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TRANSCRIPT
E+CoFinancing and Investing in RE Small and
Growing Businesses in Africa
AEI Workshop, Maputo, 9-12 June 2009
E+Co
Kofi Nketsia-Tabiri, E+Co Africa
www.EandCo.net
Agenda
1. E+Co Introduction
2. RE Small and Growing Business
Landscape
3. Clean Energy Early Stage and Growth
Finance
4. E+Co’s Results
E+Co
Public Purpose Investment Company
• Services and Capital
• 213 local energy enterprises*
• ~$ 35 million invested
• ~$ 50 m under management
• 5.6 million people served
• 4.0 m tons of CO2 displaced
p.a
• 10 offices: Africa, Asia, Latin
America, Europe and USA
* Results as of December 2008
E+Co Africa
• Services and Capital
• 54 Clean Energy Enterprises
• 1.2 million people new access to energy
• 1,256 new green jobs
• ~$12.5m invested
• 346,274 CO2 offset
E+Co Africa
• 3 Local Offices in South Africa, Ghana and Tanzania
• Active Investments in Sub Saharan Africa Countries
• Ghana, Senegal, Gambia, Mali, Tanzania, Uganda, Ethiopia, South Africa, Zambia, Cameroun
• Investment Professionals + 3 M&E professional and 2 support staff
• ~$10m Investments per annum
SGBs-Technololgy,Sectors and Business
Models
• Minihydro – Feasibility studies, project construction finance of up to 5MW
• Waste to Energy Biogas – Heat and Power up to 5MW industrial and Agricultural Waste
• Solar PV – Distribution, Installation and Maintenance
• Solar Thermal-Manufacturing, Distribution, Installation and Maintenance
• Energy Efficiency Technologies
• Cookstoves
Building the Solar PV Market
Market Segments:• Solar Home Systems
• Institutional Clients
• Niche Sectors
• Small-Scale Productive Use
E+Co targets(20 SGBs):
• Distributors
• Retailers
• Consumer Finance
Our Investments in Solar PV
Import and Distribution:
4 investees
(Dar-es-Salaam + Mwanza)
Contracting for institutional
clients (50-100Wp projects)
Retail:
5 investees
(Tanga, Moshi, Arusha,
Shinyanga, Kigoma, Mbeya,
and Ruvuma regions)
Developing Mini-Hydro Potential
Market Segments:• Inside the Fence Projects
• Grid Fed Projects
• Community based Projects
• Feasibility Studies
E+Co targets(2 Projects):• Private Companies
• Independent Power Producers
Developing Waste to Energy
Market Segments:• Inside the Fence
Projects
• Grid Fed Projects
• Feasibility Studies
E+Co targets(3 Projects):
• Private Companies
• Independent Power Producers
Wholesale
Imports, distributes, and serves
large institutional clients
Founded in 2000,
E+Co loan in 2005
now one of the biggest
distributors in Tanzania
Impacts:
• 1258 households served
• 664 tons of CO2 avoided
• Establishment of structured
distribution channel
Investing along the distribution chain
Retail
Focus on households in the
Ruvuma region
Founded in 2006;
E+Co loan in 2007/8
Distribution & Retail Building national retailer
network for small systems; also
pioneered credit sales schemes
with MFIs.
Impacts:
• ~ 10,000 households served
• 2716 ton of CO2 avoided
Ingredients for Financing Energy Enterprises
1. Suitable Policy Environment
2. Market Stimulation Interventions
3. Entrepreneurial Spirit and Capacity
4. Investor friendly economic climate
Investment Philosophy and Approach
• Increased Access through SGBs
• Pipeline development
• Due diligence process
• Structuring Terms and Conditions
• Implementation and Investment
• Monitoring and Evaluation
• Value based portfolio management
•Seek strong management teams
and operations
•Seek companies with high growth
potential
•High risk
•High returns
•Risk mitigation and returns
improvement through strategic
management guidance
•Graduation through exit by:
•Public offering
•Trade sale
•Management buyout
•Secondary refinancing
Private EquitySBG Finance
Approaches
•Seek strong entrepreneurs
•Seek companies with
sustainability and growth potential
•Lower risk
•Lower returns
•Risk mitigation and returns
improvement through Business
Development Assistance
•Graduation through exit by:
•Self liquidating term loans
•Self liquidating incentives
•Contracted equity sale
•Secondary refinancing
SGB development stages
1. Concept
2. Business planning
3. Raising finance
4. Establishment
5. Reach breakeven
6. Grow to stability
Assistance and finance needs of an Entrepreneur and a SGB
SGB development stages EDS needs
1. Concept
2. Business planning
3. Raising finance
4. Establishment
5. Reach breakeven
6. Grow to stability
• Assess acumen
• Asses viability
• Planning tools
• Guidance
• Research
• Sector knowledge
• Negotiations
• Networking
• Leadership
• Growth planning
• Id finance sources
• Present to financiers
• Negotiations
• Term sheet / offer letter
• CPs
• Legal implementation
• Achieve sales
• Achieve profit margin
• Cash flow
• Mngt accounting
• Ops management
• Set up operations
• Evaluate & modify plan
• Deal with unforeseen
Assistance and finance needs of an Entrepreneur and a SME
SME development stages EDS needs Finance needs
1. Concept
2. Business planning
3. Raising finance
4. Establishment
5. Reach breakeven
6. Grow to stability
• Assess acumen
• Asses viability
• Planning tools
• Guidance
• Research
• Sector knowledge
• Negotiations
• Networking
• Leadership
• Growth planning
• Id finance sources
• Present to financiers
• Negotiations
• Term sheet / offer letter
• CPs
• Legal implementation
• Achieve sales
• Achieve profit margin
• Cash flow
• Mngt accounting
• Ops management
• Set up operations
• Evaluate & modify plan
• Deal with unforeseen
• Review business plan
• Assess fin proposal
• Correct fin structure
• Approve finance facility
• Disbursement
• Credit control
• Service debt
• Service debt
• Exit facility
Assistance and finance needs of an Entrepreneur and a SME
Collateralised lending
• Extensively practiced by banks
• Match finance amount to available collateral
• Finance decision based mainly on collateral
• Volume driven
• Inflexible, lack understanding of entrepreneur’s needs
• Lack of resources to give assistance and do due diligence
Finance gap
• Collateralised lending emphasises the existence of the ‘finance gap’
the Growthfinance sector
• Deliberate choice to target this market segment
• Target market further defined:
• SME, committed entrepreneur
• Lack of required collateral
• Lack of required business track record
• $50 000 to $1m in finance
• This target market has a high risk profile
Change in basis of decision
• Lack of collateral and resultant high risk require a different basis for
finance decision
• Decision changes from collateral to viability
The enabling factor
What enables us to engage with this target market
and to assess the entrepreneur and viability?
Towards finance – via a business plan
• Most plans submitted are merely proposals
• Entrepreneur requires guidance as much as finance
• Requires a relationship focused on success
• Requires a clear understanding of the business’s needs
• Requires assistance to develop proposals into financeable
business plans
• This guidance, based on a strong relationship and clear
understanding, strengthened by active assistance, is Business
Development
Enterprise Development Assistance
• Enterprise Development will deliver :
• the guidance to execute proper business planning
• the tools to support the planning process
• agreement on key risks
• agreement on post-finance assistance required
• Enterprise Development further includes:
• regular contact and review of business performance
• annual business planning
• progress towards strategic and long term planning
Final (finance quality) business plan
• Will contain required detail based on business planning
• Will indicate exact finance requirement
• Will enable us to determine the most appropriate finance package
• Will identify key risks and formulate mitigation measures
• Will guide future business development and areas of assistance
Result of Enterprise development and business
plan
• Entrepreneur better prepared to manage business
• Quality due diligence investigation can be done
• Indicate entrepreneur commitment and credibility
• Reveals underlying viability
• Key risks identified
• Risk mitigation workplan agreed upon
• Fair risk-reward relationship can be established
$50,000
$1,000,000
$5,000,000+
Finance need
Microfinance
Growthfinance
Private equity
Sector
established industry
and capacity
new industry, few fund
managers, limited
capacity
established industry
and capacity
Status
Defining the Growthfinance market
Banks
Collateral
Track record
$1,000
100%
3 years
>100% <100%
>3 years <3 years
• Missing middle not between Microfinance and Banks
• More accurately, between Microfinance and Private equity
• This space is the Growthfinance sector
• Banks cover entire spectrum of finance need but finance decision is collateral based
• Growthfinance based on viability, collateral considered as part of
risk-reward relationship
• This is risk finance for SGBs
• Therefore the Growthfinance sector is not:
• competing with banks
• a lender of last resort
Defining the market
- Differentiation and market positioning
KEY ISSUES
• Limited Capacity
• Limited Funds (Services)
• Coordinated Resource Allocation
• Market Development Support
• Quality Assurance
• Policy
E+Co'sTriple Bottom Line Benefitscumulative results through June 30, 2008
Social
and
Economic
People with
Access to
Modern Energy
Services
People with
Access to Water
Improved Income Clean Energy
Enterprises
Invested
4,783,660 93,625 $ 11,204,679 213
Financial
Investment
Funds
Disbursed
E+Co's Portfolio
Return after
Write-offs
Capital Mobilized E+Co
Repayments to
Investors
$28,853,703 8,7% $ 131,207,308 $5,208, 225
Environ-
mental
CO2 Offsets by
Enterprises
(tons)
CO2 Offset for
Life of Project
(projected tons)
Firewood &
Charcoal
Displaced/tons
Barrels of Oil
Displaced
4,632,818 18,084,006 426,342 498,584
5.6 million people seved with clean energy
and counting ...
THANK YOU
Maputo AEI June 9-12 2009
Kofi Nketsia-Tabiri
E+Co Africa
www.EandCo.net