Mobilizing Private Finance – The Success

of RE Projects in Bangladesh

S M Monirul Islam

Infrastructure Development Company Limited

Beirut, Lebanon, 18 April 2016

Brief Introduction to IDCOL

A fully Government owned financial institution

Started operation in 1997

Mission: to catalyze private sector participation in infrastructure, renewable energy, and energy efficient projects

Largest financier in private sector infrastructure projects

Market leader in renewable energy sector

Has access to financial resources of the government and multiple development partners, i.e. the World Bank, ADB, IDB, KfW, GIZ, GEF, GPOBA (SIDA & DFID), USAID, DFID, JICA and SNV

What We Offer

Infrastructure

Sector

Long-term local and foreign currency loans

Debt and equity arrangement

Corporate and financial advisory services

Concessionary financing and grant supports

Technical assistance and quality assurance

Capacity development of stakeholders

Arranger of Carbon Credits

Project Finance

Financial Modeling

Renewable Energy

Renewable Energy &

Energy Efficiency

Initiatives

Training

Programs

75% of the population has access to electricity where RE covers about 12% of population.

Generation capacity from RE is approx. 405 MW which is 3% of country’s total generation capacity (14,000 MW).

Electrification rate in rural areas is 43% only (2011) where 80% people live.

Rural remote areas are targeted for RE expansion where electrification through conventional energy is challenging and costly.

Present Renewable Energy Status

Government has a vision to make electricity available for all by 2021.

Government also intends to ensure 10% generation from RE by 2030.

SREDA was formed to coordinate and support RE and EE activities of government and non-government agencies.

Government launched 500 MW Solar Program which consists of the following:

• Commercial projects (340 MW): solar irrigation, mini-grid, solar park, rooftop solar etc.

• Social sector project (160 MW): solar electrification in health centers, education institutions, union e-centers, remote railway stations, government establishments, religious establishments etc.

Government’s Vision on Renewable Energy

IDCOL RE Initiatives

IDCOL Solar Home System (SHS) Program

IDCOL Domestic Biogas Program

Improved Cook Stoves (ICS) Program

Other Renewable Energy Projects

Solar Irrigation Pumps (SIP)

Solar Mini-grid Project

Biogas Based Power Plant

What is a Solar Home System (SHS)?

Capacity Appliances Operation

20Wp 3 W LED Lamp: 2

Mobile Charger: 1 4-5 hours

50Wp

3 W LED Lamp: 5

LED Color TV: 1

Mobile Charger: 1

4-5 hours

85Wp

3 W LED Lamp: 7

LED Color TV: 1

Mobile Charger: 1

12 W DC Table Fan:

1

4-5 hours

• Lead Acid Battery

• DC-DC Converter to run color

television, fan etc.

IDCOL SHS Program – at a Glance

Program Target : 6 million SHS by 2020

Program Achievement : 3.95 million SHS by Feb’2016

Number of Beneficiaries : 18 million people (11% population)

Power Generation : About 145 MW

Fossil Fuel Saving : 242,000 ton/year

Job Creation : 75,000 people

IDCOL Investment : Over USD 625 million

SHS Installation Status

-

100,000

200,000

300,000

400,000

500,000

600,000

700,000

800,000

900,000

2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016(up to

Feb'16)

11,697 20,635 27,579

37,151 69,562

103,301 169,916

324,775

469,572

643,812

852,388

724,615

450,284

34,865

Year-wise installation

Program Structure: Result based Financing

Supply Equipment

Pay for Equipment

Seek grant & loan for outputs

Provide grant & loan on verification

IDCOL

Monitoring/

Evaluation/

Training

Technical Standards Committee

Suppliers Seek approval

Provide approval

Household

Sell SHS & provide service

Pay down-payment & installment

Operations Committee

NGO/PO PO Selection Committee

Select POs

Apply

GoB/Donors

Grant & soft

term credit

PO = Participating Organization; GoB = Government of Bangladesh

Quality Control Mechanisms

• Physical inspection by technical inspectors of IDCOL

• Verification of collection efficiency by collection efficiency inspectors

• Independent technical and financial audit

Physical inspection

• Training for trainers

• PO Staff / customer training

• Supplier consultation

Training Programs

Call Centre

IDCOL

PO Household

Informs PO Lodges complaint

Takes remedial measure

Fund Flow and Role of Partners

Multilateral Agencies

• Provides grant and soft loans

• Provides technical assistance needed

GoB

IDCOL

• Provides grants to reduce SHS cost and for capacity building

• Provides soft loans

• Provides training, promo support

• Monitors and evaluates implementation

PO

• Identify potential customers

• Installs SHS

• Extends micro-credit

• Provides after sales services

Household

Debt Service Debt Service Debt Service Debt Service

• Provides

grant and

soft loan to

IDCOL

• Provides

policy

support

• Maintain

system

• Repay loan

in monthly

installments

Mode of SHS Financing: an Example

(a) Market Price of 20 Wp SHS USD 138

(b) Buy-down Grant (Grant A) USD 20

(c) System Price for Household [(b)-(a)] USD 118

(d) Down Payment from Household to PO [15% of (c)] USD17.7

(e) Loan Payable from Household to PO [(c)-(d)] USD 100.3

Loan Tenor 3 years

Interest Rate 16% p.a.

Monthly Installment Amount USD 4.4

(f) IDCOL Refinance [70%~80% of (e)] USD 70~80

Loan Tenor 5~7 years

Interest Rate 6~9% p.a.

A Sustainable Financing Structure

Phased-out Subsidy:

2003 2004~5 2006~7 2008~9 2010~11 2012 2013~18

Capital Buy down

Grant $70 $55 $40 $40 $25 $25 $20*

Institutional

Development Grant $20 $15 $10 $5 $3 $3~$0 $0

Concessionary to Semi-Commercial Credit:

2003~8 2009 2010 2011 2012 2013 2013~18

Loan Tenor 10 yrs 6-10 yrs 6-8 yrs 6-8 yrs 5-7 yrs 5-7 yrs 5-7 yrs

Interest Rate 6% 6%-8% 6%-8% 6%-8% 6%-9% 6%-9% 6%-9%

% of Loan

Refinanced 80% 80% 80% 80% 70%-80% 70%-80% 70%-80%

*for small SHS (30 wp and below) only

Equipment Suppliers

Equipment Number of

Suppliers

Product

Warranty

Solar Panel (8 local) 96 20 years

Battery (16 local) 17 5 years

Charge Controller (44 local) 53 3 years

CFL Lamp (22 local) 26 1 year

LED Lamp (77 local) 80 3 years

DC-DC converter (all local) 7 3 years

Battery Recycling

Battery recycling policy was adopted in 2006.

Customers will receive 24% of new battery price as salvage value of warranty

expired batteries.

IDCOL inspected 75,172 warranty expired batteries since Nov’12.

91% of these batteries are functioning well, 5% has been replaced by PO.

POs are collecting old batteries while selling new batteries.

IDCOL provides USD 5 each to PO and battery recycler for collection and

recycling of battery.

POs receive up to USD 100 as refinance for selling of each new battery

There are 4 ISO certified battery recyclers in Bangladesh

Clean Development Mechanism

Fund

IDCOL signed agreement with the World Bank, the trustee of Community

Development Carbon Fund for SHS program.

393,203 Certified Emission Reductions (CER) generated from IDCOL SHS

program has been contracted to the Fund.

Selling rate is EUR 9 per CER.

UNFCCC have issued 230,855 CERs for IDCOL SHS Program for reporting year

July 1, 2012 to April 30, 2014.

CDM benefits will be passed through to the POs. IDCOL will retain 25% as

administration cost.

Mobilization of Investment in million USD

Source Allocation Disbursed till Aug 2015

Balance Credit Grant Total Credit Grant Total

IDA/GoB 420 9.8 429.8 363 9.8 372.8 57

ADB 88 2 90 78 2 80 10

IDB 15 - 15 15 - 15 -

JICA 90 - 90 90 - 90 -

Reflows (IDCOL) 134 - 134 - - - 134

GEF - 7 7 - 7 7 -

KfW - 19 19 - 19 19 -

GIZ - 14.6 14.6 - 14.6 14.6 -

GPOBA (DFID & SIDA) - 12.8 12.8 - 12.8 12.8 -

USAID - 3.4 3.4 - 2.3 2.3 1.1

DFID - 23.8 23.8 - 12 12 11.8

GPOBA (DFID) - 4.8 4.8 - - - 4.8

TOTAL 747 97.2 844.2 546 79.5 625.5 218.7

Timeline Project Cost IDCOL Financing Private Capital No. of SHS

Till Aug’2015 997 625 372 3.95 million

Sources of IDCOL financing:

IDCOL Domestic Biogas and ICS Programs

• Started in 2006 • 39,300 plants have been

constructed till Aug’2015 • Recently, registered as CDM

project under UNFCCC

Program Brief:

• To establish a sustainable and commercial biogas sector in Bangladesh

• To promote agricultural value of bio-slurry

Program Objective:

• To finance 100,000 Biogas Plants by 2018

Program Target:

• Started in 2014

• More than 100,000 ICSs have been installed till Aug’2015

• To increase energy efficiency while reducing exposure to indoor air pollution

• To strengthen supply of acceptable stoves

• To establish supply chain of alternative fuels

• To establish a strong base for achieving 100% clean cooking solutions by 2030

• To disseminate 1 million stoves by 2018

Biogas ICS

Challenges & Mitigations

Challenges Mitigation

Lack of awareness − Promotional campaigns

− Training programs

Untested

business model

− Social enterprise model with an ultimate goal of commercialization

− Presence of multiple POs ensures healthy competition

− Phased reduction nature of grant

Lack of

institutional capacity

− Institutional development grant / Long-term concessionary credit

− Staff training program

High cost of

SHS equipment

− Capital buy-down grant / Concessionary credit facility

− Local support industry development

Lack of

quality assurance

− Technical standard committee

− Quality control mechanisms by IDCOL

Lack of

fiscal support

− Tax holiday

− Duty free import

Success Factors

Innovative financing structure - results based financing

Financial contribution of all parties – Ownership model

Sustainable business model – phased out subsidy scheme toward commercialization

Cost-efficient standardized technical design

Quality control, after sales service and strong monitoring

Development of local support industries

Bangladesh’s micro-finance experience

Support from the Government and multiple development partners

Irrigation Scenario and IDCOL Solar Irrigation

Projects (SIP)

Irrigation pumps run by electricity

• Total : 0.27 million pumps

• Area coverage : 1.7 million hectares of land

• Electricity Consumption : 1500 MW

Irrigation pumps run by diesel

• Total : 1.34 million pumps (DTW – 3000, STW – 1.2 mil., LLP – 0.14 mil)

• Area coverage : 3.4 million hectares of land

• Fuel Consumption : 1 million tons diesel/yr worth USD 900 mil.

• GoB Subsidy : USD 280 million

SIP Target : 50,000 by 2025

• Pilot : 1,500 up to 2018

• Next : 48,500 within 2019-2025

SIP Program Structure

TSC

Supply equipment

Pay for equipment

IDCOL

Suppliers

Farmers

Sell water Pay irrigation charges

Sponsor

GoB/Development

Partners

Grant & soft

term credit

Approve equipment

Seek equipment approval

Seek grant & loan on completion

Provide grant & loan on verification

Monitoring/

Evaluation/

Training

SIP Financing Structure

Particulars (%)

Equity 15%

Debt 35%

Grant 50%

Total 100%

Facility Interest rate Tenor Grace

Term loan 6% p.a. 8 years 9 months

Financing structure: Financing terms:

Particulars Description

PV capacity 11.0 kWp

Flow rate 800,000 liter/day

Total head 14.0 m

Major equipment Pump and PV panel

Project cost USD 32,000

Grant USD 16,000

Land coverage Boro :5~6 hectares; Others: 19 hectares

Irrigation charges USD 296/hectares for paddy (Boro)

Features and cost of a typical SIP:

Overview of Solar Mini-grid Projects

Area Selection

• Isolated off-grid areas

• Concentration of customers

• Willingness and ability to pay

• Consult with Power Division on possibility of grid extension in next 5-10 yrs Target : Install 50 solar mini-grid by 2018

Progress : 4 in operation, 3 under construction, 16 approved, 17 in pipeline

Project cost : USD 810,000 (for a typical 150 kWp project)

Financing structure : Equity, Loan and Grant: 20%: 30%:50%

Financing terms : Interest rate: 6% p.a.; tenor: 10 yrs; grace period: 2 years

Funding sources : Grant: KfW, DFID, GPOBA, USAID, ADB

: Credit: IDA, JICA

Overview of Biogas based Electricity Projects

Area Selection :

• Poultry or dairy firms

• Grid and/or off-grid areas

• May only be used for captive consumption

Target : Install 130 plants by 2018.

Progress : 5 in operation, 4 under construction, 10 in pipeline

Project cost : USD 460,000 (for a typical 300m3 plant)

Financing structure : Equity: Loan : 20%: 80%

Grant: 20% up to 100 kW plant capacity

Financing terms : Interest rate: 6% p.a.; tenor: 8 years; grace period: 1 year

Funding sources : Grant: KfW, GPOBA, USAID

: Loan: IDA, JICA

Solar Mini-grid, SIP and Biogas base power -

Challenges & Mitigation

Challenges Mitigation

High upfront

cost

• Local capacity for manufacturing of pump components

• Development of more suppliers to increase competition

Funding constraints

for upfront investment -

RBFA

• Disbursement of loan in stages based on milestones (grant after

verification of outputs)

• Introduction of ‘ownership model’ to distribute the burden of

upfront investment (individual/community)

Collateral requirement

on top of investment

• Limited recourse financing based on assessment of sponsors’

capacity

• Strong monitoring on operation and cash-flow

• Development of a guarantee fund

Long installation

timeline

• Efficient inventory management

• Capacity development of suppliers/POs

Revenue

collection

• Ownership model

• Community approach

• Pre-paid system, if applicable

Thank you very much

Solar Home System

Domestic Biogas

ICS

Solar Irrigation

Solar Mini-grid

Biomass based power plant

جزيالشكرا

www.idcol.org