Developers 80% GMGsearmarked within RTAP Credit Line Loan Loan National Banks e.g. Co-op and Stanbic Norway Energy+? RBF Incentive RBF on new Mini-Grid Connections with EnDev

30 Summary: ENERGY TECHNOLOGIES AND APPROACHES ADDRESS MARKET FAILURES TECHNOLOGIES VALUE CHAIN Proof of Concept Financing Grant financing Mix of grant/loan financing How to change the Commercial Financing- credit lines, guarantees Equity, Social enterprise, Crowd Financing