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Quadruple
Bottom Line Investing:
Alleviating Energy Poverty in Developing Countries
Social,
environmental, financial and cultural benefits of the small company approach
to alleviating energy poverty in developing countries.
by Christine Eibs Singer
In developing countries, poverty,
health, education and environmental degradation remain pressing issues.
Today, 2.4 billion people rely on traditional fuels for cooking and 1.6
billion people have no access to electricity. Eighty percent of
them live in rural areas of developing countries. The consequences
from development and environmental perspectives are staggering.
E+Co, a ten-year-old organization, has pioneered the Enterprise Centered
Model to provide crucial assistance and financing to small- and mid-sized
enterprises providing clean and affordable energy. E+Co has supported
more than 115 enterprises in 36 countries around the globe, investing
over $10 million. With experience in partnering with local agencies
to train entrepreneurs in putting together solid business plans, E+Co
makes available mission-driven seed money, while it assists the enterprise
in meeting lower-risk capital needs from conventional sources.
So far, the model has evidenced great success, with quadruple bottom line
results: As new enterprises succeed, they bring in capital themselves
and often serve as a model for other businesses. Villages and cities that
have never had electricity before are able to offer telecommunications,
and much-improved public health, education and other services. Local forests
are no longer cut down for firewood. Local people may be freed from
time-consuming tasks, such as hauling water. And having electrical power
means a whole new range of development possibilities open up, including
businesses that can operate at night. E+Co supported businesses
now serve nearly 2 million people. Loans are repaid, and investors are
overwhelming satisfied with the multi-bottom line returns.
E+Co's focus on accelerating development of small and medium enterprises
(SMEs) that provide clean energy is the outcome of realizing that for
the rural poor, large-scale energy solutions will never reach them, nor
have the desired impact on their development. Costs are too high
and cultural, environmental and developmental issues are not addressed
by traditional fossil fuel based centrally planned solutions. Their
experience supports the fact that modern energy (i.e., energy solutions
which offer improved services, environmental protection and economic development
opportunity) lies at the nexus of social, environmental and economic development
for the rural poor, and that delivering energy services through a business
that understands and serves the needs of the poor leads to positive, sustainable
development.
Moreover, E+Co's experience
supports the conclusion that the critical element in bringing energy to
those least likely to get it is not simply money. The critical element
is finding and investing in men and women entrepreneurs who want to make
their livelihood supplying clean energy to their neighbors and helping those
neighbors improve their lives and incomes--one enterprise at a time.
E+Co Investment Snapshot |
| E+Co provided
a start-up Honduran enterprise with assistance on business plan
preparation and next stage financing, eventually providing a $250,000
early stage loan in 2002 for the La Esperanza Hydroelectric Project,
a 12.8 MW renewable energy power plant in Honduras, leading to $10.7
million of financing from CABEI, BGA and FinnFund. La Esperanza is selling electricity to the Honduran State-owned utility ENEE through a long-term Power Purchase Agreement, supplying much needed power during peak hours when the country craves additional electricity, now mainly supplied by polluting, imported fossil fuels. Showcasing clean energy and direct social and environmental benefits, La Esperanza was instrumental in the planting of more than 18 hectares of new forests, providing employment to 40 local people, and supporting more than 120 people in indirect jobs and economic activity. It is estimated that 45,000-tons of greenhouse gases will be displaced annually through the production and purchase of this power. La Esperanza recently signed a letter of intent with the Community Development Carbon Fund for the sale of its carbon emission reductions. |
The E+Co Model
The Enterprise-Centered Model: Services + Seed Capital
E+Co provides enterprise development services and catalytic seed capital that allows entrepreneurs to take their early stage ideas and experiences and create a scalable, sustainable enterprise. E+Co's 10+ years of experience has demonstrated that it is the combination of these services that provides a basis upon which enterprises can grow to a point of delivering energy services on a sustainable basis and become "bankable" to latter stage investors.
Enterprise Development Services
Most of the energy entrepreneurs E+Co works with need a great deal of orientation to the demands and needs of customers, the understanding of market and marketing, the gathering of information and preparation of feasibility analyses, proposals and business plans, the development of contracts and collection mechanisms, the identification of financial and non-financial resources and the negotiation with credit providers, lenders and investors.
Enterprise development services involve the information, tools, consulting and direct assistance provided to entrepreneurs so that they can wisely use seed capital to build a sustainable business entity that can supply affordable, reliable and appropriate energy services to customers. E+Co provides these services through workshops, capacity building with local NGOs and direct engagement with entrepreneurs.
Seed Capital
Seed capital is the modest amount of capital needed to convert a good idea and a capable entrepreneur into a specific business transaction that brings customers and improved energy services together. To create a business that regularly buys, sells, installs, and services such units requires seed capital tens to hundreds of thousands of U.S. dollars. (in contrast to microloans, which are typically $20-$500).
E+Co derives low interest seed capital from a variety of sources, including program related investments and low interest loans from socially responsible investors, multilateral institutions and corporations. The interest rate on this seed capital is a critical element, in that normally early stage investments in SMEs in emerging markets are perceived as very risky and thus demand a higher rate of return from traditional investors. The SMEs cannot afford this high rate of return. Thus, E+Co thus fills a critical gap in the financing chain by providing mission-driven, patient and affordable financing.
E+Co fills the gap
While the amount of seed capital needed for these enterprises is typically modest, the lack of availability of such capital is what hinders the progress of many energy enterprises. This funding is not readily available in the market. The risks are perceived by the financial players as too high, including the technology is too new; the rural poor are a non-paying market; and the amount needed is often too small and thus transaction costs are too high. If the money can be found, the interest rates offered and guarantees required puts it out of reach of the energy entrepreneur. Thus, the role E+Co has played in the market: to fill a financing gap with reasonable and patient seed capital.
Small is Beautiful: The SME Approach
As exemplified above, Small and Medium sized Enterprises (SMEs) are small companies and small businesses. They have few employees and assets but they are anything but small in their ambitions. And it is these small companies that know and understand how to best serve their neighbors and customers.
For example, the husband-wife team of Arturo and Marta Rivera form the core of a small Guatemalan company that is bringing to market a set of run-of-river hydroelectric projects of more than 40,000 kilowatts. Thats enough clean energy to serve a thousand households. In South Africa, a company formed by two brothers, Marius and Jurie Willemse, and named Rural Area Power Solutions (RAPS) has been the driving force in organizing a program to electrify 50,000 households in Kwa Zulu Natal. In Thailand, a small business headed by David Donnelly, a transplanted American and ex-banker, has carved out a market niche to convert agricultural waste into biogas to displace millions of barrels of liquid fossil fuel.
While each of these companies is small (by definition) their impact on energy waste and energy poverty is substantial; they would never have had the opportunity to realize their dream if not for the services and early stage mission-driven capital which conventional financing sources and development programs tend to ignore that allow the small company to mature its high impact idea.
The examples of the Rivera's, the brothers Willemse and David Donnelly and dozens of others illustrate an approach to SME business development that is getting and needs more attention, an approach that on the one hand recognizes the potential of small businesses and, on the other, bridges the gaps that tend to keep small businesses from implementing initiatives with substantial and sustainable impact. No matter what the local setting, or the country's macro-economic circumstances, or the policy environment, these examples exemplify that the critical element is the entrepreneur: that man or woman who decides to make his or her living running a clean energy business.
Whether called SMEs or small businesses or small companies with big ambitions, these men and women -- these entrepreneurs properly prepared, represent a largely ignored and potentially potent weapon to successfully solve the enormous challenge of providing modern energy to the 2 billion who currently do not have the option today. We are only beginning to realize that these entrepreneurs, working with specialized intermediaries, represent the linchpin that can connect the objectives of socially responsible investors, governments, development institutions, policy-makers and large corporations with the hundreds of millions of citizen customers who will benefit from the elimination of energy waste and energy poverty.
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Christine Eibs Singer is co-Founder and Deputy Executive Director of E+Co. Contact her: eco@energyhouse.com
www.energyhouse.com
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