Posts Tagged ‘patient capital’

The Tanzanian Government has set some bold energy goals

Monday, November 15th, 2010

While speaking at the annual Energy Sector Review workshop in September in Dar es Salaam, Bashir Mrindoko, Energy and Petroleum Affairs commissioner in the Energy and Minerals Ministry, stated that “Up to 75 per cent of Tanzania’s population will have access to electricity by 2033 if there is greater innovation and financial investment in the sector… and revealed that a target of a yearly 100,000 new household connections has been set but the highest number of new connections achieved so far in one year is 60,000.” (http://www.ippmedia.com/frontend//index.php?l=21337)

This may sound hopeful for the 98% of rural Tanzanians that do not have access to the electricity grid, relying instead on a combination of biomass, candles, and kerosene for lighting but grid expansion to many of these communities has no chance of becoming feasible in the near future. With that in mind, Mrindoko also acknowledged that “renewable sources of energy may be more cost-effective and reliable options especially in rural areas”.

This statement exemplifies the government’s commitment to a new electrification policy. Now the challenge for Tanzania is how to put this policy into action. The past few months have seen the announcement of several new funding mechanisms intended to incentivize various stakeholders, mainly private business, to create new and innovative programs to help Tanzania achieve these goals.

One such fund was introduced by UK-Aid this week. REACT (Rural Energies and Adaptation to Climate Technologies) a new funding window from African Enterprise Challenge Fund, targets the private sector by offering to invest 250,000 to $1.5 million US in for -profit businesses providing low cost clean energy solutions for the rural poor. The only caveat being a dollar for dollar matching commitment, which is quite high for most small to medium sized entrepreneurs to meet. Therefore, it is difficult for them to see their business expand quickly enough to repay the ‘repayable grant’ in the required six year time frame. The fund does allow for investors and financial service providers such as E+CO to apply and channel the funds down the supply chain. Perhaps it may incentivize local Micro-Finance Companies to create a loan scheme specifically designed for acquiring energy technologies.

For smaller scale organizations which cannot meet REACT’s required matching commitment but whose programs need supplemental funding, the Governments of Austria and Finland have teamed up to launch the second round of the Energy & Environment Partnership Programme (‘EEP’). EEP aims to increase access to sustainable energy services derived from renewable energy sources with special attention given to solutions for rural areas. Encouraging partnerships at all levels, EEP’s approach will grant up to 200,000 Euros to private, public, and non-governmental organizations, universities and other researchers. These partners may be international or locally based but working together to develop programs that will be rolled out in East Africa.

Also announced last week was the Swedish Government allotment of 44 Billion Tshs ($29M US) over five years to the Government of Tanzania’s Rural Energy Agency to improve electricity access to the rural population. That is in addition to the existing funding available from the REA’s Rural Energy Fund earmarked for independent projects which either will expand generation capacity or deliver off grid electricity solutions.

These funds bring promise, though Bashir Mrindoko also added that “…100,000 new connections per annum would mean only 21 per cent electrification by 2030…achieving the 2033 goal would require an annual 485,000 connections from this year.” Also, he indicated that “reaching that target would call for an injection of an estimated US$20 billion”. This is a much bigger commitment than these funds alone can achieve but that is the point. The fund’s purpose is to invest in a variety of simultaneous multiple actions, each one designed to scale up as the business and program grows.

The technologies are here. The last few decades have seen a mixture of generation methods introduced, from small hydro power generation, to solar and wind, to LPG, biomass gasification, and cogeneration. As for the many entrepreneurs with innovative business ideas which need a decent infusion of capital to take it to the next step, the investors are starting to step up and make funds available so targets may be achieved.

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A new way to think about aid

Monday, October 19th, 2009

Somewhere in between ‘dead aid’ and no strings attached hand outs lies ‘patient capital’ a solution that compliments both sides of the aid debate.  Jacqueline Novogratz presents an argument for involving the people of the communities who themselves want to be responsible for driving change in their own lives.

http://www.ted.com/talks/jacqueline_novogratz_a_third_way_to_think_about_aid.html

Based on market economics, ‘patient capital’ encourages innovation and entrepreneurialism in local communities, and involves a high risk tolerance and long term vision on the part of the funders. But most importantly, ‘patient capital’ encourages a partnership between the donors and the recipients where the recipients’ needs drive the funding model. The results are high social impact, and the shift towards the change we all want to see.

e4e’s business model incorporates some of Ms Novogratz’s ideas, with an overall vision to increase local capacity to help empower people and communities to improve their own lives by providing access to energy.

What are your thoughts on the aid debate? Are there holes in the ‘patient capital’ model, are we cranking out too much aid to developing countries? Is there a better approach?

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