Mobilising Investment for NDC Implementation

Reflecting on Programme Learning and Key Takeaways in Bangladesh and Kenya

Funded by the International Climate Initiative (IKI)

Presenters

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Areej Riaz PwC, Toronto

John Thorne SSN, Cape Town

Edna Odhiambo SSN / CDKN, Nairobi

Alexia Kelly ECM, USA

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Today’s Session: Welcome and Introductions John Thorne: SouthSouthNorth, Cape Town Flagship Report – overview & key findings Alexia Kelly, LEDS GP, FWG Kenya – country case study John Thorne, SouthSouthNorth, Cape Town Edna Odhiambo, SouthSouthNorth, Nairobi Bangladesh – country case study Areej Riaz, PwC, Toronto

Q&A, Survey, Wrap up

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Mobilising Investment

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“Muchoftheambitionindevelopingcountries’NDCsisconditionalonreceivingfinancesupport”

NDCsareattheheartoftheParisAgreementTheyoutlinecountries’climateactionplans

“Financeflowsarenotsufficienttofunddevelopingcountry

NDCs.”

“Largescalerenewableenergyandlow-carbon

transportprojectsreceivethemajorityoftrackedclimatefinanceflows”

Giventheurgencyoftheclimatechallenge,howdoweaddressthis?

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Peru

Dominican Republic

Kenya

Ethiopia

Philippines

Vietnam

Bangladesh

This program focuses on seven highly vulnerable developing countries

At a high level we aim to do four things

AddressbarriersdevelopIncentives

Buildpipeline

Identifyopportunitiesforscalingup

Shareknowledge

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Scopingstudies

BaselineStudy

Detailedresearch&analysis

Capacitydevelopment

Investmentcases

Learning

Pipelinedevelopment

Our process and approach to this work…

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Our approach: •  Consult Government •  Respond to demand •  Build local capacity - •  Engage broader stakeholders •  Competitive procurement for discrete work packages •  Consult private sector players who understands the investment perspective

IdentifySector

Barriers regulations

opportunities stakeholders

Identify financing

opportunities

Prepare for investment

Go to market Share lessons

Country Overview: Sectors and Sub-Sectors

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Country Sector Sub-SectorKenya Energy CookingFuelreplacement:Promotingbioethanolforcookingbydisplacing

keroseneandcharcoalusingtechnologyandbusinessmodelinnovation

Ethiopia Energy Off-grid/Mini-grids:Supportingthedevelopmentofthemini-gridsector

Bangladesh Energy, transport

Off-grid/Mini-grid,SolarPumps&Watertransport:Developingbankablebusinessmodels&investmentcasesforsolarmini-grids,solarpumps&solarboats

Peru Waste - Energy

Wastemanagement&Waste-to-energy:Developingbusinessmodels&investmentcasesforlandfillgascapture&waste-to-energy.

Dominican Republic

Energy Energyefficiencyandrenewableenergy:Advancingcleanenergydeploymentthroughimprovedgridcodes,incentivestructuresandminimumperformancestandards

Vietnam Energy Renewableenergy:Revisingrooftopsolarregulations&incentivestospurmarketdevelopment(e.g.,thirdpartyPPAs,netmetering,feed-intariffs,andinterconnectionprocesses)

Philippines Energy Renewableenergy:Updatingrenewableenergypoliciesthatenablecorporatestoprocurerenewableenergydirectlyfromthegenerator,developingprojectswithprivatesector.

The Flagship Report

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Mobilizing Finance for NDC Implementation:

IKI MI Program Learnings and Key Takeaways

April 2020

Alexia Kelly - LEDS GP FWG & CEO, Electric Capital Management

John Thorne & Edna Odiambo - SouthSouthNorth

Areej Riaz - PWC Bangladesh

Welcome&Overview

JohnThorne

FlagshipReportOverviewandKeyFindings

AlexiaKelly

CountryCaseStudy:Kenya

JohnThorneEdnaOdhiambo

CountryCaseStudy:Bangladesh

AreejRiaz

Q&A,PostWebinarSurvey,Wrap-up

AlexiaKelly

Agenda

LEDS GP is a network of public and private practitioners and institutions delivering Low Emissions Development Strategies (LEDS) and Nationally Determined Contributions (NDCs) – locally, nationally and internationally. LEDS GP has growing membership including: •  118+ countries, 350+ institutions, thousands of individual

practitioners working in national or subnational governments

The LEDS GP Finance Working Group (FWG) supports developing countries in accelerating investment into low emission development through:

•  Peer learning & collaboration •  Targeted technical resources & support •  Innovative public private partnerships

Low Emissions Development Strategies Global Partnership

Learning Theme work stream: designed to support government decision – makers develop investment mobilization measures for key sectors

Learning Theme 1: Financing Distributed Low Carbon, Climate Resilient Energy Systems of the future in Africa and Asia Learning Theme 2: Clean Energy Demand Stimulation and Finance Across Asia and Latin America

IKI MI Learning Themes 1 & 2

Mobilizing Finance for Climate Action

Informed by the International Climate Initiative’s Mobilizing Private Investment Program

Spring 2020

ECM would like to gratefully acknowledge the contributions of the entire IKI MI team and the work of the implementing partner governments for their contributions and input into the development of this report and webinar.

Report Objectives & Methodology Objectives •  Support government decision makers and implementing partners to rapidly

identify and address key policy and regulatory challenges that are impeding finance flows

•  Lay the groundwork for developing and implementing a NDC financing mobilization strategy

Methodology •  Desk analysis of existing program outputs •  Country consultations, semi- and formal structured interviews •  Feedback on content by country teams and SouthSouthNorth •  Country program examples of the different approaches added to this

document where relevant

Key Emerging ThemesThe Opportunities •  Strengthened political resolve •  Many pathways to success •  Enhanced private sector interest •  Policy and regulation can move the needle

The Challenges •  Overarching capital markets constraints •  Taxes and tariffs •  Local financing institution education •  Private sector knowledge •  Lack of data and proof points •  Vested interests

Approaches to Developing a NDC Financing Strategy

Step1:PrioritizeSectors

•  Conduct a prioritization exercise of the eligible sectors

•  select sector(s) of focus •  Engage public and private partners •  This can be done through a top-down or

bottom-up approach

Bottom-up of Top-down?NDC Implementation Planning Process

Approaches to Developing a NDC Financing Strategy

Step2:MapKeyStake-holders

•  Develop a stakeholder map from the public, private, and financial sector

•  Assess both “winners” and ”losers”

Step 2: Landscape Assessment of Key Actors

Approaches to Developing a NDC Financing Strategy

Step3:IdentifyBarriers&Challenges

•  Conduct a real-time diagnostic of the key regulatory, policy, and capital / financial barriers in the market

•  Engage with the private sector and key

stakeholders identified in step 2

1.  Is the proposed solution more or less expensive than existing alternatives? If so, why? 2.  Are there prevailing cultural or social norms that could impede uptake of a new product

or business model? 3.  At a general level, who would this change benefit? 4.  Who stands to lose from this change? 5.  Which are the existing incumbent businesses and technologies that might benefit or be

harmed? 6.  Are there political winners and losers from this change? If so, who are they and how

might they be affected? 7.  Is this change alone sufficient to address the barriers identified or does it need to be

implemented in conjunction with other changes? 8.  Is there an ecosystem of private sector players in the sector who have the potential to

drive scale?

When conducting an analysis of a sector, ask these key questions:

Approaches to Developing a NDC Financing Strategy

Step4:Develop&Execute

InterventionStrategies

•  Identify and prioritize key interventions / strategies

•  Execute •  Troubleshoot as needed

CAPACITYBUILDING

Step 4 – Develop an Intervention Strategy & Execute

Capacity building through education and outreach to key sectors / businesses, trade associations, government ministries and officials, regulators, local financial institutions, etc.

Specific policy and regulatory reform measures to address gaps and barriers. POLICYCHANGE

PILOTING Piloting and business case testing for specific technologies, business models, and sectors.

FINANCING Development of specific vehicles or financing tools to address identified capital markets barriers (e.g., loan guarantee facilities)

Recommendations for Scaling Private Investment Into NDCs

Kenya: Promoting Bioethanol for Clean Cooking John Thorne & Edna Odhiambo - SouthSouthNorth Bangladesh: Promoting Off-grid Solar / Mini-grid, Solar Irrigation Pumps, and Solar Boats Areej Riaz - PWC

IKI MI Country Case Studies

Post Webinar Survey

Wrap-Up & Next StepsAlexia Kelly, alexia@electric.capital John Thorne, john@southsouthnorth.org Edna Odhiambo, edna@southsouthnorth.org Areej Riaz, areej.riaz@yahoo.com

Q & A from the Audience

Scaling up clean cooking in urban Kenya with Bio-ethanol

Webinar April 2020

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Annually dirty cooking fuels kill more people than malaria and TB combined due to indoor air pollution

Dirty fuels for cooking contributes to deforestation and climate change - accounting for about 2% of global CO2 emissions, equivalent to Canada’s emissions or from annual air travel

Traditional biomass used for cooking and heating by 2.8 bn people accounts for more than half of all bioenergy used worldwide. Cooking with traditional biomass has multiple negative impacts on human health, particularly for women, children and youth…. …overharvesting of wood fuel, contributes to land degradation, losses in biodiversity and reduced ecosystem services. ….accounts for 1.9–2.3% of global GHG emissions, particularly in ‘hotspots’ in East Africa and South Asia. Scenarios to significantly reduce reliance on traditional biomass in developing countries present multiple co-benefits. Most mitigation scenarios include substantial deployment of bioenergy….. all 1.5°C pathways include bioenergy, requiring as much as 7 Mkm2 to be dedicated to the production of energy crops in 2050….. IPCC-SpecialReportonClimateChange&Land,2019

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”

“

The urban Kenyan cooking fuel market is estimated at USD 600m – 800m per annum, & remains dominated by dirty fuels

ThemajorityofKenyanscurrentlypayingforcookingfuelsliveinurbanKenya•  Most fuel used in rural areas is gathered not

purchased(e.g.,84%ofhouseholdsusefirewoodastheirprimaryfuel)

•  In urban areas, over 80% of households arealready purchasing cooking fuel and are primetargetsformodernfueluse

Withinmodernfueloptions,Bio-ethanolandLPGarethemostfeasibletoday;Bio-ethanolistheleastunderstood•  LPGiswell-understood,alreadypromotedbythe

Gov,andenjoysstrongconsumerrecognition•  Bio-ethanol is relatively unexplored and has

achievedlowerpenetrationthusfar•  Electricitywill become increasingly important to

theoverall cookingmix; however, fornow,onlyhigher income consumers can afford theexpensivebutefficientelectricstoves

PrimaryCookingFuelUsedinKenyanHouseholdsin2017(%ofpopulation)

5584

15

22

14

29

28

16

313 252

Kenya Rural

92

Urban

Otherfuels

CharcoalKeroseneLPG

Firewood

InurbanKenya,themajoritystillusecharcoalandkerosene;thisnumberismuchhigherwhenfuel‘stacking’isincluded

PrimaryCookingFuelUsedinKenyanHouseholdsin2017(households,millions)

Firewood -5.7

1.4

Charcoal

-0.2

-0.2Kerosene

LPG

Electricity 0.0 0.1

1.1-0.6

1.5

0.8

Kenyanurbanhouseholdsarenowreadyforrapiduptakeofclean,modernfuels

UrbanRural

Continued dependence on dirty cooking fuels poses serious health, environmental, and food insecurity risks for Kenya

•  Indoor air pollution: 728k Disability-Adjusted Life Years (DALYs) and 16.6kdeaths annually, 8-10% of early deaths in Kenya1, likely a substantialunderestimate of the full disease burden as many negative cooking healtheffects have not yet been quantified (e.g., burns, eye diseases, physicalinjuriesfromcarryingfirewood,etc.)

•  Lower respiratory tract disease is the third largest contributor of deaths inKenyawhilepneumoniaisamajorcauseofdeathtochildrenundertheageoffive,largelyduetoindoorairpollution1

•  Deforestationandforestdegradation:Kenyaloses10.3millionm3ofwoodfromitsforestseveryyearfromunsustainablecharcoalandwoodfueluse,amajorcontributortothe0.3%peryeardeforestationrate2

•  GHG emissions: Household fuel use in Kenya contributes 22-35 milliontonnes of CO2 eq each year,which is equivalent to30-40%of total KenyaGHGemissions2

•  Food insecurity: deforestation, resulting from the use of dirty fuels,exacerbates food insecurity and harms the agriculture sector. Kenya's fiveforestwater towers feed filtered rainwater to rivers and lakes and provideover75percentofthecountry'srenewablesurfacewaterresources3

Impactofusingbiomassfuelforcooking

Health

Environment

Foodinsecurity

Most ethanol is produced from sugarcane. Cassava can also be used as a feedstock

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V2.0 innovations mean that Bio-ethanol can be delivered at scale to the customer at a price up to ~40% less than the V1.0 approach

Source: KOKO networks, expert interviews.

SupplychainmarginsforBio-ethanol(%oftotalcost)

SectionIII:P

oten

tialofB

io-ethan

olfo

rcoo

kinginKen

ya

0.35 0.35

0.56

0.070.07

0.08

0.10

0.20

0.29

0.21

V1.0

0.05

1.48

V2.0

0.85

-43%TaxesRetailDistributionMarketerBulkstorage&transportLandedsupplycost

Bio-ethanolV2.0costsaresignificantlylowerthanthoseofBio-ethanolV1.0

•  Leveragingexistingdownstreaminfrastructurecancutdownbulkstorageandtransportcostsby~90%

•  Technology-enableddistributioncanreducecombineddistributionandretailcostsby~45%

•  Asidefromlandedsupplycost,taxesdrivetheretailpriceofBio-ethanolV2.0

Granting industrial Bio-ethanol imports a VAT-zero rating and eliminating associated tariffs could reduce Bio-ethanol retail prices

from $0.85 /L to $0.64/L

The cost at which Bio-ethanol can be sold to customers is inflated by high import taxes and VAT, which drive ~25% of the retail price

TaxesonBio-ethanolarehighrelativetothoseonotherfuelsin

Kenya

TaxesonBio-ethanolarehighinKenyarelativetoinother

countries

FUEL Effective duty Effective VAT

Charcoal N/A N/A

LPG 0% 0%

Kerosene 9%1 0%

Denatured technical Bio-ethanol

25% 16%

KenyandutyandVATratesforcookingfuels:

DutyandtaxburdenonimporteddenaturedBio-ethanol;subsetof21SSAnations,reflectingduties+taxes,%

26

20

28

10

21

28

37

43

4349

Kenya 41

43

40

43

3939

2828

3035

28

ImporttariffVAT

Granting Bio-ethanol a VAT-zero rating and eliminating tariffs would make it the cheapest cooking fuel option for Kenyans

(1)  Averagefueldiettakenfromsurveydata;averagesizeofhouseholdinNairobiassumedtobe3.2(2)  Recentpricespikeincharcoalpricereach$0.5/kgandcontinuetorise;thisisduetoabanonillegalloggingintroducedbythegovernmentin

additiontotheexpectedupswingduringthewetseason(3)  AssumesV2.0modelandusingimportedBio-ethanolSource:Renetech2017;TERI2016;KenyainstituteforPublicPolicyResearchandAnalysis2010;KOKONetworksconsumerresearch;DalbergAnalysis

Averageannualfuelexpenditurebyfueltypetomeet3,500MJfueldietofatypicalNairobihousehold1,USD/year

$0.64/L$1.70/kg$0.82/L $0.79/L$0.40/kgPrice

Bio-ethanolaftertaxreduction

233

Kerosene

226228

LPG

176224

Charcoal

Bio-ethanolaftertaxreduction

Bio-ethanol

MinimumStoveEfficiencyMaxStoveEfficiency

AverageStoveEfficiency

Recentcharcoalpricespike2

A transition of all kerosene / charcoal users in Nairobi to Bio-ethanol could result in ~2mn tonnes GHGs, 200K DALYs, and 1,500 deaths averted p.a.

AfulltransitionofkeroseneandcharcoaluserstoBio-ethanolinNairobialonewouldhelptowardsachievingtheSustainableDevelopmentGoals

~200,000DALYsand1,500deathsaverted34overathree

yearinterventionperiod

timesavingsfromcollection,cooking,andcleaningwill

accruetowomen

USD60mninannualconsumersavings4

Reductionof2mntonnesofCO2eqemissions1

Thisrepresents2-3%ofKenya’sannualGHGemissionsand10%ofKenya’s2030GHGreduction

goal2

Bio-ethanol presents potential opportunities for strengthening the Kenyan economy

Taxrevenue

• Reducingcharcoalusecouldenhancefoodsecurity• ~90%of charcoal for cooking is harvested fromnon-renewable forests, driving food insecuritythroughnegativeimpactsonwatercyclesandlanddegradation

Tradebalance

Jobs

Foodsecurity

• DomesticBio-ethanolindustrywilldeliverbetter-paying,formaljobsalongtheBio-ethanolvaluechain,fromfarmerstodistributors

• Depending on business models adopted, an industry serving 500,000 customers could create40-70Knewjobs,generatingUSD17-35mninincrementalincomes

• Inthefuture,domesticallyproducedBio-ethanolcouldreplaceimportedkerosene,improvingthetradebalance

• With enough investment into domestic production, Kenya could one day be a regional netexporterofBio-ethanol(vs.importsfromSudan,Mauritius,andPakistan)

• DomesticBio-ethanolproductionhasthepotentialtoincreasestaxrevenuesinthelong-runasformal,incometax-payingjobsarecreatedinthedomesticBio-ethanolindustry

1

2

3

4

Next steps Expanding beyond Nairobi for urban clean cooking Project pipeline for domestic production of bioethanol

EthanolCookingFuel(ECF)Masterplan

CommissionedtoprovidearoadmapfortheestablishmentofanECFindustryinKenyaObjectiveto:•  Signaltoinvestorsinordertobuildconfidence•  ProvidesanevidencebasetoguidethedevelopmentofECFinfrastructureand

distributionsystems.•  RecommendpoliciesonhowtheGovernmentofKenyaandotherstakeholderscan

supporttheindustry.•  Providesscopeonthemacro-economicbenefits,jobsandforeigninvestment•  Potentialtodeliverontheobjectivesofkeynationalstrategiesifplannedand

implementedresponsibly

WhyaMasterplan?

Kenya’sBigFourAgenda(foodsecurity,affordablehousing,manufacturing,affordablehealthcareforall)Vision2030-aimstotransformKenyaintoanewlyindustrializing,middle-incomecountryprovidingahighqualityoflifetoallitscitizensby2030NationallyDeterminedContributionNationalClimateChangeActionPlan2018-2022(NCCAP)GlobalSustainableDevelopmentGoals.

Buildingasharedvisionforthesector

GovernmentMinistries:IndustrializationAgricultureEnergyEnvironmentCCDHealth

SouthSouthNorth

&Dalberg

Privatesector,NGOsKOKONetworksVivoGiraffeBioenergyClean Cooking Assoc Kwale Sugar, Muhoroni Kibos Sugar, Cassava Options GIZ, SNV, Practicl Action, Livelhoods, Praj

We convened two working groups

Key recommendations – demand & supply

Toboostdemand:•  Partnershipswithprivatesectoranddonor

communityforstovefinancing•  Awarenessraisinganddiscouraginguseofdirty

cookingfuels•  Taxandfiscalincentivesacrossthevaluechain•  VAT,ImportDuty,TaxRebates,Low-interestloansTosupportlocalproductionofECF:•  Creatingsupportivesmallholderfarmerecosystems•  Expandingfeedstockgrowingzones•  UnlockingclimatefinancetodevelopECFecosystem

NEXT STEPS

Official Government adoption of the Plan.

Conduct feasibility studies on setting up

ethanol plants

Create a working group to identify and resolve supply chain

challenges

Using social media to build awareness

https://www.youtube.com/watch?v=05adyqTUSd8

Copyright©2018,SouthSouthNorth.Allrightsreserved.

www.southsouthnorth.org

Thank you

Mobilising Investment for NDC Implementation in Bangladesh

Webinar: April 2020

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Bangladesh’s NDC ambitions

Bangladesh’s contribution to global climate action

•  Exceptionally vulnerable to the impacts of

climate change

•  Conditional commitment to reduce emissions

by 15% from BaU by 2030

Renewable energy opportunities

•  2020 target to increase the share of renewable

energy production up to 10% of the total

energy mix

•  To reduce costs of importing energy

•  Cost effective, pragmatic solution for

providing electricity to off-grid areas 2

3

Our approach in Bangladesh

Country scoping studies to identify priority sub-sectors. Energy is selected as target sector for reducing emissions

Business models and investment cases built for solar mini grids, solar irrigation pumps (SIPs) and solar boats and policy recommendations

Geospatial mapping tool developed to identify priority sites to roll out SIPs

Phase 1 Phase 2 Phase 3

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Sector selection approach and stakeholder engagement

Power

Industry

Transport

Off - Grid

On - Grid

Energy Efficiency

Electric Vehicles

Modal Shift

Solar Mini Grid

Irrigation Pumps

Solar boats

Phase 2 Interventions Sectors and progress to date: •  Off grid solar energy selected

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Project outputs

Mini Grids

Irrigation Pumps

Boats

Study of barriers to market development

Intl. examples of tech upscale

Business models with short term improvements

Investment cases for various stakeholders

Policy and regulatory recommendations to GoB

Phase 3 interventions: Mapping tool

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GISdatalayers

TechnicalViabilityofSIPs

EconomicViabilityofSIPs

Visuallayers,e.g.roadnetwork

Finaltool

Prioritysites

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BangladeshGISdata-modelandcalibration

Solarradiationintensity

Topography

Groundwaterdepth

Salinity

Arsenic

Agriculturalcropsandyields

Existingirrigationpumps

Populationdensity

ElectricityGrid

Nationalexperienceandprogrammes

SustainableandRenewableEnergyDevelopmentAuthority(SREDA)

InfrastructureDevelopmentCompanyLimited(IDCOL)

BangladeshAgriculturalDevelopmentCorporation(BADC)

Powerdivision

Privatesectorinvestorsandoperators

Engineering,agricultureandeconomicsliteratures

Internationalorganisations

Data collection

PwC

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Visualisation

SIP attractiveness rating

PwC

9

Visualisation

SIP attractiveness rating

PwC

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Visualisation

Future condition switches - crop

switch and irrigation prices on

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Impacts and benefits of our work

Investmentbarrier Howisthisaddressedbythiswork?

Low utilisation of SIPs outside of the main

BORO irrigation season

Increases understanding on utilising surplus

power outside of the BORO seasons

Mismatch between project cash flows and

debt service obligations

Opens up new revenue generating options

with predictable cash flows

Low uptake of SIPs by farmers Opening up sale of power back to the grid

increases the overall attractiveness of SIPs to

farmers

High investment and operation costs Opens up new revenue generating options

for SIPs

Key Outcomes

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Increased private sector awareness of investment opportunities and incentives in off-grid solar

Consensus from stakeholders on the recommendations given in the implementation road-map for an investment mobilization, as well as momentum for immediate action

Business models developed and interest for application registered for a broad pipeline of off-grid-solar energy projects

Opportunity for networking and information exchange for investors, policy makers, and financiers on investment opportunities and enabling environment

Replication of methodology in different contexts - work with PwC India and other teams globally

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§  Solar mini grids and irrigation pumps are mostly sourced through public sector budget or development

partners; funding and financed through government’s infrastructure company (IDCOL’s) grant-loan-equity

financing schemes

§  Limited private sector engagement on off grid solar energy sector because:

-  Lack of awareness of investment opportunity

-  Concerns regarding grid expansion

-  Low tariff structures offered by IDCOL

-  Seasonality of irrigation demand

-  Lack of regulations for sale of surplus power.

§  Solar boats is a nascent technology that needs multiple pilot demonstrations and technical design studies

before it can be deployed in market

§  Rate of returns can be improved by using sensitive and robust analysis as part of pre-investment decisions

§  Internal programmatic learning on frequency, consistency and type of engagement with key stakeholders

Learning

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Thank you