Existing Finance Models for

Improved & Clean Cookstoves &

Potential for Innovative Auction

Instruments

ECOWAS Sustainable Wood Energy Workshop

Cotonou, Benin 10 May 2016

AGENDA

1. Introduction & Key Considerations

2. Biomass Cookstoves Business Models

3. Examples of Existing Clean Cooking Funds

4. New Opportunities

5. Conclusions & Recommendations

1. INTRODUCTION & KEY

CONSIDERATIONS

Around 3 billion people cook and heat their homes

using open fires and leaky stoves burning biomass

(wood, animal dung and crop waste) and coal.

In ECOWAS almost

80% of the total energy

demand comes from

traditional biomass and

over 90% of the

population uses wood

and charcoal

Inefficient cookstoves are estimated to be

responsible for about 25 per cent of emissions of

black carbon, a short-lived climate pollutant.

Fuelwood, roots, agricultural

residues and animal dug all

produce high emissions of carbon

monoxide, methane, non-

methane hydrocarbons, nitrous

oxide and particulate matter.

Black carbon emissions are the

second most important

contributor to global climate

change, behind carbon dioxide.

Residential stove and fuel improvements and

switches offer the highest net benefits per cost

Because black carbon

remains in the atmosphere

for only a few days, reducing

black carbon emissions is an

effective near-term strategy

for slowing global warming

and avoiding some of the

most imminent climate

change tipping points,

alongside energy efficiency,

health and security benefits.

KEY CONSIDERATIONS Solid Fuel Cooking (1/2)

Health:

Broad range of health conditions associated with Indoor Air

Pollution

Burns suffered by women and children from traditional fuels

Chronic and acute diseases due to firewood and firewood

collection

Environment:

Black carbon emissions warming effects

GHG emissions due to the use of inefficient fuel production

and consumption

Forest degradation and deforestation due to fuel collection

KEY CONSIDERATIONS Solid Fuel Cooking (2/2)

Economic:

Loss opportunities for income generation from time spent on

fuel collection and time spent on cooking

Avoidable spending on fuel due to reliance on inefficient

fuels and stoves

Reduced access to education

Gender:

Disproportionate effect on women and children

Reduced leisure time

Gender-based violence during wood collection

The Climate and Clean Air Coalition

(CCAC)

is the only global forum whose mission is to

support the fight against SLCPs.

It is a partnership between states, international

organizations and NGOs.

110

PARTNERS 50 governments

16 IGOs

44 NGOs as of Dec 2015

CCAC INITIATIVES

7 sectoral and 4 cross-cutting

initiatives

HOUSEHOLD COOKING AND

DOMESTIC HEATING Household Energy Initiative

Reduce emissions of BC and other

SLCPs from use of solid fuels in

inefficient cook and heatstoves,

and provide cost-effective health,

environment, gender and

livelihoods benefits.

INITIATIVE COMPONENTS TO DATE Spark Fund grantees:

Two projects were selected for Spark funding

SimGas, East Africa (biogas)

SME Funds, Nigeria (ethanol gel)

Development of standards and testing protocols to provide

clear criteria for evaluating emission reductions of black

carbon, PM and other SLCPs

Creation of high-level advocacy and global education to

raise awareness

Upcoming: Field testing linking cooking performance with

public health and climate co-benefits

Upcoming: Market assessment to identify organizations

willing to pay for results related to the reduction of BC

LESSONS LEARNT

• Policy makers are looking for cost-effective solutions like clean

cookstoves that can deliver climate benefits with other health,

economic, environmental, and gender co-benefits;

• To ensure maximum climate benefits of clean cookstoves,

standards must include BC emission levels

• Clean cookstove entrepreneurs and enterprises are open to

reducing emissions of BC and SLCPs from their technologies

but need technical assistance and financing to do so

• Clean fuels are a critical piece of efforts to reduce emissions

from the household energy sector

• While climate is a driver for donors, economics and health

benefits motivate most consumers to buy cleaner and more

efficient stoves and fuels.

FINANCE INITIATIVE Financing Mitigation of SLCPs

Objective:

Bolster financial flows towards SLCP mitigation

Why?

Lack and fragmentation of financing is an obstacle to

implement scaled - up SLCP mitigation measures.

Activities:

Black Carbon Finance Study Group (led by the World Bank)

Finance Innovation Facility – FIF (led by UNEP-FI)

Pilot Auction Facility for Methane and Climate Change

Mitigation –

http://www.pilotauctionfacility.org/content/second-auction-

videos

FINANCE INITIATIVE Pilot Auction Facility

2. BIOMASS COOKSTOVES

BUSINESS MODELS

Subsidies play a very important role in developing

cookstoves markets – With a few exceptions, business

models use subsidies to reduce the cost of stoves to end-

users.

Role of carbon finance – for the most part, the subsidies

come from carbon finance

Given the recent downturn in carbon markets, businesses

and organisations (unless they have a direct private buyer)

put themselves at risk if carbon finance is the cornerstone

of their business model.

Source: Building Business Cases to Reach Scale: A Study on Biomass Cookstove Business Models in Asia and Africa (geres, GIZ, 2014)

OVERVIEW OF CLEAN AND

IMPROVED COOKING ECOSYSTEM

Source: The State of the Global Clean and Improved Cooking Sector (ESMAP, GACC, July 2015)

Government agencies/Programs

- Implement policies

- Manage subsidies/incentives

for stove distribution

- Support market

transformation

Donors:

- Support setting up market in

weak or non-existing

markets

- Support national level

change through focal points

NGOs:

- Support commercialization

and sustainability of market

- Provide support to market

players (training, education,

dissemination of coosktoves)

Fuel and stove suppliers

- Develop new designs

- Produce stoves

- Distribute stoves at regional

and country levels

Finance providers

(commercial banks, MFIs,

MDBs, impact investors):

- Develop innovative finance

models

- Finance project developers

Research & testing centers:

- Innovate new designs

- Execute lab and field

testing of stoves

- Conduct market studies,

M&E

Coordinating Platforms

- Coordinate diverse

actors for joint-advocacy

and resource

mobilisation

- Disseminate, aggregate

and provide knowledge

and standards

FINANCING NEEDS Manufacturers vs. consumers

Financing need ($) Purpose Challenges

Manufacturers &

fuels suppliers

250,000 – 10m Initial capital for R&D

and assets production

Working capital

Trade finance for

inputs

Substantial capital

required for scaling

up production

MSMEs = the

“missing gap” in

emerging economies

Distributors

25,000 – 2m Trade finance for

imports

Working capital for

growing distribution

network

Lack of collateral

High interest rates

Missing middle SMEs

Retailers 300 – 10,000 Working capital to

purchase stove for

sale or rental

Capital to extend

credit to end users

Few financial

institutions focus on

RE microfinance

Missing middle

MSMEs

Consumers 5 – 100 (up to $

1.5k for

biodigesters)

Upfront costs of

stove/biogas digester

Upfront costs are

often too high for

clean tech.

Source: The State of the Global

Clean and Improved Cooking

Sector (ESMAP, GACC, July 2015)

FINANCING GAPS Supply vs. demand side

Supply side: Capital investment & working capital

Key constraints: small size and informality of operations make

the investment seem too risky for commercial banks. The low-

profit nature of the business limits access to commercial capital.

Demand side: Lack of willingness to pay

Key constraints: Lack of awareness of health impacts &

access to finance

FINANCING SOLUTIONS FOR

SUPPLIERS – PARADIGM SHIFT

Early efforts mainly donor driven (ODA)

1990’s: For-profit initiatives succeeded in achieving

sustainability and disseminated clean technologies

while generating local economic value (triple bottom-

line)

EXAMPLES OF SUCCESSFUL BIOMASS

COOKSTOVES BUSINESS MODELS (1/2)

Atmosfair, Rwanda

The carbon revenues are used to reduce the price of the

Save80 stove for end-users. Furthermore carbon revenues

help to bring more stoves to refugees and to communities

adjoining the camps.

http://carbonfinanceforcookstoves.org/connect/profile/2014/

EXAMPLES OF SUCCESSFUL BIOMASS

COOKSTOVES BUSINESS MODELS (2/2)

ClimateCare, Gyapa stoves, Ghana

Carbon finance is used to support local business through

working capital support, marketing, business and technical

training and capital investment.

Largest social impact of any cookstove program in the

world. http://carbonfinanceforcookstoves.org/connect/profile/2324/

EXAMPLES OF INNOVATIVE BIOMASS

COOKSTOVES BUSINESS MODELS

Project SURYA, India

Technology enabled model with mobile payments to end-

users and embedded mobile control technology

Inyenyeri, Rwanda

Social enterprise which provides pellet stoves, cross-

subsidizing rural/urban customers.

3. EXAMPLES OF EXISTING

CLEAN COOKING FUNDS

Impact investors (ex. Acumen, Omidyar Network)

Commercial financial institutions (ex. Deutsche Bank)

Concessional finance (MDBs, bilateral development banks)

Credit guarantee schemes (ex. USAID)

Microfinance institutions (ex. FINCA)

EXAMPLES OF EXISTING CLEAN

COOKING FUNDS AND FACILITIES (1) Global Alliance for Clean Cookstoves Spark Fund

Spark grants of up to $500K target the specific capital and

capacity building needs of venture and growth stage

enterprises with less than $500,000 - $1 million in revenue

EXAMPLES OF EXISTING CLEAN

COOKING FUNDS AND FACILITIES (2) Deutsche Bank Clean Cooking Working Capital Fund

The fund will deploy working capital loans and loan

guarantees to enterprises that are not able to access more

traditional forms of debt financing.

This fund will make available 3–5 year flexible financing of

$100,000–400,000 with interest rates of less than 10

percent. The aim is to operate the facility for 7–10 years,

and to grow and adjust it over time based on the needs of

the sector as it continues to mature.

EXAMPLES OF EXISTING CLEAN

COOKING FUNDS AND FACILITIES (3)

BIX Fund

The Base of the Pyramid Exchange Fund (BIX Fund)

provides upfront finance to social enterprises looking

to deliver and monetize social and environmental

impact.

EXAMPLES OF EXISTING CLEAN

COOKING FUNDS AND FACILITIES (4)

USAID Loan Guarantee Facility

In November 2014, USAID and SIDA launched a

facility that will guarantee up to $100 million in

private financing to support the development of

household technology products – including

cookstoves, solar lanterns and water filters.

4. NEW OPPORTUNITIES

OPPORTUNITIES

1. NAMA – Sectorial strategies

Nationally Appropriate Mitigation Action

Interest for sector level activities

Certification, technical norms, etc

2. (I)NDC – Integration in national strategies

Intended Nationally Determined Contribution

Definition of national priorities and mitigation and

adaptation objectives

Some countries have cookstoves in their INDCs

OPPORTUNITIES (continued)

3. COP – Reinforcing carbon markets

COP20 Lima, COP21 Paris,COP22 Marrakesh

Paris agreement, soft but overall commitment, potential

markets, the importance of private enterprise

4. GCF – Mitigation and adaptation finance

Green Climate Fund

USD 100 billion / year

Interest in cookstoves, gender impact and RBF

Several cookstoves initiatives already under way

OPPORTUNITIES (continued)

5. Health RBF

Gold Standard Black Carbon methodology – reduction

potential

aDALYS methodology – PM 2.5 exposure

6. Global Alliance for Clean Cookstoves

Enterprise Development and Investment Programs

Women’s Empowerment Fund

GLOBAL ALLIANCE FOR CLEAN

COOKSTOVES

Spark Fund

Capacity Building

Facility

Catalytic Small

Grant Fund

Facility to scale

up Commercially

Viable

Enterprises

Pilot Innovation Fund, Women’s Empowerment Fund

Working Capital

Fund

5. CONCLUSIONS AND

RECOMMENDATIONS

RECOMMENDATIONS

Cookstoves business models vary according to the

type of initiative being implemented (NGO, private,

social business, …) – so do the investment needs!

Important to consider:

- business phase (start-up vs. scale-up)

- market readiness

- existing regulatory framework (ex. Rwanda)

- local socio-cultural context

CONCLUSIONS

Potential to replicate the PAF for clean cookstoves?

Thank you!

ccac_secretariat@unep.org

@CCACoalition | facebook.com/ccacoalition

www.ccacoalition.org

Yekbun Gurgoz

Finance and Cookstoves Initiative

Coordinator

yekbun.gurgoz.affiliate@unep.org