Private Financing Advisory Network (PFAN) Asia Program The Business Case For: Solar PV in Cambodia

Private Financing Advisory Network (PFAN) Asia Program The Business Case For: Solar PV in Cambodia June 2015 This document was prepared for the United States Agency for International Development Regional Development Mission for Asia (USAID/RDMA) by Deloitte under Contract No. AID-486-C-1200009. The contents are not the responsibility of USAID and do not necessarily reflect the views of the United States Government. July 2008 1

This document was prepared by: Author Organization Contact Details Laura Anderson Przemyslaw Garbaczewski Noah Schlosser Gregor Schueler Johns Hopkins University: School of Advanced International Studies idev.pfan@gmail.com Advisor Organization Contact details Darius Li SSG Advisors darius@ssg-advisors.com Reviewer Organization Contact details Dan Potash Deloitte Consulting LLP dpotash@deloitte.com June 2015 USAID Private Financing Advisory Network-Asia Page 2 of 29 2

TABLE OF CONTENTS Abbreviations and Acronyms... 4 Preface... 5 1. Executive Summary... 6 2. Cambodian Economy... 6 3. Business Environment... 6 3.1 Foreign Investment... 6 3.2 Ease of Doing Business... 7 3.3 Competitiveness... 7 4. Cambodian Electricity Market... 8 4.1 Generation Capacity and Demand... 8 5. Making the Business Case For Industrial Solutions... 12 5.1 Business Model... 12 5.2 Environmental Impact... 13 5.3 Customer Segments and Market Size... 14 5.4 Risks... 15 5.5 Expected Returns and Hypothetical Business Model Discussion... 16 6. Alternative Business Models... 18 6.1 Solar Home Systems... 18 6.2 Mini-Grids... 20 7. Next Steps... 21 8. Conclusion... 22 9. Annex... 23 June 2015 USAID Private Financing Advisory Network-Asia Page 3 of 29 3

ABBREVIATIONS AND ACRONYMS AFD ASEAN BoP CAPEX EAC GDP GMAC IPP IRR kw kwh MW NPV O&M OPEX PFAN PPA PV SEZ SHS SNV SME USAID Agence Francaise de Developpement Association of Southeast Asian Nations Base of the Pyramid Capital Expenses Electricity Authority of Cambodia Gross Domestic Product Garment Manufacturers Association of Cambodia Independent Power Producer Internal Rate of Return Kilowatt Kilowatt-hour Megawatt Net Present Value Operations and Maintenance Operating Expenses Private Financing Advisory Network Power Purchase Agreement Photovoltaic Special Economic Zone Solar Home System SNV Netherlands Development Organisation Small and Medium Enterprises US Agency for International Development June 2015 USAID Private Financing Advisory Network-Asia Page 4 of 29 4

PREFACE ThePrivateFinancingAdvisoryNetwork(PFAN) Asiaprogramisa5=yearregionaleffortfundedby theusagencyforinternationaldevelopmentregionaldevelopmentmissionforasia (USAID/RDMA),andimplementedbyDeloitteConsultingLLP(primecontractor)andpartner organizations.in2014,pfan=asiaenteredintoacollaborationwiththejohnshopkinsschoolof AdvancedInternationalStudies(SAIS)IDEVProgram. TheSAISInternationalDevelopment(IDEV)Programhasbeentraininginternationaldevelopment practitionersforleadershiprolesinpolicyandpracticeforoverseventyyears.idevprovides rigorousacademictrainingintheeconomic,politicalandsocialdimensionsofdevelopment,and practicalskillstopreparestudentsforthechallengesofacareerininternationaldevelopment. StudentsalsochooseaprofessionalfieldwithinIDEV,buildingspecializedexpertise.IDEVoffersits owncoursesanddrawsondevelopment=relevantcoursesofferedbyotherprograms,especiallyin regionalstudiesandinternationaleconomics. Thisreportistheculminationofapracticumforstudents,whichwillbeleveragedtoattract investmentandsupportfrominterestedentrepreneursandinvestors.thisfinalreportisintendedto provideanin=depthmarketanalysisthatwillbackupaninitialhypothesiswithdata,detailingthe breadthanddepthofspecificcommercialbusinessopportunitiesintheoff=gridsolarmarketin Cambodia.ThePFAN=AsiaandtheSAISPracticumteamworkedtogetheronthisreport,andweare verypleasedtopresenttoyouourfindings. June 2015 USAID Private Financing Advisory Network-Asia Page 5 of 29 5

1. EXECUTIVE SUMMARY With one of the highest electricity tariffs in the world, poor infrastructure, and limited electricity access,thereexistsasignificantopportunityforsolarpvtomarkedlychangetheenergylandscapein Cambodia in coming years. This paper presents an analysis on the viability of various solar PV businessmodelsincambodia,withaparticularfocusonenergy=intensiveuserssuchasfactoriesand commercial buildings. This segment of the market has been identified as the most promising for private=sector investment in solar PV because of the attractive dynamics offered through scale, abilitytopay,andsensitivitytohighelectricitytariffs relativetoothercustomersegments.other potentialbusinessmodelsconsideredincludesolarhomesystemsandsolar=poweredminigrids,but thesewereultimatelyfoundtobelessattractive.therecommendationsandaccompanyingfinancial modelaremeanttoprovideentrepreneursandinvestorsdetailsonthebreadthanddepthofthe investment opportunity for solar PV in Cambodia, charting the outline of a path for intrepid entrepreneurstotakeforward. 2. CAMBODIAN ECONOMY Cambodia s economy has enjoyed sustained and robust GDP growthsince2000,averaging7.8%growthperyear.althoughthe economy contracted following the 2008 global economic crisis, dropping to only 0.1% GDP growth in 2009, it rebounded more quickly than expected to reach 6% in 2010. The economy is expectedtogrowby7.5%in2015andcontinueatthispaceinto the medium=term future, driven mainly by the garments, construction, agriculture, and tourism industries. 2 It is worth noting that the garment industry has been growing at double= digit rates and exported close to $5 billion in goods in 2013, representing nearly a third of GDP. 3 As a result of the strong economicgrowth,cambodia spovertyratehasfallenfrom45% in2007to17.7%in2012(seetable1foraregionalcomparison). ThemajorityofCambodians(81%)liveinruralareaswhereincomesaresignificantlylowerthanin thecities. 4 Agriculture,themainoccupationoftheruralpopulation,constitutesalargeportionof the country s economy, representing 34.8% of GDP as of 2013. Population density is very low outsideofthecorridorbetweenphnompenhandsiemreap,thetwolargestcitiesinthecountry (Annex1)inwhichmostmiddle=andhigh=incomehouseholdsarefound. TheeconomyofSiemReap is dominated by the tourism industry, while Phnom Penh has a more diversified mix of manufacturing,tourism,andservices.mostexistingindustrialfacilitiesarelocatedinornearphnom Penh,thoughthegovernmentisexpandingindustrialdevelopmenttosmallerurbanareasthrough SpecialEconomicZones(SEZs). 3. BUSINESS ENVIRONMENT 3.1 Foreign Investment Table 1: World Bank s Poverty Headcount Ratio at National Poverty Line in 2012 1 Country Poverty Rate Malaysia 1.70% Indonesia 12.00% Thailand 13.20% Vietnam 17.20% Cambodia 17.70% Lao PDR 23.20% Philippines 25.20% CambodiahasoneofthemostfavorableforeigninvestmentpoliciesinSoutheastAsia.Thereareno restrictionsonforeignownershipandnosectorsareclosedtoforeigninvestment. 5 Incomparison, Thailand sforeignbusinessactliststhreedifferentcategoriesofbusinesses, whicharesubjectto varyinglevelsofforeigninvestmentrestrictions,applicableifmorethanhalfofitsownershipisnot June 2015 USAID Private Financing Advisory Network-Asia Page 6 of 29 6

heldbythainationals. 6 Additionally,foreigninvestmentinCambodiadoesnotrequireCentralBank approval,asinneighboringcountriessuchasvietnam,laos,andmyanmar.theforeignexchange Lawof1997statesthattherearenorestrictionsonforeignexchangeoperationsthroughauthorized banks (with the exception that transfers exceeding US$10,000 must be reported to the National Bank of Cambodia). Cambodian residents are allowed to hold foreign currency freely. However, foreignersarerestrictedfromowninglandunderthelawoninvestment,althoughtheyareallowed toholdlong=termleases. 7 Further, under Article 11 of the Amended Law on Investment, Qualified Investment Projects are guaranteed to be able to freely remit foreign currencies for the discharge of financial obligations incurredinconnectionwiththeirinvestment.theseprotectedcapitaloutflowsincludepaymentfor imports,repaymentofprincipalandinterestonloans,paymentofroyaltiesandmanagementfees, remittance of profits, and repatriation of invested capital in the case of dissolution. 8 These guaranteesincreaseinvestors confidenceintheirabilitytorecouptheirinvestment. 3.2 Ease of Doing Business Overall,CambodiarankspoorlyontheWorldBank seaseofdoingbusinessindicators,placing135 th outof189countriesoverall.comparedtoothercountriesinsoutheastasia,cambodiaranksbelow ThailandandVietnam(26 th and78 th,respectively),butabovelaopdr(148 th )andmyanmar(177 th ). Specifically, Cambodia ranks lowest on the indicators for Starting a Business, Enforcing Contracts, andgettingelectricity.itrankshighestongettingcredit(seetable2). DespitethesepoorWorldBankrankings,informationgatheredduringmultiplein=personinterviews with foreign investors in Cambodia suggests that the process for foreigners to start a business is fairly straightforward, especiallycomparedtoothercountriesinsoutheastasia.foreigninvestors arerequiredtoregisterthefullnameofthecompany,address,nationalityoftheforeigninvestor, andthenumberofsharesheldinthecompanytotheministryofcommerce. 9 Additionally,itseems that the government has a fairly well functioning public dialogue mechanism for addressing constraintsonbusiness.italsobecameclearinmeetingsthatnetworkingandcommunicatingwith thecorrectpeopleisaveryimportantaspectofdoingbusinessincambodia.itcanbedifficulttoget thingsdoneefficientlyandquicklywithoutknowingtherightpeopletotalktoandnegotiatewith. Table2:EaseofDoingBusinessComparison Country 10 Ease of Doing Business Rank Starting a Business Source:WorldBankDoingBusinessRankings,2015 3.3 Competitiveness Dealing with Construction Permits Getting Electricity Trading Across Borders Enforcing Contracts Getting Credit Protecting Minority Investors Paying Taxes Resolving Insolvency Thailand 26 75 6 12 36 25 89 25 62 45 Vietnam 78 125 22 135 75 47 36 117 173 104 Cambodia 135 184 183 139 124 178 12 92 90 84 Lao PDR 148 154 107 128 156 99 116 178 129 189 Myanmar 177 189 130 121 103 185 171 178 116 160 Cambodiahasbecomeanattractivelocationtosetupfactories,mainlyduetolowlaborcostsand thelackofforeignownershiprestrictions,whichhaveresultedintherelocationofmanyfactories from China and Vietnam. Increasing industry competitiveness and improving infrastructure to June 2015 USAID Private Financing Advisory Network-Asia Page 7 of 29 7

facilitatetradeareamongthetopprioritieslaidoutincambodia snationaldevelopmentplanfor 2014=2018. 11 However, there are several challenges to developing competitive industries. Lack of skilled labor makesindustrydiversificationdifficult.currently,cambodia sindustryisconcentratedinlowvalue= added manufacturing such as garments, footwear, and wood products. 12 Manufacturing is power intensive, and the high cost of electricity makes production expensive and therefore exports less pricecompetitivecomparedwithneighboringcountries.otherbusinessconstraintsincludelackof accesstocapital,under=developedinfrastructure,andcorruption. Cambodia ranked 156 th out of 175 countries on the 2014 Transparency International Corruption Perceptions Index, a slight improvement over its 2013 ranking of 160 th. 13 Corruption is generally perceivedtobepervasivethroughoutalllevelsandsectorsofthegovernmentandbusiness.despite this,corruptionusuallytakestheformoffacilitationpaymentsandbribes,andseizureofassetsis veryrare.multiplelocalbusinessesandinvestorswespokewithstatedthatcorruptionisnotasbig ofachallengetodoingbusinessasitappearsexternally.thegovernmenthasmadesomeprogress in dealing with corruption with the passing of the Anti=Corruption Law and establishment of the Anti=CorruptionUnitin2010;however,enforcementremainsanissue. 14 4. CAMBODIAN ELECTRICITY MARKET With only 35% of the population having access to electricity in Table 3: Electrification Rates in 2015,Cambodiahasoneofthelowestelectrificationratesinthe 2012 in % world, falling well short of it neighbors. As of 2012, Laos, Country 15 Electrification Vietnam,andThailandhadachievedelectrificationratesof78%, Cambodia 24% 97%, and 99% respectively (see Table 3). While current data is unavailable,in 2010, the situation was worstinruralcambodia Myanmar 26% where only 19% of households had access to the grid, as compared to 91% of the urban population. 16 In addition, electricity consumption per capita in Cambodia was only 216 KWh per capita in 2011, a very low rate when compared to Lao PDR Vietnam Thailand 78% 97.3% 99.3% Thailandat2,316kWhpercapitaandVietnamat1,073kWhpercapita. 17 4.1 Generation Capacity and Demand The Central Grid The central grid currently covers the urban and semi=urban area between Phnom Penh and Siem Reap.In2013,Cambodiaconsumedatotalof3,552millionkWhofelectricity,ofwhichabout64% (2,281.6millionkWh)wasimportedfromneighboringcountries,mainlyThailand,Vietnam,andLaos. Ofdomesticallygeneratedpower,licensedindependentpowerproducers(IPPs)generated96%of thepowersuppliedbythecentralgrid.hydropoweraccountedfor57.4%ofpowersupplied,with diesel(32.7%),coal(9.5%)andbiofuel(0.4%)poweredplantsmakinguptherest. June 2015 USAID Private Financing Advisory Network-Asia Page 8 of 29 8

Figure1:ExistingTransmissionNetworkinCambodia,asof2016 Source:GlobalEnergyInstituteNetwork Duetoinefficienciesinpowergeneration,generaladministration,andtransmissioninfrastructure, thecostofelectricityincambodiaisamongthehighestintheworld.moreover,theactualcostof generationremainsverydifficulttoascertain,withlimitedtransparencyonthedrivingfactorsthat contributetothehightariffs.inphnompenh,1kwhofelectricitycostsbetween$0.17and$0.26, significantlyaboveaveragepricesinneighboringcountries(seetable4).ontopofthehighprices, sustained reliability continues to be an issue, and consumers or businesses that cannot afford periodicinterruptionsalsocommonlyinvestinexpensiveback=upgenerators. Table 4: Average Electricity Tariffs in 2014/15 Country Average Residential Tariff (USD/kWh) Average Industrial Tariff (USD/kWh) Lao PDR 18 0.05-0.12 0.09 Vietnam 19 0.06-0.12 (applies to both) Thailand 20 0.12 0.13 Cambodia 21 0.18-0.26 0.17-0.21 WhiletheElectricityAuthorityofCambodia(EAC) ismakinganefforttounifythetariffstructure, pricesacrossthecountryremainedhighlyvariableasof2013.thetariffsaredeterminedbyahostof variables, including region, type of consumer, amount consumed, license holder, and type of connection,resultinginalmost100differenttariffsrangingfrom$0.13to$0.42perkwh. Inruralareas,electricity,ifavailableatall,isoftenprovidedbyprivatelyowned,low=voltagemini= grids. Rural households pay upwards of $0.50/kWh, and average consumption is low at about 5 kwh/monthperperson. 22 Mini=gridsnormallyonlyoperateforafewhoursperday,andpoweris almostexclusivelydiesel=generated. Expected Grid Expansion, Tariff Changes, and Associated Uncertainties The government s stated goal is to extend the grid to 100% of villages by 2020 and 70% of all householdsby2030.accordingtoregulators,thegridandcapacityexpansioneffortsareaheadof scheduleandgridtariffswillcontinuetodeclineasadditionalcapacity mostofwhichiscurrently June 2015 USAID Private Financing Advisory Network-Asia Page 9 of 29

hydropower comes online. Actual average tariffs paid in Phnom Penh havedecreased byabout 10%between2012and2013,howeverthisdecreaseoccurredfollowinganearlyequalincreasein 2011. 23 Individualsinterviewedforthisreportexpressedskepticismaboutthegovernment spromise ofgridexpansionandlowertariffs,pointingoutthatthegovernmentdoesnothaveastrongtrack recordindeliveringonsuchpromisesinthepast.furthermore,thegovernmentgridexpansionplans areopaque,makingitdifficulttopredictwhereandwhenthegridwillexpand,andinturntomake related investment decisions. Officials have stated that, due to their distance from existing infrastructure, the provinces where the grid is likely to arrive last are Mondolkiri, Ratanakiri, and StungTreng,allofwhichareintheNortheast,borderingLaosandVietnam. Figure2:NationalTransmissionGrid2018Forecast Source:TheInstituteofEnergyEconomics,Japan Expected Capacity Expansion and Demand Growth Withtherapidlygrowingeconomy,increasingpopulation,andmodernizationofthecountry,energy demand is expected to continue to increase by 18% annually. 24 To keep up with the growth in demand,thegovernmentisattemptingtoboostdomesticenergyproduction,withaparticularfocus on increasing hydropower capacity. The country has an estimated 10,000MW of hydropower capacity, only 1% of which is currently developed and operational. Hydropower resources are concentratedaroundthemekongriverintheeast,thesiemreapareainthenorthwest,andalong the coast in the Southwest. Over 1000MW of hydropower generation projects are already under construction,withafurther3000mwunderstudybyvariousprojectdevelopers. Evenwiththeseplannedexpansions,Cambodiawillstruggletomeetitsanticipatedelectricityneeds in the coming decades. Figure 3 demonstrates the growing gap between electricity capacity and consumption that has arisen as a result of population and economic growth, as well as the grid expansionthathasincreasedaccesstoagreaternumberofhouseholds. Figure3:ElectricityConsumptionandProduction2004=2013 June 2015 USAID Private Financing Advisory Network-Asia Page 10 of 10 29

4,000 ElectricityConsumpBonandProducBon2004"2013 ElectricityConsumpBon(GWh) ElectricityProducBon(GWh) 3,500 GwhperYear 3,000 2,500 2,000 1,500 1,000 500 " 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 Source:CombinationofdatafromtheWorldBank BankWorldDevelopmentIndicators (years2004=2011) andtheelectricityauthorityofcambodia ReportonthePowerSector2014 (years2012=2013) Inanticipationofitsincreasedgenerationcapacity,Cambodiaisalsoexpandingitsnetworkofhigh= voltagetransmissionlines.priorto2009,alltransmissionlinesinthecountrywere115kvlines,alow voltage that led to high distribution losses. Currently, the country is investing in 230kV lines, and expectstohave1500kmoftheseinoperationby2019. Regulatory Environment TheelectricitysectoristightlyregulatedbytheEAC.TheEACgrantslicensesforthedistributionof electricityanddeterminesthetariffsatwhicheachlicenseemayselltheirelectricity.accordingto EAC officials interviewed for this report in January 2015, there are no plans to issue any further licenses.licensestypicallycoverbetween100and15,000households,butoperatorsoftenserveas littleas8=10%ofthehouseholdsintheirterritorybecauseofthelowpopulationandtheirlimited abilitytopaycreatesdisincentivestoconnectingmorehouseholds. 25 Thetariffsthatoff=gridlicense holders are allowed to charge their customers are set by the EAC and calculated on a cost=plus= marginbasis.thiseliminatestheincentivetoinvestinmoreefficientpowergeneration,sinceany reductions in cost would be met with corresponding reductions in the tariff the operators could charge. The currentregulatoryframeworktherefore makes it very difficult for new entrants to developa business model that sells electricity directly to customers. In order to do so, one would have to either purchase a license from an existing licensee, which according to a local investment firm is prohibitivelyexpensive,orenterintoasub=contractingarrangementwithalicenseholder(subjectto EAC approval). Current regulations also do not include net=metering, meaning that any excess electricitygeneratedbyasolarpvsystemcannotbesoldbacktotheutility,reducingthevalueof suchsystems. June 2015 USAID Private Financing Advisory Network-Asia Page 11 of 11 29

5. MAKING THE BUSINESS CASE FOR INDUSTRIAL SOLUTIONS Cambodia s continued economic growth entails industrial expansion and diversification, both in textiles and heavy manufacturing. However, the continued high cost and low dependability of electricity threatens to push manufacturers into competing neighbors such as Thailand and Vietnam, where electricity tariffs are lower. Therefore, there is an opportunity for solar PV to providesignificantbase=loadcapacityatbelow=gridpricestoindustrialfacilitieslocatedthroughout thecountry.weestimatethetotalpotentialmarkettobeapproximately$100=115million,growing to$400=460millionin2020,and$650=750millionby2025. 26 5.1 Business Model Electricity tariffs in Phnom Penh are $0.18/kwh for households and industrial consumers pay as muchas$0.21/kwh. 27 TariffsareevenhigheroutsideofPhnomPenh,andthesupplyisevenless dependable.thereexistsanopportunitytoofferindustrialandcommercialbusinessessolarpvto meetmuchoftheirbaseloaddemandatalowercost,partiallydisplacingtheirrelianceonelectricity suppliedbythegrid. Solarinstallationsarelong=terminvestmentswithatypicallifeof20+yearsandeitherthecustomer, thedeveloper,orathirdparty,mustbeartherisksrelatedtonotonlytheinitialinstallationofthe system, but also its ongoing maintenance in the long run. Therefore, end=user financing is an incrediblyimportantconsideration,asthemethoddictatestowhomtheserisksandresponsibilities fall. For the purposes of this paper, two primary models of financing are put forth for further consideration:directandthirdpartyownership.eachapproachhasadifferentsetofbenefitsand drawbacksforvariousstakeholders,andtherightchoiceisdependentonindividualcircumstances andoperatingenvironment. 28 ThirdPartyOwnership(PowerPurchaseAgreement):Underthismodel,thecustomerischargedfor the electricity generated by the solar system under the terms of the long=term PPA that is negotiated prior to installation. 29 The customer bears limited=to=no risk associated with the solar systemand,inexchange,paysahighertariff(relativetodirectownership)tothesystemowneron thebasisofpowerproducedandconsumed.therearemanyvariationsonpricingmodelsforend= users,butwewillnotdelveintothespecificshere itissufficienttosaythattheofferingmustbe attractive enough to convince customers to purchase the service, whether that is on the basis of price,stability,orotherrelevantfactorsforthespecificcustomersegmentandlocation.thepower purchase model generally results in a lower return per transaction to the developer. However, becauseittransferstherisksandupfrontcostsawayfromthecustomer,thisapproachhasbecome increasinglypopularoptionforcustomersthatarewillingtoacceptthetradeoffs.weanticipatethat thisoptionwillbeveryattractive,especiallyforindividualfacilitiesoperatingoutsideofindustrial zones. June 2015 USAID Private Financing Advisory Network-Asia Page 12 of 12 29

Customer Signspower purchase agreement Makesregular paymentsfor powerdelivered MonthlyPayment SolarPower Developer Installsand financessystem Ownsand maintainssolar system Figure 4: Third Party Ownership Model DirectOwnershipModel: Under thedirectownershipmodel, theend=userownsthesolarsystem andcontractswiththedevelopertodesignandinstallthesystem.thedevelopermayalsoconsider providing financing through local institutions and/or Development Finance Institutions, or some combinationthereof,aswellasofferingafter=salessupport neededtokeepthesystemoperating reliably.thisisthepreferablemodelfromthedeveloper sperspective,asthecapitalrequirements tofinancethisbusinessaremuchlower,andresultsinfarlesscomplexityandrisk.long=termrisks suchasongoingmaintenance,grid=priceuncertainty,aswellaspaymentrisk aretransferredtothe customer,whomustascertainthecostsandbenefitsofowningasolarsystem.weexpectthatthis approach will be less popular with customers because of the higher upfront costs and long=term risksinvolved.developersshouldofferbothoptionsinordertomaximizetheirmarketshare. Table5:Solarsystemownershipmodels Description Pros Cons Target Customers Third Party Ownership Developer or 3 rd party owns and maintains system, selling electricity to customer at negotiated tariff Less risk and no upfront capital expenditure for the customer Broader appeal to a wider range of customers Long-term risks Generally lower returns Customers with limited appetite or ability to finance upfront costs Customers with lower energy demands Direct Ownership Customer owns the system and hires the developer to install and maintain Long-term risks, such as maintenance and grid-tariff, borne by customer Possibly larger returns for developer Greater savings for the customer Expected smaller market share Customers with greater scale and/or more energy-intensive Customers willing, interested in, and able to make the upfront investment and commitment to long-term ownership 5.2 Environmental Impact Increasing solar PV=generated electricity will also have a number of environmental benefits to Cambodia, primarily through displacement of existing generation fueled by carbon intensive fuels suchasdiesel.foreachmwhofsolar=generatedelectricityincambodia,0.67tonsofco 2 emissions aredisplaced,implyingthata165kwsystemwillavoidorreduceannualghgemissionsby183.5 tons. 30 June 2015 USAID Private Financing Advisory Network-Asia Page 13 of 13 29

5.3 Customer Segments and Market Size Customers are segmented into three main types: factories and other large commercial buildings, specialeconomiczones,andindependentpowerproducers.eachsegmentanditsestimatedmarket sizeispresentedandanalyzedbelow. Factories and Other Large Commercial Buildings: $130M 1 The Cambodian manufacturing industry is dominated by low value=added manufacturing, such as garmentandshoefactories.duetolowlaborcosts,cambodiahasbecomeanattractivelocationto establishmanufacturingoperationsandmanycompanieshaverelocatedtocambodiafromchina andvietnam.commercialconstructionincambodiaisgrowingat7%annually 31.Accordingtothe Garment Manufacturers Association of Cambodia (GMAC), as of December 2014 there were 747 factoriesincambodia. 32 In2011,thegarmentindustryaccountedfor70%oftotalmanufacturingin the country and 75% of export revenue. Other industries include household goods, textiles, tires, and pharmaceutical products. 33 The Cambodian Center for Human Rights has published a list of garment factories in Cambodia, including the name of the factory, location, type of products manufactured,contactperson,andcontactinformation.this listcanbeaccessedviathesithi.org website. 34 Energyisoneofthelargestexpensesforfactories,atanestimated30=50%oftotaloperatingcosts. 35 Supplementingenergyfromthegridwithcheapersolarenergycouldprovideattractivecost=savings forfactoryowners.further,industrialclientsoffergreaterscaleandstability,loweringoverallrisk when compared to residential customers. Additionally, commercial building energy consumption typicallypeaksduringtheday,bettermatchingsolaroutputthanhouseholds,whichdemandmore poweratnight. Special Economic Zones: $250M 2 TheCambodiangovernmenthasestablishedanumberofSEZsaroundthecountryinordertoattract foreign direct investment and promote export competitiveness. SEZs are designated areas that operateunderdifferentregulationfromtherestofthecountry.theybenefitfromcertainincome andvattaxincentives,streamlinedcustomsprocesses,andlowertariffs.sezswerefirstintroduced incambodiain2005,andasof2013,sezshadreceived$usd1.65billionintotalinvestment. 36 Although technically there are at least 30 approved SEZs in Cambodia, the vast majority are not operational(seeannex2foramapofsezs). 37 ThePhnomPenhSEZistheonlyoneinwhichmost landhasalreadybeenleased(seeannex3foramapofthephnompenhsez),thoughconstruction hadstillnotbegunonmanyofthosefactoriesasofjanuary2015.thereare11sezslistedonthe Cambodiangovernmentwebsite. 38 1 AccordingtotheGarmentManufacturersAssociationofCambodia,thereare747garmentfactoriesinthe country.installationrevenuesareexpectedtobe$177kpersystem,suggestingamarketsizeofroughly$130 million. 2 Weestimatetheretobe1400potentialfactoriesinSEZsonceallhavebeendeveloped.Installationrevenues areexpectedtobe$177kpersystem,suggestingamarketsizeofroughly$250million. June 2015 USAID Private Financing Advisory Network-Asia Page 14 of 14 29

SEZspresentaparticularlyappealingcustomersegmentforanumberofreasons: Inaggregate,theyrepresentlarge=scalecustomers,creatingsignificantscaleforsales, servicing,andpowerdelivery SEZsholdenergydistributionlicenses,sofactorieson=sitecouldsellexcesselectricity betweeneachother SEZsdonotfaceimportdutiesforgoodsinvestedintotheSEZs,sopanelsandother componentssourcedfromoutsidecambodiawouldnotbetaxed Furthermore,SEZsaregenerallylocatedinremoteareaswherelandischeaperandmoreaccessible, butthegridtendstobelessreliableandtariffsareevenhigher.thiscombinationoffactorscan boosttheeconomicsofasolarinvestment,resultinginquickerpaybackandhigherreturns. A Closer Look: Phnom Penh SEZ One of the major barriers to continued development of the Phnom Penh SEZ has been high electricity tariffs; currently, $0.19/kwh. Even factory owners who already hold leases on land are timid about investing further in the SEZ when competing sites in neighboring countries with much lower energy costs are available. However, as the economics on solar have continued to improve, installing solar systems to displace existing grid usage and lower overall energy costs is becoming a viable solution. Lowering electricity tariffs is a major priority for the Phnom Penh SEZ, and we expect it will be for other Cambodian SEZs as well. Independent Power Producers IPPs holdlicensesgrantedbytheeac that authorize them to distribute and sell electricity within theirgeographicjurisdiction.attheendof2013,therewere339licensesapprovedbytheeacin operation,althoughofficialsstatethattheyarenolongergrantinganynewlicenses. 39 ManyIPPsare off=grid,distributedgenerationsystemsthatrelyondieselforfuel.solaroffersawayfortheseipps toimprovetheeconomicsoftheirbusinessbyloweringthecostofgeneration. However, for several reasons, IPPs are a less attractive customer segment than industrial clients. IPPs are required to charge a regulated tariff dictated by the EACthat is based on their marginal costs. This means that any cost savings realized through improved efficiency would be passed directlyontoconsumers,eliminatinganyincentiveforlicenseholderstopursuesuchinvestments. Additionally,ifandwhenthegridreachestheareawherethemini=gridislocated,theIPPwouldbe required to use power from the grid rather than continuing to generate their own electricity. Becausegridexpansionplansareopaque,itwouldbedifficulttoascertainwhetherornotentering intoasolarcontractwouldbebeneficialandoverwhattimeframe.therefore,itisourassessment thatonlyalimitednumberofippswouldbeinterestedinsolar. 5.4 Risks Grid Expansion and Tariff Grid expansion and tariffs are uncertain over the long=term. Cambodia s recent investments in hydropower also means that grid tariffs are expected to fall over the coming years, but when, where,andbyhowmuchremainunclear.evenifdomesticgenerationcanmeettherisingdemand, significant investment still needs to be made in transmission infrastructure across the country in ordertoprovidepowerefficientlyandreliably.eventhoughtheproposedmodelremainsfinancially feasible over a wide range of possible tariffs, especially outside of Phnom Penh where tariffs are June 2015 USAID Private Financing Advisory Network-Asia Page 15 of 15 29

highest and service outages most frequent, customers may be hesitant to invest in solar if they expecttariffstodecreasesignificantlyintheyearsahead. Contract Enforcement Contractenforcementisasignificantrisktothethirdpartyownershipmodel.Cambodiarankslow on contract enforceability by ASEAN standards, and once a solar system has been installed, the developer isdependentonthose long=term, predictable revenues to survive. Workingwith larger customers, such as SEZs, can help mitigate this risk, since these companies are likely to be more creditworthyandstable. BusinessinterruptionsorshutdownswouldalsopresentarisktothePPA=model.Overthelifeofthe PPA,thereareanynumberofvariablesthatwouldresultinthecustomernolongerbeingableto meettheirobligations.forexample,otherlocationsorcountriesmaybecomemoreattractivefor factoriestooperateinduetocheaperlabororeasingofregulation,andfactoriescoulddecideto relocate.developerscanattempttomitigatethisriskbyincorporatingearlyterminationpenalties into the PPA or other provisions that require transference of the solar asset to the new tenant. However,inreality,enforcingsuchprovisionsmaynotbefeasibleorpractical. Adverse Macroeconomics Developments Adverse shocks to the global economy could reduce demand for solar. The target market for the proposed business consists in large part of the export=oriented manufacturing sector. If global demand for goods from Cambodia decreases, factory owner s appetites for investment may be impacted.thebusiness inputcostscouldalsobenegativelyimpactedifchinesemanufacturersof solarsystemweretogooutofbusiness.furthermore,changesinthedomesticeconomycouldalso impactthebusiness.forexample,inflationandinterestratesimpactthecostoffinancingavailable tocustomers,andlessthanexpectedeconomicgrowthmayerodeinvestorconfidence. Table6:RisksandMitigation Risk Expansion and Grid Tariff Contract Enforcement Adverse Macroeconomic Developments Mitigation Strategy Foster relationship with officials to be up to date on expansion and tariff changes Push sales model over PPA-model Require collateral as part of PPA-model Partner with SEZ management Check customers reputation and financial health Penalty provisions in PPA Diversify customer base Partially self-mitigating since some inputs will become cheaper during an economic crisis if demand for them falls. 5.5 Expected Returns and Hypothetical Business Model Discussion InevaluatingthesolarmarketinCambodia,weconsiderabusinessmodelthatincludesboththird party and direct ownership models. The business model s revenue sources include the sale of electricity generated through third party owned systems, direct sale of solar systems, as well as throughongoingmaintenanceservices.forexample,returnsfromthesaleofelectricityproducedby a165kwsolarsystemover24yearsyield$65,000inriskadjusted2016dollars,implyinganirrof 19%andapaybackperiodofsevenyears.Atthesametime,thecustomerreturnisequaltoreal savingsof$124,000overthelifeoftheinstallationcreatingasignificantincentivetoinvestinasolar June 2015 USAID Private Financing Advisory Network-Asia Page 16 of 16 29

systemownedbyathirdparty.underthedirectownershipmodelthegrossprofitonthesaleofan equally sized system is $25,000 (assuming a 12% retail margin) and the customer saves approximately $725,000 over the system s lifetime. Discussed returns to the developer and the customerarelargelybasedonanumberofassumptionsthatholdthroughoutthebusinessmodel (seetable7). Table7:FinancialModelAssumptions Category Highlights Impact on IRR and NPV System Cost OriginalsystemcostofUSD176KbasedonapricingquotefromlocalsupplierinCambodia loweringthesystemcostwillleadtoprofitabilityimprovements. System Output Averagesystemoutput 233,991kWh/year iskeyinrevenuegeneration.anydecreasein systemoutputwillhaveaverysignificantimpactontheprofitabilityofelectricitysalebusiness model. Grid Electricity Price Inflation Beginningpricelevelofgridelectricityis$/kWh0.21andsubsequentlydecreasingat2%YOY changeinthepaceofelectricitypricedeclineorinthebeginninggridelectricitytariffwill significantlyimpactthefinancialperformanceofasolarinstallation. Assumedlevelofinflation3.5%=changetoinflationwillhavesignificantimpactonequity returns. Discount Rate Assumeddiscountrateof14%=anychangetodiscountratewillimpactNPVsignificantly. Margins Solartariffdiscountvs.gridtariffandsalesmarginsareassumedtobe$0.02and12% respectively.markupono&mservicefeeof15%wasassumed changestomarkupsimpact profitabilityofthemodelsignificantly Timing TimingofentryintosolarmarketinCambodiawillhavesignificantimpactonprofitabilityof electricitysalesgiventheassumptionthatelectricitypricewillcontinuetodecreaseyoyuntil itreachesitssustainablelevelof$/kwh0.10. Inconsideringscalabilityofelectricityandsystemsalestoclients,wemodeledthebusinesson25 years of operations in Cambodia. The model assumes a total of 200 industrial solar system installations sold (150 directsystem sales and 50 customers buying solar electricity output for 24 yearsofoperation).thereturnsontheoverallbusinessyield$3.2milliondollarsriskadjustedandan IRRof~22%witha12=yearpaybackperiod.Thebelowgraphpresentsdiscountedcashflowsfrom theanalysisofthisbusinessmodel. June 2015 USAID Private Financing Advisory Network-Asia Page 17 of 17 29

4,000,000 3,000,000 2,000,000 NPVAnalysisforMixedModel(NPV/asofYearofOperaEons) 3,256,160 NPVofProject($) 1,000,000 + (1,000,000) (2,000,000) (3,000,000) (4,000,000) 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 (5,000,000) Itisimportanttoconsiderthepotentialforreturnvariabilityoftheelectricitysalemodelbasedon thegridtariffpricesatthetimeofsystem sinstallationandtheinvestor scostofcapital.sensitivity resultsshowthatamere$/kwh0.01changeinthegridtariffhasapotentialtoeithersignificantly increaseordecreasetheriskadjustedvalueofreturns.ourbasecase,yieldingannpvof$65,000 anda19%irrperinstalledsystem,assumesagridtariffof$/kwh0.21andacostofcapitalof14%. ThebestcasegeneratesanNPVof$139,000andanIRRof22%basedonacostofcapitalof12%and a$/kwh0.23gridtariffprice,whiletheworstcaseassumesacostofcapitalat16%andagridtariff rateof$/kwh0.17gridtariffrate,yieldinganegativenpv19,000andanirrof14%. 6. ALTERNATIVE BUSINESS MODELS Arangeofothersolarbusiness modelswerealsoconsidered.solarhomesystemsandsolarmini= gridsareparticularlycommoninmanydevelopingcountries.however,forreasonsdiscussedbelow, thesemodelsmakealessconvincingbusinesscaseinthecontextofcambodia. 6.1 Solar Home Systems Thevaluepropositionforsolarhomesystems(SHSs)inoff=gridareasofCambodiaisstrongandtheir potentialsocialimpactisclear.however,thismarketislessattractivetoinvestorsduetounsolved June 2015 USAID Private Financing Advisory Network-Asia Page 18 of 18 29

challengesaroundlogistics,consumerperceptions,andlackofscale.takentogether,theselitanyof factorsintroducesignificantriskswithlimitedupsidereturns. Existing Landscape Anumberoffor=profitSHScompaniesarealreadyoperatinginCambodia,althoughtheirlong=term financialviabilitywasuncertainatthetimeofwriting.mostofthemarebasedinphnompenhwith salesofficesinoneortwoprovincesandarenotdirectlycompetingwithoneanother.theyhave faced an uphill battle because poor consumers tend to be risk=averse and unwilling or unable to maketheupfrontinvestmentforashs.profitmarginsonsystemssalesarealsoslim.increasesin ruralincomeandfutureregulatorychangescouldmakethisamoreattractivemarketinthefuture, butatthispointintimethebusinessmodel srisksappeartooutweighitspotentialreturns. Market Size Weestimatetheaddressablemarketforsolarhomesystemstobeabout$500=$750million,based onthesizeofthemarketcurrentlyservedbybatterychargingstations. 40 SWOT Analysis Strengths) Strong value proposition: SHS give households access to electricity at a lower cost and greater convenience than the most common alternative, car batteries. Rural households spendbetween$150and$300peryearoncarbatteries,notcountingtheopportunitycost ofhavingtocarrybatteriestothechargingstationeverycoupleofdays.highqualityshs costbetween$400and$600,includingseveralappliancessuchaslightbulbs,fans,andeven TVs.Thesetypesofsystemshavepaybackperiodsof1=2years. 41 Clearsocialandenvironmentalimpact:SHSgeneratefiscalsavingsforhouseholds,aswellas reduce diesel consumption (battery charging stations powered by fossil fuels) and toxic waste(frequentbatterydisposal). Weaknesses) Logistical:Off=gridcustomersarehardtoreach,increasingthecostsofsales,distribution, andmaintenance,andreducingeconomiesofscale. Financial: Inventory costs can be high and difficult to manage. The upfront cost is unaffordabletomostoff=gridhouseholds.numerousshsbusinessesinterviewedreported accesstofinanceasamajorbarriertosuccess. Reputational: The poor performance of existing solar products caused by the sale of low qualitysolarpanelsthatwerenotpairedwithappropriatebatteries,maintenance,and/or other necessary components has given solar PV a negative reputation among many rural households.asaresultofshs damagedreputation,solarcompaniesdescribedhavingto invest heavily into awareness and education campaigns to rehabilitate solar s image and stimulatedemand. ) Opportunities) EconomiesofScale:Unlockingeconomiesofscaleinassemblyanddistributioncouldmake SHScompaniesmoreaffordabletotheirtargetmarketandimproveprofitmargins. June 2015 USAID Private Financing Advisory Network-Asia Page 19 of 19 29

ConsumerFinance:Partneringwithmicrofinanceinstitutions,asseveralcompaniesalready have,canhelpcustomersovercometheinitialinvestmentbarrier. Donor Support: NGOs, multi=, and bilateral donors could help reduce the cost of SHS for customers.thefrenchafdanddutchsnvarecurrentlyimplementingaprogramtoprovide up to $6 million in concessionary loans and $2 million in grants to MFIs to make SHS financingmoreaffordable. Advertising: Building a trusted brand through advertising and word of mouth could help overcomereputationalproblemsinthemediumterm.severalcompaniesrecentlymadea stepinthisdirectionbyestablishingthesolarenergyassociationofcambodia,whosegoals includeaddressingtheissuesofqualityandreputation. Threats) GridExpansion:Uncertaintyaboutthegovernment sgrid=expansionplansmaymakerural households hesitant to invest in SHS, which, at about $0.66/kWh, is significantly more expensivethanpowerprovidedthroughthegrid. 6.2 Mini-Grids Therearemanydieselmini=gridsrunbyIPPsoperatingprofitablyinareasnotyetconnectedtothe grid.however,duetoprohibitivegovernmentregulationandbarrierstoscale,solarmini=gridsarea less attractive business model compared with other models, such as system sales to industrial clients. The EAC is no longer granting new IPP licenses, without which, it is not possible to sell electricity.additionally,withcambodia ssparsepopulationdistribution,itwouldbedifficulttoreach thenecessaryscaletobecomecommerciallyviable.undercertainscenariositwouldbepossibleto distributeandsellpowerfromasolarmini=grid,suchascontractingunderanexistingipp.however it would be difficult to rely solely on this model as a standalone business alone without a broad capitalbaseandotherrevenuestreams. Existing Landscape Toourknowledge,therearenooperatingsolarmini=gridsinCambodia.Inatleastonecase,asolar mini=grid was established; however, the national grid expanded into the community and now provideselectricitywithouttheuseofsolar. Strengths) Economic:Offersacheaperalternativetodieselmini=grids,withpotentialforhighoperating margins. Financial:Potentialforauxiliaryrevenuestreams(mini=gridscanpowerSMEs,refrigeration, etc.) Clearsocialandenvironmentalimpact:Thesocialimpactliesintheabilitytoprovideoff=grid customerswithaffordableelectricity.theenvironmentalimpactliesinacleaneralternative todieselgeneration. Weaknesses) Regulatory:SellingelectricityinCambodiarequiresagovernment=issuedIPPlicensewhich mustbeappliedforandapprovedbytheeac.however,asofjanuary2015theeacisno longerissuinganynewipplicenses.therefore,itwouldbeverydifficultforanewplayerto enterthismarket. June 2015 USAID Private Financing Advisory Network-Asia Page 20 of 20 29

Scalability:GivenCambodia slowpopulationdensity,itwouldbedifficulttoscaleamini=grid operator.mini=gridswouldonlybefeasibleinruralareaswherethegridisnotexpectedto arrive in the near future, and these areas tend be sparsely populated. For reference, one successful and growing solar mini=grid business is Mero Gao Power operating in Uttar Pradesh, India. The population density of Uttar Pradesh is 828 person/km 2, while in Cambodiapopulationdensityisonly84person/km 2,and<1person/km 2 inruralareas. 42 Financial:HighCAPEXandOPEX(staff,maintenance,paymentcollection)requirements.) Logistical: Billing and payment requires usage measurement, payment collection and enforcement.prepaidandpay=as=you=gometersareexpensive.thiscanbeachallengegiven staffcostsandtheunstablecashflowsofruralcustomers. Opportunities) Mini=gridasacomponentoflargerbusinessmodel:Acompanywithother,similarbusiness lines (i.e. SHS retailers, solar developers, etc) that could leverage existing assets, relationships,andotherresourcescouldpotentiallyoperatesolarmini=gridsprofitablyasan extensionintoaspaceadjacenttotheirexistingbusiness. ContractunderexistingIPP:InordertoeliminatetheneedtoobtaintheirownIPPlicense,a mini=gridoperatorcouldnegotiatedirectlywithanexistingipplicenseholdertoobtainthe rightstodistributeandsellpowerundertheexistinglicense.thiswouldrequirecreatinga financialincentiveforthelicenseholdertoenterapartnership. BuyexistingIPPlicense:ItislegallypossibletobuyanexistingIPP slicensefromthem(i.e.a license transfer), however this would need to be approved by the EAC, and would be prohibitivelyexpensive. Threats) Gridexpansion:Uncertaintyoverthegovernment sgridexpansionplansmaydeterinvestors andcustomersalikefrompursuingsolarmini=grids.becausenetmeteringisnotavailable, oncethegridarrives, mini=gridswouldnotbeallowedtosellexcessenergybackintothe grid.inthissituation,themini=gridscouldusetheirexistingtransmissioninfrastructureto distributeelectricity,however,thetariffwouldbedictatedbyeacregulation,andanysolar equipmentwouldlikelyberendereduseless.) Financial: On=going costs (staff, maintenance, payment collection) require predictable and stablecash=flowstode=risktheinvestment.inruralareas,customerswouldlargelybebop customerswithlimitedabilitytopay. 7. NEXT STEPS ForentrepreneurslookingtomoveintotheCambodiansolarPVspace,werecommendtakingthe followingsteps: 1. Update the assessment of Cambodia s macroeconomic, political, and electricity infrastructureconsiderationsasnecessary.inparticular,theentrepreneurshouldconsider factoryconstructioninandoutsideofthesezs,aswellasnewgridtariffsinareasoffactory construction. 43 2. Identify input suppliers, including possible savings through bulk purchases. Most high= quality, cost=competitive producers are currently in China, but domestic Cambodian and regionalproductioninaseanislikelytoexpandincomingyears. June 2015 USAID Private Financing Advisory Network-Asia Page 21 of 21 29

3. Duetotightandcomplexelectricityregulation,itisimportanttovalidatethelegalaspectsof anyproposedbusinessmodel. 4. Consider financing requirements, including any subsidies available for renewables from philanthropicorgovernmentsources. 5. Define contract templates and standard terms for both the power purchase and sales models. 6. Identify primary target clients and initiate contact with industry associations, such as the GarmentManufacturersAssociationofCambodia. 44 8. CONCLUSION Highgridtariffs,lowgridreliability,andhighsolarirradiationmakeCambodiaanattractivelocation for private investment into the solar PV market. Entrepreneurs who act quickly, before new hydropower generation and grid expansion lowers grid prices, can expect significant returns. In particular, the growth of industrial facilities and other large commercial buildings presents a significant opportunity for investments. These investments have the potential tobring a range of benefitsincludingprofitsfortheprojectdeveloper,lowerenergycostsforcustomers,andlessghg emissionsforsocietymorebroadlyduetofossilfueldisplacement. However, several factors pose significant risks to the feasibility and expected returns of the proposed investment, including uncertain grid expansion and tariffs, political risks, contract enforcement, among others. It is important to note that there are also other investment opportunitiesinrenewableenergyincambodiawhichmaybeworthinvestigating,suchasbiomass andhydropower.herewehavepresentedwhatweconsidertobethemostattractivemodelfora commerciallyviableinvestmentforsolarpvincambodia.furthermore,futurepolicychangesfrom the Cambodian government, in particular the removal of licensing requirements for electricity distributionsalesandallowingnetmetering,couldgreatlycatalyzethesolarpvmarket. June 2015 USAID Private Financing Advisory Network-Asia Page 22 of 22 29

The Business Case For: Solar PV in Cambodia 9. ANNEX AnnexI:PopulationDensityMap Source:WorldTradePress,retrievedfrom:http://www.bestcountryreports.com/Popula tion_map_cambodia.php) Annex2:MapofSpecialEconomicZonesinCambodia Source:OpenDevelopmentCambodia.http://www.opendevelopmentcambodia.net/ Annex3:SolarIrradiationMapofCambodia June 2015 USAID Private Financing Advisory Network-Asia Page 23 of 23 29

Source:TheSolarRoadmapforCambodia.PicoSolCambodia,June2011. June 2015 USAID Private Financing Advisory Network-Asia Page 24 of 24 29

Annex%4:%Map%of%Phnom%Penh%Special%Economic%Zone% Annex%5:%NPV%Sensitivity%(Single%&%Multi%System%Electricity%Sale)%for%Change%in%Cost%of%Equity%and%BoP%Grid%Tariff%% June 2015 USAID Private Financing Advisory Network-Asia Page 25 of 25 29

The Business Case For: Solar PV in Cambodia % % Annex%6:%NPV%Sensitivity%(Single%&%Multi%System%Electricity%Sale)%for%Changes%in%Cost%of%Equity%and%Discount%on%Solar%Tariff%to%Client%% June 2015 USAID Private Financing Advisory Network-Asia Page 26 of26 29

The Business Case For: Solar PV in Cambodia June 2015 USAID Private Financing Advisory Network-Asia Page 27 of27 29

1 "World"Bank."2015." World"Development"Indicators. "Accessed"April"19,"2015"at"data.worldbank.org/dataC catalog/worldcdevelopmentcindicators" 2 "CIA"World"Factbook." 3 "ADB."2015." Cambodia:"Economy. "Accessed"on"April"19,"2015"at" www.adb.org/countries/cambodia/economy,"christina"larson."2015." Cambodia s"wages"rise,"orders"don t. " Bloomberg."Accessed"on"April"19,"2015"at"www.bloomberg.com/news/articles/2015C02C05/garmentCindustryC cambodiacscwagescrisecorderscdonct,"megha"bahree."2014." Wage"Wars"Unravel"Stitches"Of"Cambodia's"$5B" Garment"Sector. "Forbes."Accessed"on"April"19,"2015"at" www.forbes.com/sites/meghabahree/2014/08/27/cambodiascgarmentcsectorciscgettingctorncbetweencpoorc laborcandcunyieldingcforeigncowners/" 4 "IFAD"Rural"Poverty"Portal." Rural"poverty"in"Cambodia. "Accessed"April"19,"2015"at" www.ruralpovertyportal.org/country/home/tags/cambodia" 5 "Council"for"the"Development"of"Cambodia."http://www.cambodiainvestment.gov.kh/investmentC scheme/limitationconcforeigncinvestment.html"" 6 "Guide"to"Doing"Business"in"Thailand"2015."LexMundi"WorldReady,"prepared"by"Tilleke"&"Gibbons."January" 2015."www.lexmundi.com/GuidestoDoingBusiness"" 7 "Council"for"the"Development"of"Cambodia."http://www.cambodiainvestment.gov.kh/investorsC information/foreigncexchange.html"" 8 "Council"for"the"Development"of"Cambodia."http://www.cambodiainvestment.gov.kh/investorsC information/foreigncexchange.html"" 9 "KPMG"Investing"in"Cambodia,"2012." 10 "World"Bank"(2015)."Ease"of"Doing"Business"Report." 11 "Cambodia"Article"IV"Consultation,"IMF"2013." 12 "Cambodia"Article"IV"Consultation,"IMF"2013." 13 "Corruption"Perceptions"Index"2014."Transparency"International."" 14 " Cambodia:"Corruption"concerns"amid"hopes"for"the"future. "Transparency"International."20"February"2014." http://www.transparency.org/news/feature/cambodia_corruption_concerns_amid_hopes_for_the_future"" 15" Quang"Cu"Tran."2013." ASEAN"Guideline"on"OffCgrid"Rural"Electrification"Approaches. "ASEAN"Centre"for" Energy." 16 "World"Bank."2013." World"Development"Indicators. "Accessed"on"April"19,"2015"at"data.worldbank.org/dataC catalog/worldcdevelopmentcindicators" 17 "World"Bank."2013." World"Development"Indicators. "Accessed"April"19,"2015,"at"data.worldbank.org/dataC catalog/worldcdevelopmentcindicators."cambodia"number"reflects"the"electrified"population"only,"the" countrywide"average"is"164"kwh"per"capita."" 18 "Electricite"du"Laos."www.edl.com.la" 19 "Vietnam"Electricity."www.evn.com.vn" 20 "Electricity"Generating"Authority"of"Thailand."www.egat.co.th" 21 "Electricity"Authority"of"Cambodia."www.eac.gov.kh" 22 "Zerriffi,"Hisham."2011.""Distributed"Rural"Electrification"in"Cambodia.""In"Rural"Electrification,"111C135." Netherlands:"Springer" 23 "Interviews"with"EDC"and"EAC"officials"and"tariff"schedules"published"at" www.eac.gov.kh/en/publication/report/" 24 "Authors "calculations"based"on"information"from"international"energy"agency" 25 "Interviews"with"public"and"private"stakeholders" 26 "We"expect"the"total"number"of"factories"in"the"country"by"2025"to"be"roughly"2,200,"15%"of"which"are" currently"operating,"60%"of"which"will"be"operating"by"2020,"and"100%"of"which"will"be"operating"by"2025."the" mean"base"load"demand"for"factories"in"the"phnom"penh"sez"is"179"kw,"so"we"have"assumed"a"mean" June 2015 USAID Private Financing Advisory Network-Asia Page 28 of 28 29

installation"capacity"of"165"kw."using"100%"market"penetration,"we"expect"roughly"$300,000c$350,000"in" present"value"revenue"for"2015"per"facility." 27 "Electricity"Authority"of"Cambodia."www.eac.gov.kh" 28 "Here"we"only"discuss"the"power"purchasing"agreement"variant"of"the"third"party"ownership"model."The" economics"and"benefits"and"drawbacks"of"the"leasing"variant"are"very"similar." 29 "This"type"of"transaction"represents"a"legal"grey"area."The"input"of"local"legal"experts"is"required"to"ensure" that"it"is"in"line"with"current"regulation."in"order"to"avoid"regulatory"delays,"this"model"could"also"be"structured" as"a"lease"agreement"as"part"of"which"the"customer"makes"a"monthly"lease"payment"that"is"determined"based" on"the"anticipated"system"output"and"grid"tariff"pricing."" 30 "List"of"Grid"Emission"Factors,"IGES,"2015." 31 "http://www.ambexpo.com/download/cambuild14cbrochureconlineversion.pdf" 32 "Garment"Manufacturers"Association"in"Cambodia,"2015"Bulletin."http://www.gmacC cambodia.org/bulletin/2015.pdf" 33 "Trade"Policy"Review:"Cambodia."World"Trade"Organization."3"November"2011." 34 "List"of"garment"factories"can"be"accessed"at:"http://www.sithi.org/temp.php?url=bhr/bhr_list.php&lg="" 35 "Estimation"provided"by"Chief"Operating"Officer"of"Phnom"Penh"Special"Economic"Zone,"January"2015." 36 " Cambodia s"special"economic"zones"attract"1.65"bln"usd"investment"since"inception. "Global"Times,"Xinhua." 2013C10C11."http://www.globaltimes.cn/content/817196.shtml"" 37 " Special"Economic"Zones. "Open"Development"Cambodia." http://www.opendevelopmentcambodia.net/briefing/specialceconomicczones/"" 38 "List"of"registered"SEZs"can"be"accessed"via"the"government"website"at:" http://www.cambodiainvestment.gov.kh/listcofcsez.html"" 39 "Report"on"Power"Sector"of"the"Kingdom"of"Cambodia."2014"Edition."Electricity"Authority"of"Cambodia." 40 "3.34"million"households"*"65%"electrification"rate"*"60%"usage"of"car"batteries""*"$400"C"$500"retail"price"of" SHS" 41 Another"way"to"demonstrate"this"is"to"compare"cost"per"kWh,"which"is"around"$0.66"for"SHS"(assuming" battery"life"of"3"years"and"system"life"of"5"years)"and"$1.6" "$2.40"for"an"equivalently"sized"battery" 42 "Cambodia"Population"Density"Map."Stock"Map"Agency,"World"Trade"Press." http://www.stockmapagency.com/population_map_cambodia_cccambc2007cpop.php" 43 "A"list"of"Special"Economic"Zones"can"be"found"at"http://www.cambodiainvestment.gov.kh/listCofCsez.html" and"a"list"of"garment"and"shoe"factories"at"http://www.sithi.org/temp.php?url=bhr/bhr_list.php&lg=" 44 "The"GMAC"can"be"contacted"at"www.gmacCcambodia.org" June 2015 USAID Private Financing Advisory Network-Asia Page 29 of 29